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Operator: Good morning, ladies and gentlemen, and welcome to the Lifetime Brands, Inc. fourth quarter 2025 earnings conference call. At this time, I would like to inform all participants that their lines will be in a listen-only mode. After the speakers' remarks, there will be a question-and-answer portion of the call. If you would like to ask a question during this time, please press star and 1 on your touch-tone telephone. Please also note today's event is being recorded. At this time, I would like to introduce our host for today's conference, Jamie Kirchen. Mr. Kirchen, you may go ahead. Jamie Kirchen: Good morning, and thank you for joining Lifetime Brands, Inc. fourth quarter 2025 earnings call. With us today from management are Rob Kay, Chief Executive Officer, and Laurence Winoker, Chief Financial Officer. Before we begin the call, I would like to remind you that our remarks this morning may contain forward-looking statements that relate to the future of the company, and these statements are intended to qualify for the safe harbor protection from liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance, and factors that could influence our results are highlighted in our earnings release. Other factors are contained in our filings with the Securities and Exchange Commission. Such statements are based upon information available to the company as of the date hereof, and are subject to change for future development. Except as required by law, the company does not undertake any obligation to update such statements. Our remarks this morning and in our earnings release also contain non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. Included in such release is a reconciliation of these non-GAAP financial measures with the comparable financial measures calculated in accordance with GAAP. With that introduction, I will now turn the call over to Rob Kay. Please go ahead, Rob. Rob Kay: Thank you, and good morning. A year ago, we entered 2025 knowing it would be a challenging year. What we did not fully anticipate was just how dynamic the external environment would become. The tariff escalations, retail customer disruption, consumers' reactions, and the operational demands were all significant. And yet, when I look at where we stand today, I am proud of how our team performed and where we finished the year. Let me walk you through the key dynamics that shaped both the fourth quarter and the full year and the decisions we made, including those that carried short-term costs, and why they were right for our business. Overall, what drove Lifetime Brands, Inc.'s 2025 performance was the macro environment largely shaped by U.S. tariff actions and the market's reaction to them. The biggest impact of this was the second quarter implementation of 145% tariffs on goods sourced from China following the Liberation Day tariffs implemented on many countries throughout the globe. This resulted in wide-scale disruption and in some cases cancellation of orders for our products, both by our customers and internally by Lifetime Brands, Inc., as the immediacy of the implementation would have resulted in selling products at a loss. As the year progressed, and some stability was introduced on tariff rates, Lifetime Brands, Inc. was a first mover in implementing price increases across all our channels to offset the tariff cost. While this initially hurt our volumes, as we were selling our products at a higher price than most of our competition, the market eventually caught up and pricing parity was restored. However, Lifetime Brands, Inc. benefited from enhanced profitability due to the price increases, which led to improved performance relative to the overall market and many of our peers. In particular, we note that bottom line results showed positive year-over-year growth by 2025. Contributing to this performance was our pricing strategy, a comprehensive cost efficiency and reduction program, and improved results in our international business. First, as we told you earlier in the year, the impact of the 145% tariffs on China-sourced product was significant. It negatively impacted shipments in the second quarter and flowed into disruption in the third. We specifically called out that some of that deferred volume would come back in 2025 with a fuller normalization expected in 2026. As you can see, we benefited in the current quarter with some resumption in shipment levels from missed second quarter shipments, particularly in tabletop and kitchenware. The most visible example is Costco, our largest year-over-year decline in any single customer through September. They pulled back sharply on tabletop programs as tariff uncertainty peaked. But as conditions stabilized, a portion of those programs shipped in the fourth quarter, and we performed very well with Costco in Q4. That recovery was a meaningful contributor to our strong finish. The second major factor driving performance was Lifetime Brands, Inc.'s decision to move first on pricing to offset tariff costs. We did not wait to see what the market would do. We built a detailed plan with each of our customers, communicating the rationale clearly, and implementing the increases. As I mentioned above, there were short-term consequences. In the third quarter, we were priced higher than the market, and that created some volume headwinds. A portion of our shelf performance suffered while competitors had not yet moved. But by the fourth quarter, the market had largely caught up. Pricing parity had returned across all our categories. And because we had been selling at higher prices earlier than most, we captured better margins during that window. If you look at our results, particularly the bottom line, you can see that clearly. We had a modest outperformance on the top line, but we significantly exceeded expectations on the bottom line. Our first mover pricing decision was a key contributor to that outcome. The third element of our Q4 performance was cost discipline. Variable costs naturally flex with volume, but we also took deliberate action on our cost structure throughout the year. We streamlined infrastructure, and SG&A came in at $38 million in Q4, down 12% versus the prior year quarter. That is a meaningful reduction, and it reflects real work done on the cost base. Combined, these three factors drove a strong quarter and finish to the year. The fourth quarter came in ahead of expectations, and I think the results speak to the strategy working. Revenue was modestly below prior year, which we anticipated, but margins expanded and the bottom line was strong. Laurence will take you through the detail in a moment. While the year was challenging due to tariffs, we took the decisive actions I have discussed to mitigate their effects. Given the circumstances, we performed well, as evidenced by our results. In the fourth quarter, adjusted income from operations was up over 30% from the prior year quarter and full-year adjusted EBITDA was over $50 million despite a 5% decline in net sales. We continue to experience positives from our investment in new product development. The DALL E brand grew to approximately $18 million for the year, an increase of over 150%, a great reflection on where the strategy is gaining traction. We are encouraged by the trajectory heading into 2026. Our International segment continued to demonstrate resilience. For the full year, International sales came in at $56.7 million, up 1.7% as reported. On a constant currency basis, International was down modestly at 17%. A solid result given the backdrop, particularly as we gained share in national accounts in light of a continued decline in independent shops, which historically have been the core of the European customer base. On Project CONCORD, our international restructuring initiative, we made continued progress throughout the year and the financial benefits are flowing through. That said, I want to be transparent. The final phase of CONCORD implementation was delayed modestly due to legal and structural constraints that took longer than anticipated to work through. We expect those to be fully resolved and implemented in the first half 2026. The direction here remains clear, and we remain committed to completing CONCORD and realizing the full benefits of the program. As announced early last year, we also took deliberate action on our distribution infrastructure, announcing the relocation of our East Coast distribution center to Hagerstown, Maryland. The facility will span approximately 1,000,000 square feet, adding 327,000 square feet of incremental capacity over our current New Jersey facility, which it will replace and is expected to commence operations in 2026. This move is consistent with how we approach the business, identifying where we can drive long-term efficiency and positioning Lifetime Brands, Inc.'s operations to support our multiyear growth initiatives while significantly containing Lifetime Brands, Inc.'s future distribution expenses. As we enter 2026, we do so with momentum, a leaner cost structure, and a clearer sense of where the opportunities are. On guidance, consistent with our historical cadence, we intend to provide detailed full-year 2026 guidance in conjunction with our first quarter results in mid-May. At that point, we will have a clearer line of sight into the year and can speak to it with the specificity you deserve. What I can tell you now is that recovering sustainable top line growth is the priority. We have done the work on the cost base and proven we can protect margins. Now the focus shifts to driving volume through our existing customer relationships, through the brands and product lines that are gaining traction, and through the pipeline of strategic activity that we continue to develop. Finally, I want to acknowledge that this type of year—navigating real disruption while delivering results that exceeded where we started—does not happen without an exceptional team. I am grateful for everyone at Lifetime Brands, Inc. who stayed focused, executed under pressure, and kept our commitments to customers and shareholders alike. With that, I will turn the call over to Laurence to review the financials in more detail. Laurence Winoker: Thanks, Rob. As we reported this morning, net income for 2025 was $18.2 million, or $0.83 per diluted share, compared to $8.9 million, or $0.41 per diluted share, in 2024. Adjusted net income was $23 million for the fourth quarter, or $1.05 per diluted share, as compared to $12 million, or $0.55 per diluted share, in 2024. Income from operations was $20 million for 2025 as compared to $15.5 million in 2024. And adjusted income from operations for the fourth quarter 2025 was $26.4 million compared to $20.2 million in 2024. Adjusted EBITDA for the full year 2025 was $50.8 million. Adjusted net income, adjusted income from operations, and adjusted EBITDA are non-GAAP measures, which are reconciled to our GAAP financial measures in the earnings release. The following comments are for 2025 and 2024, unless stated otherwise. Consolidated sales decreased 5.2% to $204.1 million. U.S. segment sales decreased 5.5% to $185.3 million. Sales were favorably impacted by the increase in selling prices to mitigate the impact of higher tariffs on foreign-sourced products. However, retailers' buying disruption and consumers' dampened spending reaction to the high tariff environment dampened demand in our industry. Within this segment, product line decreases were in kitchenware and home solutions, partially offset by an increase in tableware. International segment sales decreased 2.3% to $18.8 million, and excluding the impact of foreign exchange translation, the decrease was $1.4 million, or 6.8%. The decrease came from the U.K. e-commerce. Gross margin increased to 38.6% from 37.7%. U.S. segment gross margin increased to 38.8% from 37.6%. The improvement was driven by lower ocean freight rates, some favorable product mix, and the timing of inventory cost recognized under FIFO inventory accounting. These factors more than offset the adverse effects of tariffs in the current quarter. For International, gross margin decreased to 30.8% from 38.6%, driven by higher customer support spending in the current period. U.S. segment distribution expenses as a percent of goods shipped from its warehouses was 8.3% versus 9.1%. The decrease was attributable to improved labor management efficiencies largely resulting from the fully implemented new warehouse management system in our West Coast facility and the effect of higher tariff-induced selling prices without a commensurate increase in expenses. International segment distribution expenses as a percentage of goods shipped from its warehouses was 19.8% versus 18.1%. The increase is due to higher sales to prepaid freight customers and the expansion of sales into the Asia-Pacific region. Selling, general, and administrative expenses decreased by 12% to $38 million. U.S. segment expenses decreased by $3.2 million to $29.6 million. As a percentage of net sales, the expense decreased to 16% from 16.7%. The decrease was driven by lower employee expenses, including incentive compensation. International SG&A decreased $1.5 million to $3.1 million. As a percentage of net sales, the expense decreased to 16.7% versus 24.2% due to lower advertising expenses as well as foreign currency transaction gains. Unallocated corporate expense decreased $500,000 to $5.2 million due to lower employee expenses, also including incentive compensation, partially offset by higher professional fees. Interest expense decreased by $600,000 due to lower average borrowings and lower interest rates on our variable-rate debt. For income taxes, the benefit rate is primarily driven by the release of a valuation allowance against deferred tax assets reported in the second quarter. Looking at our debt and liquidity, our balance sheet continues to be strong, notwithstanding the higher working capital needs that resulted from tariffs. At year-end, our liquidity was $76.6 million, which includes cash, plus availability under our credit facility and receivable purchase agreement. And our adjusted EBITDA to net debt ratio at year-end was 2.9 times. Lastly, as Rob discussed, the relocation of our East Coast distribution center is expected to begin operating in the second quarter, and I will add that the costs of exiting the New Jersey facility and starting up the Maryland facility, including capital expenditures, are expected to be at or below our forecast. This concludes our prepared comments. Operator, please open the line for questions. Operator: Thank you. We will now begin to conduct our question-and-answer session. If you would like to ask a question, please press star and 1. A confirmation tone will indicate that your line is in the question queue. You may press star and 2 if you would like to remove your question from the queue. It may be necessary to pick up your handset before pressing the star keys to ensure the best sound quality. One moment while we poll for questions. Our first question today comes from Matt Caranda from Roth Capital. Please go ahead with your question. Matt Caranda: Hey, guys. Good morning. I know you do not typically give full-year official guidance until the first quarter, but I would like to hear a little bit more about building blocks for growth in 2026. I know you said you intend to grow in the year. Maybe you could just talk about some of the puts and takes around the price that you took in 2025 that sort of wraps into 2026, new product launches, existing growth with some of the successful lines like Dolly. I guess some of those are maybe a little bit offset by volume declines more recently, but just how do you think about those factors qualitatively as we kind of think about the forecast for 2026? And any commentary on seasonality this year would be appreciated as well. Rob Kay: I mean, from a seasonality perspective, we are expecting more of a normal seasonality. There were disruptions in 2025 that were tariff-oriented, which put a total curve on normal seasonality. So I think we do not expect it to not normalize in 2026. Some of the things you mentioned—pricing increases, which is kind of a one-time event—happened throughout 2025. So the impact of those will be fully felt because they were fully implemented in 2025. So you get the full impact of that in 2026, which, of course, the caveat is who knows what is going to happen. From a new product introduction, I know that we have been introducing a much greater amount of new product than a lot of competition just because times are tough and a lot of people are paring back. But a couple of areas we are seeing good traction. One, we talked about the Dolly brand. That is actually expanding beyond the dollar channel where we have firm commitments. And while we had tremendous growth in 2025, we expect that trajectory to continue in 2026. So we see some good growth there. Our food service initiative—that is a business where you have to build a book of business, and then it becomes a bit of an annuity for a period of time. And particularly, Mikasa Hospitality has gained a lot of traction. So, while a small base, we expect substantial increase in those revenues in 2026. The end market in 2025 for food service establishments was very challenged. You saw new store openings decline. You saw franchises and the like, store closings throughout a lot of multiunit. Unknown where that heads in 2026. The industry thinks it will go up, but nonetheless, we have gained market share and, not end-market driven, we will see some nice growth in that area in 2026. So those are some of the key drivers. Hopefully that gives you some perspective there. Matt Caranda: Yeah, that is helpful. Thanks, Rob. We wanted to also hear a little bit about what you are hearing from your large retail customers in terms of willingness to take on inventory. What does sell-through look like or POS data that you are seeing in kind of your key SKUs versus sell-in? And how are you thinking about that for 2026? Rob Kay: We have seen a pretty large divergence from channel to channel, with certain channels performing very strong from a POS perspective, and certain ones being weaker. We saw a continuing trend in the fourth quarter that we have seen over the last couple of years, that there has been an uptick in e-commerce. So the holiday season continued the trend that we saw in 2024 where a lot of consumers waited to make their purchases from historical purchase cycles because they knew they could get delivery rather quickly, and that helped e-commerce in the fourth quarter, therefore drove full-year performance. So that trend should continue. But there is high bifurcation. From the perspective of what you see from time to time, particularly with larger retailers, and we saw some of this in 2025, they pull back on safety stock issues. So there is a divergence between sell-in and sell-through. We saw some of that in 2025. We do not expect that to be a major impact in 2026. And part of that is some of the people that have done that have pared back a lot, and if they pared back more, they would harm their sell-through, their velocity, which is obviously not in their interest to do so. So we do not expect that to be a factor in 2026. Matt Caranda: Okay. Very helpful. And then maybe just one more if I could. The net leverage at the end of the year looks good, under 4x. I wanted to just hear how you guys are thinking about cash priorities this year. Obviously, you have a lot of organic growth initiatives in place. But then you have the European restructuring that is still maybe ongoing or maybe just recently implemented. How do you balance the organic investments that you need to make versus the M&A funnel versus buying back your stock? Just wanted to hear a little bit about sort of capital allocation decision-making for 2026. Rob Kay: So there is actually a lot of internal growth initiatives that we are pursuing, but they are not capital intensive, except for the DC, which we have already—there is not too much on the come for that. And we also will get the benefit of the $13 million of the government funding, mostly from Maryland. That will offset. So not really any issue and any constraints there, and plenty of availability. We have no intention to change anything on our dividend, our dividend policy. We will look to ultimately restructure our debt arrangements because at this point, in terms of life of that, we are not in the ability to buy back stock, so we are not using cash at this point to do that because we have agreements with our lenders in place. But we will ultimately restructure that and allow us to do so when we do that. And the M&A environment is the strongest I have seen in decades for strategic because, first of all, financials are investing. So our competition for a longest time has been financials at very, very high valuations. So valuations have been down. But a lot of businesses that are institutionally owned, there is something that needs a larger company or infrastructure help. To move product from a China-based system to a distributed geography, you need a lot of infrastructure to do that, both from a supply chain and quality. It takes a lot of effort and work. And with the fluctuations of moving it all over the place, a lot of smaller, less capitalized people are having troubles, let alone the systems and everything to deal with the constant pricing fluctuations as tariffs change and evolve. So that combination has made it very attractive. So we are seeing real deal flow at real valuations that we have not seen literally in decades. So we have some large opportunities we are looking at. You do not know if they will come through, but it is one of the things that we wrote off on a couple of things that we are working—not wrote off, but expensed in the fourth quarter—related to that. And we will see some highly accretive opportunities if we can execute. Matt Caranda: Okay. Sounds great. Appreciate all the detail, and I will turn it over. Operator: Next question comes from Brian McNamara from Canaccord Genuity. Please go ahead with your question. Brian McNamara: Hey. Good morning, guys. Thanks for taking the questions. So this is your best Q4 EBITDA margin that we can recall with sales down, even better than 2020 and 2021 when sales were up. So gross margins were nicely up, presumably from the benefit of tariff pricing. But I am curious what drove SG&A lower and how sustainable that is? Rob Kay: Yes, it is a great question, Brian. So it is sustainable. It is all a function of how fast we want to grow. And if we have opportunities and there is a good return on that, we can increase investment, which would increase your infrastructure and SG&A, but with a return. So in the current state of the business, with what we have on the plate, including the growth we intend for 2026, there is not a need for investing in SG&A. We will also see the further benefits one way or the other with our international operations, which will continue to benefit those line items. Laurence Winoker: Brian, let me just—Rob's going to give me something on his U.S. gross margins, the comment I made about the FIFO inventory. We had talked about how we were increasing our sales price to offset the tariff, which should have a negative effect on the gross margin percentage, neutral to dollars. But because we still have some pre-tariff inventory, we are seeing some benefit there. But that is not going to continue. As that rolls off, it will come back a bit. Rob Kay: Right. Just wanted to—sorry to belabor—but as you know, Brian, you have seen us for a little bit. In any given, particularly quarter reporting period, you are going to get margin fluctuations based upon mix—channel mix particularly, but also product. Brian McNamara: Understood. So next I am curious, which of your brands saw sales increases in 2025? Outside of Dolly, as overall sales decline for a fourth straight year, what gives you guys confidence that the top line inflects this year? Rob Kay: The main confidence that we see there is the disruptions that we saw in 2025. And again, in the fourth quarter, we got some rebound of things that did not ship from Q2 and Q3, but we will have a much more normalization in a lot of the core business in 2026 because some of that did not come back in 2025 and will in 2026. So that is going to be a natural driver for our business. We talked about Dolly will continue to grow. We are seeing good traction there. In cutlery, we have had a tremendous run for a few years, and a lot of that is new product implementation. Our Build to Board line went from nothing; it created a whole marketplace. The growth trajectory of that piece of cutlery will not continue from the trajectory of growth, but we established a new business, and we will maintain. And there are some other things in that line that we are introducing that, hopefully, will produce some good growth. There are some things we have not disclosed that are new that get us into a new space totally, or internal investment that hopefully will hit 2026. If not, it will hit 2027. But, unfortunately, I cannot disclose that at this moment, but there are some things that are total organic internal initiatives that are completely new that hopefully will drive some nice growth for us. Brian McNamara: Great. And then just on the brand growth for the year, any brands perform better than the company average? Rob Kay: Yeah. So, I mean, Taylor had a phenomenal year. Taylor is a great business. From the retailer to our customers' perspective, it is very attractive to them because what they track generally as a key metric, which is the velocity and the margins that they make, it is very profitable for them. It is very good, and it had a very good year across the board in 2025. Again, that trajectory will not continue in 2026, but we had a banner year, and that continues to do well. Farberware, across different things, very strong, and Farberware is our growth engine. KitchenAid, we lost some share a couple of years ago at Walmart. That has run through our numbers. We sold some of that that hit us in 2025, so that is actually the opportunities, and we relaunched the kitchen tool piece of that with a new line that is getting tremendous traction. And we also introduced just recently for 2026 a KitchenAid storage product, which we think is beautiful, but is getting, more importantly, acceptance in the marketplace. So that, not in 2025, but 2026 is looking pretty good—KitchenAid. Brian McNamara: Great. And you mentioned the Dolly brand—obviously sales up really nicely, up 150% for the year. How big is that now? And what is your expectation for sales growth contribution or shipments in 2026? Rob Kay: In 2024, we started that program. It was a small base. So part of that 150% was off a small base. We shipped $18 million in 2025. We will have substantial growth in 2026 as well. Brian McNamara: Got it. Okay. And then finally, obviously, topical given the war in Iran at the moment. Can you remind us how you are positioned on freight in terms of spot versus contract, your cost exposure to oil and resin, anything else we should be mindful of there? Rob Kay: There are so many questions—it may take an hour to answer. But a couple of things on that front. What we are seeing is container rates are starting to go up, and we will probably start to experience that. We have very attractive long-term contracting for freight. But the reality of what happens in very high escalating periods is the shippers start to ignore those, to be honest. So long-term contracts are a benefit, but sometimes there is only so much that you can benefit, and you will get some of it, but not all of it, in very high inflationary ocean freight environments. We do very little business in the Mideast. We will not get much disruption there. We will get no disruption. We actually have a lot of upside that may not come on some new business, but either way, it is not material. Our European business is in jeopardy of seeing some supply disruption because the shipments are coming in a different— it is going to be longer if they have to go around Africa and the like. But we think our inventory levels are not going to impact that. And from a cost of goods sold perspective, your plastics have resins. Resins are impacted by petroleum cost. We have not seen anything. We will see how that plays out. But if you look at it as a total percentage on a bill of material basis, it is not going to have a huge impact on it. Brian McNamara: Great. Very helpful. Thanks very much. I will pass it on. Operator: Our next question comes from Anthony Lebiedzinski from Sidoti & Company. Please go ahead with your question. Anthony Lebiedzinski: Certainly nice to see the better-than-expected results here in the fourth quarter. So it sounds overall like you guys should be able to maintain your SG&A cost. As far as your distribution costs, those also came down in the fourth quarter. How should we be thinking about that line item? And I have a couple of other questions as well. Laurence Winoker: On the distribution, as I noted, our West Coast facility is running very efficiently given the new warehouse management system—that is working quite well. And as I noted, as an expense as a percentage, because we had selling price increases but there was not any meaningful cost increase, we will continue to see that expense benefit as a percentage. And we think there will be some, let us say, mild disruption expenses perhaps when we move into the Maryland facility. But we anticipate those, and we have done this—we have done it many times, these moves. We are putting that new warehouse management system in that facility, so we are anticipating it to run quite well. Rob Kay: And on SG&A—this also goes to Brian's question a little bit—the moves we have taken are sustainable. The only thing where you will see some bounce back in 2026 versus 2025 is, from a target and incentive compensation perspective, we paid out hardly any—typically nothing to management. And with improved performance in 2026, there will likely be corresponding payment of incentive compensation. But that is not the bulk of the SG&A cost reduction that was achieved. The cost reduction was achieved in 2025. Anthony Lebiedzinski: Got it. Okay. Thanks for that. And then, in terms of the International segment, Laurence, you may have said this, but perhaps I missed it. But in terms of the operating loss for the quarter, for the year, can you provide comments on that? Laurence Winoker: Yes. There was a loss. It was not as pronounced as we had in 2024. As Rob mentioned in his comments, we are not done. The CONCORD—and we will call it CONCORD 2.0—continues. And there are some other things that we had hoped to achieve, but there are legal and other roadblocks that slowed us down. We are looking to achieve those during 2026. Anthony Lebiedzinski: Okay. Got it. And then just a couple of other things here. As far as the fourth quarter, you had a tax benefit, which you addressed, Laurence. How should we think about the tax rate for 2026? Any sort of commentary there on that? Laurence Winoker: Sure. I know it is very hard with our numbers to figure out tax rate, but we should be in the high 20% range, and that is based on the thing that—I will just say we have some unusual occurrences this quarter, more unusual than others. But what distorts our provision historically has been the loss internationally where, because of a history of losses, you cannot record a tax benefit, and that would distort it. So as we get the International operations to breakeven or better, our tax rate should be in the 27%–28%, and that is a combination of the U.S. federal rate and state. Anthony Lebiedzinski: Gotcha. Got it. Okay. And then lastly, as far as the Maryland distribution center, it sounds like it is very well on track. So in terms of thinking about the CapEx for this year, do you guys have a ballpark estimate of what that could be? Laurence Winoker: We are anticipating it to be below budget, but we are very confident we can achieve the budget. I think we should beat it. For CapEx, we had originally forecasted $9 million. It may be perhaps less than that, a little less. And we spent a couple of million of it in 2025. So, let us call it around $7 million for that in 2026. But also bear in mind, there will be a little offset compared to historically, because we will not have the maintenance that we typically have in our New Jersey facility, because we are putting in new racking and other things, so in the Maryland facility there will be maybe another $1 million benefit against what we would otherwise spend for routine maintenance. Anthony Lebiedzinski: Understood. Well, thank you very much, and best of luck. Laurence Winoker: Thanks. Thanks, Anthony. Operator: Ladies and gentlemen, I am showing no additional questions at this time. I would like to turn the floor back over to management for any closing remarks. Rob Kay: Thanks, Jamie. Thank you, everyone, for listening and your interest in Lifetime Brands, Inc., and we look forward to further dialogue in the future. Have a great day. Operator: With that, everyone, we will be concluding today's conference call and presentation. We thank you for joining. You may now disconnect your lines. Rory Rumore: Everyone else has left the call.
Operator: Greetings, and welcome to the ProFrac Holding Corp. Fourth Quarter and Full Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Messina, SVP of Finance. Thank you. You may begin. Michael Messina: Thank you, operator. Good morning, everyone. We appreciate you joining us for ProFrac Holding Corp. conference call and webcast to review our results of the fourth quarter and year ended 12/31/2025. With me today are Matt Wilks, Executive Chairman, Ladd Wilks, Chief Executive Officer, and Austin Harbour, Chief Financial Officer. Following my remarks, management will provide high-level commentary on the operational and financial highlights of the fourth quarter and full year 2025 before opening up the call to your questions. A replay of today's call will be made available via webcast on the company's website at pfholdingscorp.com. You want to know more information on how to access the replay is included in the company's earnings release. Please note that the information reported on this call speaks only as of today, Thursday, March. You are advised that any time-sensitive information may no longer be accurate as of the time on any replay listening or transcript reading. Also, comments on this call may contain forward-looking statements within the meaning of the United States Federal Securities Laws, including management's expectations of future financial and business performance. These forward-looking statements reflect the current views of ProFrac Holding Corp. management and are not guarantees of future performance. Various risks, uncertainties, and contingencies could cause actual results, performance, or achievements to differ materially from those expressed in management's forward-looking statements. The listener or reader is encouraged to read ProFrac Holding Corp.'s Form 10-K and other filings with the Securities and Exchange Commission which can be found at sec.gov or on the company's investor relations website section under the SEC filings tab to better understand those risks, uncertainties, and contingencies. The comments today also include certain non-GAAP financial measures, as well as other adjusted figures to exclude the contribution of Flotek. Additional details and reconciliations to the most directly comparable consolidated and GAAP financial measures are included in the earnings press release which can be found on the company's website. I will now turn the call over to Matthew D. Wilks. Matthew D. Wilks: Thank you, Michael. I will kick off with some high-level remarks about our recent performance, market outlook, and strategic initiatives. Ladd will expand on the performance of our businesses, and finally, Austin will discuss our financial performance. Our results in the fourth quarter improved from Q3 with total adjusted EBITDA increasing 49% on an improvement across our two largest segments: stimulation services and proppant production. This performance was driven by better-than-anticipated activity levels, strong operational execution with optimized uptime, and the early benefits of our cost and capital management initiatives. Notably, our proppant production segment delivered exceptional results, benefiting from increased volumes and improved logistics efficiency that helped us maintain strong margins. Ladd will elaborate on this in a few minutes. Looking at 2025 as a whole, the year presented a challenging backdrop for the completions industry. Tariff-driven economic uncertainty and OPEC's decision to increase supply in early April rattled commodity prices and prompted widespread operator deferrals of near-term activity. Throughout the summer and early fall, operators remained cautious as they balanced hedge books, return commitments, and commodity exposure against continued commodity volatility and broader economic and geopolitical uncertainty. Against this backdrop, the market ebbed and flowed at relatively subdued activity levels. What enabled us to navigate 2025 effectively and emerge well-positioned for 2026 was the fundamental strength of our business model. Throughout the year, our vertical integration and asset management platform were instrumental, providing the operational flexibility and cost advantages that differentiate our performance during difficult market conditions. However, this is not just about weathering downturns; it is about having the structural advantages that allow us to compete more effectively across cycles. The recent conflict in the Middle East resulting in disruptions to tanker flows through the Strait of Hormuz, in addition to the damage to Gulf energy infrastructure, are likely to continue to have a meaningful impact not only on near term, but also potentially on medium term physical supply and demand balances. The severity and duration of these factors remains fluid; however, if disruptions prove lasting, the path to sustainably higher oil prices may crystallize. The conflict in the Middle East is playing out against the backdrop where the setup in North America for onshore activity remains compelling. As we have noted for several quarters, activity has been running below levels needed to sustain flat shale production, and we expect that gap to close as operators accelerate activity to combat natural decline. On the gas side, expanding LNG capacity and rising power demand continue to support a favorable outlook. Layered on top of that, we believe capital discipline across the hydraulic fracturing industry combined with ongoing equipment attrition and restrained new additions sets the stage for supply-demand tightening as activity picks up. Any sustained disruption to Arabian Gulf supply could be the catalyst that pulls the timeline forward. When that acceleration comes, we believe ProFrac Holding Corp. is well positioned to benefit. Some of the same attributes mentioned earlier, including vertical integration and how we manage our asset base, as well as our position in dual fuel and electric technologies, are what keep us squarely where operator demand is highest and position us to move decisively as the cycle turns. Turning to the first quarter for a few moments, we experienced a significant weather impact in January that created near-term operational challenges. Winter storms affected our operating regions during a period when operators were also taking a measured approach to activity amid broader macro uncertainty. However, momentum has been building as we moved through the quarter, which has been encouraging. Our calendar has tightened, activity levels have improved, and with oil prices recovering since the start of the year, operators' sentiment has strengthened. Key to being well positioned for the dynamics we have seen this for several quarters is the work we have done internally to strengthen our cost structure. On our November call, we introduced a business optimization plan targeting annualized savings of $100,000,000 at the midpoint by the end of 2026. This consists of $35,000,000 to $45,000,000 in labor-related COGS and SG&A reductions, $30,000,000 to $40,000,000 in non-labor operating expenses, and $20,000,000 to $30,000,000 in capital expenditure efficiency. We are pleased to report strong progress across all three components of this program. On capital expenditure efficiency, we have already achieved at a minimum the midpoint of our targeted range and expect to be at the higher end of the $20,000,000 to $30,000,000 target. The early benefits of these capital savings were visible in our fourth quarter results, where we delivered a significant beat on net capital expenditures in frac. Austin will provide more detail on what this progress means for our 2026 capital expenditure outlook in a few moments. On labor-related savings, we have fully implemented the cost reduction measures such that we are currently running at an annualized savings rate that positions us at or above the midpoint of our $35,000,000 to $45,000,000 target range. For non-labor operating expenses, we have achieved approximately one-third of the targeted savings on an annualized basis, primarily from fully implemented SG&A reductions. The larger component of this category related to repair and maintenance and asset-level operating expenses remains in earlier stages of implementation and should accelerate as we move through the year. We continue to expect to achieve the full $30,000,000 to $40,000,000 range as these initiatives mature through the second quarter. Taken together, we believe these actions meaningfully improve our cost structure and position ProFrac Holding Corp. to generate stronger returns as market conditions improve. Alongside those efforts, technology differentiation remains a key focus. Let me take a few minutes to walk through our latest technology initiatives, which I believe represent a meaningful and underappreciated part of the ProFrac Holding Corp. value proposition. When we announced our strategic partnership with Seismos back in August, we talked about bringing closed-loop fracturing to the industry, combining ProPilot surface automation with Seismos’ subsurface intelligence to enable real-time optimization during active pumping. The partnership has been performing as we envisioned, and we believe recent field trials have validated the approach. But as we deployed this technology and collaborated with our customers, it became clear the closed-loop control was just one piece of a larger opportunity. Today, I want to discuss Makena, our complete well optimization suite, that we believe takes everything we built with Seismos and ProPilot and extends it into a unified platform that spans the entire completion life cycle. Makena integrates treatment design, real-time measurement, mid-stage intervention, frac hit detection, live pad-level tracking, historical analytics, supply chain optimization, and water quality analysis into a single continuous architecture. Central to Makena’s architecture is a new generation of AI engineering agents that we think of as digital employees embedded directly into the workflow. These agents monitor, interpret, and act continuously across the completion life cycle. Challenges that historically required physical intervention, mechanical testing, or brute force diagnostic runs can now be identified and resolved through a software update. What makes Makena particularly powerful is how it builds on ProPilot 2.0’s foundation. ProPilot served as both a cost optimization tool and an execution precision enabler designed to reduce labor requirements and maintenance expenses while delivering the coordinated pump control and millisecond-level response time that makes closed-loop fracturing possible. Without ProPilot’s execution stability and predictive maintenance capabilities, we could not achieve the rapid, repeatable actuation that Makena requires to translate subsurface intelligence into immediate operational adjustments. Design assumptions now flow directly into execution monitoring. Intervention decisions, designed by our customer, are interpreted algorithmically and executed immediately through ProPilot. Subsurface response is validated in real time, and all of that learning feeds back into future design optimization. What we believe is that this is not only about making one stage better; it is about creating a continuous improvement engine that potentially improves perforations in every stage, every pad, and every program. Ladd will walk through how this works operationally and what we have experienced to date. In summary, we closed 2025 with momentum. Q4 EBITDA was up 49% sequentially, demonstrating the strengths of the business model and cost initiatives, and positioning us to capitalize when the market inflects. Weather headwinds early in the quarter have given way to strengthening fundamentals. While Q1 began with operational challenges, our calendar has tightened with activity accelerating. Our $100,000,000 cost optimization program is ahead of schedule. Labor savings have been fully implemented, CapEx efficiency is tracking to the high end of target, and non-labor reductions are progressing. Makena represents the next evolution in completion technology. By unifying ProPilot’s surface automation with subsurface intelligence into a complete optimization platform, we are not just improving individual stages; we are building a continuous improvement engine. With that, I will turn it over to Ladd, who will provide more detail on our segment performance. Ladd Wilks: Thanks, Matt, and good morning, all. Building on what Matt covered, let us start with stimulation services. As we mentioned on our November call, we were encouraged by signs of stability in the first several weeks of Q4. As noted, deferred September activity returned to the calendar in October, and we successfully kicked off a multi-fleet contract with a large operator early in the quarter. Activity was much more consistent in Q4 relative to our expectations. On fleet utilization and pricing, we maintained a consistent fleet count in the low 20s throughout the fourth quarter into Q1. More importantly, we saw improved utilization and operational efficiency across our active fleets, and pricing remained relatively stable quarter over quarter. What I would emphasize is the meaningful impact our cost and capital savings initiatives had on our margin performance in the fourth quarter. We began to see the early benefits of these programs flow through our results, which was a key driver of our strong adjusted EBITDA performance and contributed significantly to our ability to deliver improved margins. In that reference, January presented weather-related headwinds that impacted operations across both our stimulation and proppant businesses. The winter conditions created operational disruptions that we estimate have resulted in approximately $8,000,000 to $12,000,000 of adjusted EBITDA impact in the quarter, more heavily weighted towards stimulation services. That said, since weather conditions improved, our calendar has tightened and activity has picked up. While we expect Q1 results will be softer than our strong fourth quarter performance, primarily due to the January disruption, the operational momentum we are experiencing positions us well heading into the second quarter. Now turning to proppant services. Matt referenced the strength of Alpine Silica's performance in the fourth quarter. After some challenges in Q3, revenues in the segment stepped up approximately 50% and segment adjusted EBITDA doubled in Q4. We delivered strong operational execution throughout the period with volumes reaching over 2,000,000 tons. Q4 benefited from solid demand across our key markets. Coupled with exceptional operational performance and high uptime, we were able to maximize our production efficiency and cost absorption. From a geographic perspective, West Texas remained a significant contributor to our overall mix, along with continued gains in South Texas. Our cost control initiatives, especially on the logistics side, were a key driver of our ability to maintain strong margins and drive improved profitability in the quarter. In Q1, we expect volumes to be down quarter over quarter. Weather disruptions in January, combined with some operational challenges that impacted production levels, created headwinds after the strong execution we saw in Q4. Customer demand remains solid and as conditions normalize, we are focused on returning to the operational performance that drove our fourth quarter results. Looking ahead, we continue to see momentum building in the Haynesville, where we secured significant customer wins on both the frac and sand side. We expect activity in this basin to continue increasing as we move through 2026, further diversifying our revenue base. Now let me circle back to the technology discussion Matt introduced and get specific about what Makena does on location. The closed-loop module remains our core real-time optimization capability, using acoustic friction analysis to detect perforation efficiency issues and prescribe immediate interventions that ProPilot executes with millisecond-level response. Makena is designed to extend this by integrating a broad operational context into a unified decision engine. Treatment design flows directly into execution monitoring. Intervention decisions are made algorithmically and executed immediately through ProPilot’s precision control. Subsurface response is validated in real time, and all of that learning feeds back into future design optimization. This integration of frac hit indicators, water quality data, supply chain optimization, and fleet health monitoring can create a continuous improvement engine. We believe field results demonstrate the impact. Closed-loop intervention reduced cumulative perforation efficiency degradation by 33% compared to untreated stages. More importantly, every stage adds to our historical database, potentially improving design refinement across entire programs. With that overview of our operational performance and technology progress, I will turn it over to Austin to walk through our financial results in detail. Austin Harbour: Thanks, Ladd. In the fourth quarter, revenues were $437,000,000 compared with $403,000,000 in the third quarter. We generated $61,000,000 of adjusted EBITDA with an adjusted EBITDA margin of 14% compared with $41,000,000 in the third quarter, or 10% of revenue. For the full year 2025, revenues were $1,940,000,000 with adjusted EBITDA of $310,000,000 and an adjusted EBITDA margin of 16%. Free cash flow was $14,000,000 in the fourth quarter, negative $29,000,000 in the third quarter. For the full year 2025, free cash flow was $25,000,000. As Matt outlined, we have been executing on our business optimization targeting $85,000,000 to $115,000,000 of annualized savings and have made strong progress. Within the fourth quarter specifically, we estimate the combined cash impact of labor, non-labor, and capital expenditure savings was approximately $45,000,000, with labor savings accounting for roughly $10,000,000, non-labor approximately $10,000,000, and the remaining $25,000,000 from CapEx savings. Of note, labor and non-labor savings were executed throughout the quarter. As a result, our progress on these initiatives does not reflect the full potential quarterly impact. Turning to our segments, stimulation services revenues were $384,000,000 in the fourth quarter and improved from $343,000,000 in the third quarter. Adjusted EBITDA in Q4 was $33,000,000 above the $20,000,000 we reported in Q3, with margins increasing to 8.7% versus 5.7% in Q3. The improvement was driven by our more consistent activity levels, better fleet utilization, and early benefits from our cost savings initiatives. For the full year 2025, stimulation services revenues were $1,680,000,000 with adjusted EBITDA of $209,000,000 and an adjusted EBITDA margin of 12.4%. Our proppant production segment generated $115,000,000 of revenue in the fourth quarter, materially higher than the $76,000,000 of revenue we reported in the third quarter. Approximately 43% of volumes were sold to third-party customers during the fourth quarter, versus 39% in Q3. Adjusted EBITDA for the proppant production segment was $16,000,000 for the fourth quarter, which was two times the $8,000,000 we delivered in Q3. On a margin basis, EBITDA margins increased to 14% in the fourth quarter versus 10.5% in Q3. Strong segment performance reflected approximately 2,000,000 tons of volume, high equipment uptime, and effective logistics optimization, particularly in West Texas and South Texas markets. As Ladd touched on, for full year 2025, proppant production revenues were $336,000,000 with adjusted EBITDA of $57,000,000 and an adjusted EBITDA margin of 17%. Our manufacturing segment generated fourth quarter revenues of $43,000,000 versus $48,000,000 in the third quarter. Approximately 18% of segment revenues were generated from third-party sales, consistent with Q3. Adjusted EBITDA for the manufacturing segment was $4,000,000 in line with Q3. For full year 2025, manufacturing segment revenues were $212,000,000 with adjusted EBITDA of $19,000,000 and an adjusted EBITDA margin of 8.7%. Selling, general and administrative expenses were $43,000,000 in the fourth quarter, in line with the third quarter. We expect to see continued improvement in SG&A as we execute on our cost savings initiatives. Turning to the cash flow statement. Cash capital expenditures were $37,000,000 in the fourth quarter, down slightly from $38,000,000 in the third quarter. For the full year 2025, CapEx totaled $170,000,000, a material improvement from 2024’s $255,000,000 in CapEx. As Matt discussed earlier, the progress we have made on capital expenditure efficiency has been one of the most encouraging outcomes of our business optimization program. The discipline and execution our teams demonstrated in 2025 gives us confidence in our ability to continue to execute as we move through 2026. To that end, we expect total capital expenditures in 2026, including Flotek spend, to be in the range of $155,000,000 to $185,000,000. Excluding Flotek, we expect our CapEx to be in the range of $145,000,000 to $175,000,000, split between maintenance-related and growth-oriented investments. This guidance reflects our continued commitment to capital discipline while ensuring we maintain our competitive positioning, equipment reliability standards, and the flexibility to capitalize on market opportunities as conditions improve. Turning to cash. Total cash and cash equivalents as of 12/31/2025 were approximately $23,000,000, including approximately $6,000,000 attributable to Flotek. Total liquidity at year-end 2025 was approximately $152,000,000, including $135,000,000 available under the ABL. Borrowings under the ABL credit facility ended the year at $69,000,000, a $91,000,000 reduction from September 30. At year-end, we had approximately $1,050,000,000 of principal debt outstanding, with the majority not due until 2029. We repaid approximately $136,000,000 of long-term debt in 2025. As background, recall that in June, we executed a series of transactions to provide incremental liquidity through 2025, including an initial $20,000,000 issuance of additional 2029 senior notes and commitments for additional tranches at our discretion. We completed the remaining $40,000,000 of that program in December. As discussed on our November earnings call, we also monetized the $40,000,000 Flotek seller note early in the quarter, selling it to a Wilks affiliate at par. Lastly, in Q4, we amended the Alpine term loan to reduce quarterly amortization payments from $15,000,000 to $7,500,000 for 2026 and deferred leverage ratio testing by one year to March 2028. Subsequent to year-end, we closed on an additional $25,000,000 issuance of 2029 senior notes to B. Riley in January, building on the senior notes program we completed in December and further strengthening our liquidity heading into 2026. In addition, earlier this month, we extended the maturity of our senior unsecured revolving credit facility by six months to September 2027, providing further flexibility in our capital structure. The facility now has a capacity of $275,000,000. As we look ahead, we remain disciplined and opportunistic in how we manage our balance sheet, and we will continue to evaluate ways to further strengthen our liquidity and flexibility as market conditions evolve. That concludes our prepared comments. Michael Messina: Operator, let us open up to Q&A. Operator: Thank you. And at this time, we will conduct the question and answer session. Your first question comes from John Daniel with Daniel Energy Partners. Please state your question. John Daniel: Matt, Ladd, I was hoping you could provide a little bit more color on the new technology. Is it software that gets installed in the data van? How does it get rolled out? And what will be the sales cycle in terms of educating customers on what it can do? And how long is your expectation for that education process? Matthew D. Wilks: Definitely. So it is installed on every fleet and ProPilot is our frac automation. It is on every single fleet; it is in the data van. And then Makena is the customer-facing software for well optimization. It allows the customer to pull in real-time data from offsetting wells as well as data from the same well, same stage, and to write rules on how the equipment should respond to that data. So we are extremely excited about this. A great way to think about it is what we are seeing across the entire industry is that operators are only getting about two-thirds of the perfs open on each well. So if there are 15,000 perfs, they are only getting about 10,000 of them actually open. And so our technology allows us to go in, recognize that in real time, respond to it, and initiate what we call interventions to increase the number of open perfs. We cannot improve the resource. We cannot change the rock. But we can open more perfs. We have been able to see where we can open as much as 1,500 extra perfs on a well. Where your D&C cost is $12,000,000 and you are only getting 10,000 perfs open, you are spending $1,200 per open perf. So if we can open an extra 1,500 or 2,000 perfs, that is creating anywhere from $1,800,000 to $2,400,000 of D&C costs that would otherwise have been left behind on each well. John Daniel: Okay. I am curious, and if you said this in the release, I apologize for missing it, but when you have tested this with your customers, did they share with you what the production uplift might have been through the technology? Matthew D. Wilks: You know, it is too early to tell, and it is a slippery slope for us to get into promising well results or an increase in production. Ultimately, it comes to whether or not these perfs are open or closed. If that perf is closed, we are not getting hydrocarbons out of it. But if I can open these additional perfs, that is a better way for us to measure our success and it also has a quicker time cycle. For us to see enough production and work with an operator to get enough data, we would be looking at just one well anywhere from six to nine months before we really get the appropriate feedback. But then we get into the complicated process of trying to establish how much of that production, what were the changes, what other items were going on at the same time, and what is directly attributable to our technology. But just keeping it simple and focusing on whether or not these perfs are open is the best unit of measure and way to establish progress. John Daniel: Okay. And then, I guess, one final one. Not looking for a specific number here, Matt. Q1 down relative to Q4, but just given the cost that you are pulling out, sort of the run rate right now in March, I am assuming Q2 is probably better than Q4? Is that the would be that big gut feel? Matthew D. Wilks: That is a fair assumption. John Daniel: Okay. Thank you. Thank you. Operator: Your next question comes from Saurabh Pant with Bank of America. Please state your question. Saurabh Pant: Hey, good morning, Matt, Ladd, and Austin. Matthew D. Wilks: Morning. Morning. Saurabh Pant: Matt, I know you alluded to some of this in your prepared remarks. What is going on in the Middle East on the margin, I am assuming it does help the U.S. land market a little bit, and I know you were talking about improving operator sentiment. Are you getting more phone calls? Are there more conversations? I know it is too early for anything to show up on the ground, but are you having more discussions? And just along those lines, theoretically, if there is a call on equipment, I know you said you have low-20 frac fleets out there. How easily can you bring more fleets out? And how should we think about any potential CapEx that you would need to spend on bringing fleets out? Matthew D. Wilks: Yes. It is an exercise that we continue to run through. I think things are happening pretty fast over in the Middle East, and what we are looking at is how much of this disruption is temporary from just the strait being closed compared to structural supply and demand imbalances on a go-forward basis from these attacks on infrastructure. Then there is also the possibility of artificial demand as national security interest for each state is reassessed, and we are likely to see some increased reserves on a go-forward basis that should be very constructive for the supply and demand balance. As far as the onshore market here, we are fielding a lot of calls. There are a lot of conversations going on. So far, most of it is centered around DUCs being pulled forward, as well as more robust dense calendars associated with existing activity. It is too early to tell whether this is going to result in a material increase in rig count, but we are watching it very closely and it is interesting to see how our customers are responding and behaving in real time. Hopefully, we will have more to talk about in the near future. Probably the biggest impact regardless of a call on more horsepower and activity is diesel prices have shot through the roof. In some instances, the daily quote has essentially doubled from where it was just a few weeks ago. That is creating a lot of opportunity for us to be better partners with our customers. Where we see customers that typically run all-diesel fleets, the fuel bill is now more expensive than horsepower, and it creates a premium for fuel-efficient fleets. When you look at dual fuel where you can eliminate as much as 70% of your diesel cost or an electric fleet where you can eliminate 100% of it, it is more important now than ever. We can see margin expansion while also saving our customer money and insulating or hedging, giving them a physical hedge against an unanticipated or expected rise in fuel costs. Saurabh Pant: Right. That makes a ton of sense, Matt. That is super interesting. And then, Austin, I have one for you. You talked about this in the prepared remarks about how you strengthened your balance sheet and liquidity, including we saw earlier this week some of the amendments you made to your credit facility. But as we look forward, in terms of just opportunities to deleverage outside of just organic free cash flow, maybe just talk a little bit on what you are thinking, how you are evaluating the balance sheet deleveraging opportunity, and what you may want to do from this point onwards? Austin Harbour: Yes, thanks, Saurabh. With respect to our balance sheet, I think you can tell that we actively manage that, right, and we are constantly looking at a number of opportunities and strategies to optimize what the leverage profile looks like, what the liquidity profile looks like, and then balance that against capital allocation opportunities that we have internally. So as we look forward, I think we will continue to actively manage it and we will continue to focus on making sure that we have liquidity not only to run the base business, but also as opportunistic investments come around. And as we think about the flexibility to be able to respond to this market and also to be able to make investments in some of our other subsidiaries. Saurabh Pant: Okay. Makes sense. Thank you. Thanks a lot, Austin, for that answer. And Matt as well. Thank you. I will turn it back. Operator: Your next question comes from Dan Kutz with Morgan Stanley. Please state your question. Dan Kutz: Hey, thanks. Good morning, and congrats on the quarter. Operator: Dan, could you please go ahead with your question? Dan Kutz: I am sorry. Can you repeat that question? Operator: Dan Kutz, your line is open. All right. Okay. We will move on to the next question. Dan, could you press star-1 again to queue up? Your next question comes from Patrick Woollet with Stifel. Please state your question. Patrick Woollet: Hey, it is Pat Olin on for Stephen Gengaro. Thanks for taking the questions. You highlighted the Q1 2026 results to soften sequentially in the pressure pumping segment, and I know the weather in January plays into that. But you also talked about the frac calendar tightening since then, so I was just wondering if you could give some color on maybe a run-rate basis on how you see the segment exiting Q1 compared to Q4. Matthew D. Wilks: Yes. I think our exit in Q1 is going to be in line to slightly better than what we saw in Q4. It is just that disruption early in the quarter; you do not get those hours back, you do not get those days back. But it did compress the balance of Q1 and has given us a really tight schedule to run and benefit from higher utilization. Patrick Woollet: Okay. Thanks. And you talked about the $8,000,000 to $12,000,000 impact to EBITDA from the weather disruptions. Is this sort of like lost EBITDA or just pushed out to the right and recoverable? Austin Harbour: I would view it as pushed out to the right and recoverable. Certainly, it will be lost in Q1, right? To Matt’s point, we cannot get those days back, right? But as we think about the calendar tightening even further as we move through the quarter and also into Q2, I think ultimately we will be able to earn that back. It is just not all going to come back in February and March. Patrick Woollet: Alright. Thanks. And then if I could just squeeze in one more, if you could just talk a little bit about the guide for the proppant segment. It seems like demand is relatively flat quarter over quarter into Q1. Could you maybe touch on the operational challenges you highlighted? Are those sort of weather-related? And then, you sort of talked about maybe some strength into Q2. Is this driven by maybe better operational efficiency? Or is that demand-driven? Matthew D. Wilks: It is a little bit of both. The disruption early in the quarter impacts your sand mines disproportionately because your wash plants, your working inventory, those freezing temps—these facilities are in areas where you are not used to dealing with this kind of a weather impact. So it is pretty disruptive whenever you get a weather event like this, and it impacts your sand mines a little bit more than it does your frac fleet. With that being said, the operational efficiencies and the quality of our backlog—we have got everything that we can make sold. So now it is just an exercise in execution, and we are starting to see the best performance out of these assets and believe that there is a lot more opportunity in continuing to see that best demonstrated performance climb. Patrick Woollet: All right. Thanks for the color. I will turn it back. Operator: Next question comes from Dan Kutz with Morgan Stanley. Please state your question. Dan Kutz: Hey, good morning, and congrats on the quarter. Sorry about that. I think my headset cut out. So you guys had flagged that you think we are running below production maintenance activity levels in the U.S. currently. Just wondering if you have any guess or any sense for how much higher completions activity would have to be at more of a maintenance-level run rate? Thanks. Matthew D. Wilks: Yes. I think it is easier to look at it from completed lateral feet per month, and depending on the quality of the inventory, you are looking at anywhere from half a million feet to a million feet a month that is below sustainable levels. Dan Kutz: Great. Thanks. That is helpful. And then it sounds like you guys had flagged recently that, in tandem with the cost-out initiatives, you are kind of managing the deployed fleet count to a more range-bound level that leaves some spare capacity on the side. Just wondering if you could talk through what that horsepower, what the plans are for that. Is it going towards bigger fleets, towards continuous fracs? Maybe used to minimize maintenance costs, or maybe some of that just gets stripped and gets retired. But, yeah, just wondering how the spare capacity that you guys have is being utilized or what the plans for that are? Thanks. Matthew D. Wilks: Definitely, that is a great question. The way that we are looking at things right now—tempting and interesting in the environment that we have—is we are going to remain disciplined and keep our fleet count where it is at unless we see a true call on assets and that activity. I think things are too up in the air right now. We are seeing the calendars fill up, seeing DUCs being pulled forward. But once we see this inflection point where there is a true call on activity—of increasing rigs and a demand for frac fleets commissioning full dedicated spreads rather than a few wells here and there pulling DUCs forward—once we see a motivated push to deploy CapEx from operators, we will respond appropriately at that time. And we do have spare capacity. It is just a question of where we are going to put our priorities and focus our capital allocation. At this time, we are going to stick to our plan, stay disciplined, and look for opportunities to create value for our customers. I will highlight, without a call on activity, just the shakeup in the fuel markets is a huge risk for our customers. With the number of fuel-efficient assets that we have, I think we are in a great position to be a great partner with them to help them save money, de-risk their capital allocation, and also to do it while seeing margin expansion on our side. We can help them save a lot of money on fuel and we have been in a low diesel price environment that has really muted the value of these fuel-efficient fleets. But now that you are seeing diesel rise up as quickly and abruptly as it has, it has created a really interesting environment for us to improve our relationship with our customers and get paid handsomely for it. Saurabh Pant: All makes sense. Thanks a lot. I will turn it back. Matthew D. Wilks: Definitely. Thank you. Operator: Thank you. And ladies and gentlemen, no further questions at this time. I will now turn the call back over to Matthew D. Wilks for closing remarks. Matthew D. Wilks: It is good to wrap up 2025. We are excited about 2026. We are managing our business in a very disciplined and thoughtful way. We appreciate everybody's time and look forward to connecting on our Q1 call. Thank you. Operator: Thank you. This concludes today's call. All parties may disconnect. Have a good day.
Paul Johnson: Good morning, ladies and gentlemen, and thank you for standing by. At this time, I would like to welcome everyone to Stellus Capital Investment Corporation's conference call to report financial results for its fourth fiscal quarter ended 12/31/2025. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, this conference is being recorded today, 03/12/2026. It is now my pleasure to turn the call over to Mr. Robert Ladd, Chief Executive Officer of Stellus Capital Investment Corporation. Mr. Ladd, you may begin your conference. Okay. Thank you. Robert Ladd: Thank you, Paul. Good morning, everyone, and thank you for joining the call. Welcome to our conference call covering the quarter and year ended 12/31/2025. This morning's call will be longer and more in-depth than previous calls. We have five topics to cover. First, the financial results for the fourth quarter and year ended 12/31/2025, asset quality, including commentary regarding software exposure, outlook for 2026, our share buyback program recently announced, and our investment advisor joining forces with Ridge Post Capital. Joining me this morning is Todd Huskinson, our Chief Financial Officer, who will cover important information about forward-looking statements as well as an overview of our financial information. Paul Johnson: Thank you, Rob. I would like to remind everyone that today's call is being recorded. Please note that this call is the property of Stellus Capital Investment Corporation and that any unauthorized broadcast of this call in any form is strictly prohibited. Todd Huskinson: Audio replay of the call will be available by using the telephone numbers and PIN provided in our press release announcing this call. I would also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call may also include forward-looking statements and projections; we ask that you refer to our most recent filing with the SEC for important factors that could cause actual results to differ materially from these projections. We will not update any forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.stelluscapital.com under the Public Investors link or call us at (713) 292-5400. Now I will cover our operating results for the fourth quarter and year. I would like to start with our life-to-date activity. Since our IPO in November 2012, we have invested approximately $2.8 billion in over 220 companies and received approximately $1.8 billion of repayments, while maintaining stable asset quality. We have paid $333 million in dividends to our investors, which represents $18.27 per share to an investor in our IPO in November 2012, which was offered at $15 per share. In the fourth quarter, we generated $0.29 per share of GAAP net investment income, and core net investment income was $0.29 per share also, which excludes excise taxes. During the quarter, we also realized gains of $5.5 million on five equity positions, which resulted in total realized income for the quarter of $0.48 per share. Net asset value per share decreased $0.23 during the quarter from two components: The first was $0.11 per share of dividend payments that exceeded earnings, which was necessary to continue to pay out spillover income balance from 2024. The second was net realized losses of $0.12 per share related primarily to two debt investments. On the capital front, on December 31, we repaid the remaining $50 million of the $100 million of 2026 notes prior to their March 2026 maturity. Turning to portfolio and asset quality, we ended the quarter with an investment portfolio at fair value of $1.01 billion across 115 portfolio companies, unchanged from $1.01 billion across 115 portfolio companies as of 09/30/2025. During the fourth quarter, we invested $34.1 million in four new portfolio companies and had $18 million in other investment activity at par. We also received four full repayments totaling $37.9 million, five equity realizations totaling $7 million, which resulted in a realized gain of $5.5 million, and received $9.1 million of other repayments, both at par. At December 31, 99% of our loans were secured, and 92% were priced at floating rates. Average loan per company is $8.8 million, and the largest overall investment is $19.2 million, both at fair value. Substantially all of our portfolio companies are backed by a private equity firm. Overall, our asset quality is slightly better than planned. At fair value, 81% of our portfolio is rated a one or two, or on or ahead of plan, and 19% of the portfolio is marked in an investment category of three or below, meaning not meeting plan or expectations. We added one new loan to our nonaccrual list and removed another from the nonaccrual list during the quarter. Currently, we have loans to five portfolio companies on nonaccrual, which comprise 7.5% of the total cost and 4.1% of the fair value of the total investment portfolio, respectively, which represents a slight increase from the prior quarter. We are always focused on diversification, including by industry sector. We have investments in 24 separate industry sectors, and we have approximately 10% in high-tech industries. Over the last months, there has been a lot of press about the impact of artificial intelligence on large-scale SaaS software industry, which has resulted in concern around investment firms’ exposure, both private equity and private credit, to the sector. Let me first say, Stellus does not have exposure to the large-scale SaaS software sector. Rather, we have a small number of loans to software companies that are related to the SaaS space but are better characterized as industry-specific, tech-enabled solutions. This group consists of five companies out of 100 portfolio companies with debt investments and comprises 6.8% of the loan portfolio, the largest position is 1.8%, both at fair value. Each one of these companies provides integral products and services that are embedded in the businesses that they serve. They are using AI to enhance the software and information they provide and, in many cases, are dealing with proprietary data. A common theme for these software businesses is that they are using AI to enhance their value proposition rather than the customer being able to do this all internally with AI. In summary, we believe AI will enable these and many of our portfolio companies across a variety of industry sectors to improve the speed and quality of information, and we do not believe that AI will supplant the need for what our portfolio companies provide. Let me add, each of these companies is owned by a substantial private equity sponsor, is well-capitalized with material equity below us, has modest leverage, and EBITDA that is stable to increasing. The risk rate of these companies is either a one or a two, meaning on or ahead of plan. We will continue to monitor these companies closely as we do with all of our portfolio companies. Importantly, looking forward, we would be surprised if AI had a material negative impact on the recovery of our loans to these companies. And now I would like to turn the call back over to Rob to cover the outlook and a few additional topics. Robert Ladd: Okay. Thank you, Todd. As we look ahead to 2026, I will cover four topics. First, the outlook for Q1 and Q2; the recent announcement concerning our advisor’s plans to join Ridge Post Capital’s platform; a $20 million share buyback program; and our view on the private credit sector overall. So outlook for Q1 and Q2. Today, our portfolio is approximately $996 million across 115 portfolio companies. With the turbulence that we have all been observing, M&A activity has slowed some after a very robust fourth quarter for us. Therefore, we expect in 2026 a portfolio at the current level or slightly less. We expect continued equity realizations in Q1 of approximately $2 million, resulting in a $1 million realized gain. Regarding dividends, in January we declared the dividends for 2026 of $0.34 per share in the aggregate, payable monthly. We expect to keep the dividend at this level of $0.34 for the second quarter, which will be declared in early April, of course subject to Board approval. Just looking at our stock price today that is a little under $9 a share, the second quarter dividend is a 15% annualized yield. Now turning to Ridge Post. On February 5, we announced that our external manager, Stellus Capital Management, agreed to be purchased by Ridge Post Capital, formerly known as PTEN. Ridge Post is a leading private capital solutions provider that similarly serves the lower middle market. Stellus will continue to be managed by its current partners, who will retain control of its day-to-day operations, including investment decisions and investment committee processes. We like to say there will be no changes in how we operate. Todd Huskinson will continue to be Stellus Capital Investment Corporation’s CFO, and I will continue to serve as the company’s Chairman and CEO. Now turning back to Ridge Post. Ridge Post Capital, which has more than $43 billion in assets under management, invests across private equity, private credit, and venture capital and access-constrained strategies, with a focus on the middle and lower middle market. We believe that our advisor joining Ridge Post Capital is a very positive development for a number of reasons, the most important of which is the anticipated investment opportunities that Ridge Post Capital will open up for Stellus Capital Investment Corporation and our affiliates. Ridge Post’s largest strategy is a lower middle market private equity firm specializing in North American small buyouts through primary, secondary, and co-investment vehicles known as RCP Advisors, which is based in Chicago. RCP Advisors has invested with more than 200 lower middle market private equity firms and is typically the largest or one of the largest LPs in the PE funds in which they invest. As you will recall, all of our lending is to companies owned by lower middle market private equity firms. As part of Ridge Post Capital, we expect to see a material increase in investment opportunities coming from those PE relationships, many of which we do not currently have. Given the nearly identical size profile of the RCP sponsor relationships and our sponsor relationships, we think we have a meaningful opportunity to increase the top of our funnel for new origination opportunities. We are excited by this new growth opportunity and we believe it will benefit all shareholders. The transaction with Ridge Post Capital is expected to close in mid-2026, subject to BDC board and BDC shareholder approvals, and other customary closing conditions. Let me add, some of our shareholders have asked, are you selling Stellus Capital Investment Corporation, our public company, or Stellus Capital Management, to Ridge Post Capital? We are not. Stellus Capital Investment Corporation will remain publicly traded. Our leadership will remain the same, as I mentioned earlier, and our independent board members will also remain in place. Our shareholders will continue to own Stellus Capital Investment Corporation stock. Now turning to share repurchase. Our Board of Directors recently approved a stock repurchase program of up to $20 million. This decision reflects the current trading level of our shares, which are at approximately a 30% discount to recently reported net asset value. Historically, our stock has traded at or above NAV for many years. At the current price levels, we believe repurchasing shares represents a compelling opportunity to generate meaningful value for our shareholders. This authorization will remain in place for at least one year. And finally, I am going to turn to private credit today. Given the significant press coverage of perceived stress in private credit, we thought this would be a good time to share our view of private credit overall. I will first cover our strategy versus larger managers; second, a reminder of our history in private credit; and finally, the importance of private credit for the U.S. economy. Stellus Capital focuses on direct-originated senior secured loans to lower middle market, private equity-backed companies rather than participating in large, broadly shared loans or nationally syndicated credits. This represents a fundamental difference between the Stellus platform, including Stellus Capital Investment Corporation, and many of the larger private credit managers and larger BDCs. Larger managers are lending to all types of companies, many without deep-pocketed private equity owners, and some with complex capital structures or off-balance-sheet vehicles. And now a reminder of our history. First, we are one of the longest-tenured active private credit managers, with a history of investing that is 22 years across 400 companies and $10 billion of deployment. The Stellus management team has an investing history that has been resilient across multiple macroeconomic cycles, including the Global Financial Crisis of 2008–2009, COVID-19, the global pandemic, and periods of other market volatility such as the international tariff disruption of 2025. Second, our asset quality across the portfolio has remained stable over time, with a weighted average risk rate of approximately two, which corresponds to investments performing on plan. All of our loans have financial covenants. All but one of our portfolio companies are backed by a private equity sponsor, and all have substantial equity below us at the time the loans are made. Third. All of our investment vehicles, with our public company, have the same investment mandate. All lend to the same businesses. We have no competing strategies or distractions. All of our work is focused on doing well for our shareholders and investors. And lastly, fourth, we have a long history of equity co-investments alongside our debt investments. This is where we buy a small piece of equity in the companies we lend money to, usually 5% of the total portfolio at cost. The equity co-investments have resulted in substantial equity gains. For Stellus Capital Investment Corporation, this has generated approximately $98 million of net realized gains life-to-date, with a historical return on equity co-investments of greater than 2.5x. And now I will turn to private credit, the private credit sector more broadly. We believe there is a lot of opportunity for growth in the private credit space, especially in our market, the lower middle market. In our market, there is a tremendous amount of dry powder in lower middle market private equity firms, who are our client base, if you will. When they buy private businesses, we are there to finance the purchases. The best data we have would indicate there is approximately 10x the dry powder to invest by lower middle market private equity versus the amount of dry powder in lower middle market private credit providers. We will be there to provide the financing. Finally, for private credit overall, the need for this capital is very large. Why? Private credit in our country fills the large gap that commercial banks cannot provide. The reason for this is commercial banks are typically levered 10 to 11 times and are mostly lending out retail and commercial deposits. As a result, their risk profile is very tight, and they are highly regulated to safeguard these deposits. Private credit providers are not highly levered (typically 1 to 2 times), and we are not investing bank deposits. We are investing equity capital coupled with modest institutional leverage. I will say both banks and private credit providers are focused on protecting their capital bases. Private credit, though, has the flexibility to provide more leverage, earn higher returns, and can participate in the equity upside of our portfolio companies. Together, private credit and commercial banks are the growth engine of our U.S. economy. So the takeaway for our shareholders is we have a long history of investing in private credit. We think there is a lot of opportunity to invest going forward in the lower middle market, where we have always been, and also to provide strong returns for our shareholders. And with that, I recognize today’s call was longer than normal. We hope that it was helpful to better understand our business and the industry we operate in. And with that, Paul, please open up the line for Q&A. Paul Johnson: Certainly. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And one moment please while we poll for questions. The first question today is coming from Christopher Nolan from Ladenburg Thalmann. Christopher, your line is live. Christopher Nolan: Hey, guys. Good morning. Thank you for all the detail, Rob. Given the change in the ownership of the external manager and the share repurchase initiative, will there be a change in the leverage targets for Stellus Capital Investment Corporation? Robert Ladd: Thank you. Good morning, Chris. And no. Good question. There will not be a change in our targeted leverage for Stellus Capital Investment Corporation, which, as you will recall, is approximately 1:1 on the regulatory test and approximately 2:1 including SBIC debentures. Christopher Nolan: Okay. And then, turning to SBA for a second, what is the remaining capacity in the SBA, and should we be looking at that to be a growth engine for you guys in the first half of the year? Robert Ladd: Yes. So ultimately, we have quite a bit of new capacity that we will have in the SBA. We, as you may have noted in Todd’s remarks and in our press release, paid down $39 million of debentures on March 1 under our first license, which brings a total of $65 million. So that would be one example. We have $65 million of new debentures that we will be able to take out, plus more when we obtain our third license. So it is a good question. A lot of growth from here, given that we have repaid $65 million of debentures so far. Christopher Nolan: Great. And final question. I noticed that you have done some subsequent investments to Venbrook and Real Estate Services, both of which are nonaccrual. Can you give a little detail of what is going on with those guys? Robert Ladd: Yes. So, of course, we do not talk much about the detailed companies, but these are companies where we have been working with others to provide additional capital to see them through a rough spot. The Partners is a realtor business based in the Midwest, and Venbrook is an insurance agency. These are small advances to further the companies’ operations during a little bit of a slow period. Christopher Nolan: Great. That is it for me. Thank you, Rob. Robert Ladd: Thank you, Chris. Paul Johnson: Thank you. The next question will be from Brian McKenna from Citizens. Brian, your line is live. Brian McKenna: Okay, great. Thanks. Good morning, everyone. So just a bigger-picture fundraising question for you guys as it relates to the broader Stellus platform. What are you hearing from some of your institutional investors in terms of having some incremental exposure to the lower middle markets and moving some capital away from the large-cap managers in the upper middle markets? And I am curious—we will see how the environment plays out from here—but given maybe the dynamic there, could we actually see a scenario where fundraising at Stellus starts to accelerate over the next year or so? Robert Ladd: Yes. Good morning, Brian, and thank you for the question. We have definitely seen, for the overall Stellus platform, an increasing interest in the lower middle market where we operate. This is coming from large institutional investors that have noticed in some of their larger managers some overlap in different credits and found our type of investing interesting. We have definitely seen an uptick in that area, and this would be, of course, across the Stellus platform. Brian McKenna: Yep. Okay. Got it. That is helpful. And then, Rob, you have clearly done a great job managing the business throughout a number of cycles and operating environments over the past 20 years or so. I think you have a great perspective as well. And so, while each cycle and period of dislocation is always a little bit different, history always rhymes. So what past experiences can you lean on today to make sure you are prudently managing your business in the current environment? Robert Ladd: Yes. I would say, historically, it is important in times like this to not be over-levered, which we are not, and I would add that the private credit industry is not. So modest leverage is helpful in these times. Certainly, we are very focused on strong underwriting throughout periods, and you may have heard us say before that when we look at a new company, we are thinking we are going to have a recession within the first 18 to 24 months. Whether we are is another matter, but we underwrite to that. So we will continue that diligent underwriting, expecting if this company got into trouble or there was an economic cycle down, how would it behave or how does the sector behave? So I think strong underwriting will continue for us. And then I would say, we will be very selective about opportunities. My guess is, too, that you may see some improved pricing in our sector. In other words, spreads may widen a little bit to the benefit of our shareholders. But I would say throughout our investing period, this goes back 20-plus years, what we have found in our part of the market, again the lower middle market, is that we have always had large equity checks below us, we have always had financial covenants, and therefore well-capitalized businesses from the start. So, again, I think it is the same that we have been doing historically. But we will be very focused and cautious if we think things are turning. We think there is a lot of noise in the system today that is less about the quality of the portfolios in private credit. Brian McKenna: Alright. Thanks so much. I will leave it there. Robert Ladd: And thanks so much, Brian, for joining. Paul Johnson: Thank you. The next question will be from Justin Marchandt from Capital. Justin, your line is live. Justin Marchandt: Hey, guys. Good morning. On for Eric today. I just want to talk a little bit more about the Ridge Post transaction. Sounds like a good fit for your investment strategy. When do you expect to see the full benefits of increased deal flow and opportunities, should the deal go through in mid-2026? Robert Ladd: Justin, thank you for joining. So, again, as you pointed out, subject to the various approvals, this transaction would close in the summer of this year. We have had initial conversations with the RCP subsidiary, if you will, Ridge Post, and we think there is a great opportunity there. So our hope and plan would be that as we get to this summer, we will hit the ground running. And I think that collectively, we think there is lots of opportunity to open up. So I would say that, not to be overly optimistic, but I would imagine this will kick in in 2026. Justin Marchandt: Okay. Alright. That is great. And then looking at PIK income, it has been a significant increase year-over-year. Are these portfolio companies prioritizing growth, or are there operational issues? And what kind of strategies can you implement to get borrowers back to cash pay? Robert Ladd: Yes. So, although our PIK income has increased, we are still at the low end of our competitor set. We do not go into a new loan with PIK income, and by the way, we understand in the upper market lenders will go into a new credit with some PIK income; we do not. At the outset, all the loans are cash pay. So if you see PIK income with us, it would mean that the company needs some relief from a cash flow perspective. And typically, when we have some PIK aspect to the income, it means that the private equity owner is contributing new capital. So this, we think, is a good trade for both parties. For that PIK to come down, it will be that those companies that needed relief have improved their performance, or we have exited the investment—in other words, the company has been sold or refinanced. So that is the nature of our PIK income, not something that is planned on the front end. Justin Marchandt: And then last one for me. Just on the new base distribution still kind of above the 4Q NII run rate, what sort of levers can you guys pull to get earnings back to or above the new distribution? Or is there a potential to right-size the distribution rate later on this year? Robert Ladd: Yes. We are striving to improve the NII. I would say that if SOFR stays where it is, which perhaps it will for a while, this will be helpful to us. The new leverage that we would receive under a third license from the SBA will get the portfolio back up. Again, as I mentioned, quite a bit of increased portfolio that was resolved from our third license getting recapitalized. So this would be helpful as well. And again, we always strive to receive the best returns on the loans we are making, and so we will continue to work on that. But it would be a combination of things. In any event, we do have a fair amount of spillover from last year, and so as a result, we will have this level of dividend, at least, through the second quarter. And we will reevaluate it. We will have more to talk about this summer as we hopefully get into our third license with the SBA. Justin Marchandt: Okay. Thanks for taking my questions today. Robert Ladd: Thank you, Justin. Paul Johnson: And the next question will be from Robert Dodd from Raymond James. Robert, your line is live. Robert Dodd: Hi, guys. A lot of my questions have been answered, and I appreciate the color you gave at the beginning on how much exposure you have to software or AI risk assets. That kind of feels like last month at this point. On something else, what would you say your exposure is in the portfolio to higher energy prices? Obviously, oil is up, could go meaningfully higher potentially. We do not have a lot of direct oil and gas production, obviously, but there is feed-through to other areas in the economy if oil prices do continue to rise or spike again. Could you give us any color on what the exposure is in the portfolio to that kind of issue? Robert Ladd: Yes, Robert. Good morning. First, as you indicated, we have no direct exposure to the oil and gas industry. I would say that we also, as a matter of underwriting, have a handful of principal tenets, one of which is to not have commodity price risk exposure. So this would transcend direct oil and gas exposure. I think that the larger impact would be just the impact on the consumer if this started to cause consumer stress. We do have some businesses that are exposed to the consumer spending, but I would say not a material amount. So do not expect any material impact, certainly directly with companies. It would end up being more of whether it causes some change in the overall economy, which, my personal opinion, I would not expect. Not to get into the war and to run, but I would expect this will probably moderate over time. But again, I would not expect it to have a material impact on the portfolio. Robert Dodd: Got it. Thank you. On the more stressed assets in the nonaccruals you have, do you have right now a kind of expectation—guess, but about the timeframe for resolution of some of those? Because obviously, to that point right now, there is a decent slug of the portfolio that is not income-producing and maybe could be again at some point in the future. What is the kind of timeline there? Robert Ladd: Yes, sir, Robert. This would certainly range by individual company, so I will not get into that specifically. But I would say that we are having some that are coming off nonaccrual, and we did one in the fourth quarter that came off nonaccrual. I think you will see a gradual change over the next 12 to 18 months with regard to the portfolio. I would say that if something is nonaccrual, it is being or has been restructured, and that we as a lender group and typically the owner, because they are not able to pay interest, are looking for exits to monetize the position, reinvest that capital, and then have earnings on it again. But I think, naturally, it is typically a year to 18-month process as you go. Some may take longer, some may take shorter. So I cannot cover specifics, but a gradual resolution, I would say, throughout 2026 and into 2027. Robert Dodd: Got it. Thank you for that. If I can, one more, just a general question. You mentioned you might see improved pricing. Obviously, the marketplace has been extremely competitive over the last 24 months, with spreads coming down, and there are some early signs maybe that is going to move. What is your confidence that spreads will in fact widen sustainably over the next year or two versus near-term indications being just a short-term phenomenon? I realize that is a really tough question, but any thoughts there would be appreciated. Robert Ladd: Sure. First, the public loan indices have widened materially over the last 60 days, but we have not seen that in the private market that we operate in yet. This will be driven by more than one factor. One would be capital flows—it appears to be less capital coming to the industry, the sector currently. The next would be perceived risk and discipline by the underwriters. Unfortunately, I cannot predict whether it will occur, but we certainly have the ingredients of what we are observing to cause spreads certainly not to get tighter and potentially to widen. Public markets are reflecting it; we have not seen it yet in the private area where we operate, but certainly the ingredients for it are there. Robert Dodd: Got it. Thank you. Robert Ladd: Thank you, Robert. Paul Johnson: Thank you. There were no other questions at this time. I would now like to hand the call back to Robert Ladd for closing remarks. Robert Ladd: Thank you, Paul, very much, and thanks, everyone, for joining the call. Thank you for your support, and we look forward to speaking with you again in early May as we report the first quarter. Paul Johnson: Thank you. This does conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation.
Randall Giveans: As we conduct today's presentation, we will be making various forward-looking statements. These statements include, but are not limited to, the future expectations, plans, and prospects from both a financial and operational perspective, and are based on management assumptions, forecasts, and expectations as of today's date, March 12, 2026, and are as such subject to material risks and uncertainties. Actual results may differ significantly from our forward-looking information and financial forecast, and additional information about these factors are included in our annual and quarterly reports filed with the Securities and Exchange Commission. With that, I now pass the floor to our CEO, Mads Peter Zacho. Please go ahead, Mads. Mads Peter Zacho: Good morning and good afternoon. Thanks a lot for joining the Navigator Holdings Ltd. earnings call for Q4 2025. Just to get us started on the right foot, I would like to clarify that Navigator Holdings Ltd. currently has no vessels inside the Hormuz Strait. We will later touch more on the war in the Middle East and what it means for Navigator Holdings Ltd.. We will explain why the impact is limited. As usual, I will review the key data from our Q4 2025 performance and then go over the outlook for the coming quarter. After that, Gary, Øyvind, and Randy will discuss our results in more detail, and then there will be Q&A afterwards. Please turn to page 4. As you can see, in summary, we decided to call Q4 2025 a steady finish to a dynamic year, 2026 looking better. Mads Peter Zacho: In Q4, we generated revenues of $153 million, same as previous quarter and up 6% compared to same period previous year. The main driver of the increase in revenue over same period last year was 8% higher charter time charter equivalent rates and partially offset by lower utilization. Adjusted EBITDA was $73 million, down from $77 million in Q3 and similar to the same period previous year. The balance sheet is strong, with total liquidity position less restricted cash of $246 million at quarter-end, significantly higher than same date the year before. In November, we increased our capital return to 30% of net income from previously 25%, and we increased the fixed dividend from $0.05 per share to $0.07 per share. Mads Peter Zacho: This reflects our strong balance sheet and equally important also our commitment to increasing the return of capital to shareholders. We achieved very attractive financing for two of our six new buildings at margins of 150 basis points, equal to the lowest ever for Navigator Holdings Ltd.. You should watch this space because more will come. On the commercial side, we achieved average TC rates of $30,647 per day during Q4. This is about $300 less than the ten-year high achieved in Q3 and is 8% above same period previous year. We utilized our vessels as guided at 90%, almost the same as last quarter, but below the 92% year prior. Mads Peter Zacho: Throughput at our joint venture ethylene export terminal was about 192,000 tons for the quarter below Q3, but it was 20% higher than same period previous year. It continues to be European demand driving U.S. ethylene exports, and we expect continued strong demand from Europe, but we also now see signs that Asian demand is emerging. Two ethylene offtake contracts have been signed for our terminal, and we will see renewed interest from customers to sign more. We continued the sale of older tonnage with Navigator Saturn and the Happy Falcon that were sold in January. I would like to make two comments on this. First, over the past few years, we have consistently sold older vessels with attractive book gains and on average, well above market value estimates. Mads Peter Zacho: I consider this a recurring income stream and an integral part of our business model. Secondly, the older vessels are typically unencumbered and release significant cash. This cash has been and can be expected to be used for capital return. Looking ahead, it is obvious that the war in the Middle East creates uncertainty but also commercial opportunities for Navigator Holdings Ltd.. Overall, we expect both TC rates and utilization to remain or exceed those achieved in the fourth quarter of 2025. We also expect exports out of Morgan's Point to strengthen towards or above the record export volumes that we saw in Q3 of 2025. Only 3% of global Handysize volumes are loaded in the Gulf. Oil and gas export from the Gulf have stopped, and that opens for alternative trading routes and substitute products. Producing ethylene from U.S. ethane is a substitute to Middle Eastern naphtha-based ethylene production. Mads Peter Zacho: Ammonia also now sees longer ton-mile transportation. On top of this, we see LPG volumes from Venezuela starting to be exported on the regular fleet, and that means not the shadow fleet. Lastly, I want to point out to the aging handysize fleet with almost twice as many vessels being older than 20 years, which compares well to the newbuilding book. This can lead to negative fleet growth in the near to midterm. With that, I will just pass it on to you, Gary, so you can give a little bit more detail on our financial result. Randall Giveans: Thank you very much. Mads Peter Zacho: Before I do so, sorry, maybe I should just not forget to just have a quick look at the slide here. We are quite proud to show the overview here of the Webber's ranking of stock exchange listed shipping companies and how they ranked on governance. You can see Navigator Holdings Ltd. was ranked number 16 back in 2021, and we gradually improved to number 11, 7, 3, and to number 1 in the most recent ranking here. I think it is important for us as a company that the corporate governance work that we are doing is being recognized by Webber Research & Advisory. Mads Peter Zacho: We will of course do everything we can to stay in the top ranking here and continue to deliver very strong results, not only financially but also governance-wise. Not to be forgotten and on to you, Gary. Gary Chapman: Yeah, that is great. Thank you, Mads. Hello everyone. During the final quarter of 2025, we continued wrestling, as Mads has said, with headwinds from geopolitics. Perhaps looking at events in 2026 so far, it perhaps makes the fourth quarter feel quite calm. However, so far, as Mads alluded to, Navigator Holdings Ltd. has not been materially affected financially or operationally, and Øyvind will talk some more about this. Turning back to the fourth quarter last year, we were able to report a very solid set of results. As always, helped by our cargo type diversification, our geographical trading flexibility, our market position, and our strong financial foundations. Gary Chapman: Our fourth quarter 2025 results have even contributed to some annual data points that are record-breaking for Navigator Holdings Ltd., where we have been able to push and keep charter rates up and also maintain utilization, supported by our flexibility, efficiency, and cost management. On slide 7, we report strong fourth quarter TCE of $30,647 per day, leading to total quarterly operating revenue of $152.8 million and quarterly EBITDA of $70.9 million. The positive TCE result this quarter reflected a good performance across all our vessel segments and led to an annual TCE of $30,110 per day, which is the highest level since the previous cycle peak in 2015. Gary Chapman: Utilization was 90% in the fourth quarter, right on our benchmark, which is slightly up by 0.7% compared to the third quarter of 2025, but down 2.2% compared to the fourth quarter of 2024. Fourth quarter adjusted EBITDA was $73.4 million, which is the same level we posted in the fourth quarter of last year. Following the record revenue generated across 2025, we are reporting a record annual EBITDA for Navigator Holdings Ltd. in 2025 of $302.8 million. Vessel operating expenses were up compared to the fourth quarter of 2024 at $47.6 million, with the increase primarily driven by the net increase in our fleet size following the purchase of the three secondhand vessels in the first quarter of 2025, as well as simply the timing of maintenance costs incurred. Gary Chapman: We have closed the year close to budget for our OpEx costs, adjusting for the extra vessels, and there is more guidance for 2026 on slide 10. Depreciation is very slightly down compared to previous quarters, despite our now increased fleet, mainly due to two older vessels, the Navigator Pluto and Navigator Saturn, reaching the end of their 25-year accounting life during the fourth quarter, and hence they are no longer depreciated. Whilst it does not yet impact our income statement, we wanted to mention that we received around NOK 9.7 million in November 2025, being the first tranche of the Norwegian government grant from their agency, Enova, towards construction of our two new ammonia-fueled ammonia gas carrier vessels. This represents just over half of the total grant, which the remainder will be paid based on construction progress. Gary Chapman: Our income tax line reflects movements in current tax and mainly deferred tax in relation to our equity investment in the ethylene export terminal, and also in relation to the natural ending of our Indonesian joint venture business, which happened in 2025, and which is not considered a recurring item and effectively represents the cost of our exiting the joint venture and repatriating our assets and profits. Randy will discuss our ethylene terminal shortly, but throughput volumes in the fourth quarter of 2025, as Mads mentioned, were 191,700 tonnes, down from 270,000 tonnes in the previous quarter, but up compared to the same quarter last year of 159,000 tonnes, resulting in us recording a profit this quarter of $0.9 million. Gary Chapman: Overall, for the fourth quarter of 2025, net income attributable to stockholders was $18.5 million, with basic earnings per share of $0.28 and adjusted basic earnings per share of $0.32. This performance in the quarter contributed to Navigator Holdings Ltd. delivering record annual net income of $100.2 million and our highest annual earnings per share of $1.49 since the previous cycle peak in 2015. Our balance sheet, shown on slide 8, continues to build and be strong. Our cash equivalents, and restricted cash balance was $204.9 million at December 31, 2025, which, if you include our available but undrawn revolving credit facilities, gives total liquidity of $296 million at the same date. Gary Chapman: Taking out restricted cash gives total available liquidity of $246 million. This strong liquidity position is despite paying out $34 million for scheduled loan repayments, $10 million under our return of capital policy in respect of the third quarter of 2025, $10 million as payments for our vessels under construction in the quarter, and paying cash consideration of $16.8 million to increase our ownership interest in our Navigator Greater Bay joint venture by 15.1%. Our Morgan's Point ethylene export terminal investment on our balance sheet sits at an equity value of $245 million but is fully unencumbered now, with the final $4 million of remaining debt having been repaid in December 2025. Gary Chapman: Alongside this, we have paid from our own cash a total of $110 million as at December 31, 2025 towards the six vessels we have under construction. The difference of this figure to our balance sheet figure represents capitalized interest under U.S. GAAP. The unencumbered terminal, a number of unencumbered vessels, and the construction payments made from our cash on hand that we will partially recoup as we fix financings for our newbuild vessels, together with the still growing operational cash flow, are reflective of the financial stability and strength that Navigator Holdings Ltd. is able to demonstrate. Gary Chapman: To bring you up to date, including our available but undrawn facilities, we had around $300 million of available liquidity at the close of business on March 11, 2026. On slide 9, we show a summary of the main capital events across the quarter where, with a very supportive banking group and a strong underlying business, we were able to return capital to shareholders, raise funds for the construction of our new builds, reward our shareholders, and continue working on managing our financing needs. We had a particularly active 2025 from a financing perspective, in which the company successfully entered into a new secured term loan to buy three vessels, refinanced existing loan facilities, issued a $40 million tap of our senior unsecured bonds, and executed several new interest rate swaps to reduce our interest rate risk. Gary Chapman: We continued that activity into the first quarter of 2026, such that on March 2, we signed a 5-year post-delivery secured term loan facility of up to $133.8 million, which will be used to finance up to 65% of the delivery and also pre-delivery installments and the construction of 2 of our new Ethylene Panda new build vessels. This transaction was executed at a very low margin cost of 150 basis points plus SOFR. We would like to thank our banking group for supporting Navigator Holdings Ltd., and we really believe the deal and the very keen pricing not only reflects the banking market today, but also the strong and stable credit story of Navigator Holdings Ltd.. Gary Chapman: In addition to our scheduled repayments, we now have only two relatively small debt balloons due in the next 24 months, with payments due in 2026 of $54 million in total that you can see on the bottom left. We continued to make substantial scheduled loan repayments with $34 million in the fourth quarter, and we have an average of $126 million of annual scheduled pro forma debt amortization per year across 2025 through 2028, with our net debt to 2025 adjusted EBITDA sitting at 2.5x at December 31, 2025. In addition, our net debt to our on-water fleet value results in a loan to value or LTV of 32%, which falls below 30% if you attribute any reasonable value against our Morgan's Point terminal. Gary Chapman: We try to use our balance sheet efficiently to allow us to reward our equity holders while also ensuring we maintain a sensible position for the business and our bond and credit investors. This balance is something we are continually evaluating, especially in today's environment. Our next priority is to close financing in relation to our remaining four new-build vessels, and this work is already started with transactions well progressed. We are currently targeting to complete the finance for the remaining two Ethylene Panda vessels in March or latest April 2026 and our two ammonia vessels within the second quarter of 2026. We look forward to being able to report on a successful outcome when this work is complete. Gary Chapman: Finally, at December 31, 2025, 58% of the company's debt was either hedged or was on a fixed interest rate basis, with 42% open to interest rate variability. This is another key metric that we keep under close review. On slide 10, we show our estimated all-in cash breakeven for the full year 2026, which at $20,970 per day per vessel remains significantly below our average TCE revenue for 2025 of $30,110 per day. The graph bottom left shows how this headroom has developed over the last few years, and you will see in there the consistency of our business, particularly in the last four years, but even going back further. Gary Chapman: You can see on the top left that the all-in breakeven rate includes forecast scheduled debt repayments and our scheduled dry dock commitments. The latest figure here is materially unchanged from the estimate we provided on our last earnings call in November 2025. On the right is our updated OpEx guidance for 2026 across our differing vessel segments, ranging from $7,900 per day for our smaller vessels to $11,400 per day for our larger, more complex Ethylene vessels. This guidance also remains materially unchanged from our last quarterly call in November 2025. Below that is further next quarter and full year guidance across vessel OpEx, general and admin cost, depreciation and net interest expense in total dollar terms. Gary Chapman: The full year guidance for vessel OpEx towards the bottom is now lower in total than previous guidance given in November, given we have reduced our fleet size somewhat through vessel sales. Net interest expense is also a little lower than previous guidance given at the same time. However, both are materially unchanged. Slide 11 outlines our historic quarterly adjusted EBITDA, adding this fourth quarter's result. We now have 12 quarters in a row since 1Q 2023 of reporting at least $60 million of quarterly adjusted EBITDA at an average of $71 million over that period. This comes back to our diversification of cargo types and geography that protects the business. On the right side, we show our adjusted EBITDA for 2025 and our fourth quarter 2025 annualized adjusted EBITDA. Gary Chapman: In addition, the bars then to the right provide some sensitivity and illustrate an increase in adjusted EBITDA of approximately $18 million, all other things being equal, for each $1,000 incremental increase in average TCE rates per day. As in previous quarters, an update on our vessel dry dock schedule, projected costs and time taken can be found in the appendix, slide 28, should that detail be of interest. With that, I will hand you over to Øyvind to provide an update on the commercial picture. Øyvind? Øyvind Lindeman: Thank you, Gary, and good morning, everyone. We will go straight to the topic everyone is focused on, namely the war involving Iran. This morning, oil is trading above $100 per barrel, second time since it started. Natural gas in Europe is up by 70% since the bombs started falling. The Strait of Hormuz remains closed. Roughly 1,000 vessels are currently trapped inside the Gulf, and an estimated 3,000 more are stalled across the broader region. A significant number of oil tankers, gas carriers, and bulkers are caught up in the disruption. 3 handysize vessels are trapped inside, none from Navigator Holdings Ltd.. A major portion of Middle East exports of oil products, LNG and LPG, representing roughly 20%-30% of global supply in some categories is effectively shut in. That leaves producers, consumers, and shipowners in a very difficult position. Øyvind Lindeman: India, for example, relies heavily on Middle Eastern LPG for heating and cooking. Asia, more broadly, it depends on Middle East for energy, and refineries depend on crude oil to produce derivatives such as naphtha, which in turn is a critical feedstock for petrochemicals, including ethylene. Naturally, this has triggered an immediate scramble to source alternative supply. How does this affect our Handysize business? Let us turn to page 13. The map shown here was taken from our operating system this morning. It shows the entire Navigator Holdings Ltd. fleet. It has a very important story, though. First, to repeat, we have zero vessels inside the Middle East Gulf. Second, we have zero vessels positioned nearby in ballast, waiting for the Strait to reopen. Øyvind Lindeman: Third, the vast majority of our fleet is deployed elsewhere, trading from the U.S. to Europe, trading from U.S. to Asia, trading from Europe to Asia via the Cape of Good Hope, and in regional trades within Europe, within the Mediterranean, and within Southeast Asia. Out of our 55 vessels, only 4 had been engaged in Iraq LPG exports. Importantly, those vessels are on time charter. That means whether they are actively sailing or temporarily idle, hire continues to be paid, much like a leased car where payment is due whether the vehicle is being driven or not. Even so, those vessels have already demonstrated the flexibility of the handysize segment by securing alternative supply position, loading LPG from places such as South China and Australia. We are frequently asked a version of the following question. Øyvind Lindeman: If 30% of LPG supply is effectively shut off from the Middle East Gulf, and now that the VLGC Baltic Index has stalled due to the lack of concluded trades, and most VLGCs are ballasting toward the only major alternative export region, U.S. and Canada, is the situation the same for Navigator Holdings Ltd.? The answer often surprises people. Mads mentioned it, but across the entire global handysize segment, only 3% of total transported volume originates from inside the Arabian Gulf, and that again is 3% only. It is a very small number, and it means that there has been far less knee-jerk repositioning, speculative ballasting, or dislocation in the handysize segment than what is apparent in larger vessel classes. In fact, many operators in larger segments would welcome the degree of geographic and cargo diversification that we have. Øyvind Lindeman: I have said it many times before, and it is worth repeating again, we are not a one-trick pony reliant on one loading region for one cargo. That diversification, both geographic and by cargo type, is working to our advantage in the current environment, which is shown on page 14. Demand for C2 cargoes such as ethylene and ethane is firm. Demand for easy petrochemicals such as butadiene is firm. Demand for ammonia is increasing. LPG demand remains steady. We do not yet have final March figures, but utilization, as you see on top left graph, improved over the first couple of months of the first quarter. At this moment in time, we do not expect any material change to our quarterly outlook. If we go a level deeper in the diversification story on page 15, the picture becomes even clearer. Øyvind Lindeman: As mentioned, the Arabian Gulf accounts for only 3% of total global Handysize volumes over the last few years. That is modest, especially compared with crude tankers and larger gas carriers, as we mentioned. By contrast, for Navigator Holdings Ltd. specifically, approximately 60% of our earning days are generated from North America, and those earning days are in turn diversified across three categories, 67% petrochemicals, 21% LPGs, and 12% ammonia. We also see incremental opportunities emerging elsewhere. Venezuela is beginning to come back into the market. Two LPG cargoes have been exported so far this year, one discharged in the U.S., believe it or not, and one in the Dominican Republic. We fully expect to be contracting Handysize vessels for Venezuela LPG exports in the near term. That would represent incremental demand for our fleet. Butadiene continues to be an important source of ton-mile demand. Øyvind Lindeman: To put that into perspective, a single Handysize cargo of 13,000 metric tons shipped from Europe to Asia via the Cape of Good Hope can generate roughly three months of vessel employment, and that is pretty meaningful to us. On ammonia, we are beginning to see some of the same dynamics that we saw 4 years ago following the outbreak of the war in Ukraine. As natural gas prices rise, ammonia production economics become more challenged in certain regions, especially in Europe, with consumers looking for more cost-effective alternatives. Instead of producing, they can import. We are actively engaging on a number of customer inquiries in this particular area. A similar pattern is developing in the U.S. ethane and ethylene exports, as shown on page 16. Ethane prices remain stable. Just as a reminder, ethane is the most efficient feedstock for ethylene production. Øyvind Lindeman: In a world where ethylene producers are paying extremely high prices for naphtha, or in some cases are struggling to source naphtha at all, those producers with access to ethane-based cracking enjoy a significant competitive advantage. Ethane exports should therefore remain resilient, and we have ethane-capable vessels currently employed in this trade and others positioned to serve exactly this demand. U.S. ethylene prices have risen in response to stronger international pull. However, import prices internationally have risen even more, which means the arbitrage has widened. Today, Europe is the highest price destination, and unsurprisingly, that is where the product is moving. From our perspective, we are happy with that dynamic as long as fleet utilization remains high and day rates remain robust, which they are. At our Morgan's Point ethylene export terminal, March is on track to be an all-time record month for volumes. Øyvind Lindeman: In fact, we are receiving indications that throughput may exceed even what you see here, being the Kpler forecast in the graph. This is definitely a space to watch closely. More broadly, we continue to see structurally increasing flow of hydrocarbons from the United States of America to Europe. Europe needs American hydrocarbons, and our Atlantic trade is becoming increasingly structural in nature. By contrast, the Trans-Pacific trade to Asia remains more ad hoc and opportunistic. Turning to fleet supply on page 17, the outlook remains supportive, as Mads mentioned, in his opening remarks. Fleet supply has been unchanged for more than a year. The order book stands at only around 10% of the existing fleet, while 17% of current vessels are already more than 20 years of age. Øyvind Lindeman: That creates a healthy supply-demand balance over the medium term, and importantly, if a new vessel were to be ordered today, they would not be delivered before 2029. Finally, on earnings and chartering condition on page 18, our all-in cash break-even has already been discussed earlier on the call. Current charter rates remain well above that level of $20,970 per day. Time charter discussions are taking place at levels above what you are looking at here, which represents the assessed 12-month charter rates from independent brokers. Certain spot trades, due to all the volatility and the attractiveness of American NGLs that we are involved in, are achieving materially high returns due to this volatility. When we step back and look at the overall picture, what we see is this. Øyvind Lindeman: While the geopolitical situation is clearly severe and highly disruptive for global energy markets, our fleet positioning, cargo flexibility, and geographical diversification leave us comparatively well-placed. In periods like this, resilience matters, and our Handysize platform is demonstrating exactly that. Over to you, Randy. Randall Giveans: Thank you, Øyvind. Now, following up on several announcements we made in recent months, we want to provide some additional details and updates on those developments. On slide 20, as a reminder, our recently improved return of capital policy includes a fixed quarterly cash dividend of $0.07 per share as part of our quarterly payout percentage of 30% of net income. As a result, during the fourth quarter, we paid a $0.07 quarterly cash dividend totaling $4.6 million, and we repurchased over 300,000 common shares of NVGS in the open market, totaling $5.4 million for an average price of $17.68 per share. Now looking ahead, in line with that new return of capital policy, we are returning 30% of net income or a total of more than $5.5 million to shareholders this quarter. Randall Giveans: The board has declared a cash dividend of $0.07 per share payable on March 31, 2026, to all shareholders of record as of March 23, 2026, equating to a quarterly cash dividend payment of $4.6 million. Additionally, with Navigator Holdings Ltd. shares trading well below our estimated NAV of north of $29 a share, we will use the variable portion for the return of capital policy for share buybacks. As such, we expect to repurchase $1 million of our shares between now and quarter end, such that the dividend and share repurchases together equal 30% of net income. As Mads alluded to, we continue to repurchase shares and believe there is upside from here. Randall Giveans: Turning to our ethylene export terminal on slide 21. As guided, ethylene throughput volumes fell slightly to almost 192,000 tons during the fourth quarter as European ethylene demand softened and end users reduced inventories and vessel availability remained relatively tight. Now despite those lower volumes, it was encouraging to see some new customers step in to take cargoes, spot cargoes to both Europe and Asia during the quarter. Now to the really good news. As you will see in the bottom left chart, we expect volumes in March to reach a record high of close to, if not more than, 120,000 tons, which could result in a quarterly high in the first quarter of 2026. Randall Giveans: Now looking at the bottom right chart, despite the near term increase in U.S. ethylene prices, the arb remains wide open as multiple European crackers are undergoing turnarounds and Asian demand for U.S. ethylene is also increasing due to that recent surge in oil-based naphtha prices, as Øyvind was mentioning. Longer term, the forward curve remains stable around $0.21 per pound or $460 per ton. Now as for contracting the expansion volumes, we have been saying that new offtake contracts would be coming soon, and we are pleased to announce that 2 new offtake contracts have been signed in recent months. Now we continue to expect additional offtake contracts will be signed throughout this year as customers continue to request updated terms for both the terminal and for shipping. In the meantime, we will continue to sell volumes on a spot basis. Randall Giveans: Now turning to our fleet on slide 22. Our fleet renewal program continues to progress, most recently through the sale of two of our oldest vessels. On the same day in January, we sold the Navigator Saturn, a 2000 built, 22,000 cubic meter ethylene-capable handysize gas carrier to a third party for almost $16 million, netting a gain of over $10 million. We also sold the Happy Falcon, a 2002 built, 3,700 cubic meter semi-refrigerated small gas carrier to a third party for $4 million, netting a gain of almost $2 million. That roughly $12 million profit will be booked in our first quarter 2026 results. We now have 8 vessels over 15 years of age, all of which are debt-free, and we continue to engage buyers who are showing interest in acquiring these older vessels. Randall Giveans: Now on the other side of the equation, we will continue to pursue accretive second-hand vessel acquisitions as well, and we will also acquire more of our own vessels through share buybacks. Now as a result of our recent sales, our current fleet now consists of 55 vessels with an average age of 12.6 years and an average size of over 21,000 cubic meters. To note, we continue to upgrade our vessels with various energy savings technologies. More details on slide 28. We recently started rolling out new artificial intelligence or AI programs to make our fleet even more efficient. With that, I will now turn it back over to Mads for some closing remarks before we get to Q&A. Mads Peter Zacho: Good. Thanks a lot, Randy. As you can all see, Q4 was a steady quarter with financial and operational performance that was much in line with the previous quarters. Our financial standing remains strong with ample financial reserves, few upcoming maturities and a well-managed interest rate risk. Looking into this first quarter, we already delivered the first 2 new building financings at record low margins, and we are well on track to secure the remaining 4 within the first half of 2026. Cash reserves are expected to be further strengthened through the sale of older tonnage at attractive prices. The war in the Middle East brings uncertainty, but also opportunities for Navigator Holdings Ltd., as just described. We experience increased demand from customers due to new trading patterns emerging, especially for U.S. exports. Venezuela is another emerging opportunity in front of us. Mads Peter Zacho: This all comes on top of what we consider a fundamentally sound demand and supply outlook, where growth in the U.S.-based NGL production is very likely to exceed the global vessel supply growth. Thanks a lot for listening, and back to you, Randy. Randall Giveans: Thank you, Mads. Operator, we will now open the lines for some Q&A. To raise your hand, press star nine, and then you will have to unmute yourself by pressing star six. Or if using Zoom, just use that Raise Hand function. First question, your line should be open. Chris Robertson: Hey, good morning, everybody. This is Chris Robertson at Deutsche Bank. Thank you for taking my questions. Just to recap on the Middle East situation, what might be the impact from the larger segments here? I know that you guys do not necessarily compete in the same trades as VLGCs, but any risk here that the VLECs or ACs can cannibalize some of the trade if they ballast to the U.S.? Can you talk about the potential on that? I guess it depends on the duration of the current situation, of course, but any downside risk from that? Thanks, Øyvind. Just looking at March here in terms of ethylene, a lot going on on price inputs and all these types of things. There is also some unplanned and planned disruptions and turnarounds in the U.S. Gulf Coast. I think 6% of North American ethylene capacity is going to be offline this month by some of your competitors. Can you talk about maybe the landscape here? You mentioned it earlier. Inquiries on both a contract and in spot basis, are you seeing an impact of course from the Middle East situation? Are you seeing an impact from this outage situation making your volumes more competitive here? Øyvind Lindeman: I think how to look at it. VLGCs, they do LPG. Clearly, if I was a VLGC owner and Strait of Hormuz is shut, that delivers up to 30% of my exports, then I would ballast to the U.S. and see if I can get a cargo slot or berth availability, which is scarce because they have been running quite full anyways. That is a VLGC conundrum at the moment. How does it impact Navigator Holdings Ltd.? You need to understand that we, Navigator Holdings Ltd., we do not do LPG from U.S. to Asia. We do ethane and ethylene, and VLGCs cannot do that physically. The impact from that dimension limited. You know, our Atlantic trade for Handysize remains LPG, ammonia. VLGCs never do ammonia and also ethane and ethylene. Yeah, limited impact on the downside should it be a pile up of VLGCs in the U.S. Gulf. Different businesses. March looking very strong as we showed. Sentiment continues the same into April. I think while there might be reduction in production in the U.S. domestically, I think the international demand outweighs that. That is why you see U.S. prices increasing. However, international markets needs it, and therefore bidding even higher than that, encouraging exports. I think what is the direct impact of Middle East taking the driver's seat in this one. Randall Giveans: Thank you, Chris. Next caller, your line should be open as well. Spiro Dounis: Hey, guys, Spiro Dounis from Citi. Glad to hear your crews are staying out of harm's way. Hope that continues. And maybe starting kind of on that topic, just kind of trying to think about your chartering strategy as you think about the rest of the year in the context of some of this Middle East volatility. Sounds like you are constructive on prices and rates moving up from here. At the same time, you probably want to preserve some of that upside optionality. Øyvind, how are you thinking about locking in vessels for term here, maybe leaning into some of the stronger market to do that, once things have settled down a bit? Understood. Second question, maybe going to the fleet renewal. You called out in the slides about 8 more vessels older than 15 years old that could be sales candidates here, I think all of which are unencumbered. Based on my math, I think those are worth collectively over $200 million. I am curious, is that consistent with your view on the valuation there? As you think about reallocating that capital, what would be optimal and best use today if you were able to sell those in the near term here? Øyvind Lindeman: It is very dynamic. We have never been in a position where we want to go 100% term, and conversely, never been, it is not part of our strategy to be a 100% spot either. Generally, we have been operating the last 10 years between 30%-50% cover. If there is an opportunity to lock in an attractive rate historically, then yes, we definitely pursue that. But it is more, you know, with 55 ships, then I think we are pretty well covered today. We are looking at some extensions and so forth at the decent rates, which we will probably do, but no huge change from what we have been doing over the last few years. Mads Peter Zacho: Yeah, I think doing it in the very near term would be difficult. I mean, these vessels are not sold in a very liquid market. As you have seen also over the past 2, 3 years, what we have done is we have sold 2, 3, 4 per year. We might be able to do that a little bit faster, but I think you should assume that this is going to take at least a year or 2. I think that the valuation is quite attractive as you suggest here, and it would free up a lot of additional capital. As Gary was just talking about and me also, we have a robust balance sheet at this point in time. It would constitute, you could say, excess capital that would open up for further capital repatriation. We would not go and plow it into a new building market or buy vessels at high prices for the time being. We would be selective as we always have been. Last year, we bought three vessels that were in a distressed situation, and we bought them at very attractive prices. We always are on the lookout for that. Other than that, the consolidation opportunities are few and far between. I think we would be in a situation where we would probably have more cash coming in than good uses for it in the new building or second-hand market. Capital return would be a big proportion of that. Spiro Dounis: Great. I will leave it there for today. Thank you, gentlemen. Mads Peter Zacho: Thank you. Randall Giveans: Thanks, Spiro. Next caller, your line should be open. Omar Nokta: Thank you. Hey, guys, it is Omar Nokta from Clarksons Securities. Thanks for the update. Obviously, a lot going on. Wanted to maybe just touch base back to the Middle East situation, you know. Just on our ethylene exports from the U.S., you highlighted that in the fourth quarter, about maybe 84% of U.S. exports went to Europe and really just 11% to Asia. How do you see that mix evolving here? You mentioned it a bit in your comments, and you can see from the terminal that you have had a nice move up and throughput for March. I guess, how do you think of that mix shaping up here for, say, the month of March? What would that impact be on freight rates? Øyvind Lindeman: Thank you, Omar. Perhaps, Randy, you can add some additional color. In one of the graphs on, in the presentation, we included up to February. Up to February, January, February, 100% to Europe. Now, Iran happened on the 28th of February, I believe. What is going to happen in March? We are just on the 12th of March, and you would expect that some of that ethylene exported in March will head to Asia because naphtha and these other things we talked about, the dynamics there are completely turned upside down. We expect that to happen. Now, on the ton-mile demand, that obviously is a positive. A voyage to Asia from U.S. Gulf is longer than a voyage to Europe, we welcome those changes. Should the ethylene go continue to 100% go to Europe. I think in a situation today where utilization is quite high and rates are quite good, then we will be happy with that too. Obviously, the more that goes to Asia, the better it is. Omar Nokta: Cool. Thank you, Øyvind. Then just a follow-up. Saw the five-year charter, or perhaps it is an extension, on the Navigator Aurora, taking that vessel's employment up to 2031. Any details you are able to give us on, you know, the terms of the charter? I know obviously you do not necessarily give specifics on rates, but, you know, what it is going to be doing, what it is going to be carrying, for the duration of the charter. Then, you know, given that you have those four ethylene MGCs now fully contracted, how confident are you with the four that you have under construction, about getting long-term contracts as well? Øyvind Lindeman: At least the first part of the question, the Navigator Aurora, since delivery, has been trading with the Borealis, a petrochemical producer, bridging or taking ethane from U.S. East Coast, primarily from Marcus Hook, to Stenungssund cracker that they converted to be able to use ethane, and therefore bring the U.S. advantage to Sweden ethylene production. She will continue to do that. Over the next five years, she will maintain that virtual pipeline between the U.S. East Coast and Sweden. Omar Nokta: Thank you. Just in terms of, you know, expectations on the new buildings, do you have conviction that you will be able to secure them on long-term charter, as well? Øyvind Lindeman: We are- Omar Nokta: Is that increased or? Øyvind Lindeman: We are very- Omar Nokta: Yeah, you probably want to share. Øyvind Lindeman: We are very confident when we ordered it, and today, with everything that happened in Middle East, we are even more confident. Why? Because if you are running a ethylene production plant in, say, Asia, and you are facing these immense disruptions, you think twice about continuing how you have been doing it, and rather, contract ethane from U.S. In any case, we are confident. Omar Nokta: Very good. Thank you, Øyvind. Thanks, guys. I will pass it back. Randall Giveans: Thanks, Omar. Good to have you back. Next caller, your line should be open. Clement? Climent Molins: Hey, guys. This is Clement Mullins. I am from Value Investor's Edge. Thank you for taking my questions. This is kind of a follow-up to Øyvind's latest commentary, and although it may be too early to ask, have you seen increased interest or urgency, let us say, from potential customers for the ethylene export terminal since the war in Iran started? And secondly, have you sold spot cargos in recent weeks from the terminal? To what extent should we expect a contribution from this in Q1? Øyvind Lindeman: The answer is. The first part of the question is yes. We have seen increased interest for U.S. ethylene. You can see that in one of the pricing graphs. While U.S. domestic price, ethylene prices have gone up. Why have they gone up? Because there is obviously demand, international demand, pulling prices up, and then, the commentary also was that international prices are gone up even more than the U.S. increase, therefore encouraging trade. Ethylene are being sold both on contract and spot in March. March is looking very healthy on the terminal side, as Randy and I mentioned. That was also before what happened, because nominations for the terminal happens, sort of in the middle of the month for the previous month. The terminal was pretty full even before this thing happened. Yeah, we remain quite optimistic. Randall Giveans: Yeah. A lot of the flurry of incremental spot cargos, they are asking, "Can you get it as soon as possible?" Right? In March, we are pretty much sold out. A lot of that will bleed into April, so that bodes well for the start of the second quarter as well. Climent Molins: Okay. That is very helpful. Thank you, guys. I will turn it over. Randall Giveans: We have a few other questions. This one for Gary, that was included here. In terms of the new build financing, congrats on that. Do we have any updates for the remaining four new build vessels in terms of financing and the potential timing of those? Should we expect similar terms for those? Gary Chapman: Yeah. Thanks, Randy. As I mentioned in the first half of the call, we have got two more vessels under a financing package that we are hoping to close either this month or the very latest next month. That is for the other two Panda financings. The ammonia vessels, we are hoping and expecting to get that done within the second quarter, certainly by the end of June. I think that is very comfortable. In terms of terms, as I also mentioned, I think Navigator's credit at the moment is very good, and the banking market is also very good. We have got two things there working very much in our favor. We are very much expecting strong terms on all six vessels by the time we close. Obviously, there are some external factors here, but so far we have not really seen any impact on financing or banking activity and behaviors so far. I think that probably will hold because I think this hopefully is a short-term situation compared to, say, a 5 or plus year financing arrangement. Randall Giveans: Thank you. Øyvind, for you, can you please discuss the force majeure clauses in your time charters? Øyvind Lindeman: Time charters are generally like you lease a car, and if that road is blocked, you take a different road. Same for shipping. You lease a ship, you charter a ship, and it is up to you to decide where you are going to sail her. Even if Hormuz Straits are closed, it does not constitute cancellation for those ships. Randall Giveans: Perfect. Question here on the magnitude of the ethylene offtake agreements. Are Asian buyers looking at spot cargos or longer term commitments, and will the export terminal performance be more consistent in 2026 than 2025? I will start there. We, you know, we have not disclosed the terms in terms of the duration or the magnitude of the offtake agreements, but clearly you have seen that already coming through the system, both more offtake in terms of term as well as spot cargos pushing up volumes in the first quarter and beyond. We are still actively negotiating some of the volumes, so we do not want to go into too many details there. In terms of the Asian buyers, it is a combination of spot cargos coming to the market immediately and also longer term commitments. Again, a lot of that is based on the higher naphtha prices. The third part here, will the export terminal performance be more consistent in 2026 than 2025? We certainly hope so. But yes, I think if you saw on the first quarter of 2025, it was a loss, right? We had 85,000 tons for the entire quarter. First quarter of 2026 will certainly be a gain and at least triple that. The first quarter certainly at a much stronger start than the first quarter of 2025. As I mentioned, a lot of that strength is already bleeding into April and beyond, more offtake commitments, all of those things. I think we can confidently say that from today, 2026 should be much better than 2025 from the terminal perspective. I think that completes our Q&A. Mads, any final comments before we end the call? Mads Peter Zacho: I just want to say, thanks a lot for listening here and for the great questions that you brought. You know where to catch us if you have more questions. Other than that, we look forward to reporting next time in early May on the Q1, a quarter that has started with business as usual, but surely brought March, which brought an entirely new dynamics here. As we have discussed in the call so far, that there are a lot of opportunities that are coming our way, and we will of course take advantage of those. Thanks a lot.
Operator: Good morning, and welcome to Alliance Laundry Holdings Inc.'s Fourth Quarter and Full Year 2025 Earnings Conference Call. With us today are Michael Schoeb, Chief Executive Officer, Dean Nolden, Chief Financial Officer, and Robert Calver, Vice President of Investor Relations. After the speakers' prepared remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. We ask that you please limit yourself to one question and one follow-up, then return to the queue if needed. With that, it is my pleasure to turn the program over to the team. Robert, please go ahead. Robert Calver: Thank you, Operator, and good morning, everyone. Along with today's call, you can find our earnings press release and presentation on our Investor Relations website at ir.alliancelaundry.com. A replay will also be available on our website following the call. As a reminder, today's earnings release, presentation, and statements made during this call include forward-looking statements under federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include factors set forth in the earnings release and in our filings with the SEC, including the Risk Factors section of our IPO prospectus and subsequent 10-K filing. We assume no obligation to update or revise any forward-looking statements except as required by law. Additionally, during today's call, we will discuss certain non-GAAP financial measures outlined in our earnings presentation. We believe these measures are important indicators of our operations as they exclude items that may not be indicative of ongoing business performance. Reconciliations to the most directly comparable GAAP measure can be found in our earnings release and presentation appendix. I will now turn the call over to Michael. Michael Schoeb: Thanks, Robert, and thank you all for joining us this morning for our first full year earnings call as a public company. I'll discuss our strong full year performance, key drivers of our success, and how we're well-positioned for continued growth. Dean will then walk through our financial results in detail and introduce our 2026 guidance. We'll conclude with Q&A. I want to start where I always begin, which is with appreciation for our employees around the world, our customers, distribution partners, and our shareholders and analysts. We value your trust and engagement. 2025 was a landmark year for Alliance Laundry Holdings Inc. Our results demonstrate what we have been talking about since becoming a public company, that a resilient, replacement-driven, essential industry, a market-leading position, and disciplined operational excellence delivers strong outcomes. Now before we get into our results, let me walk you through how I think about the business. First, our industry. Commercial laundry is a vibrant, growing, and essential part of modern life. Laundry is not discretionary. It performs across all economic cycles, providing a level of growth, consistency, and downside protection that is hard to find. Every time there's a macroeconomic event or noise in the world, we're reminded of how fortunate we are to be a part of this incredible industry. After all, as we said on our roadshow, every day is laundry day. Second, our leadership position. We are the number one pure play commercial laundry manufacturer in the world, and we have built striking advantages over any other competitor. Our scale, our global footprint, and demonstrated manufacturing prowess exist to deliver what our customers want most and need to run their businesses efficiently. They are incredibly sophisticated, and they understand that long life, durability, and reliability, combined with world-class aftermarket capabilities, result in a favorable total cost of ownership. Initial price is always important, but what we hear again and again is, "Please do not lower quality." That is what drives us and helps strengthen our leadership position. In my nearly 20 years with Alliance Laundry Holdings Inc., I've never been more confident about the opportunities ahead of us. Turning now to our Q4 and full year highlights on slide four, we finished strong in Q4, with revenue up 10% year-over-year, driven by strong volume growth alongside selective price realization. For the full year, we delivered total revenue of $1.7 billion, up 13% versus the prior year, and Adjusted EBITDA grew 14%, with a record full year Adjusted EBITDA margin of 25.5%. Nearly all of our growth for the quarter and full year was organic in nature. 2025 marks our second consecutive year of double-digit growth on both the top and bottom line, continuing our long track record of compounding above the market from a revenue base that is 25% larger than just two years ago. Full year growth was driven 70/30 by volume versus price, with Q4 normalizing to a more historical even split. This is consistent with the dynamics we've seen in this industry over many cycles, where our diversification in product, geography, and end markets provides multiple avenues for growth. We strengthened our balance sheet, reducing net leverage to 2.8x, a reduction of 2.2 turns, roughly equally from operational de-leveraging and our successful IPO in October. We continue to invest in the business. Capital expenditures of $54 million were invested in capacity expansion, automation, and new product development, with increased investment to further support our digital and engineering capabilities to enhance innovation and Alliance Laundry Holdings Inc.'s competitive differentiation. Before we take you through our 2025 performance in more detail, let me step back and remind you why we are confident. Alliance Laundry Holdings Inc. stands alongside the very best industrial companies, not just in growth, profitability, and free cash flow generation, but across every dimension that defines a great industrial business. On slide five, we believe there are four factors that define why Alliance Laundry Holdings Inc. wins and is able to create sustainable long-term value. First, we operate in a very attractive industry. Commercial laundry is essential to everyday life. It is not cyclical, offering downside protection in economic uncertainty and steady replacement-driven demand. Second, we believe Alliance Laundry Holdings Inc. has a sustainable competitive advantage. Our financial scale is more than twice that of our nearest competitor. We operate a global manufacturing and engineering platform across three continents that few, if any, competitors can replicate. That scale is both a barrier to entry and a growth enabler. Third, we have a proven team that has delivered across economic cycles, and 2025 was no exception. Fourth, we have a compelling growth algorithm supported by systemic tailwinds. Next, I want to spend some time clearly laying out what defines Alliance Laundry Holdings Inc.'s culture, its leadership, and consistent success. Slide six captures this well. First, we are a pure play commercial laundry company. This means every investment dollar, every engineering hour, every strategic decision is focused on one thing: commercial laundry. Even our residential product is a commercial machine sold into the home through independent retailers and has minimal exposure to new construction housing cycles. Our commercial and home customers buy for many reasons, but it is largely because they too are searching for low total cost of ownership. They tend to be more affluent given our price point, or they are processing large volumes of laundry, such as those with large families or blue-collar workers who work in fields such as agriculture, oil and gas, or are mechanical. Let me emphasize again, we are replacement driven. Secondly, everything we do is built around delivering total cost of ownership. Our customers are clear. Don't cheapen the product, don't cut corners, don't sacrifice quality. This doesn't mean our teams are not focused on cost, but it does mean we are very methodical and test extensively to ensure we protect our TCO that customers value. Thirdly, our value proposition is supported by high-quality distributors who provide premier pre- and post-sale support and service that our end customer and operators demand. Over decades, we have intentionally built a global distribution network of over 600 partners. These are businesses whose economics are centered on capital-efficient, demand-driven ordering. They do not hold large inventories or over-purchase ahead of demand. Our delivery capabilities mean there is no incentive to do so. The results we see clearly mirror end market demand with limited order pattern distortions that can affect other industrial businesses. Importantly, commercial laundry is mission critical. Laundromats, hospitals, hotels, and communal laundry facilities need their machines to run regardless of the interest rate cycle, AI CapEx trends, construction activity, or any single macro theme. We believe this genuine non-cyclicality is underappreciated relative to other industrial businesses whose end markets are more driven by volatile or cyclical demand dynamics, and it is a distinction we think will increasingly differentiate Alliance Laundry Holdings Inc. Now, I'll highlight a few initiatives that made 2025 such an excellent year. On the innovation front, we launched multiple industry-leading products. We continue to expand ProCapture, our unique and patented lint filtration system, across more of our product lines. We launched the T55 Stacked Tumbler, the industry's largest stacked dryer. We launched Scan-Pay-Wash, a first of its kind cashless payment solution requiring no app download that has seen faster adoption than we have seen for any previous digital launch, with more than a third of a million transactions. Let me repeat, a third of a million transactions processed to date. We began selling Stax-X, a stacked washer and dryer for laundromats, developed entirely at our Thailand engineering center for Asian markets, and that has seen strong initial demand. Supporting our clear value proposition, our global test lab teams carried out over 5 million hours of physical product testing in 2025. This is the equivalent of more than 570 years of continuous testing conducted in a single year across our testing bays worldwide. Reflecting on our commitment to quality and durability, our testing hours will increase significantly in 2026 as our new facilities in Thailand and the Czech Republic are fully ramped up. We also expanded our direct business in Q4, acquiring one of our New York-based distributors, deepening our direct presence in one of North America's most attractive urban markets. Just last week, we closed on an additional acquisition to further consolidate our position in that same market. We invested $54 million to expand capacity, add automation, and launch new product lines in all of our global facilities, and enhanced our advanced testing capabilities worldwide. Alongside these investments, our cost down initiatives, operational excellence programs, and supply chain optimization delivered approximately 80 basis points of gross margin expansion, supporting our continued margin expansion trajectory and focus on investing in growth. Finally, we successfully established ourselves as a public company, which allowed us to significantly delever, strengthen our balance sheet, and provide capital allocation flexibility to support growth as we move into 2026. We also strengthened our governance, reporting, and Investor Relations functions to support our long-term growth. On slide eight, let me turn to our 2026 strategic priorities. We are fortunate to operate in a very stable market that grows consistently through economic cycles, and we see healthy demand into 2026 and beyond. This demand is broad-based across our key geographic markets with strength across our vended, on-premise, and commercial and home product offerings. Dean will walk you through our detailed guidance for 2026, but as it is every year, our first priority is to deliver profitable growth. At a high level, we expect revenue growth of between 5% and 7%, split roughly evenly between volume and price, and Adjusted EBITDA growth of between 6% and 8%, implying continued margin expansion despite the increased costs of being a public company. As we've shared previously, the global commercial laundry industry grows at approximately 5% per year. Our 2026 guidance of 5%-7% revenue growth means we expect to continue to compound above the market. The demand environment has not changed, and we believe Alliance Laundry Holdings Inc. will continue to outgrow the industry. Secondly, we will continue to invest in innovation and new product development. We have a robust pipeline planned across multiple categories with continued evolution of our physical products and digital platform to meet the growing demand for solutions across our end markets. Third, drive manufacturing and operational excellence. We will continue to invest approximately 3% of revenue in CapEx on top of the 2% of revenue we expect to spend annually on physical and digital product development and innovation. These investments will drive efficiency, they will add capacity, and they will allow us to accelerate profitable growth. Fourth is accelerate digital adoption. Our connected equipment base grew to 245,000 machines at year-end, up 25% year-over-year. This matters because every connected machine provides valuable insights to operators, allowing them to increase revenue and improve efficiency. We believe it makes us the obvious first choice when they buy. If we do it right, we will be the preferred choice when time comes to replace their equipment. Finally, maintain our disciplined approach to capital allocation, continuing to delever organically by thoughtfully investing in long-term growth opportunities and maintaining flexibility to opportunistically return capital to shareholders. With that, I'll turn it over to Dean to walk through the financial details. Dean Nolden: Thanks, Michael. Starting on slide nine, I'll walk through our strong fourth quarter results and balance sheet position, then cover 2026 guidance and capital allocation. Fourth quarter net revenue was up 10% to $435 million versus the prior year. We saw real unit volume increases across our end markets, which contributed roughly half of the growth in the quarter with the balance from price. This reinforces what Michael said earlier. This is a demand-driven growth story supported by both volume and price that is consistent with the durable growth pattern we've seen in this industry over time. Q4 gross profit was up 16% to $161 million or 37% of revenue, with gross margin up 190 basis points versus the prior year. Margin expansion was driven by strong volume and successful cost down initiatives in the quarter and supported by pricing actions that largely offset the approximate $5 million impact of tariffs in the quarter. Q4 operating expenses were $97 million or 22.4% of revenue, including a $16 million non-cash charge for performance-based option vesting related to our IPO. Excluding this one-time item, operating expenses as a percentage of revenue were consistent with our expectations and reflect the full quarter impact of public company costs and our continued investments in commercial, engineering, and digital capabilities. Adjusted EBITDA was up 17% to $107 million or 24.5% of revenue in the quarter, which was a 140 basis point improvement in profitability. We are proud of the quality of our growth with revenue up 10% and Adjusted EBITDA up 17%. Alliance Laundry Holdings Inc.'s ability to consistently drop more to the bottom line than add at the top is a function of our scale advantage in operating discipline, plus strong incremental margins on higher volumes. Q4 adjusted net income was up 18% year-over-year to $49 million, which excludes the previously referenced vesting of stock options at IPO and other non-operating or non-recurring items. The improvement was driven by strong operating performance and significantly lower interest expense following our debt reduction actions. Our Q4 effective tax rate was 35.6%, resulting in a full-year effective tax rate of 26.3%. This is elevated versus the prior year due to approximately $4 million in discrete non-cash charges, primarily related to our transition to public company status and a valuation allowance increase against certain foreign tax credits. Excluding those items, our Q4 and full-year rates would have been 21.4% and 23.5% respectively. We ended the year with total debt of $1.4 billion, down from $2.1 billion at the start of the year, and cash of $123 million. Net debt of $1.2 billion represents a net leverage ratio of 2.8x Adjusted EBITDA, a reduction of 2.2 turns in a single year. Approximately 1 turn of that deleveraging was funded by cash from operations, which increased 46% versus the prior year, and from Adjusted EBITDA expansion, with the balance funded by IPO proceeds. Our strong operational cash generation demonstrates our capability to continue deleveraging going forward. Turning to slide 10 and drilling into the segments for Q4. North America revenue was up 9% to $317 million, with Adjusted EBITDA up 15% to $88 million and margin increasing to 27.9%. This margin level is consistent with our historical performance in the segment and reinforces our ability to expand Adjusted EBITDA margins as we scale on our existing manufacturing footprint. Growth in Q4 was broad-based across all three end markets. Our vended markets, both retail laundromats and communal laundry and multi-housing locations, delivered strong growth driven by new store development and existing operators modernizing their fleets with higher capacity digitally connected equipment. On-premise delivered solid results driven by predictable replacement demand that characterizes their end market, and commercial and home continued to outpace the industry. International Q4 revenue was up 12% to $118 million, with Adjusted EBITDA up 25% to $29 million. Our margin of 24.8% represents 260 basis points of expansion year-over-year. This margin expansion reflects both the mix benefit from a growing European business and improving operating leverage as we scale our international business on our existing manufacturing platform. Europe continued its strong momentum. Our total cost of ownership value proposition resonates strongly in this market as it has an operator base that is actively investing in fleet upgrades and energy efficiency. The margin profile of our European business is accretive to the overall international segment. As Alliance Laundry Holdings Inc. continues to scale in this, it has a meaningful positive impact on segment-level profitability. In Asia-Pacific, the launch of our Stax-X stacked washer-dryer has been well-received. We've been encouraged with the early customer adoption and the meaningful long-term growth platform it represents heading into 2026 and beyond. For full year 2025, North America delivered revenue of $1.3 billion and Adjusted EBITDA of $361 million, both up 14% year-over-year. EBITDA margin remains strong at 28.5%, which speaks to the quality of growth we're generating in this segment. Again, growth was broad-based across all of our end markets, with attractive underlying volume growth complemented by continued price realization. Commercial and home significantly outpaced the industry as consumers continued to choose our brand for durability and reliability. Vended market growth was solid and supported by new store development and fleet modernization. On our on-premise laundry delivered steady growth through structural replacement cycles complemented by new locations. International delivered revenue up 10% to $440 million, with Adjusted EBITDA up 17% to $121 million. Adjusted EBITDA margin of 27.4% was up 160 basis points and reflected strong performance while continuing to make investments in emerging market expansion and sales infrastructure. Europe was a standout performer throughout the year, driven by our Speed Queen licensed store strategy. We saw ongoing growth in our licensed store model, as well as strong results across our direct sales offices in this region, with our licensed store model continuing to gain momentum and establish Speed Queen as the premium choice in European vended laundry. Growth in APAC was solid, with strong performance in our priority emerging markets, where population and urbanization drive laundry demand. We're establishing market leadership positions across the region and are leveraging our first-mover advantage as the vended laundry concept gains adoption and the on-premise laundry end market continues to develop. Our long-standing local-for-local manufacturing strategy with plants in the U.S., Europe, and two in Asia, each primarily serving their home markets, provided significant structural tariff protection relative to foreign competitors who are more exposed to duties on tariffs on imported products. We experienced modest tariff impact from certain imported components, which we largely offset on both a dollar and margin basis through selective pricing actions in 2025. Turning to slide 12 and initiating our 2026 full year guidance. We expect revenue growth of approximately 5%-7%, driven by balanced contributions from volume and price, and expect Adjusted EBITDA growth of approximately 6%-8%, continuing our long track record of profitable growth and strong margins. This above-market revenue growth reflects the strong tailwinds we have discussed and also takes into consideration normalization of benefits from customers who have returned following our 2022-2023 profitability initiatives, the outperformance of commercial and home, and the moderation of tariff-related pricing, each of which supported the double-digit growth over the past couple of years. As we considered our guidance, we anticipate year-over-year revenue growth to be stronger in the first half of 2026, driven by pricing carryover from actions taken in 2025, with volume growth more consistent across the entire year. We expect Adjusted EBITDA growth to be driven by gross margin expansion from pricing, cost down initiatives, and manufacturing leverage, partially offset by strategic investments in international markets, continued digital and engineering investments, and approximately $8 million in incremental public company costs. Public company cost impact is more heavily weighted to the first half of next year due to the second half prior year ramp up, and therefore, we anticipate margin expansion in 2026 to be weighted toward the back half of the year. We remain confident in our ability to generate free cash flow and expect to reduce leverage by approximately three-quarters of a turn in 2026, bringing us to the low 2x net debt leverage range by year-end. In addition, to assist with modeling in 2026, we expect CapEx as a percentage of revenue to be approximately 3% and anticipate an effective tax rate of approximately 23.5%, total interest expense of approximately $85 million, and diluted share count of approximately 205 million shares. Turning to slide 13 before I wrap up, I'll briefly touch on how we are continuing to prioritize capital allocation with the overarching goal of maximizing long-term shareholder value. First and foremost, deleveraging continues to be our top capital allocation priority. As I outlined earlier, we have a strong track record of reducing leverage by three-quarters to a full turn per year through free cash flow generation and EBITDA expansion alone. We are targeting net leverage in the low 2x range by year-end 2026. We also plan to continue investing behind high return growth opportunities, new products, capacity expansion, digital capabilities, and potentially selective tuck-in M&A that enhances our platform. These are the investments that should help sustain our competitive advantage and drive above-market growth, and we will continue to invest in these areas. Finally, we will maintain the flexibility to return capital to shareholders in the future when appropriate, through share repurchases in the nearer term and considering a potential dividend policy over the longer term. With that, let me turn it back to Michael. Michael Schoeb: Hey, thanks, Dean. Before we open it up for Q&A, I want to emphasize a few key points. One, we hold a leading market position as the only scaled pure play operator in a non-cyclical, recession-resistant, and essential industry. Two, we have a proven team and business model that have delivered strong results through every economic cycle, and the strategic clarity to continue doing so. Three, we are committed to creating long-term shareholder value through our disciplined growth, operational excellence, and balanced capital allocation. Over the past two decades, I have seen this business successfully navigate recessions, a global pandemic, and shifts in the competitive landscape. The fundamentals that have carried us through all of it are stronger today than they have ever been, and that is the foundation for our next chapter. I'll close by thanking our employees, distribution partners, customers, and shareholders for your continued support. We look forward to driving Alliance Laundry Holdings Inc.'s story and long-term value forward together. With that, let's open up the line for questions. Operator: Yes, sir. We will now begin the question-and-answer session. As a reminder, we ask that you please limit yourself to one question and one follow-up, then return to the queue if needed. Our first question will come from Tomohiko Sano with JPMorgan. Your line is open. Tomohiko Sano: Good morning, everyone. Congrats on the quarter. Thank you. My first question is, given the trends you saw in Q4, do you expect any notable differences in demand strength between North America and your international business or across your key segments as you target 5%-7% top line growth for 2026? Are there particular areas where you see more robust or softer demand, please? A follow-up on 2026 guidance: How are you factoring in outlook for steel cost, pricing power, and potential changes in tariff policy? Could you elaborate on assumptions you're making for each of these drivers and how sensitive your guidance is to movements in these areas, please? Dean Nolden: Thanks, Tomohiko. Michael Schoeb: Thank you. Michael Schoeb: Yeah. I would say, Tomohiko, this is Michael, that again, we see really strong demand across all parts of the business. I do think given some of the volatility in the Middle East at the moment, you know, that's likely to be a little bit weaker, and that'll take some time to see how that ends. I would say across the board, we really do see strong opportunities, and that is across the business. There's none that I could think of, honestly, that would give me pause or concern. We've talked about, you know, sort of over-indexing a little bit on the laundromat piece in particular, right? Both in emerging markets as well as in more mature markets, such as Europe, and the U.S. and select Asian countries. But, you know, very, very strong across the board. Michael Schoeb: Yeah. So in steel we're locked, right? We have more than offset those cost increases both on steel as well as tariffs with some pricing actions that we took last year. They are both margin and dollar accretive. That is straight up. What was the second part of the question? I don't recall. Tomohiko Sano: Tariff policy. Michael Schoeb: I'm not sure I answered that part. Dean Nolden: Tariff policy. Michael Schoeb: Oh, sorry. Yeah, who knows? You tell me. We expect no change. Again, you guys are reading the news like we are, you know, if something does change, hey, we're ready to react. We expect that the administration will continue to find ways to keep those barriers in place. We do see, Tomohiko, competitors beginning to take action. That is something that we thought would happen, and it's playing out exactly that way. Dean Nolden: Tomohiko, I would add that the steel and aluminum tariff duties that have been put in place were not part of the Supreme Court ruling. Those are still in place, and a competitive advantage for us against foreign competition in manufacturing in international locations, you know, imports into the U.S. We'll keep watching that, to Michael's point, from their pricing actions, and react accordingly, but we still think that's a tailwind for us in 2026. Tomohiko Sano: Thank you, Michael, Dean. Operator: Thank you. Michael Schoeb: Thank you. Operator: Our next question comes from Kyle Menges with Citigroup. Please go ahead. Kyle Menges: Great. Thanks for taking the question, maybe, Michael, following up on your last comment, just what are you seeing from competitors that are facing more tariff impacts versus you guys? Just how do you see that relative tailwind unfolding as we progress throughout 2026? I know we've talked about this through the process, but do you see a different opportunity today than, say, a couple years ago? Was the fact that you had a couple in the same region more a function of what the go-to-market strategy was in that region versus a broader opportunity in other regions? And maybe just what's the funnel look like as far as bringing on more of your own distribution in the U.S.? Michael Schoeb: Yeah. I'll say, Michael, it was really a strategy we mapped out seven or eight years ago as we really embarked on it. We identified, you know, certain specific markets that we wanted to really make sure that we were present in a more meaningful way, and we had people that we could partner with. The last piece of that puzzle, and that's really what it was putting together identifying the markets and then getting in a position when we had the partnership with distribution. That sort of New York metro area in particular was an area where we just felt there was a lot that we could do. We had good partners, and we are incredibly excited about that. Those two recent acquisitions, we think there's more to do, but again, we are being very selective, and, you know, as those opportunities come up, they will be opportunistic. As I think I said to you should think of us as very capable of doing these acquisitions, but it is not something that is needed in order to continue to grow at an above market rate. Kyle Menges: Thanks, everybody. Appreciate it. Michael Schoeb: Yep. Operator: Thank you. Our next question comes from Andrew Obin with Bank of America. Andrew Obin: Yeah, good morning. Can you just break out the reasons why commercial and home has been so strong in 2025? Did you have distributors? Was the pricing impact more significant? Also, what does it mean for the comps in 2026 because first half growth was so strong? Michael Schoeb: Yeah. I'll remind you, Andrew, we have a very unique distribution strategy, and we have a very unique product. Let's talk about distribution, where again we go only through independent retailers. Our value proposition to those retailers is our product will be the most profitable product for them to sell. A big part of that is it is an incredible product that to use their terminology, it stays sold. It doesn't come back under warranty for quality or other problems which, you know, are plaguing a lot of consumers, and, so, you know, one different distribution, curated, defined, careful, allows that distribution network to be profitable. Very different than our competitive set in that part of the world. The second piece is that product quality and the differentiation and being really the only true professional grade washer and dryer available in the marketplace. You have seen some of our testing, you have seen some of our teardowns. When you take it apart, and you look at the guts and the internal, and you understand the drives and the transmission and the suspension and all of the things that go in where we are using steel, where others are using plastic, there is no comparison, right? It is a product that is highly desirable. I think as I said in my opening comments, everybody is looking for quality. That total cost of ownership, despite our price point, it is engineered to last, and I think that is resonating with people who are buying competitive product that is optimized for cost versus what our professional operators need for their business, which is quality, reliability, and durability. Dean Nolden: Andrew, on the comp side, although we're not giving any detailed guidance on individual business units, we're not building in double-digit growth in this business in our guidance for 2026. The key is we do expect to continue to meaningfully outgrow the industry with really this replacement driven product, not tied to new home construction and things like that in other cycles. It's really a replacement driven upgraded product as we talked about in the prepared remarks. We're not forecasting double-digit growth in this market, although there's lots of opportunities as we move forward. Andrew Obin: Okay. Just to make sure, no negative growth in the first half comps will remain. You can achieve growth even with the comps? Maybe what are you seeing out of the Middle East? I know it's like what? I think $60 million revenues for you. How should we think about that? Michael Schoeb: Absolutely. Yeah. Again, I think it's 5%, 6% of revenue, somewhere in that range. I don't think it's 6%, closer to the 5%. I would say, hey, it's something we're watching very closely. If it were to go significantly south, I don't think the impact on the company would be material, you know, we have a global sort of operating review that we do with all of our leaders. Middle East leader is thinking again that the impact I won't give you the exact dollar amount, but it is more than backstop with lots of other initiatives that we have going on. You know, we still think we're gonna have a pretty good year, and I can't comment on where they'll come in, but I think we'll be fine unless something you know really significant happens, in which case everybody's gonna be in a kind of a different boat. Andrew Obin: All right. Terrific. Thank you. Michael Schoeb: Yep. Operator: Thank you. Our next question will come from Amit Mehrotra with UBS. Amit Mehrotra: Thank you. Morning. Dean, I wanted to ask about the guidance and how you guys just simply approached it, you know, there's obviously your first full year guidance as a public company, and many companies approach guidance in many different ways, you know, some companies approach it as a floor that they're highly confident they can deliver, and maybe there's some upside to it. Maybe for companies like you who have recurring revenue streams, it's more a realistic view, because you are forecasting kind of low, you know, 3-ish% volume growth. I would assume maybe there's some opportunity to do a little bit better. Your guidance implies EBITDA incrementals kind of at 30%, which is lower than what you did in fourth quarter, even though the price volume dynamic is similar 4Q to 2026. Maybe just talk about, like, how you approach the guide in the context of maybe what seems to be a little bit of prudent conservatism. Dean Nolden: Well, I would say thanks for the question. First of all, I think that's a great one because as a new public company, this is something we take very, very seriously in the way in which we're guiding. I think, number one, the replacement driven characteristic of our business provides us confidence in what we are guiding from a top line perspective. The opportunities we have in margin expansion, the continued cost down initiatives, the significant leverage we get on incremental margins from our fixed cost base give us confidence in our ability to continue to expand margins, the bottom line more than the top line. Having said that, it's, you know, there's a lot of things going on in the world that we don't control. I think we're being prudent with regard to our guidance. We wanna make sure that we do what we say we're gonna do, which is a characteristic of the company for a long time. I would say we're confident in our ability to hit these numbers, and we have opportunities to beat them that we will hopefully be able to unfold as the year progresses. Hopefully that helps. Amit Mehrotra: Okay. Thank you. Yeah, that does help. Thank you, Dean. Yeah. Can you hear me? Just wanna make sure I'm not on mute. Dean Nolden: Yes. Amit Mehrotra: Yeah. Hey, Michael, I wanted to follow up on maybe a bigger picture question 'cause one thing that resonates with me when you speak, you're very consistent about the mission of the company, the sole focus on laundry, the full focus on quality. It's definitely a hallmark for great companies, this sort of very clear vision and mission of what you're trying to accomplish. I guess as we think about how that translates to growth, there's a couple different, you know, ways to approach that. One is obviously the quality is what sells. What I'm more interested in is are there new product introductions or new incremental revenue streams, whether it's your distribution channel that you're acquiring or just new product introductions that may be accelerating that put more outgrowth in your control as opposed to just, you know, the quality dynamic that's very clear and exists for a long time. Maybe you can just help us think about how much of the outgrowth you can actually have in your control with respect to either changes in how you go to market or enhances how you go to market or new product introductions. Michael Schoeb: Yeah. Again, I think you know you heard us talk about the investments we've made in the laboratories actually testing. If you think about our value proposition to our customers, it is you know those things we talked about, the low total cost of ownership. The worst thing you can do is launch a product before it's ready. That is why we do, and it takes a lot of time to test and then test again and test again. The consequence of that is the rollout of these new innovative product. Certainly we touched on, for example, our lint capture system, right? That is very very significant in terms of the innovation. If you are an operator in a hotel property or an operator in a laundromat or whatever it is, like, that ability to do that drives efficiency, it drives a lot of value. Rolling that out across the rest of our product line, you know, that's certainly top of mind, and you'll see that continue to happen. We do have an innovation team that's working on a series of things, but I would say the ones that, you know, we feel good about and that are faster to roll out are more on the digital side. I've equated that to, you know, the brain is the physical, mechanical, electrical product. But when you complement that with a very, very smart brain and our ability to bring insights to that operator, it's an extraordinary value proposition. It's kind of a one-two punch thinking about it a slow, steady but proven, tried, tested. You buy a product from us, it's not going to be something you will experiment with. It's a little slower on that side, but steady, consistent, and complemented with the digital side, which is faster. Again, we have been at this for a long, long time. We believe we've been at it much, much longer than any competitor. To get the digital right, you need the teams, right? You need a lot of software developers. You need data in really big quantities to be able to get things like predictive analytics and others. But we feel very, very confident about that. There are other avenues that we're talking about. I think we spoke on how we're looking at aftermarket, which is accessories. It includes consumables, right? I think also on the parts side, we see opportunity, really throughout. Hopefully, that answered the question for you. Amit Mehrotra: Yeah. Yeah, it does, Michael. Thank you so much. Appreciate the time. Michael Schoeb: Yeah, absolutely. Operator: Thank you. Our next question will come from Susan Maklari with Goldman Sachs. Susan Maklari: Thank you. Good morning, everyone. My first question is, thinking about the price mix dynamic in North America. I think you mentioned that you're not planning on an additional price increase in the U.S. or in North America this year. As you think about the more recently launched products and digital initiatives, can you talk a bit about how they're gaining momentum, where we are in that process, and how we should think about their contribution to price mix this year? Yeah. Okay. That, that's helpful color. Turning to the balance sheet and the cash flows, as you do approach that 2x leverage by year-end, can you talk about what you're looking for and how we should think about the potential to start with some shareholder returns, you know, maybe buybacks, those kinds of things where you have some flexibility? Michael Schoeb: Morning, Susan. Yeah. I would say it's complementary. Look, on the initial launches of product, let's talk about that and the innovation, for example, on our lint capture system. We're providing more value, so the pricing reflects that value. We feel confident about it, you know, we go through a lot of analysis here in terms of, hey, what does that mean for the operator? If we can save them energy, if we can get them better efficiency. All those things are reflected. Again, it's slow, steady, more incremental in nature. It takes time. I will also say that the industry on the professional side, right, they really wanna make sure that innovation is exactly what I talked about, tested and tried and true. They'll dip a toe in. It takes a bit. That's why I characterize it as incremental in nature. On the digital side, look, I think what we're very focused on is really driving differentiation, driving unit volumes through the factory. We view it as complementary. We think that over time, right, we can add and get that to where it is more meaningful in terms of the revenue and margin that it contributes to the business, right? It's all embedded, and it's sort of a package is the way we think about it. Dean Nolden: Sure. Yeah. Thanks. I, you know, I think, number one, we're very proud of our deleveraging trajectory, and the strength of our free cash flow really allows us that multipronged approach to continue deleveraging, while also investing in the business and considering those other types of capital allocation opportunities that you talked about. We view 2x leverage as a comfort level from the balance sheet perspective. That having said, we don't view 2x as a floor. Given our cash flow generation, we could operate comfortably below 2x in the near term. Deleveraging continues to, you know, be our number one capital allocation priority. To your point, we will consider buybacks in the market as our majority shareholder monetizes their investment and sells down over time. Right? Michael Schoeb: That is still an opportunity for us. As we said in the prepared remarks, you know, given our strong free cash flow and our opportunities to invest in multiple things, to return capital to shareholders, a dividend policy longer term for this company might make sense given that strong free cash flow. There's a lot of opportunities at our fingertips, and we're really excited about, you know, those many different things that we can do to create that shareholder value while continuing to invest in the business at a scale that no one else, the competition can. Susan Maklari: Yeah. Okay. Thank you for all the color, and good luck with the quarter. Michael Schoeb: Thank you. Operator: Thank you. Our last question will come from Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: Good morning and congrats on a strong quarter and year. Maybe to start with, can you talk a little bit about your M&A pipeline and which areas or geographies you think you've got the most opportunity as you think about growth in the coming 12-24 months? Michael Schoeb: Yeah. Again, I would emphasize that we do not need acquisitions to continue to grow at an above market rate. That's the first thing I would comment. I said we've done 16 or 17, mostly, you know, tuck-ins here in the U.S. I think the opportunity to do more is there, but we will be very, very selective. We will do it when we have partners who we are confident in and partners who, you know, want to do that. It is part of our strategy. It is not something that is core or required. I would say the opportunities are limited on that side, but we will be opportunistic. There are things that you don't anticipate, where, you know, principals in markets that matter, that have the density, that drive profitability, change their mind, and all of a sudden are interested in partnering, so, you know, we're talking to people, we're out there, but it is not core. Again, we believe very, very much in independent distribution. Again, when we can, you know, partner, enroll them into the rest of the Alliance Laundry Holdings Inc. business, hey, it makes sense. On that part, very clear, you know, we talked about the international facilities. We have lots of opportunity to grow, so we do not need anything on that side. The same thing, we are opportunistic. We are always looking. We are talking to folks. I'm not going to disclose, you know, where they are, but again, we feel pretty good about it. There's probably one or two that would be interesting. None of those are, you know, really, really significant. I don't know if I'm being detailed enough for you, but that's how we think about it, right? We've got everything we need, everything we need to continue to grow at an elevated rate. Ketan Mamtora: Got it. No, that's helpful perspective. Then just one more follow-up on the international side, related to the Middle East. You talked about, you know, sort of watching the demand side there. Are there sort of any potential supply chain disruptions that could impact other markets in the region that we should think about? Michael Schoeb: Yeah. I'll say for right now, again, our local-for-local manufacturing strategy, where we are sourcing, building and selling in those markets, we don't see any disruption that we're aware of on the supply chain side. I'm not aware of any, zero, you know, again, transit times, things like that, as you know, you're trying to get product from one part to another, which is de minimis, again, because most of those markets they are manufactured locally. Some of that will impact. It is going to impact the Middle East for sure and Africa. But again, we feel really. It's almost like the tariff thing where we're not immune, but we are highly insulated for any of that noise that you know is happening in that region. Ketan Mamtora: Perfect. No, that's very helpful. Good luck. Thank you. Michael Schoeb: Thank you. Operator: Thank you, ladies and gentlemen. This concludes today's Alliance Laundry Holdings Inc. fourth quarter and full year 2025 earnings conference call. You may now disconnect your lines and have a wonderful day.
Operator: Good day, ladies and gentlemen, and welcome to the Aemetis, Inc. Fourth Quarter and Full Year 2025 Earnings Review Conference Call. Joining us today are Eric McAfee, Chairman and Chief Executive Officer of Aemetis, Inc., and Todd Waltz, Chief Financial Officer. I would now like to turn the call over to Mr. Todd Waltz. Sir, the floor is yours. Todd Waltz: Thank you, Ollie, and welcome, everyone. Before we begin, I would like to remind everyone that during this call, we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied. Please refer to our earnings release and our SEC filings for a discussion of these risks. For 2025, revenue plus tax credits totaled $53.7 million compared to $47 million in 2024. Quarterly gross profit improved to $7.7 million compared to a gross loss of $2 million in the prior year period. Operating loss improved to $2.5 million compared to $13.5 million in 2024. The net loss improved to $5.3 million compared to $16.2 million last year. For the full year 2025, revenue plus tax credits totaled $208 million compared to $268 million in 2024. Operating loss improved to $37.2 million and net loss improved to $77 million compared to $87.5 million in the prior year. During the fourth quarter, ethanol and RNG operations generated $10.3 million of production tax credits, reflecting the growing contribution of federal clean fuel incentives to the company's financial profile. With that overview, I would like to turn the call over to Eric McAfee, Chairman and CEO of Aemetis, Inc. Eric McAfee: Thank you, Todd. Before discussing the business segments, I want to highlight three key takeaways from the fourth quarter and last year. First, our dairy renewable natural gas platform reached an important during 2025, achieving positive segment net income and EBITDA while production increased 61% year over year in the fourth quarter. We generated net income of $12.2 million in our biogas segment in 2025. We expect strong annual growth in cash flow and profitability from the biogas segment for the next four years as 45Z is implemented and we continue to expand production. Second, during 2025, we continue to advance mechanical vapor upgrade at our Keyes ethanol plant, which is expected to increase plant cash flow by approximately $32 million per year when completed in 2026. And third, revenue from dairy RNG and ethanol production is generated by renewable fuel sales as well as environmental credit monetization, including LCFS credits, federal D3 RINs, and 45Z production tax credits. The 60% increase in the price of Low Carbon Fuel Standard credits in the past nine months since the LCFS was extended by 20 years, and the recent Treasury guidance for the 45Z production tax credit are important contributors to our growth in revenue and cash flow. Our dairy RNG platform continues to grow production as becoming a significant driver of revenue and cash flow growth at Aemetis, Inc. During 2025, the dairy RNG business produced approximately 405,000 MMBtus of renewable natural gas and expanded to 12 operating digesters. Looking ahead, we expect RNG production to grow during 2026 as additional dairy digesters come online, with equipment fabrication contracted for the H2S cleanup and biogas compression units for 15 digesters, which will double the number of operating dairies in our network. Turning to our California ethanol business, the Keyes ethanol plant generated $158 million of revenue during 2025 and has approximately 65 million gallons of annual production capacity. We began receiving equipment on-site for the installation of the mechanical vapor compression system at the ethanol plant for completion later this year. The MVR system is expected to reduce natural gas consumption by 80%, lower the carbon intensity of ethanol produced by the plant, and increase annual plant cash flow by approximately $32 million. In India, our biodiesel facility generated $29.7 million of revenue during 2025, and has significant available capacity to supply expanding government goals for biodiesel blending. Our plant has approximately 80 million gallons of biodiesel production capacity along with about 8 million gallons of glycerin refining capacity. India continues to represent an attractive growth opportunity as a country focuses on the production of domestic renewable fuels to displace imported crude oil and to supply fuel to a fast-growing economy. We are expanding the India business into biogas production and sustainable aviation fuel as part of our work on an initial public offering of the India subsidiary this year. Looking ahead to 2026, our focus is on scaling production and monetizing the environmental credit values associated with our renewable fuels platform, as well as completing the India IPO and long-term refinancing of existing debt. Key policy developments include the finalization of the 45Z emissions rate calculation by the Department of Energy, further strengthening of LCFS markets, expanded ethanol markets via E15 blending approval in California, and biodiesel blending mandates in India are expected to support long-term growth in low carbon fuels. Thanks to our shareholders, analysts, and partners for your continued support. Operator, why do we not take some questions now? Operator: Yes, indeed. Ladies and gentlemen, at this time, we will be conducting our question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. It may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is coming from Derrick Whitfield with Texas Capital. Your line is live. Derrick Whitfield: Yes. Good morning, Aemetis, Inc. team. Great job with the year-end close. Wanted to start with your U.S. business. Maybe, Eric, just at a high level, could you give us your expectations for capital investment for 2026 between your RNG and your ethanol business? Eric McAfee: We will be wrapping up our MVR system. Total investment there is going to be roughly in the $40 million range. We will also continue to expand. We have 15 contracted H2S units for the next 15 digesters we are building. That is about a $27 million contract that we have with NPL. And then, separately, the build-out of those 15, which will overlap into 2027, is roughly going to be another $70 million on top of that. So we continue to grow the assets, but our refinancing existing debt includes financing for the assets I just mentioned. And so we are fully financed for the completion of the MVR system. We are fully financed for the $27 million of H2S units. And as we roll out additional digesters, we expect to continue doing the type of 20-year financing which we have completed. As you know, we completed two financings at 20 years each for our first Aemetis Biogas 1 and Aemetis Biogas 2 entity. We are working on Aemetis 3, 4, 5, 6, 7, and 8 right now. Derrick Whitfield: That is terrific, Eric. Then maybe shifting over to ethanol. Margins are quite positive, even before accounting for the MVR investment. How are you thinking about EBITDA generation for that asset in 2026? Eric McAfee: Ethanol for us is a story of two worlds: pre-MVR and post-MVR. So this quarter, next quarter, we are going to be benefiting from removal of indirect land use change penalty for our corn on top of our existing carbon intensity. So we are currently at roughly $12 million a year, as you know, they are all granted to the nearest five. So we are currently roughly at that $12 million a year run-rate. That is not including any CO2 reuse. We are waiting for the GREET model and potentially a provisional emissions rate that could be used, the CO2 reuse, to lower our carbon intensity, but not including CO2 reuse, we are roughly $12 million a year. Post-MVR, we get rid of 80% of our natural gas cost, but also 80% of the penalty that we have for natural gas use. So post-MVR, 45Z and LCFS values go up and generate roughly another almost $3 million a month of cash flow. So we should be running about $4 million a month on just the 45Z plus MVR starting in what we are currently targeting as the third quarter for the MVR, but certainly going into the fourth quarter, that is what we expect to be. And then, on top of that is the LCFS credit price increase. It has already gone from $40 to $70. We would not be surprised at all to see it hit $100 this year and $150 or more next year, as we continue to see quarterly deficits. We do not see any scenario in which you do not see quarterly deficits in the LCFS program. So that would be incremental to the numbers I just gave you. Derrick Whitfield: Great. Over to you, Eric. I appreciate it. Operator: Thanks, Eric. Our next question is coming from Amit Dayal with H.C. Wainwright. Your line is live. Amit Dayal: Thank you. Hi, Eric. Congrats on the execution in 2025. Looks like you guys are set up very well for 2026 as well. This $40 million investment in the MVR, how much of it has already been made or is the $40 million going to take place in 2026, Eric? Eric McAfee: Much of it is already made. We are well past half of that right now. And the remaining balance happens over the next four months or so. But it is fully financed and has no equity dilution through the completion of it. We do not have any funding through the ATM or otherwise for it at this time. Amit Dayal: So conservatively, should we assume contribution post-MVR to only come through in 2027? Eric McAfee: Contribution should hit us in third quarter, be in full place in the fourth quarter. So it will affect roughly half of this year. Roughly. Amit Dayal: Okay. And does the product coming out of this post-MVR need to be qualified, etcetera? Like the RNG had to go through an auditing process. Or will you be able to monetize right away those benefits? Eric McAfee: It is the MVR; we are monetizing it “right away.” There is not a long year or two-year delay. One of the points you are making is relevant, which is not including the opportunity to run renewable natural gas into our plant under the rules. The renewable natural gas has to be directly connected from the production source to the ethanol plant. There are only a few plants in the U.S. that are structured that way. We happen to be the owner of one of those plants. So we have 50 dairies signed that can supply our ethanol plant with the renewable natural gas. That would be additional monetization that, in our structure, we really accrue to our dairy biogas business, not to our ethanol business. But, yes, we are definitely uniquely situated to have incremental economics for 45Z as well as LCFS by running our dairy RNG into the ethanol plant. We expect that that will be something we will very, very seriously be considering. We are not announcing we are doing that yet, because we are waiting for the GREET model from the Department of Energy so we can do our final calculations. Amit Dayal: Understood. Maybe just last one for me. I know you have not provided any formal guidance for 2026, cash flow, EBITDA, etcetera. But at a minimum, can we expect you to perform in line with sort of the cash flows we saw materialize in 2025? Eric McAfee: We should be significantly in excess of 2025, which represented virtually no 45Z for the ethanol plant from a cash flow perspective, and minimal from our RNG. Our business is highly leveraged towards performance of the California Low Carbon Fuel Standard credit, which credit prices were $40 eight months ago. They are $70 today and should continue to rise. The cap is $268. And the 45Z production tax credit, which we have only monetized $5 million of, we did that the last couple days of the fourth quarter of last year. And that should be a significant generator. When the updated GREET model is released by the Department of Energy, as we know, we have the February 4, 2026 U.S. Treasury guidance that was issued that was consistent with the One Big Beautiful Bill of July 2025. But we are awaiting the spreadsheet to show up on the website of the Department of Energy. From that, we will then be able to calculate with great precision actually what our total revenues are, and I think there will be an education cycle, which we will do with investors, to let them know what the dairy RNG molecule can do. I would cite Bloomberg's podcast. You do not have to be a Bloomberg subscriber in order to get this podcast, but they did a half-hour podcast just a few days ago and described that dairy RNG and swine RNG are the big winners under 45Z, and that there should be $7 per gallon of revenue for dairy RNG from the 45Z. There are 8.6 gallons under the 45Z regulation in every MMBtu. So a million British thermal units is 8.6 gallons under the rule, and each gallon should be $7. And there is a Bloomberg podcast if you want to learn about the value chain and how the calculation works, etcetera. That is available for public consumption. Amit Dayal: I will take a look at that, Eric. Thank you. With respect to the India operations, will investors just have to learn to live with this start-stop situation over there? I know it is more sort of policy than your production capabilities. But is something going to change on that front, or is this how that market continues to operate? Eric McAfee: Well, historically, the ethanol market operated that way until the government committed themselves to growth and then they went from a 1% blend to 20% straight-line in about 48 months. The biodiesel market is in a similar spot. The Russians and the Iranians have been selling heavily discounted crude oil into India. And about a month ago, the end of the 50% tariff that Mr. Trump imposed was an agreement by India not to import Russian oil and essentially indirectly fund the Ukrainian war with Indian money. And then, of course, the breakout of the Iranian war two weeks ago shut off the other cheap funnel of crude oil, which was in violation of the U.S. sanctions, but Indians have been doing it very commonly. Well, that ended two weeks ago. So India does not have any domestic petroleum, natural gas, or even coal of any meaningful amount. So they have just had their two great opportunities in the world, which is to buy cheap petroleum and remain dependent upon petroleum, disappear, and the biofuels is a domestically produced job-creating agricultural economy-based industry. And that is why ethanol has gone from 1% to 20%, and we believe that biodiesel will have the similar kind of rise. Half a percent to 5% is a 10x expansion in the biodiesel business. Our IPO is not based upon solely being a biodiesel producer. It is also about the future energy in India which includes compressed biogas, which we would call in the U.S. renewable natural gas. In India, it is known as CBG, as well as sustainable aviation fuel, which is a very popular item in India right now. The global sustainable aviation fuel market spent about 90 billion gallons, and flying in and out of Asia includes fueling up to meet European and other requirements, including the Singapore airport. So the business we are taking public in India is a global diversified biofuels IPO. We believe it will be the first global diversified biofuels IPO in the history of the India stock market. It happens to have as a centerpiece an 80 million gallon biodiesel plant that is well positioned to become a sustainable aviation fuel plant. And those contracts would be with international airlines and, to a certain extent, circumvents this issue about the domestic demand for biodiesel in the country. Though we do have bullishness around that demand and do plan to have expansion in the biodiesel assets and production capacity we have in India. Amit Dayal: Thank you, Eric. That is all I have. Appreciate it. Eric McAfee: Thanks, Amit. Operator: Thank you. Our next question is coming from David Joseph Storms with Stonegate. Your line is live. David Joseph Storms: Morning, and thank you for taking my questions. Just wanted to start with the Keyes plant. It looks like it has been running at about 90% capacity for the last two years. How comfortable are you with the current run-rate? And is there any potential plans to expand it once you are through the MVR Project? Eric McAfee: We have an industry that, with the adoption of E15 in California, already had about 600 million gallons of new market open up from an approval perspective. And nationally, I think there will be an E15 adoption, certainly with the Iranian war. That is a top-of-mind affordability move. So I do expect nationally that ethanol plants will be looking at expansion as a strategic goal as we go from roughly 14 billion gallons of actual consumption in the U.S. to over 20 billion gallons with the approval of E15. There is probably a billion to a billion and a half gallons of available capacity just by debottlenecking and the like. But that is far short of the 6 billion gallons needed. And we currently have record exports of over 2 billion gallons a year, and those record exports could actually rise with continued adoption of ethanol blending worldwide, which puts a further strangulation on the number of available gallons for domestic. But we have not announced an expansion campaign yet. I would note that there is a plant that just announced today that they expanded from roughly 55 million gallons to 105 million gallons by using existing tankage and doing certain process improvements. So there is certainly technology available, and we do plan to expand our business. We are currently expanding it by reducing our carbon intensity, reducing our operating costs, and optimizing the carbon. And, frankly, mechanical vapor compression will allow us to be positioned for that kind of debottlenecking and expansion. So I would expect this is going to be more of a 2027 story. We might talk about it later on this year, but, frankly, the margin improvement and sustainable positive cash flow from our existing asset is what we are focusing on right now. And I think we are going to be looking to have optimized that by the end of this year and then focus on expansion plans. David Joseph Storms: That is great color. Thank you. And then just one more for me. You have got some tailwinds coming out of the One Big Beautiful Bill, and I think it was even mentioned in your release that those tailwinds are starting to be implemented. Just curious as to how you see the logistics in the near term for the continued implementation of those tailwinds and maybe any more color you could give us there? Eric McAfee: The big lift was July 4, 2025. In the Senate, House, and the White House when they negotiated a doubling of the number of years and a significant expansion in the amount of 45Z production value that biofuels would obtain, specifically removing indirect land use change penalty, which had depressed the amount that had been available. That was completely removed. We are now in the implementation phase of that political decision by the President, frankly, and also both the House and the Senate. And the first step of that adoption is the Treasury's announcement on February 4, 2026 of 176 pages of tax guidance. There were no surprises in there, and we are now just awaiting the spreadsheet known as the GREET model from the Department of Energy, which will allow us to calculate the amount of 45Z revenue that we generate from every MMBtu or every ethanol gallon. And I should make note that there is a process that was set up January 2025 called the provisional emissions rate. That was further refined in the February 4 guidance with what is called a Calculated Emissions Value Letter. And so the process of getting our own distinct additional value because we have done energy conservation and other enhancements in our facilities, that process of getting a CEVL was set up last month. And so we are actively seeking CEVLs that would allow us to have accurate calculations of both our ethanol as well as our dairy RNG business carbon intensity, but it is they call emissions rate. And so the adoption should be that the GREET model gets published this month by the DOE, and that in a very short period of time thereafter, a matter of weeks, we should get a Calculated Emissions Value Letter because we just have a couple of little cells that need to be entered with our unique data, and the number that comes out gets put on a piece of paper and issued to us. And then, with no real work at all, we file that with tax returns. So it is a very simple process. Should be a very quick process. But the word “should,” unfortunately, is where the uncertainty comes in. We are waiting for the DOE to issue the GREET model, and we are waiting for the DOE to open up the Calculated Emissions Value Letter process so that we can get very accurate calculations. Operator: Thank you. Our next question is coming from Edward Moon Woo of Ascendiant Capital. Your line is live. Edward Moon Woo: Yeah. Thank you, and congratulations on all the progress. As you talk about being the first global bioenergy company in the India market, have you considered expanding to other markets? And also, what is your expansion opportunities in India? Would you consider possibly a second plant? Eric McAfee: Let us take India first because that is where we are actually implementing right now. We are definitely planning to locate plants near feedstock sources. And we have a special relationship with the leading feedstock supplier in the tallow business, for example, and so we do expect to have multiple plants located near feedstock sources. That gives us the advantage both on cost inputs, but also, frankly, puts us closer to the blending facilities that are also regional. But our India business is diversifying into biogas and then into one of our facilities making into sustainable aviation fuel, renewable diesel plant. And so our IPO in India is driving the adoption of new markets. Quite frankly, the Indians are not currently involved with, including sustainable aviation fuel, and there is a lot of excitement about getting independence from imported crude oil in India. So we are in the middle of that process. And then the reason why it is global is our India business, the subsidiary, 100% owned by our company, will be making investments outside of India as part of the IPO. So we are looking forward to more information being disseminated to the market. As we put out our, what is known as, Red Herring and other documents, you will be able to read more about that. Edward Moon Woo: Great. That sounds exciting. Wish you guys good luck. Thank you. Operator: Thank you. Thank you. As we have reached the end of our question and answer session, I will now turn the call to management for closing remarks. Eric McAfee: Thank you to Aemetis, Inc. stockholders, stock analysts, and others for joining us today. We look forward to talking with you about participating in the growth opportunities at Aemetis, Inc. Operator: Thank you for attending today’s Aemetis, Inc. earnings conference call. Please visit the Investors section of the Aemetis, Inc. website where we will post a written version and an audio version of this Aemetis, Inc. earnings review and business update. Ollie? Thank you. Ladies and gentlemen, this does conclude today’s call, and you may disconnect your lines at this time. We thank you for your participation.
Operator: Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Here's earnings conference call. [Operator Instructions] Please note that today's event is being recorded. I will now turn the conference over to Ms. Tina Tang, the company's Manager of Investor Relations. Please go ahead, ma'am. Tina Tang: Thank you. Hello, everyone, and welcome to Here's earnings call for the second quarter of fiscal year 2026. With us today are Mr. Peng Li, our Founder, Chairman and CEO; and Mr. Tim Xie, our CFO. Mr. Li will provide a business overview for the quarter, then Tim will discuss the financials in more detail. Following their prepared remarks, Mr. Li and Tim will be available for the Q&A session. I will translate for Mr. Li. You can refer to our quarterly financial results on our IR website at ir.heregroup.com. You can also access a replay of this call on our IR website. When it becomes available a few hours after its conclusion. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call. As we will be making forward-looking statements, please note that all numbers stated in the following management's prepared remarks are in RMB terms, and we will discuss non-GAAP measures today which are more solidly explained and reconciled to the most comparable measures reported in our earnings release and the filings with the SEC. I will now turn the call over to the CEO and the Founder of Here. Mr. Li. Peng Li: Okay. Good morning, everyone, and thank you for joining us today. Just over [ 3 months ] ago, we held our first earnings call as a pure-play portfolio company. We shared our vision of focused acceleration. Today, I'm pleased to report that we have not only maintained that momentum but also began translating it into the durable long-term value we promised. This quarter marks a significant milestone with our first full quarter operating as a dedicated IP trained company. We have a clear and firm strategy and we are continuously optimizing in execution in a rapidly changing market environment. Building on our Q1 outperformance, Q2 delivered strong results. Total revenue reached RMB 177.3 million, representing 35.4% quarter-over-quarter growth. This performance exceeded the high end of our guidance and reflects a sustained and steady momentum following our strategy. We continue to focus our flagship IPs to create an ultimate product appeal. Our flagship IP, WAKUKU contributed on the RMB 129.4 million, accounting for 73% of Q2 revenue. SIINONO is another potential flagship IP. It has been gaining momentum since its initial launch in July 2025. It's generated over RMB 19.2 million in revenue this quarter. This is not just about product's success, it demonstrates that our IP-first strategy is successfully converting more consumers into a growing base of our users. This quarter, based on our observation on changing market conditions and our evolving operational insights, we improved our strategy implementation in a timely manner. We have gained a deep understanding. Product sales for a period of time are not the only metric to measure an IPs success. The ultimate goal of our operations is to build IPs that users love and that process lasting vitality. We expanded sales contribution from off-line distributor channels. This allows users to experience IP products more intuitively. We have opened 5 offline D2C stores, positioning as a dedicated venue for brand user interaction. We are continuously optimizing the operational experience. Our online operations team has also improved our user membership system. This quarter, we refined our core operational systems. This covers IP portfolio health, product appeal, supply chain efficiency, channel effectiveness and user engagement. These efforts aim at building enduring value, not just focusing on quarterly revenue. Building on the framework we discussed last quarter, let me walk you through the performance of our two pillar growth strategy this quarter. Pillar one, IP ecosystem, moving from a creative to a systematic pipeline. In Q1, we demonstrated our ability to turn IP launches into cultural phenomena. The WAKUKU split in Shanghai was a great example. This quarter, we refined our operational approach. We identified what works and applied those licenses systematically. Our IP and product development now rely on continuously improving mechanisms, data-driven systematic engine. Let me share a snapshot of our IP portfolio. As of December 31, 2025, we had a total of 18 IPs. That includes 11 proprietary exclusive licensed and two nonexclusive licensed IPs. This diversified portfolio from our IP ecosystem condition. We have established a comprehensive end-to-end mechanism carrying everything from IP planning to production and promotion. The WAKUKU On A Roll series launched in late November 2025 it builds WAKUKU's growing success. It took our daily [ continuous ] concept to new highs. We introduced a many authorized from factor for full scenario integration. [ The only thing ] about WAKUKU is the entirely new category of [indiscernible] as everyday companies. The market response was immediate. We achieved total omnichannel sales, surpassing RMB 18 million within one week along with over 84,000 presale registrations. Our 56,000 peak concurrent online users and over RMB 100 million in total new product exposure. For SIINONO, the success of it's latest release is clear. The Whispers of "Ta" series value plus store hit over RMB 11 million in omnichannel sales within a week with more than 60 peak concurrent online users and total exposure reaching RMB 170 million. The IP journey begins at launch, but it extends far beyond this quarter. This quarter, WAKUKU was invited by the Tianjin culture and the tourism bureau to serve as a promotion ambassador. This demonstrates our success integrating IP with culture and tourism development. Recently, WAKUKU also launched a co-branding collaboration with Lukfook jewelry [indiscernible]. This continuously enhanced IP influence. We are planning to enrich our narrative grows through our live content strategy. That short-from storytelling that depends emotional connections. [indiscernible] IP influence from physical spaces into narrative spaces. It expands sustained emotional engagement between IPs and [ brands ]. Pillar two, omnichannel reach. Our approach ranges from online brand visibility to offline user experiences, we are continuously depending the connection between IP's products and the users. Our diverse channels are not just sales points. There are portals for IP user interaction and experience. They continuously empowering the IP ecosystem. Building on last quarter's massive organic reach, our members are strong. As of February 26, 2026, our total cumulative followers across major social platforms in China reached approximately 700,000 and our cumulative social media exposures exceeded RMB 1.8 billion. This growing digital footprint forms one of the foundations of our brand and IP-driven model. For off-line channels, we position our D2C stalls as brand users interaction and experience hubs. Since December 2025, we have opened 5 D2C stores in Beijing, Shenzhen and Chongqing. To date, additional two stores are in the preparation stage. A notable example is the ground opening of our Shenzhen Upperhills flagship store on February 1 this year. We invited a celebrity to serve as store manager for a day. This grew a massive ground and it generated a strong same-day sales of approximately RMB 250,000. This validates the power of our off-line experiential approach. Our Shanghai K11 pop-up generated strong social media buzz and even become a trending topic and this event has more become one of the key drivers of both traffic and sales. On 2026, New Year's Eve, we held here at [indiscernible] an exhibition and the light show in core commercial districts such as Wangfujing in Beijing, Gulou in Tianjin, and K11 in Shanghai. Through this landmark's public spaces, we achieved high traffic, which under dependent interaction between the brand and the consumers. At the same time, we are deeply leveraging the powerful and the creative tools of the AI era and innovating vigorously in the area of smart sales Terminals. We expect to deploy our intelligent sales robots to more offline locations for user interaction in the near future. The change in gross margin this quarter reflects our strategic participation of partnerships with small offline distributor channels. we are committed to providing more interactive and cocktail experience through will diversified offline channels to our consumers. This deepens IP connections and strengthen user loyalty through physical engagements. We firmly believe that the strategic investment will lay a solid foundation for the company's long-term healthy development. Our international strategy continues to gain momentum. On one hand, as our supply chain capability improved, we are working with domestic distribution partners to promote overseas export sales. On the other hand, we are actively seeking local overseas partners for IP and product sales collaborations. As we continue to refine our approach, the appeal of various international markets is steadily increasing. This quarter, we continue to optimize our organic base organizational structure and the core operating platform. We refined our cost structure. We now have a leaner and more focused team and cost structure compared to the first fiscal quarter. We are building an integrated operational systems that will be a crucial competitive advantage. On the supply chain brands, we -- our production capability -- capacity is now approximately at 50x what it was at the beginning of 2025. This progress further step from last quarter was a solid foundation for creating [indiscernible] product this year. Operational excellence provides a solid foundation for our capital allocation. We will continue to invest in high potential IP development, strategic metric expansion and our live content initiatives. We will continue to systematically build cultural assets based on IP. As a dedicated IP-trained company. we are committed to continuously improving our operational efficiency and financial health. The journey of building an enduring company requires patients and discipline, and we are fully committed to both. I will now turn it over to Tim for a detailed review of our financial results. Thank you, everyone. Dong Xie: Thank you. Before I go into the details of our financial results, please note that all amounts are in RMB terms, that the reporting period in the second quarter of fiscal year 2026, ending on December 31, 2025. And then in addition to GAAP measures, we'll also be discussing non-GAAP measures to provide greater clarity on the trends in our actual operations. We are pleased to report another quarter of solid financial performance, marked by continued revenue growth and further improvement in our profitability metrics. This demonstrates the sustained successful execution of our strategy as an IP-based product-driven pop toy company. Total revenue reached RMB 177.3 million, representing a 39.4% increase from the previous quarter. Gross profit reached RMB 55 million with a gross margin of 31% compared with total revenue of RMB 127.1 million and a gross margin of 41% in the previous quarter. Adjusted net loss from continuing operations continued to narrow to RMB 161.1 million, down from RMB 17.1 million in the previous quarter. These results reflect the growing traction of our pop toy products and operating leverage, we are beginning to realize in our focused business model. Revenues for the quarter were RMB 177.3 million entirely generated from the sales of pop toys and other related activities compared to RMB 127.1 million in the previous quarter. This sequential growth is primarily driven by our off-line channel sales. Gross profit for the quarter was RMB 55 million compared to RMB 52.4 million in the previous quarter. Our gross margin decreased to 31% this quarter from 41% in the previous quarter. The margin decline reflects our strategic expansion of off-line channels which generated lower per unit margins than direct online sales. This channel diversification strategy is designed to enhance IP engagement and strengthen customer loyalty through physical retail experiences, aligning with the company's long-term vision as a leading IP chain company. On the operational front, total operating expenses were RMB 93.2 million for this quarter. To break this down, sales and marketing expenses were RMB 52.8 million. These expenses nearly included advertising and promotion expenses and staff compensation to support brand building and customer acquisition efforts across multiple platforms. As a percentage of total revenue, non-GAAP sales and marketing expenses, which include share-based compensation changed to 29.6% this quarter from 21.7% in the previous quarter. Research and development expenses were RMB 9.1 million. These expenses were mainly consisting of IP design and product development expenses. As a percentage of total revenue, non-GAAP research and development expenses, which exclude share-based compensation, changed to 5.1% this quarter compared to 12.5% in the previous quarter. General and administrative expenses was RMB 31.3 million. These expenses reflected our operational functions, including employee compensation, professional service fees and other operational expenditures. As a percentage of total revenue, non-GAAP general and administrative expenses which excludes share-based composition changed to 12.7% this quarter from 23.2% in the previous quarter. Our net loss from continued operations was RMB 25.4 million compared to RMB 25.8 million in the previous quarter. Our adjusted net loss from continuing operations was RMB 16.1 million compared with RMB 17.1 million in the previous quarter. Basic and diluted net loss from continuing operations per share were RMB 0.16 during this quarter. Basic and diluted adjusted net loss from continuing operations per share was RMB 0.1 during this quarter. Regarding our balance sheet position, our accounts receivable amounted to RMB 32.6 million as of December 31, 2025, primarily attributable to revenue from our off-line channel sales. It's worth noting that despite significant revenue growth from off-line channels during this quarter, our accounts receivable balance actually decreased markedly compared to September 30, 2025. This improvement reflects our intensified efforts to enhance customer engagement management capabilities and strengthen collections discipline. Our inventories were RMB 111.8 million as of December 31, 2025, representing a significant increase from the prior quarter. This was primarily driven by enhanced supply chain capacity and efficiency as well as inventory build proactively in anticipation of the Chinese New Year factory closures and new product launches in the upcoming quarter. We view this as a strategic move to ensure we are well positioned to meet upcoming demand. Looking ahead, we remain excited about the growth prospects for our pop toy business. Based on currently available information, including our pipeline for the upcoming IP releases and seasonal demand, we expect revenue from our pop toy business to be in the range of RMB 140 million to RMB 150 million for the third quarter of fiscal year 2026 and in the range of RMB 750 million to RMB million for the full fiscal year of 2026. This forecast reflect our confidence in the total market opportunity and our ability to scale our IP portfolio and expand internationally. That concludes my prepared remarks. Operator, let's open up the call for questions. Thank you. Operator: [Operator Instructions] The first question today comes from Alice Cai with Citibank. Yijing Cai: Just one quick question. The revenue guidance for third quarter suggests a quarter-over-quarter decline of about 15% to 20%. Is it primarily due to seasonality? Or are there any specific adjustment due to your IP launch schedule for the upcoming quarter? Dong Xie: Thank you, Alice, for the question. Indeed, those factors have contributed. But the core message is that we are actively building momentum for subsequent growth. Firstly, regarding seasonality, given that our current business primarily operate through a distributor model. Distributors naturally slow down their operations and inventory stocking during the spring festival holiday. This is within our expectations and represents a common seasonal fluctuation in this industry. And secondly, regarding the recent and pace of our product launches. This is not an adjustment, but rather a proactive arrangement based on our annual planning. Our products are typically planned 3 to 6 months in advance with dynamic optimization made based on market feedback. Currently, we are fully prepared for our product pipeline in the coming quarter and beyond, with major new products expected to launch successively starting from this end of March. Therefore, what we are seeing in the short term is the normal seasonal dip from a medium- to long-term perspective, this is proactive management on our part to welcome a new product cycle and optimize inventory and channel pace. Operator: The next question comes from Liping Zhao with CICC. Liping Zhao: [Foreign Language] I'll transfer it myself. So my question is about the cooperation of other companies in the future. We noticed that the Shenzhen Yiqi has recently established a joint venture with Enlight Media that this partnership means we will be working closely with Enlight Media in areas such as content creation and IP development? Dong Xie: I think Mr. Li will answer this question. [Foreign Language] Peng Li: I will answer the question in Chinese and Tina will translate for me. Okay. [Foreign Language] Tina Tang: Thank you for your interest. Regarding our cooperation with Enlight Media, it is a key part of our efforts to deepen our IP strategy. Peng Li: [Foreign Language] Tina Tang: First, over the past year, we have successfully taxed and confirmed the commercial path from IP images to pop toys by focusing on our core IP to create key products. We have built a solid foundation centered on the product gens. Peng Li: [Foreign Language] Tina Tang: Second, we have always trusted the talent of IP comes from continuous contact support. And both the [ third column ] is very important to this. We focus not only to sell in the physical products like the blend boxes and the plush toys, but also on the long term, develop our IP. So we are now enhancing our IPs through the suitable content forms. We're doing this by bringing in excellent contact tailwinds like the Enlight Media and cooperating with the top industry partners. Our goal is to add a cultural meaning to our IPs and strengthening emotional connection between users and IP. Peng Li: [Foreign Language] Tina Tang: Finally, the joint venture within Enlight Media, you mentioned it's exactly one of the specific projects to carry out our product and content stewardship strategy. We hope to explore more possibilities for our IPs in areas like the film and the television contact and derivative development through such cooperation. As for specific future plans, we will disclose them to the market when there is a substantial progress. Operator: The next question comes from Yichen Zhang with CITIC Securities. Yichen Zhang: My question is about our operations strategy. The company was very successful in IP operations last year. So are there any new strategies for IP operation and marketing in this year? Dong Xie: Okay. Thank you for questions. I'll take this. This year, the core keyword for our IP operations and marketing strategy is a comprehensive upgrade from -- maybe we can call that opportunistic creativity to a systematic IP factory. This is reflected in 3 key areas. The first one is on the product front. We have built a replicable assembly line for IPs. Extreme product excellence is the foundation of everything. Through our product committee mechanism, we rigorously select IPs based on 3 dimensions: the visual distinctiveness, story potential, storytelling potential and audience resonance, ensuring that every category launch has a generic makeup to become more classic. Concurrently, we have established a complete process from discovery and incubation to development and launch and then to fulfill the full-size life cycle management, making it possible to replicate and sustain at products. A great product in itself is the best nourishment for IP. We continuously strengthen our in-house teams and integrate outstanding external resources, injecting vitality into our IPs with product excellence. And secondly, on the operations front, we have developed an iterable omnichannel marketing methodology. Over the past year, we have continuously summarized and optimized our operational experience, forming a replicable playbook that we constantly refine and iterate. This year, we will flexibly deploy differentiated marketing strategies based on the unique characteristics of different IPs and products, whether it's celebrating collaborations, branding, crossovers with major sports events or integrated online to off-line user engagement activities. Our goal is to leverage precise operational support to ensure great products are sent and loved by more people. And third, on the content front, as just discussed by Mr. Li and the CICC analyst. We are opening a new chapter of light content empowerment for IPs. And this is a crucial step in our journey from purely physical space to narrative space, and from product moments to sustain store retiring. Through appropriate content, we infused our IP with culture substance and emotional depth, transforming them from mere trendy toys into cultural symbols, with stories and vitality. This multidimensional empowerment across products, content, operations and branding has one ultimate goal, to build truly enduring evergreen IPs. So that's our training strategy so far. Operator: The next question comes from [indiscernible] with [indiscernible] Securities. Unknown Analyst: My question is about our channel expansion. I wonder how is the performance of the -- our recent offline stores have reached our expectation and what's the channel expansion plan in year 2026? Dong Xie: Okay. I've answered your question. I thank you for your interest in our store operations. Regarding our offline stores, I will address this from three dimensions: the short-term performance, strategic positioning and future plans. Firstly, regarding short-term performance, our newly opened stores have generally met or even slightly exceeded our internal expectations. Since late last December, in last year 2025, we have opened 5 D2C stores in Beijing, Shenzhen and Chongqing. Although they have been operating for just over one month, the overall performance has been solid, and we have broadly achieved nearly breakeven or commendable result for newly opened stores in their initial phase. Of course, due to differences in customer profiles across various shopping districts, we are continuously fine-tuning the operational strategies for individual stores. And second, regarding strategic positioning, we value these stores not only for their sales contribution, but also and more importantly, for their role as brand landmarks and user touch points. Our offline direct to sale stores are core scenarios for fostering deep interaction between our IPs and users. To this end, we recently established a user operation center the organization in our company aimed at integrating online and offline data and user and planning more cohesive interactive activities with our IP platform and the product launch pace as a crucial component of this strategy, the value of our stores for brand showcasing and user connection far exceeds near sales figures. Operator: As there are no further questions, I'd like to hand the conference back to management for closing remarks. Tina Tang: Thank you again for joining our call today. If you have any further questions, please feel free to contact us or submit a request through our IR website. We look forward to speaking with everyone in our next call. Have a nice day. Operator: Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings. Welcome to CareCloud, Inc. Fourth Quarter 2025 Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Brendan Covello, Corporate Counsel. Please begin. Brendan Covello: Good morning, everyone. Welcome to CareCloud's Fourth Quarter and Full Year 2025 Conference Call. On today's call are Mahmud Haq, our Founder and Executive Chairman; Stephen Snyder, our Chief Executive Officer; A. Hadi Chaudhry, our Chief Strategy Officer; and Norman Roth, our Interim Chief Financial Officer and Corporate Controller. Before we begin, I would like to remind you that certain statements made during this call are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21 of the Securities Exchange Act of 1934 as amended. All statements other than the statements of historical fact made during this call are forward-looking statements, including, without limitation, statements regarding our expectations and guidance for future financial and operational performance, expected growth, business outlook and potential organic growth and acquisitions. Forward-looking statements may sometimes be identified with words such as will, may, expect, plan, anticipate, approximately, upcoming, believe, estimate or similar terminology and the negative of these terms. Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those contemplated in these forward-looking statements. These statements reflect our opinions only as to the date of this presentation, and we undertake no obligation to revise these forward-looking statements in light of new information or future events. Please refer to our press release and other reports filed with the Securities and Exchange Commission, where you will find a more comprehensive discussion of our performance and factors that could cause actual results to differ materially from those forward-looking statements. For anyone who dialed in the call by telephone, you may want to download our fourth quarter and full year 2025 earnings presentation. Please visit our Investor Relations site, ir.carecloud.com. Click on News and Events, then click IR Calendar, click on Fourth Quarter and Full Year 2025 Results Conference Call and download the earnings presentation. Finally, on today's call, we may refer to certain non-GAAP financial measures. Please refer to today's press release announcing our fourth quarter and full year results for a reconciliation of these non-GAAP performance measures to our GAAP financial results. With that said, I'll now turn the call over to our CEO, Stephen Snyder. Stephen? Stephen Snyder: Thanks, Brendan, and good morning, everyone. I'm pleased to report that 2025 was a transformational year for CareCloud, marked by exceptional financial performance, strategic acquisitions that expanded our market reach and a successful launch of our flagship AI platform. We delivered results that underscore the strength of our business model and validate our vision for the company's future. In particular, I'm pleased to be able to talk today about our revenue growth, the remarkable acceleration of our profitability and free cash flow, the current status of our capital structure, the significance of our 2025 acquisitions, the evolution of our services offering and AI platform, our market position and growth drivers as we enter 2026 and our guidance for the year ahead. First, let me start with our top line numbers. For the full year 2025, we generated revenue of $120.5 million, representing nearly 9% year-over-year growth. In Q4 specifically, we achieved revenue of $34.4 million, up nearly 22% year-over-year, demonstrating accelerating momentum as we entered this year. Importantly, we raised our revenue guidance twice during 2025 and still exceeded the final target, a pattern that reflects the underlying health and predictability of our recurring revenue streams. Second, as to profitability, we reported GAAP net income of $10.8 million for 2025, a year-over-year increase of more than 37%. We achieved earnings per share of $0.10, marking our first full year of positive EPS since our 2014 IPO, a remarkable milestone that reflects our multiyear transformation to sustainable profitability. In Q4 alone, we posted GAAP earnings per share of $0.04. Adjusted EBITDA expanded to $27.5 million with a 23% margin, up more than 14% year-over-year. But perhaps most importantly, we generated $28.6 million in GAAP operating cash flow for the full year, a 38% increase year-over-year and $8.7 million in Q4 alone, up 66%. Non-GAAP free cash flow reached approximately $20.5 million for 2025 compared to $13.2 million in 2024 and representing growth of more than 500% from 2023. This dramatic improvement in free cash flow generation has been transformational to our financial flexibility and strategic optionality. It enabled us to resume dividends on our preferred shares at the beginning of 2025 to begin paying double dividends on our Series B preferred stock starting in 2026 to address the accumulated arrearages and to fund multiple acquisitions during 2025, entirely from free cash flow generated during that year. Third, as to our capital structure, during 2025, we completed the conversion of approximately 80% of our Series A preferred shares into common. The conversion eliminated more than $7 million in annual dividend obligations, and we fully repaid our Provident Bank credit line by year-end, entering 2026 with 0 drawn on our credit line. Reducing the complexity of our capital structure remains a core priority. Fourth, we made significant strides during 2025 on the M&A front. We completed multiple transactions during the year, each strategically selected to expand our capabilities and market reach. These deals were all executed at less than 1x revenue multiples, funded entirely through the free cash flow we generated during 2025 and resulted in 0 common shareholder dilution. The most significant of these was our August acquisition of Medsphere Systems, which brought us into the inpatient hospital market. Through Medsphere, we added a suite of ambulatory and inpatient software products, including the #1 Black Book ranked Wellsoft emergency information department system. This was a watershed moment for CareCloud. We evolved from an ambulatory first to a care continuum company, able to support the full patient and clinician journey from outpatient clinic to emergency department to inpatient bed through the revenue cycle and into the supply chain. Integration is well underway. We are incorporating our AI tools into the platform, and we are already seeing new customer wins under the CareCloud umbrella. We also acquired MAP App from the Healthcare Financial Management Association, or HFMA, in October of last year, alongside a long-term joint marketing agreement. MAP App is a hospital benchmarking and performance analytics platform used by leading hospitals and integrated delivery networks to measure and compare revenue cycle metrics. MAP App identifies where a hospital is underperforming and CareCloud's RCM and AI provide the solution, a sales motion with built-in urgency and quantifiable ROI that we intend to scale in 2026 and beyond. Through Medsphere and MAP App, we now serve hospital systems and health networks, creating a natural cross-selling runway for our AI solutions and RCM services. Our 2026 growth strategy centers on penetrating these newly acquired health system customers with our RCM and AI products, exactly the kind of operating leverage that justifies these strategic investments. Fifth, we have continued to position ourselves as an emerging leader in health care IT. We recognize that the health care technology market is at an inflection point. AI adoption is moving from pilot programs to production deployment and providers are actively seeking partners who can integrate AI across their clinical and administrative workflows. We are operating in a market with a multibillion-dollar addressable opportunity in the U.S. alone for our AI front desk assistant and that is just one application in our broader AI framework. We launched stratusAI Front Desk Agent in December 2025 and are already seeing strong early traction. Hadi will provide more details on our AI products and road map. But from a business perspective, our combination of domain expertise, distribution and clinical data gives us a competitive moat that is extraordinarily difficult to replicate. Sixth, let me turn to our market position and growth drivers. In 2026, we will continue to leverage our dual platform footprint in ambulatory and inpatient markets to drive organic growth and acquisition synergies. Our primary growth vectors, ambulatory cross-selling, deeper hospital penetration of existing relationships and AI monetization represent a compounding opportunity that positions us for durable growth. As we have noted in prior calls, strategic acquisitions have been a cornerstone of our growth historically, and 2025 marked the year where we reignited that momentum after a multiyear pause during which we refreshed our financial foundation, achieved sustainable profitability and launched our AI Center of Excellence. We were patient because we wanted to acquire from a position of strength, and that patience has paid off. All of our 2025 acquisitions follow the same disciplined playbook, acquisition purchases non-dilutive to common shareholders, structured to maintain balance sheet flexibility and priced at attractive valuations of 1x revenue or less. What is particularly exciting now is that AI is further accelerating our acquisition opportunity set. We expect to remain active in the M&A front in 2026 and beyond as we identify complementary targets that extend our reach and can benefit from our AI capabilities. Seventh, turning to our guidance for 2026. It reflects continued growth with accelerating profitability. We expect revenue of $128 million to $130 million and adjusted EBITDA of $29 million to $31 million, reflecting margin expansion. We further expect GAAP EPS of $0.20 to $0.23 per share, which would represent an increase of more than 100% over 2025. We have set this guidance at levels that we believe are achievable and consistent with our track record, we intend to execute against it with discipline. As we reflect on 2025, we are humbled by the progress we have made across every dimension of our business. We exceeded previously raised revenue guidance. We delivered our first year of positive EPS as a public company. We generated exceptional free cash flow growth, increasing more than 500% over the last 3 years. We executed strategic acquisitions without diluting shareholders. We launched a transformational AI platform that is already gaining market traction, and we strengthened our market position through acquisition-driven diversification. Together, they represent a fundamental repositioning of CareCloud as a full continuum health care technology platform with AI at its core. We believe these achievements position us to deliver sustained value creation for our shareholders, clients and employees. We are entering 2026 with more momentum, more scale and a stronger balance sheet than at any point in time in our history, and we look forward to achieving our objectives in 2026 and beyond. With that, I'll turn the call over to Hadi Chaudhry, our Chief Strategy Officer, who will provide more details on our acquisition strategy and product road map. Hadi? A. Chaudhry: Thank you, Steve. Good morning, everyone, and thank you for joining today. Steve has walked you through an outstanding financial year. That performance gives us the platform to do something really important, invest aggressively and deliberately in AI. My job today is to take you inside that effort, what we have built, what's working and where we are taking it in 2026. In April 2025, we launched CareCloud's AI Center of Excellence, a fully operational production-grade initiative with one mandate, build AI solutions that create measurable impact for health care providers. This is not a research lab or a pilot program. It is the engine behind everything in our AI portfolio. We built this capability in-house because AI and health care cannot be generic. It must be trained on the right data, integrated into real clinical and administrative workflows and designed around health care-specific compliance and accuracy. The AI Center of Excellence brings together engineering, data science, clinical informatics and product development to deliver exactly that. Let me walk you through what we have launched. Our flagship AI product of 2025 is stratusAI Front Desk Agent, which reached full commercial release in December. It is an agentic AI phone receptionist, fully autonomous, operating 24 hours a day, 7 days a week, ending patient calls with natural human-like conversation. The scope of what it manages is significant, appointment scheduling, rescheduling and cancellations, real-time insurance eligibility verification and demographic capture, prescription refill routing, lab results, inquiries, referral requests and automated confirmations and reminders. When a call requires human judgment, it escalates intelligently to a live staff member. The system is deeply integrated within our EHR and practice management platforms, which means there is no manual data reentry and no third-party middleware between the AI and the patient record. Our results speak for themselves. Dr. Holden, owner of the Lung Center shared that stratus Desk Agent is now handling nearly 80% of their inbound scheduling-related calls, freeing his staff to focus on more complex patient needs. There is a fundamental shift in how our practice operates, and it is exactly the outcome we designed this product to deliver. Alongside Desk Agent, we have stratusAI Voice Audit, our conversational intelligence platform, gives practice administrators and hospital operations leaders visibility into every patient phone interaction, whether handled by AI or by the staff member. Voice Audit delivers call monitoring, quality scoring, trend analysis and patient sentiment insights. It shows what's working, where workflows are breaking down and where there are opportunities to improve the patient experience. Beyond patient access, we are applying AI deeply across revenue cycle management, the core of our business. AI capabilities are already active throughout our RCM operations, helping reduce claim errors, improve appeals and documentation accuracy and increase first pass acceptance rates with payers. Importantly, AI also allows us to shift from relying primarily on lagging indicators such as denial rates and days in account receivable to monitoring leading indicators earlier in the revenue cycle. By identifying potential issues at intake, eligibility verification, coding and claim creation, we can prevent problems before a claim is ever submitted rather than reacting after a denial occurs. Our longer-term ambition is to establish a new industry benchmark, zero-touch claims, a fully automated workflow where AI manages intake, validation, submission and payer follow-up with minimal human intervention. This enables billing teams to focus their expertise on true exceptions rather than routine processing. We are also developing AI-driven prior authorization capabilities, which represents one of the most significant administrative bottlenecks in the health care today. Prior auth delays drive revenue leakage, delay patient care and consume enormous staff time. Our approach is to use AI to predict authorization requirements, pre-populate supporting documentation and route requests automatically, reducing turnaround time and the rate of initial denials. We are also actively developing an AI-assisted medical coding product. Accurate coding is foundational to revenue cycle performance. Errors at that stage cascade into denials, delays and lost reimbursement. For clients using CirrusAI Notes, the 2 products work in concert, taking a clinical encounter seamlessly from documentation through accurate coding assignment. On the clinical side, CirrusAI Notes addresses documentation burden, a primary driver of physician burnout. It captures the clinical encounter and generates structured notes for physicians to review and sign off on rather than author from scratch. It is live and in use today, and it earns clinician trust precisely because it does not try to replace physician judgment, it removes the administrative burden around it. I want to spend a moment on the intersection of our acquisition strategy and our AI capabilities because I think this is one of the most compelling and underappreciated aspects of our story. Each platform in the Medsphere portfolio is embedded in real clinical operations, serving workflows previously outside CareCloud's reach, and none of them had a dedicated AI team behind them until now. Clients across this portfolio will also benefit from access to CareCloud's ambulatory AI-enabled solutions as our integration work progresses, bringing the full capability of our platform to bear across the care continuum. Our AI Center of Excellence is actively scoping AI enhancements across this portfolio, prioritizing the highest impact use cases in supply chain efficiency, emergency department workflow and clinical documentation. As those enhancements are completed and validated, they will be made available to the clients. To be clear about sequencing, the new clients we are winning today are selecting these platforms on the strength of what they deliver right now. Our contract win with Memorial Hospital in Ohio, deploying HealthLine for supply chain management is a strong signal of that underlying demand. As our AI capabilities for HealthLine mature, Memorial and clients like them will position to adopt these enhancements when they are ready. The same logic applies to Wellsoft. In January, Affinity Urgent Care in the Houston Galveston area selected Wellsoft, bringing our emergency grade documentation system into the urgent care settings for the first time. With approximately 11,000 urgent care facilities across the United States, this channel represents a meaningful expansion of our addressable market. The AI layer for Wellsoft is in development. And when it is ready, it will strengthen our competitive position in the channel considerably. On the AI side, MAP App becomes more powerful over time. Our road map adds recommendations that go beyond identifying a revenue cycle gap to quantifying its dollar impact and surfacing the automation that closes is fastest, moving us from analytics to action, a conversation hospital CFOs are very receptive to. The HFMA relationship also gives us distribution into hospital finance leadership that would take years to build organically. And combined with our AI road map for MAP App, we have compelling reasons to be in those conversations in 2026. Looking ahead, I want to be direct about what 2026 means for our AI strategy. We have spent 2025 building the AI Center of Excellence, the stratusAI product suite, the acquisitions that expand our platform. 2026 is the year we execute. Let me walk you through our priorities. First, we will continue expanding our AI product suite across the full platform. StratusAI Desk Agent and Voice Audit are live and scaling. CirrusAI Notes is deployed and being integrated across the Medsphere suite. AI-assisted coding and prior authorization AI are both targeted for release this year. Second, we will execute on the cross-sell opportunity at the product level. Steve outlined the strategic case Medsphere relationships, RCM capabilities, HFMA partnership. My focus is making sure the AI product are ready to support that motion. CirrusAI Notes integrated into MedSphere suite, the coding product available to hospital billing teams and stratusAI Desk Agent deployable in hospital patient access centers. Third, we will continue building the AI Center of Excellence, deepening our clinical data sets, developing proprietary models trained on health care-specific workflows and partnering selectively with AI leading infrastructure providers where it helps us move faster. The principle is always the same. Health care native AI built with right guardrails delivers better and more defensible outcomes than generic AI applied to health care settings. Fourth and most importantly, we will hold ourselves accountable to client outcomes, not just product releases. The measure of AI investment is not feature ship. It is revenue improvements, denial rate reductions, time saved per provider, patient satisfaction scores. Those are the metrics we track internally, and they are the ones we will be sharing with you as our AI business matures. I want to close with the thought on why this moment is meaningful. Providers across every care settings are seeking purpose-built AI that integrates into the systems they already use. This is precisely what we are building across ambulatory, emergency, inpatient and hospital billing operations. CareCloud sits at a rare intersection, long-standing relationships with over 45,000 providers across the care continuum, a fully integrated platform spanning EHR, practice management, RCM and our supply chain and hospital systems and a dedicated AI organization focused entirely on solving health care operational problems. We are profitable, growing company with a clear AI strategy and operational discipline to execute it. I look forward to sharing our progress with you throughout the year. With that, I will turn the call over to Norm Roth, our Interim CFO and Corporate Controller, who will walk you through the detailed financial results. Norm? Norman Roth: Thank you, Hadi, and thanks, everyone, for joining our call today. As you have just heard, we had another strong quarter and a strong finish to the year. We have accomplished and exceeded the goals we set for ourselves for 2025. In particular, we are now generating record levels of free cash flow and resumed paying dividends on our preferred shares, which started in February 2025, and we've also been catching up on the dividend arrearage for the Series B preferred stock. Further, we have fully repaid our Provident Bank line of credit at the end of the year, we had borrowed funds for the Medsphere acquisition and now have the full $10 million line of credit available. We generated $20.5 million of free cash flow in 2025, which we measure as cash from operations less purchases of property and equipment and capitalized software and other intangible assets. In 2025, we began seeking out acquisition opportunities and during the year, we completed 4 acquisitions. We continue to evaluate acquisition opportunities that will be accretive to the company. The key to growing our free cash flow continues to be reducing expenses and growing our GAAP net income. Fourth quarter 2025 GAAP net income was $2.9 million as compared to $3.3 million in the same period last year. This is our seventh consecutive quarter achieving positive GAAP net income. Revenue for the fourth quarter 2025 was $34.4 million compared to $28.2 million for the fourth quarter of 2024. There was approximately $7.2 million in revenue related to the Medsphere acquisition in the fourth quarter. Adjusted EBITDA for the fourth quarter 2025 was $7.7 million or 22% of revenue compared to $7.1 million in the same period last year. This was an increase of 8% year-over-year. For the full year, the story is similar. With our emphasis on improving profitability, revenue for the year 2025 was $120.5 million compared to $110.8 million in 2024. Our GAAP operating income was $11.3 million compared to $9.1 million in the same period last year and our GAAP net income was $10.8 million compared to a GAAP net income of $7.9 million for 2024. This was the highest GAAP net income for the company since inception. Non-GAAP adjusted net income was $14.4 million or $0.34 per share, calculated using the end-of-period common shares outstanding. Since going public, this is the first year we have had positive full year GAAP EPS. For the year 2025, adjusted EBITDA was $27.5 million, an increase of 15% or $3.4 million from $24.1 million last year. Our adjusted EBITDA for full year 2025 was also the highest amount ever achieved by the company. During the year 2025, we generated $28.6 million of cash from operations compared to $20.6 million in the prior year and $20.5 million of free cash flow as defined. The free cash flow amount of $20.5 million increased by 55% compared to $13.2 million in the same period last year. As of December 31, 2025, the company had approximately $3.6 million of cash. Net working capital was approximately $1.3 million. Now that we have repaid our line of credit, free cash flow during 2026 will allow us to increase our cash balance and build additional cushion in our net working capital. Our financial position continued to improve during the year 2025. We are happy to report strong financial results, no amounts outstanding on our line of credit, cash savings from the Series A preferred stock conversion that occurred in March 2025 and look forward to continuing to report strong results next year. With that, I'll now turn the call over to Mahmud for his closing remarks. Mahmud? Mahmud Haq: Thank you, Norm. 2025 was a milestone year for CareCloud. We delivered strong profitability and free cash flow, expanded into the hospital market through strategic acquisitions and launched an AI platform that positions us well for the future. What is most exciting is that we are just getting started. We enter 2026 with strong momentum, a stronger balance sheet and significant opportunities to drive growth across our platform. I want to thank our employees, clients and shareholders for their continued trust and support. We remain focused on disciplined execution, innovation and creating long-term value for all of our stakeholders. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question is from Allen Klee with Maxim Group. Allen Klee: Great quarter. So when I'm listening to your talk, the 2 big themes I'm hearing among others, are your emphasis on AI and acquisitions and how you can combine them and get benefits. So could you expand a little more on how you're planning on kind of monetizing the AI in 2026? You've talked about, but I think it's important. Stephen Snyder: For sure. Thanks for the question, Allen. So if we step back for those who haven't followed our story so closely, and we'll just talk about M&A first and then we'll dig a little bit deeper into the AI question specifically that you asked. So first of all, from an M&A perspective, the environment today continues to be increasingly favorable. AI is a catalyst for smaller billing companies and for health care companies that focus on delivering software products to the inpatient, also the ambulatory space because they recognize the fact that without AI, their competitive position continues to weaken in the market. So that's driving more sellers into our pipeline than ever before. Our strategy continues to be one of patience and discipline like we've followed for years. So we wait for an opportunity where the recurring revenue associated with, first of all, it has to be recurring revenue relationships, a portfolio of recurring relationships, revenue relationships. And then secondly, from a valuation perspective, we really target valuations of between 0.6 and 1x revenue. That compares very favorably to the CAC in our space, which is typically about 1.5x or greater revenue. So we move forward with these acquisitions. And then with regard to that, those base companies that are part of that portfolio, we aim to bring them from a status of typically breakeven or operating at a loss to about 25% to 30% profitability margins typically within about 9 months. So that's the base strategy. You've asked about the AI overlay to that, and that's where I think the whole strategy gets even more interesting. So if we think about the -- just as an example, if we think about the Medsphere acquisition, we've purchased software products that lack that AI capability. And what our team has been doing is that it's been really focused in on taking the core AI products, taking the CirrusAI product, the stratusAI product, taking the AI Notes applications and the like and then weaving that and incorporating that fully into those platforms. And we expect to have that done within the next couple of quarters. So we're able to take those platforms and to make them increasingly more attractive and platforms that as opposed to being -- as opposed to lagging behind where the space is, will be increasingly leading in their particular markets. So we see some exciting potential there. The second thing would be if we think about this from the perspective of revenue cycle companies, we now are increasingly using AI and automation to handle a lot of the services that before were being handled by individuals here in the U.S. or members of our team globally. So AI and automation is increasingly assisting with the back-office processing enabling us to further drive margins. And Hadi might have something else to add to that from an AI perspective. A. Chaudhry: Sure. Thank you, Steve. Just to add on to what Steve has mentioned, our strategy from the AI perspective has been the same and threefolds. One, continue to focus on the improvement and implementation of AI in the back-end operations, whether it's the basic denial management, whether it's the automation of, as an example, the referrals and verification of the benefits and the like, and then there are many others. And the second is the AI enablement or AI integration into the existing -- the product suite that we have, whether it's our own EHR practice management platform or these other companies, as Steve mentioned that we are acquiring, the team continues to focus on building the AI layer to make it more attractive and more marketable. And then continue to focus on any other net new applications that we can bring to the market such as the stratusAI FDA. Allen Klee: That's very helpful. Then it was encouraging to see like contract wins with new customers. Could you talk a little about how you think -- what was behind the win and how you think that's an opportunity going forward? Stephen Snyder: Allen, if we think about our overall sales team and our marketing team, we've expanded that team by 2 or 3x. So we have an increased team that's focused -- increased science team that's focused on cross-selling and also these net new opportunities. Having said that, we continue to see the real opportunities this year being primarily in expanding the wallet share of those existing customers, many of whom we've acquired more recently through the Medsphere and the MAP App transactions. So through those transactions, we've acquired more than 100 new hospitals and health systems who we're working with. And we see significant opportunity to sell more deeply into these existing clients by providing additional services and solutions, AI products, RCM solutions with a real focus on stratusAI and CirrusAI that can add value, and we believe will resonate with this market. So yes, 100%, we've had some new wins. We talked about a new Wellsoft win. Wellsoft is our recently #1 Black Book ranked EHR that's focused on the emergency departments. So we had a win there. And we also had a win with regard to our supply chain product as well. So we have those new wins, but we really think that the real opportunity will be continuing to cross-sell and upsell the existing customers. Allen Klee: Okay. You also -- my last question, and then I'll jump back in. The front-end AI, you mentioned -- I think you said you launched that in December. How do you think about -- and you said it's a very large opportunity, in terms of how you're targeting that and early indications you get of interest? Any comments there? Stephen Snyder: For sure. Yes. Allen, you're talking about our stratusAI product. And again, the market opportunity is estimated to be $4 billion plus. And Hadi can provide a little bit more visibility with regard to the early response, but we've really been encouraged by how well that's resonated with regards to our existing base. Our sales efforts are almost exclusively focused on our existing base, and we're getting significant traction there. But over to Hadi. A. Chaudhry: Thank you. To your point, Steve, so we are seeing a very encouraging early adoption since the launch in -- the commercial launch in December. While we are not disclosing a specific client count at this stage, but our deployment pipeline is really robust across existing ambulatory client base. And we yet need to tap into aggressively into the Medsphere client base that our team has aggressively working towards integrating across the product suite there. So at the moment, we have seen an exceptional interest from our existing client base. So we expect to share more specific adoption metrics as we progress through 2026. Operator: Our next question is from Michael Kim with Zacks Small-Cap Research. Michael Kim: So first, there continues to be a lot of uncertainty in the markets as it relates to AI and the potential impacts on SaaS companies. So just wondering how investors should think about CareCloud's exposure to AI disruption versus maybe being more of an AI beneficiary? Stephen Snyder: Thanks, Michael. And you're 100% right. The SaaS sell-off in the market has been significant and has not discriminated. It has not discriminated between companies where there really is a more significant risk than those where there isn't. We believe that the companies that are most at risk are the horizontal per seat tools for generic workflows, things like scheduling apps, basic CRM, things like -- companies like that where AI agents can replicate and fully replace that key functionality. That's really fundamentally though, not our business. And I would focus in particular in the health care space. So health care IT, in particular, has very deep industry moats that those horizontal SaaS players simply don't have. So our AI products, as an example, require rigorous testing, certification, approval by a government-approved entity with regard to -- prior to their initial launch and with regard to any fundamental changes we make to them. So the ability to -- for these new market entrances from AI companies is really very limited. And we also operate under HIPAA and a whole web of other health care-specific regulations that create substantial barriers to entry. We're also the system of record for our providers from a clinical, financial administrative perspective. And that data all lives within our existing platform. And if we think about more fundamentally, what our clients in the context of leveraging us accomplish really is in large part, shifting their risk to us. They rely upon us to securely host their data to ensure compliance, to most fundamentally produce revenue for the practice. So our SaaS offering isn't simply a stand-alone tool. It's really the technology backbone that drives our larger revenue cycle management services, which are fully integrated with it. And clients pay us based on the actual value we're producing because the overall majority of our clients pay us a percentage of the practice collections for both the EHR, the technology piece and also the RCM offering. So it's fundamentally different from many of those other companies that are really feeling -- also feeling this impact. I would say one other thing is we also have more than 25 years of proprietary data across hundreds of millions of claims. And that really -- that information and that data informs our AI products, helps us ensure coding accuracy, manage denial management, benchmarking and the like, all things that new entrants in the market don't have. So at least as we look at it, Michael, our thought is that with our valuation being 5x, 6x EBITDA, in spite of the fact we're generating, we generated this last year $20.5 million of free cash flow, we really trade -- we continue to trade at a fraction of the valuations of the market in general and candidly, even a fraction of the valuation of other health care IT peers or more than twice that. So as the market moves away from this more indiscriminate treatment of all companies that are working on some level with AI and we'll move from that to, we believe, a more differentiated approach between those companies that are truly threatened by AI and those for whom AI is actually a key part of their advantage, is a key part of their ability to add additional value to the existing relationships. And we really fall into that second camp. Michael Kim: Got it. Makes a lot of sense. And then second, clearly, earnings power and free cash flow continue to build. So just wondering what sort of assumptions you're building in as it relates to the 2026 guidance ranges and then how you think about sort of the trajectory of growth looking out beyond next year? Stephen Snyder: So to your point, Michael, for us, 2025 was a milestone year. It was our first positive -- our first year of producing positive EPS since we went public back in 2014. And we've had 7 straight quarters of GAAP profitability and free cash flow alone was up 55% as compared to 2024 up to $20.5 million in 2025. So if we think about just our EPS guidance this year of $0.20 to $0.23, that represents more than 100% growth, and we feel very confident about that guidance. Now what's driving that overall growth? It's really being driven in large part by the top line growth. And in addition to that, the integration savings with regard to the companies we've acquired and then really driven largely also by the AI efficiencies. And then add to that the fact that we've eliminated through the conversion in 2025, we've eliminated more than $7.5 million of preferred dividend obligations on an annualized basis. So the increased free cash flow really gives us flexibility to be able to fund M&A for operations. And if you just look at this most recent year, we were able to acquire all 4 companies purely from the cash flow generated during 2025 with 0 dilution to the common shareholders, also able to invest in our AI development and then fully resume payments relative to our Series A and Series B shareholders. And in addition to that, if you think about this year, in addition to all those things, we're also paying double dividends to clear up the arrearage relative to the Series B. So from a funding perspective, operations is really continuing to drive this flexibility and continues to open up new opportunities for us. And as we think even more broadly beyond 2026 and 2027, we believe that we'll continue to fundamentally expand the overall margin profile as we continue to scale. Operator: Our next question is from Michael Galantino with Chaplin Davis. Michael Galantino: Great year, great quarter. Way to finish the year strong. I've been involved with the company for a little over 9 years, and you guys have seen a lot -- we've all seen a lot of changes in the industry. I mean, nobody knew what AI was 9 years ago, and now it's the focus of the company. You guys have done a tremendous job navigating it specifically the last 2 or 3 years. I have a couple of questions. Steve, one to you on the AI front. Does the AI technology and the efforts of the company, does it save money in terms of operationally? And does it increase the margins? And I know you talked about the SaaS stocks that have been coming under -- or the software stocks that have come under significant pressure in the last 3 or 4 months, if you can address that? And the second question is, now that you have excess cash flow -- a lot of excess cash flow, which is a great problem to have, what are the focuses for the use of that money if there are no opportunities to make any more acquisitions this year? Stephen Snyder: Thanks, Mike. I appreciate your questions. So maybe I'll try to address the first one initially. And if you just -- if we think just -- if we kind of back up for a minute and think more fundamentally about the overall revenue of the company, and we go back to, let's say, the fourth quarter of 2024, and we think about our company on an annualized basis. On an annualized basis, we were at, let's say, $110 million roughly. We think about where we are today, probably $125 million. These are all very rough numbers. So we've increased the overall revenue base by about 14%, 15% roughly. And we've done all that while actually reducing the number of employees that we have today as compared to 2024. So I think that really more fundamentally, at least on a qualitative level, speaks to what we're able to do, and that's in large part driven by AI and automation. And as the year progresses, I believe you'll continue to see us being able to do far more with far less. So that -- those savings and that margin, we believe, will continue to increase as we move forward. And again, in the whole scheme of things, we're probably in the first inning. So this is really just beginning. We just launched our AI Center of Excellence less than a year ago. So these realities, the long-term realities are yet to be fully seen in the financials. But again, based upon the numbers as we see them today, we think there's significant opportunity for us to be able to reduce overall expenses associated with the revenue as we continue to grow it. The second thing is with regard to the use of that free cash flow. We continue to look for these opportunities to be able to put that capital to work with regard to these acquisitions. So acquisitions in our space, again, with a focus on being able to acquire companies from our internally generated cash flow ideally. So that would be one key focus. The second key focus would be continuing to -- as the opportunities present themselves and as our profit margins continue to grow to look for opportunities to be able to continue to enhance our overall capital structure as time progresses. That would be another opportunity that we look forward to pursuing and also continuing to invest in AI, continuing to look for opportunities to expand the existing capacity of our software products and to continue to handle an increasingly larger and larger share of the responsibilities that our clients are handling today. Michael Galantino: Just a quick follow-up. When you guys are competing for this business, who is your competition? Who's out there bidding on the same business that CareCloud is right now? Are there much larger firms? Are they smaller start-ups? Or who is our direct competition for this business? Stephen Snyder: Good question, Mike. I think to answer that, we probably would have to break that into a couple of different areas. So from an EHR perspective, we're oftentimes competing against companies like eClinicalWorks, AdvancedMD and other similar players really focused on being on the ambulatory space. So those would be 2 of the main companies plus athenahealth would be a third company where there's a greater mix and more of a focus on the integrated solution that involves the delivery both of software and also of the revenue cycle management services. From an AI perspective, the playing field is wider, and it really then depends again on the products. So for instance, our CirrusAI product, that product that's more focused, for instance, on the -- using the audio and the ambient sound from the communications between the provider and the patient in the exam room to really populate the chart, many of our competitors in this space are offering very similar solutions. Some of those solutions are native. Other solutions are through a third-party application and integrate into their platform. From the perspective, though, of the product that Hadi was talking about before, many of our competitors actually aren't offering that solution. But kind of one company maybe to think about would be SoundHound. So SoundHound has a product that is actually very similar in many respects called Amelia, and Amelia has a lot of that same functionality. But SoundHound, unlike us, does not have a vertical -- does not have a vertical approach. They're an outside player selling horizontally into this space. So they don't have their own EHR, for instance, in which they can incorporate this product. But SoundHound is also interesting because if we look at their overall valuation, it's about 20x today, 20x the EV. So compare and contrast that with ours, and we think there's a lot of opportunity for investors once the market really understands that we have a proof of concept and we are able to demonstrate real success at rolling out our solution to our existing customer base. Operator: Our final question is a follow-up from Allen Klee with Maxim Group. Allen Klee: Yes. Just on the financials quick thing. In terms of your outlook, any comments on thoughts of CapEx and capitalized software spending? And your guidance overall, does it include any unannounced acquisitions? Stephen Snyder: Great question. I'll let Norm handle the first part of that, but the answer to your second part of your question is no. It does not include any unannounced material acquisitions. Norman Roth: And I think, Allen, you're looking at CapEx and software, I think if you look at the levels from this year, I think they'd be the same or maybe a little less. So if you wanted to use that as your forecast. Allen Klee: Okay. Maybe just following up in terms of the run rate on operating expenses, to what extent -- I know you're increasing R&D, but do you still anticipate utilizing AI can get you some benefits on the expense side? Stephen Snyder: Absolutely. We do. We do. And candidly, as we sit here today as compared to a year ago, we believe we can accomplish everything that we're setting up to accomplish in terms of AI, and we can accomplish it with a smaller team than we had initially envisioned. There's been so much progress from an AI perspective in terms of the key models that we use to -- as the girding in our overall framework that we really believe that we can increasingly achieve what we're setting out to achieve from an AI perspective with a leaner team than we had initially envisioned. So I think there'll be less spending from the perspective of the AI Center of Excellence. And beyond that, the spend that -- the investments that we're making today will really continue to make us more efficient and continue to expand margins. Operator: With no further questions, I would like to turn the conference back over to Norman for closing remarks. Norman Roth: Thank you, everyone, for attending our call today. Have a great day. Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Good day, everyone, and welcome to the Saga Communications Fourth Quarter and Year-End 2025 Earnings Release and Conference Call. [Operator Instructions] It is now my pleasure to hand the floor over to your host, Chris Forgy. Sir, the floor is yours. Christopher Forgy: Thank you, Matt, and it's good to have you again as our host for the conference call. And I want to thank everyone who's taken the time to join Saga's 2025 Q4 and year-end earnings call. Trust me when I say it is great to be here with all of you today. We appreciate your continued support, your interest and your participation in Saga Communications. What we believe is the best media company on the planet and not to mention the most pristine balance sheet to match. So before I make my remarks, I'd like to turn the floor over to our Saga's EVP and CFO, Sam Bush for his comments. Sam? Samuel D. Bush: Thank you, Chris. This call will contain forward-looking statements about our future performance and results of operations that involve risks and uncertainties that are described in the Risk Factors section of our most recent Form 10-K. This call will also contain a discussion of certain non-GAAP financial measures. Reconciliation for all the non-GAAP financial measures to the most directly comparable GAAP measure are attached in the selected financial data tables. For the quarter ended December 31, 2025, net revenue decreased $2.7 million or 9.3% to $26.5 million compared to $29.2 million last year. A large part of the decline in the quarter was due to reduced political revenue. For the quarter in 2025, gross political revenue was $254,000 compared to $2 million for the fourth quarter of last year. Station operating expense decreased 1.9% or approximately $400,000 to $22.9 million for the 3-month period. For the 12-month period ended December 31, 2025, net revenue decreased $5.8 million or 5.1% to $107.1 million compared to $112.9 million last year. Almost half of the decrease was due to reduced political revenue. For the year in 2025, gross political revenue was $650,000 compared to $3.3 million for 2024. Station operating expense was flat with 2024 at $91.8 million. We had 2 unusual factors that negatively impacted our fourth quarter and year-end results. A noncash impairment charge as well as the previously disclosed retroactive industry-wide rate settlement with 2 of the music licensing organizations. Recorded in the fourth quarter and also impacting the year ended December 31, 2025, we recorded a noncash impairment charge of $20.4 million, which included a charge of $19.2 million, which represents all the remaining goodwill that was previously included on our balance sheet, along with a charge of $1.2 million representing a reduction in the value of our FCC licenses in one of our markets. We recorded an operating loss of $9.5 million compared to operating income of $1 million for the fourth quarter. Without the impairment charge, operating income would have been $10.9 million for the quarter. We reported a net loss of $6.9 million for the fourth quarter compared to net income of $1.3 million last year. Without the impairment charge, we would have reported a net income of $8.2 million or $1.27 per share compared to $0.20 per share for the same period last year. For the year ended December 31, 2025, we recorded an operating loss of $11 million compared to operating income of $2.4 million for 2024. Without the impairment charge, operating income would have been $9.4 million for 2025. We reported a net loss of $7.9 million for the year ended December 31, 2025, compared to net income of $3.5 million last year. Without the impairment charge, we would have reported a net income of $7.2 million or $1.11 per share compared to $0.55 per share for the same period last year. The music licensing settlement also impacted the operating income as it increased year-end 2025 station operating expense by $2.2 million. Station operating expense for the year would have decreased by 2% in comparison to 2024 instead of being flat year-over-year. We spoke about this more in our third quarter release and conference call. As stated in the press release, the company closed on the sale of telecommunications towers and related property on October 17, 2025. This has actually been in the works for quite a few years. And finally, we're able to get the transaction we thought was the best for us and move forward on it and pulled the trigger on the closing. We recognized a gain of $11.6 million. The total proceeds including both cash and noncash, was $15.1 million. The noncash proceeds are the recognized value of the long-term nominal cost leases we entered into as a part of the transaction as we continue to operate at each of the sites we sold. The net cash proceeds from the sale after expenses was $9.8 million. This does not include the approximately $400,000 being held in an escrow account pending finalizing the landlord's consent to the transfer of 1 final tower. We anticipate this transfer will take place in the second quarter of 2026. This transaction allowed the company to monetize 24 own towers that were not reaching the full potential of tower space leased to external tower space users. Additionally, the towers were monetized at a significantly higher valuation than was being recognized in the company's overall market valuation. We will have a noncash expense reported of approximately $50,000 per quarter in 2026 or $200,000 for the year based on the accounting treatment required to record the noncash gain given the favorable lease terms we have as we continue to operate on the towers we sold. The company paid a quarterly dividend of $0.25 per share on December 12, 2025. The aggregate value of the quarterly dividend was approximately $1.6 million. The company declared a quarterly dividend of $0.25 per share on February 12, 2026, with a record date of February 26, 2026 and a payable date of March 20, 2026. With the most recent declared dividend, Saga will have paid over $143 million in dividends to shareholders since the first special dividend was paid in 2012. The company also repurchased 219,326 shares of its Class A common stock for $2.5 million during the year ended December 31, 2025. The company intends to pay regular quarterly cash dividends in the future. Consistent with its strategic objective of maintaining a strong balance sheet, and with returning value to our shareholders, the Board of Directors will also continue to consider declaring special cash dividends, variable dividends and stock buybacks in the future. The company's balance sheet reflects $31.8 million in cash and short-term investments as of December 31, 2025, and $31.5 million as of March 9, 2026. The company expects to spend approximately $3.5 million to $4.5 million for capital expenditures during 2026. I want to emphasize that for the quarter, total Interactive revenue was up 25.8% and for the year up 19.1%. The first quarter is currently pacing down mid-single digits with Interactive up 26.4%. We still have a ways to go before the increases in interactive revenue outpaced the decline in traditional broadcast revenue. Including political revenue, the second quarter is currently pacing down, and we expect to end up down mid-single digits. We are expecting return to revenue growth, including political in the second half of 2026 with revenue increasing in the range of mid-single digits. To increase the pace of the transition, we are continuing to move forward with a plan to add resources to build the digital infrastructure we need to process the interactive orders that the blended sales process is developing as well as to provide our local management teams in a number of markets that don't already have them with sales managers as well as digital campaign managers. This will allow our media advisers to spend more time calling on existing and potential clients to solicit new business as they will now have the assistance they need to help build the unique blended campaigns that are required to grow our digital business and mitigate the decline in radio ad spend. It also allows us to have the talent to monitor the performance of the blended campaigns, which will allow us to retain a higher percentage of return blended clients. The expense of this initiative will initially be more costly than the revenue it will bring in, but it is a necessary expenditure to be competitive with other digital companies and to better serve our clients in meeting their advertising needs. In totality, this will increase our market expenses $1.5 million for 2026. We have already hired most of the digital infrastructure team and are in the process of finding the right individuals for sales and campaign management. These hires will occur in the second and third quarters. We expect that having the infrastructure team in-house will reduce our digital fulfillment costs going forward. All said, we believe Saga is in a strong financial position to improve profitability as our digital initiative improves both local radio and interactive revenue. We currently expect that our station operating expense will be flat for the year as compared to 2025 when not considering the digital initiative expenses and up 3% to 4% when including an estimate for the digital initiative. We anticipate that the annual corporate general and administrative expenses will be approximately $12.3 million for 2026 and flat to 2025. And with that, Chris, I will turn it back over to you. Christopher Forgy: Thank you, Sam. Great job. Some of you may remember the 1990s uncelebrated film produced by Saturday Night Lives, Lorne Michaels. It was written by Steve Martin, a Canadian. It was called the 3 Amigos, and it featured Chevy Chase, Martin Short and Steve Martin. I won't bore you with the story, but there was a time when Saga also had its own version of the 3 Amigos. In fact, they call themselves that. These 3 Amigos consisted of Saga's founder, Ed Christian, and 2 of his closest friends and consiglieres Dave Stone and Al Lucareli. Unfortunately, all of these amigos have passed on. But the message that the last living member of the Saga amigos gave may before he passed still lives today and drives Saga's operational culture. Just 3.5 short years ago, at Ed Christian's Wake, Al Lucarelli sat down next to me after almost everybody had left the wake and said these words to me. And I quote "Chris, as only the second President and CEO of Saga's ever known, whatever you decide to do next, do it fast, do it with force and do it with purpose." We immediately want to work on the transformational change we've been talking about on these earnings calls for the past 3 years. We began to diversify our top line mix of deliverables, including our e-commerce platform, which is up 16% year-over-year and has created $2.5 million in local direct revenue in our Saga markets in 2025. Our 17 hyperlocal online news sites to complement and add credibility to our over-the-air news product grew year-over-year by 18% and contributed over $2.5 million in revenue and delivered a 31% margin, excluding sales commissions. The 2 blended solutions we use most to get advertisers wanted found and chosen, which are search and display. Search was up 59% year-over-year and generated $2.2 million and targeted display was up year-over-year, 44.8% and accounted for nearly $3.5 million. Online streaming went from a revenue stream designed really simply to over offset third-party streaming costs to transform itself into a robust vertical we rely on heavily. This stream was up 8.6% year-on-year in total. And in all of the digital revenue initiatives, as Sam mentioned earlier, we were up 19.1% year-over-year and growing. We then put into action special capital allocation and capital management plan, which included an ongoing quarterly dividend of $0.25 per share, three $2 special dividends paid to our shareholders on 10/21 of '22, January 13, '23 and January 12, '24 and followed by a $0.60 variable dividend paid on April 7, 2024. Next began a longer-term capital allocation strategy, which included a stock buyback plan. We did this by providing the means to fund this buyback without depleting any of our operational cash on hand or by adding any additional debt to our balance sheet. This entire project and then some was accounted for selling 22 of our Saga's tower sites. This plan also allows Saga to provide additional research and development and the resources necessary to develop our own growing digital platform. While this was going on, we also began and has since continued the process of expanding and diversifying Saga's Board of Directors. We also began to look for ways to cut local market expenses to create a more nimble and efficient operation while we were building the infrastructure of our digital platform. Expense reductions totaled over $1.4 million. We also began the process of selling several nonproductive assets to allow us to obtain a monetized value for the assets that is higher than the amounts recognized in the company's overall market valuation. One example is we listed for sale, the company's owned home located in Sarasota, Florida. This process was delayed, however, due to the timing of several hurricanes that ravaged the Gulf Coast. That has settled down and the market looks much more healthy for a sale. And finally and most importantly, after observing the iterations and reiterations of both our own and those of our brethren, we continue to settle in and teach and train our leadership team and our media advisers on what we refer to now as the blend. The blend is an advertiser focused, not product-focused approach. That relies on a few things we knew and a few other observations we made along the way. Saga's digital transformation strategy is an advertiser first approach that also honors, protects and grows our core competency, which is and always is radio. Now this is not easy. As I've said before, it's been very taxing on our entire operation. It's transformational, but growth requires change and change requires conflict. So so far, the juice is worth the squeeze. So how do we do this? First, by accepting and counting on the fact that radio always and only leads to a search. Radio always and only leads to research, and that's okay. Saga's digital strategy is designed to get our advertisers wanted, found and chosen more often by persuading more buyers and consumers to click on their website, call or visit their business and to search them online. You may wonder, so why sometimes the overzealous confidence in your plan, it really comes from what we know, as I mentioned earlier. And according to eMarketer, of the hundreds of billions of dollars that are spent each year in advertising, nearly 75% of these dollars are being spent on digital advertising. That number is expected to climb over 80% in 2029, just a few short years. Yet radio as an industry has laid claim to a pedestrian 0.067 or a little more than 0.5% of the digital advertising dollars that are spent, which totals in the neighborhood of $2 billion in digital ad revenue. We, radio cannot win or even compete with an approach like this. So we have to do something different. So there's clearly a significant increase in digital ad spending, and it's growing and these buyers are frustrated with unmet needs. They don't like what they're buying or who they have to buy it from. They claim they trust local radio salespeople for most of their market knowledge and advice that aren't buying it from us. Thus, education and training is key for our leadership and for our media advisers. There are too many providers with too many conflicting solutions and businesses don't know who to trust. So in this disruptive market, we need to provide simplicity, clarity and transparency to wins. And there's also a shift happening in the way consumers are buying today in the consumer behavior. Advertising strategies haven't caught up with the journey people take when they buy. There's a gap of tech meets human behavior. The blend closes that -- so in closing, the impact of all the work we have done in training, research and development and overall transformation. Not to mention the results we've seen, has galvanized our Board of Directors, our corporate team, our market leadership teams, our media advisers, our business offices, our on-air teams of content creators and our directors of content creation to finish what we started, hence, the accretive investment Sam discussed and the acquisition of people and expertise to allow us to continue to provide and build a digital strategy that is easy to understand, easy to buy, easy to execute, easy to measure and easy to renew and to buy. So again, as Al Lucarelli said, "Chris, whatever you do, do it fast, do it with purpose and do it with force." That is what we've anticipated doing and have been doing for the last 3.5 years, and we'll continue to do until the job is finished. Sam, do we have any questions? Samuel D. Bush: First, not today. But I think we can turn it back over to Matt to wrap up. Christopher Forgy: Thank you again for joining us on the Saga Q4 and year-end earnings call. We really appreciate it. I personally appreciate it. And again, trust me when I say, I'm more than happy and grateful to be here on this call today. Thank you so much. Operator: Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
Operator: Good day, ladies and gentlemen. Thank you for standing by, and welcome to the EHang Fourth Quarter and Fiscal Year of 2025 Earnings Conference Call. Please note that the management's prepared remarks and the subsequent Q&A session will primarily be conducted in Chinese, and the corresponding simultaneous or consecutive interpretation can be accessed on the English line. As a reminder, all translations are for convenient purposes only. In case of any discrepancy, the management's statements in the original language will prevail. To listen to the original remarks by the management, please join the Chinese line. Additionally, both the Chinese and English lines are open for questions. And today's call is being recorded. Now I will turn the call over to Anne Ji, EHang's Senior Director of Investor Relations. Ms. Anne, please proceed. Anne Ji: [Interpreted] Hello, everyone. Thank you all for joining us on today's conference call to discuss the company's financial results for the fourth quarter and the fiscal year of 2025. The earnings release is available on the company's IR website. Please note the conference call is being recorded, and the audio replay will be posted on the company's IR website. On the call today, we have Mr. Huazhi Hu, our Founder, Chairman and Chief Executive Officer; Mr. Shuai Feng, Chief Technology Officer; Mr. Zhao Wang, Chief Operating Officer; and Mr. Conor Yang, Chief Financial Officer. Before we continue, please note that today's discussion will contain forward-looking statements made pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Also, please note that all numbers presented are in RMB and are for the fourth quarter and the fiscal year of 2025, unless stated otherwise. With that, let me now turn the call over to our CEO, Mr. Huazhi Hu. Please go ahead, Mr. Hu. Huazhi Hu: [Interpreted] Hello, everyone, and thank you for joining our call today. 2025 was a pivotal year for EHang as we strengthened our business foundation and made a meaningful progress towards commercialization. In Q4, we delivered a strong set of results. Quarterly eVTOL sales volume reached 100 units for the first time. Revenues grew significantly both year-over-year and sequentially, and we achieved our first ever quarterly GAAP profitability. For the full year, we delivered 221 units of eVTOL aircraft, setting a new record and successfully meeting our annual revenue guidance. We also achieved non-GAAP profitability for the second consecutive year. These results reflect years of sustained investment and disciplined execution across product innovation, regulatory certification, industrial ecosystem development and market expansion, laying a solid foundation for our commercialization progress in 2026. I am pleased to announce that the commercial operation of our flagship product, the EH216-S is entering the final count down. Following comprehensive preparation across our commercial operation system, we're about to officially open our commercial flight services to the public. After nearly a year of internal trial operations, we have established standardized procedures across the entire operational chain from route planning and fleet management to boarding services. At the same time, we have optimized our maintenance systems and safety assurance mechanisms while actively supporting the Civil Aviation Administration of China in advancing the training and certification program for our ground operating crew. Our 2 OC certified operators, EHang General Aviation and Heyi Aviation both plan to begin offering ticketed EH216-S flight services to the public this month and their operational sites in EHang Future City, our new headquarters in Guangzhou and Luogang Park in Hefei. This launch is expected to mark the world's first commercial service of pilotless human-carrying eVTOL aircraft. It also represents the completion of EHang's full life cycle ecosystem from technology development and airworthiness certification to manufacturing and commercial operations. Going forward, we are evolving from being an aircraft manufacturing to a comprehensive provider of integrated advanced air mobility solutions. 2026 marks the first year of China's 15th 5-year plan period. As the national strategic emerging pillar industry, the low altitude economy is embracing unprecedented strategic development opportunities. Supportive policy direction is now shifting from encouraging exploration to systematic advancement with the continued progress in aerospace management reform, airworthiness notification frameworks and infrastructure development. Together, these initiatives are creating a favorable policy environment for industry development. With that in mind, EHang's core strategy for this year are to move forward with a disciplined execution, strengthening our foundation while steadily advancing commercialization, operational ecosystem development and global expansion. First, it has been nearly a year since EHang obtained OC for EH216-S. Over the past year, we have been working intensively to expand our customer and partner base. At the same time, we built the operational systems required to support the commercial flights. This year, our top priority is to launch routine and scaled commercial operations of human-carrying eVTOL aircraft to the public, delivering reliable flight services and continuously improving the flight experience. Our goal is to transform scenes in science fiction into everyday reality for people. This is a milestone many people have been waiting for and so have we. But aviation has always been an industry that moves forward with patience and responsibility, especially when safety and human lives are involved. Second, we'll continue advancing our global expansion strategy. Taking the Thailand AAM Sandbox initiative as an example, we are steadily moving towards a commercial flight operations and established benchmark projects. I'm also pleased to share good news that EHang is expected to obtain the first commercial operation license for pilotless passenger eVTOL aircraft from the Civil Aviation Authority of Thailand, paving the way for regular urban air mobility services in the country. Third, we'll accelerate the commercialization readiness of the VT35. In 2026, our focus will be on advancing its time certification and conducting extensive flight test in more diverse and complex environments to fully validate its passenger flight capabilities. At the same time, we'll continue improving the performance of the EH216 series and expanding the deployment of nonpassenger products and applications, including firefighting and logistics, further broadening our market reach. Fourth, we'll further strengthen our end-to-end industrial chain integration capabilities by coordinating our R&D, manufacturing, supply chain and quality management systems. We aim to improve operational efficiency across the entire value chain, reinforce our long-term competitive advantages and contribute to the establishment of industry standards. EHang remains committed to the principles of safety first innovation-driven growth and collaborative development. We will continue advancing our technology and product innovation, expanding multi-scenario commercial operations and establishing AAM operational models in more regions around the world. At the same time, we're building a comprehensive business model combining technology, R&D, intelligent manufacturing, commercial operation services, infrastructure collaboration and industry education and integration. We believe the low altitude economy industry will evolve from demonstration programs to scale commercial operations and then to public accessible services. It will become a vital engine for activating 3 dimensional aerospace resources and cultivating new forms of consumption, truly transforming the industrial values into economic and social benefits. At this important starting point of a pivotal year, our newly appointed Chief Technology Officer, Feng Shuai, is also joining today's earnings call. Under my leadership, he will oversee our technology R&D, supply chain management, manufacturing and quality system development, driving a more integrated end-to-end management approach from technology innovation to product delivery. By strengthening coordination and the integration across the entire industry chain, we believe our innovation capability, product competitiveness and overall execution will continue to improve. With that, I would like to hand the call over to Feng Shuai. Thank you. Shuai Feng: [Interpreted] Thank you, Mr. Hu. Hello, everyone. I'm Feng Shuai, CTO of EHang. It is a great honor to join today's earnings call for the first time. I am pleased to share our progress in 4 key areas during the fourth quarter. R&D, production and manufacturing, quality management and supply chain assurance, which we refer to as the RPQS Center. We'll also briefly outline our priorities for 2026. The RPQS Center is the core engine of our technology and industrial execution. We focus on technology innovation as the foundation, production capacity as the driver, quality control as the bottom line and supply chain as the cornerstone. Together, these capabilities support the development, commercialization and scale delivery of our products. Let me walk through the key highlights in each area. Starting with R&D. The fourth quarter of 2025 marked a major breakthroughs across our core product. Our flagship passenger carrying aircraft, VT35 completed multiple critical tests, including multicopter protected transition flights and locked-to-prop fixed wing flights. The aircraft also successfully completed its first public demonstration flight in Hefei after its grand debut in October. During the quarter, we held the first type certification team meeting with the CAAC, marking a key step forward in the airworthiness certification progress. We are currently conducting flight envelope testing and aim to obtain the type certification in China within the next 2 years. For the nonpassenger business, we are also developing and deploying product and system lines under multiple application scenarios. Our new GD4.0 formation drones set a Guinness World Record with 22,580 units flying simultaneously at the China Spring Festival Gala, significantly announcing our brand visibility and generating strong demand for both drone products and performance services. In the firefighting aircraft program, we are upgrading the current models while advancing the next-generation R&D to support emergency response scenarios. For logistics, we are accelerating the development and first flight of the VT series lift and cruise cargo aircraft, developing longer endurance aerial logistics applications. At the same time, our proprietary command and control system continues to evolve as a city-level digital infrastructure platform for a low attitude economy is now being trial operations in Hefei, providing solid tech support for future skilled commercial operations and air traffic management. On manufacturing, we continue to expand our production capability and enhance the smart manufacturing capabilities during the fourth quarter. The Phase II expansion of our Yunfu production facility was successfully completed, bring our total plan annual capacity to 1,000 units of the eVTOL aircraft and components. The automated production lines have entered a trial product to stage and our smart manufacturing systems will further improve production efficiency and supply chain management. Meanwhile, additional facilities in Hefei, Weihai and Beijing are progressing as planned. Our nationwide manufacturing footprint is steadily taking shape. We follow a manufacturing to order approach, ensuring stable production planning while preparing large-scale deliveries in the future. On quality control, we maintain strict end-to-end quality control across the entire product life cycle. Throughout 2025, our quality management system delivered strong performance with steady improvements across all key indicators. The post-certification airworthiness review for our [ PC ] achieved the third zero defect pass and the EN9100 audit continues to pass. On supply chain, during the fourth quarter, we further expanded our supplier network and strengthened our supply chain resilience. Our core supplier system remained stable with a 100% on-time delivery rate for key components, fully supporting our production and deliveries. Going forward, we will continue our strategy of maintaining strong partnerships while introducing additional high-quality suppliers. This approach will strengthen our stable and scalable supply chain, providing support for future capacity expansion and new model development. The low attitude economy represents a new frontier for technological industrial innovation, strong R&D and smarter manufacturing capabilities are the foundation of our long-term competitiveness. As CTO, I'll continue leading the RPQS team to drive technology innovation, advance product development and certification, expand manufacturing capacity and smart production capabilities, maintain strict quality standards and strengthen supply chain resilience. Our goal is to efficiently translate technological innovation into real commercial deployment and provide a solid technical and industrial support for the company's long-term growth. With that, I'd like to turn the call over to our COO, Mr. Wang Zhao, for our sales and operations update in more detail. Thank you. Zhao Wang: [Interpreted] Thank you, Mr. Hu and Mr. Feng. In 2025, we advanced our business across 3 key priorities: safety, operations and commercialization. For the full year, we generated RMB 509 million in revenues and delivered 221 units of eVTOL aircraft, including 215 units of EH216 series and 6 units of VT35 series. Our Q4 performance reached a new high. We delivered 95 units of EH216 series and 5 units of VT35 series, generating RMB 240 million in revenues. In China, we continue to deepen our presence in key cities and build flagship partnerships. In Hefei, our collaboration with the local government expanded from a single product to a full product portfolio. The corporation now covers multiple applications, including the EH216 series human-carrying and firefighting versions, the 5 VT35 the GD4.0 formation drone. We also continue to strengthen our partnership with Anshun in Guizhou Province and Guizhou Tourism Group. In Q4, 30 units of EH216-S were delivered to the local market, bringing total deliveries to 50 units to this customer, supporting the development of a local low attitude economy applications. Building operational capability has been a major strategic focus throughout the year after EHang General Aviation and Heyi Aviation obtained their operator certificate in March 2025, we began to conduct extensive internal testing and operational optimization across the entire service process, from ticket booking and on-site verification to boarding and flight operations to ensure a seamless user experience. At the same time, we have established a comprehensive set of standard operating procedures covering battery charging, maintenance and fault troubleshooting to ensure the continued airworthiness and operational stability of the fleet. Based on the safety and operational experience we have accumulated, we plan to officially launch commercial operations with the EH216-S in this month. EHang General Aviation and Heyi Aviation will begin selling flight tickets to the public offering EH216-S pilotless aerial sightseeing our headquarters in Guangzhou and Luogang Park in Hefei. The public will be able to book flights through the EHang Trip and the Heyi Aviation mini programs with an early bird discount price of RMB 299 per person. This will be the world's first ticketed commercial service for pilotless human-carrying eVTOL in the urban air mobility industry, transforming the low altitude economy from a concept into a reality that is accessible to the general public. Over the past year, we have carefully refined every aspect of the operation. Our approach has always been safety first, experience-focused and sustainability driven. Delivering a high-quality flight experience for our passengers in the initial phase is crucial to building public trust and supporting long-term market adoption. Looking ahead, we will leverage the experience from our OC certification and operations to develop a comprehensive operational solution covering [indiscernible], planning, routes design, ground crew team training and operational system set up. We plan to replicate this model across more locations in China and overseas to support our customers and partners in launching commercial operations. It is worth noting that we are building a core note for our operational capabilities, a professional talent system. We're actively working with the CAAC on the trial project for the administration of licenses for the ground operating crew of large civil unmanned aerial vehicles. We have completed multiple rounds of validation and refinement of training courses. Recently, the CAAC has expanded the number of special approval license to ground operating crew for us, providing additional talent support for our upcoming commercial operations. Beyond meeting immediate operational needs, this initiative is helping establish a long-term industry talent training system. Together with the regulator, we are converting our front-line operational experience into standardized training procedures. This helps establish professional standards for a new generation of aviation talent and strengthens the safety foundation of the industry. Over time, this training framework will enable us to support partners and export our operational capabilities as commercial operation expands. On the international front, the Thailand AAM Sandbox program remains our key focus. Since its launch in October last year, we have completed a series of verification flights and ongoing trial operations. We are now working closely with the Civil Aviation Authority of Thailand to obtain the first commercial operation license under the Sandbox initiative. If approved, this could become the first overseas commercial operation of a pilotless human-carrying eVTOL. The initial Sandbox areas are planned near the IMPACT Challenger International Convention Center in Bangkok, which will also host the ICAO Second Advanced Air Mobility Symposium or AAM 2026. The CAAT and local partners have set a clear goal of operating up to 100 eVTOL aircraft across 20 Sandbox areas by the end of 2026. Our plan is to establish talent as a model for overseas operations and gradually replicate this model in South East Asia and other [ belt and road ] market. Overall, in 2025, we maintained a disciplined approach to growth, focusing on strengthening our product, manufacturing and operational systems under a strict framework of safety and regulatory compliance. We believe that building these foundational capabilities is essential to support sustainable growth and scalable international expansion in the years ahead. At the same time, the low altitude economy industry is entering an important policy window. China's 15th 5-year plan has elevated the low altitude economy to a level of strategic emerging pillar industry. This signals the transition from early demonstration programs to a new phase of national level industry development. The low altitude economy has also been formally incorporated to the newly amended civil aviation law of China, which took effect in 2026. Looking ahead to 2026, we believe the company is entering a new stage of development. Over the past several years, we have been systematically building the key capabilities required for the urban air mobility industry, including aircraft R&D, airworthiness certifications, smart manufacturing and commercial operation readiness. As these foundational capabilities continue to mature and integrate, we see 3 important shifts in our business model. First, our revenue streams will gradually become more diversified. Applications beyond a passenger transportation, including logistics, aerial firefighting solutions and commanding control systems are progressing steadily and could become additional growth drivers as the market evolves. Second, we're evolving from an aircraft provider to a one-stop low attitude operation solution provider, leveraging the operational experience of the EHang General Aviation and Heyi Aviation, along with our standardized operating systems, and we will offer integrated solutions to customers. These include aircraft deliveries, [ vertical ] construction, route planning, team build up and training and operational guidance. Third, we're establishing a clear pathway for overseas expansion that combines regulatory Sandbox programs, partnerships with local operators and systematic deployment of our technology and operational capabilities. Thailand is the first to market where this model is taking shape, and we expect to gradually expand to other regions, including Southeast Asia, Central Asia and the Middle East as global regulatory framework continue to evolve. Overall, we remain committed to a strategy of safety first and disciplined execution. For 2026, we are targeting RMB 600 million of annual revenues while continuing to scale the business at a more steady pace. As the industry is still in its early stages, we'll continue to work closely with regulators, partners and local governments to help move the low altitude economy from demonstration programs to a broader commercial adoption, unlocking the long-term potential of urban air mobility as the new form of transportation. Now I'll turn it over to our CFO, Conor, to walk us through the financial results. Chia-Hung Yang: [Interpreted] Hello, everyone. Before I go into the details, please note that all numbers presented are in RMB unless otherwise stated. A detailed analysis is available in our earnings press release on the IR site. Now I will present some key financial data. In Q4 2025, the revenues were RMB 243.8 million, up 48.4% year-over-year and 163.6% sequentially. The quarterly increase was primarily driven by higher sales volume of our products, including 95 units of the EH216 series and 5 units of VT35 delivered this quarter. For the full year, the total eVTOL deliveries reached 221 units and revenues totaled RMB 509.5 million, representing 11.7% increase year-over-year, surpassing our annual guidance. This growth reflects the sustained market demand for our products as well as our effective execution and delivery management, customer support and commercial operation readiness. Gross margin in Q4 was 62.1%, improving from 60.7% in Q4 of 2024 and 60.8% in Q3 of 2025. For the full year of 2025, gross margin was 62%, improving from 61.4% in 2024. As production scale expanded, overall cost efficiency continued to improve. Overall, the company maintained a gross margin above 60%, reflecting our strong product competitiveness, scaling production capability and display cost management in the eVTOL sector. Turning to operating expenses. In Q4, adjusted operating expenses, defined as operating expenses excluding share-based compensation, were RMB 99.3 million, representing a 26% year-over-year increase from RMB 78.8 million in Q4 2024 and an 11.4% increase from RMB 89.1 million in Q3 2025. For 2025, adjusted operating expenses were RMB 348.9 million, representing a 20% increase from [ RMB 290.1 million ] in 2024. The increase in operating expenses was primarily driven by the continued R&D innovation, expansion of our product sales and the company's commercialization efforts. As we scale our business, we have strategically expanded our sales network, strengthen our operations team and added a key R&D talent, while maintaining ongoing investments in the development and iteration of new eVTOL models like VT35 and EH216-F series and et cetera, and related technologies to enrich our product pipeline and lay the groundwork for future revenue streams. As the company's revenue continues to grow with operating expenses increasing modestly, operating efficiency has been steadily improving, particularly in the fourth quarter where overall profitability saw a significant improvement. In the fourth quarter, we achieved our first quarter of GAAP profitability with net income reaching RMB 10.5 million. Adjusted operating income for the fourth quarter reached RMB 54.3 million, representing a year-over-year increase of 99.5% and a substantial sequential turnaround from a loss. Adjusted net income for the fourth quarter was RMB 71.5 million, up 96.4% year-over-year, also achieving a sequential return to profitability. On a full year basis, the company recorded a second consecutive year of profitability under non-GAAP measures with adjusted net income of RMB 29.4 million in 2025. This not only underscores that we have captured the right direction for profitable growth, but also demonstrates our ability to translate the operating leverage into sustainable financial returns. Looking ahead to 2026, the company will continue to advance the commercial operations and sales of the EH216-S, expand its nonpassenger business and further penetration into international markets. Full year total revenues are expected to reach RMB 600 million, representing a year-over-year increase of approximately 18%. As our manufacturing and operational systems continue to mature, overseas Sandbox projects progress, global market expansion accelerates and ongoing investment in next-generation products, the foundation for our long-term growth continues to solidify. This requires us to strike a balance between strategic execution and financial discipline in our resource allocation, ensuring that every investment translates into sustainable long-term value. We will remain committed to controlling risks and enhancing efficiency and make our expansion, solidifying the financial condition for the next phase of high quality and sustainable growth and delivering long-term and stable value to our shareholders. Thank you. Operator: [Operator Instructions] Your first question comes from [ Peggy Wang with MS. ] Unknown Analyst: This is [ Peggy ] from Morgan Stanley. Congratulations on good first quarter results. So I have 2 questions today. First, it's about the license for ground operating crew since we now expect to begin commercial operation in China soon. So could, management team, could you share some more color on the progress of getting those required license for the crew team? And the second one is about the projects in Thailand. Since we are also close to obtaining license for commercial operation, what is the expected timing of revenue contribution? And how will the volume ramp up going forward? So these are my questions. Unknown Executive: [Interpreted] This is Wang Zhao. I will take your first question. As mentioned previously, we are still moving forward with the operator training program. All training materials have been submitted to the CAAC for approval, and several courses have already been authorized. We expect the first class for operators to begin in the first half of the year. The good news is that to encourage qualified operators to conduct early commercial operations, the authorities have expanded the number of specially authorized operators for EHang. In the short term, we can conduct commercial operations through these operators. In the long term, we will replenish our talent pool through the operator training program. Thank you. Chia-Hung Yang: [Interpreted] This is Conor. I will take your second question. Ever since last October, we have been conducting extensive test flights and trial operations in Thailand. The Civil Aviation Authorities of China and Thailand have communicated thoroughly and they have reached a consensus on mutual airworthiness recognition. This work is now nearing completion. We expected to obtain the first overseas commercial operation license for the EH216-S pilotless eVTOL aircraft following final approval from the Civil Aviation Authority of Thailand. So this would mean that we would truly achieve a normalized urban air mobility services. With the specific to the commercial operations side, they are still under planning. So it will be through the Sandbox initiative. So once obtaining the Sandbox commercial operation permit, the local customers will start to move forward with the purchase orders and deliveries. So we are expecting that to start in Q2. If the progress goes smoothly, there could be dozens of units for the full year of 2026. Thank you. Operator: Your next question comes from Wei Shen with UBS. Wei Shen: [Interpreted] this is Wei Shen from UBS. Congratulations on strong results. So I've got two questions. One is on the current policy changes in the domestic low attitude industries because we saw more [ colors ] mentioning about this industrial sector in the 2 sessions meetings. And my second question is on the overseas market sales guidance, whether management could share any? Zhao Wang: This is an Wang Zhao. I'll take your first question. Generally, we believe the overall macro environment in 2026 will be better than in 2025. As you know, the 15th 5-year plan has lifted the low altitude economy to an emerging pillar industry or strategic pillar industry, and the level of -- or intensity of resource allocation and policy support for this industry will be greatly enhanced in the future. And also the development of the low altitude economy was included in the newly issued civil aviation law, which will take effect this July. So this means the industry is entering a new stage where it's going to be ruled by law, governed by law and regulations and standard systems at all levels will be gradually established. This is a necessary path for the new aviation industry. For EHang, we are at the forefront of this industry, and we are contributing first-hand experience to the standard construction. And also, we expected the overall market environment to improve. Chia-Hung Yang: This is Conor. I'll take your second question. On the overseas revenue, so the overall revenue guidance for 2026 is RMB 600 million. The overseas revenue in 2025 was in low single digit as a percentage. Looking ahead to this year, as the overseas commercial operations take place in countries like Thailand, the overseas revenue is expected to increase significantly compared to last year. If things progress well, we may expect to see the revenue contribution move into the double digit as a percentage of the overall revenue. Operator: Your next question comes from Laura Li with Deutsche Bank. Xinran Li: So I want to ask about the [ RMB 600 million ] revenue guidance. So what are the assumptions underpinning that? Could you talk about diversifying the revenue through different models or the service revenue versus aircraft delivery or the OEM model versus operator model or the overseas market. So how do you see this play out during this and next year? Unknown Executive: So Laura Li, right? Xinran Li: Yes. Unknown Executive: [Foreign Language]. Operator: This is the conference operator. We have temporarily lost connection with the speaker line. Please continue to hold, the conference will recommence shortly. [Technical Difficulty] Zhao Wang: [Interpreted] This is Wang Zhao. I'll take your question. Well, in addition to the human-carrying eVTOL business, we will proactively develop the nonpassenger segment this year such as emergency firefighting, logistics, GD4.0 drone formations and command and dispatch systems. You can see that actually, we delivered 8 firefighting aircraft in December 2025. Meanwhile, during the Chinese Spring Festival Gala, our formation performance of 22,580 drugs earned EHang a new Guinness World Record and attracted significant attention. This, like I said, attracted significant attention for EHang, leading to a surge in inquiries for this business. These are all achievements from our diversified aircraft models and nonpassenger business. With our opening of commercial operations and ticket sales to the public in March, EHang General Aviation will generate some operational service revenue. But of course, the initial contribution to the overall revenue won't be large. But nevertheless, this is a good start. Thank you. Operator: Our next question comes from Fuyin Liang with Bank of America. Fuyin Liang: I have two questions for the management. The first one is about our commercial operation plan in this month in China. So initially, how do we expect the fleet size of our commercial operation in the 2 cities in China? And given the current fair price, how do we think about the unit economy model? And what's the profit margin of this operation? Unknown Executive: [Interpreted] So initially, there will be around 6 to 10 aircraft, and we will gradually increase the number of eVTOL to be used for the commercial operations. And the early bird ticket price for each passenger is set at RMB 299 per person, which will basically cover the flight costs. With the specific data, I think we'll have to give it a period of time before we can disclose further details to the public. Fuyin Liang: My second question is about our cost control. EHang had a very good OpEx control in the last quarter in 2025. So what's the reason behind that? Looking at 2026, how do we expect the OpEx and also the OpEx to sales ratio? Chia-Hung Yang: [Interpreted] This is Conor. I'll take your second question. Yes, you're right. Overall, the [ SBC ] expenses in 2025 were lower in that of 2024. So that resulted in a smaller-than-expected increase in OpEx. Looking ahead to 2026, the year-over-year growth rate for OpEx is expected to be lower than our revenue growth rate. So we are setting our revenue growth year-over-year at [ 18, ] -- from [ 18 ] and our OpEx is going to be definitely lower than that. Operator: Your next question comes from Alan Lau with Jefferies. Alan Lau: Congratulations for the company for the strong results in 4Q and also achieving commercial operation in March. So my first question is regarding to the strong delivery in fourth quarter. So we saw the company deliver units on a single quarter. So I would like to know who are the major clients contributing to such strong delivery? And do you expect further orders from the same clients? Zhao Wang: [Interpreted] This is Wang Zhao. The growth in the Q4 deliveries was primarily the result of the year long marketing efforts in 2025. Many of them were not new Q4 customers. But actually, customers who we have been discussing specific operational plans and scenarios over the previous quarters with. And that finally result in the deliveries. And like I said, so the engagement with these clients finally lead to the deliveries in Q4. Some of them were repeat customers. And the key contributions come from clients from Hefei, Wencheng, Xiamen, Guizhou, Sichuan and Guangzhou, and we expect some repeat orders or purchases from repeat customers as well in the future. Alan Lau: That's very clear. And then my second question is regarding to the commercial operation in March. So I would like to know some specifics. Firstly, do you have an exact date on when the app will be launched or the public can book their flights in the program? And then is it [ point A to point A ] flight and each time, it's 1 or 2 persons? Unknown Executive: [Interpreted] Yes, our commercial operations will be launched in March. We haven't yet disclosed the exact date as we are still fine-tuning the booking platform, the mini program. But operational readiness wise, we are ready. And as for the route, it is -- the flight is for tourism purposes, and it's from point A to point B, carrying 1 passenger. We believe this is enough to fulfill the needs of the customer. Operator: Your next question comes from Chen Yu with GUANGFA Securities. Unknown Analyst: [Interpreted] So my question is on the OC application for the existing customers or clients. So what is the company doing on the company side? And what initiatives or efforts is the company putting in to facilitate the OC application? Are there any time lines that can be shared on the OC application for these existing clients? And my second question, I'm not sure whether any other analysts have already asked the same question. Are there any updates on the QC or airworthiness application for VT35? What's the current plan? Are there any adjustments, changes or updates on that? Zhao Wang: [Interpreted] This is Wang Zhao. I'll take your first question. There will be 2, so 2 customers that have obtained the OC and their commercial operation will start to accumulate very valuable experience and become a demo of project for the rest of their clients. And we expect the training for the ground crew to begin in the first half of the year. So this will start to build the solid foundation for the expertise that's needed to conduct the commercial operation. And this would also increase the talent pool required to support the commercial operations of other clients. And particularly, our client from Guizhou has already submitted their materials for the OC. And furthermore, the policy environment is much more favorable compared to that in 2025. And we have done a lot of work, and we are ready. So we believe as we make more progress on these applications, there will be more customers that can apply and obtain their OCs in this upcoming year. Shuai Feng: [Interpreted] This is Feng Shuai. I will take your second question on VT35 certification progress. In Q4, our VT35 completed key tests, including multi-rotor protective transition and shut down and locked propeller fixed-wing flights. Additionally, we've also held a first TCT meeting for airworthiness review. And we are currently conducting flight envelope tests. We are aiming to obtain the type certification in China within 2 years. Operator: Thank you all. Given that time is limited, let me turn the call back to Ms. Anne for closing remarks. Anne Ji: [Foreign Language] [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.
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. Please stand by. Your meeting will begin. Hello, and welcome, everyone, to today's Open Lending Corporation Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. To register to ask a question at any time, please press star one 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 Ryan Gardella, Investor Relations. Please go ahead. Ryan Gardella: Thanks, Leo. Prior to the start of this call, the company posted their fourth quarter and full year 2025 earnings release and supplemental slides to its investor website. In the release, you will find reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures discussed on this call. Before we begin, I would like to remind you this call may contain estimates or other forward-looking statements that represent the company's view as of today, 03/12/2026. Open Lending Corporation disclaims any obligation to update these statements to reflect future events or circumstances. Please refer to today's earnings press release and our filings with the SEC for more information concerning factors that could cause actual results to differ from those expressed or implied in such statements. Now I will pass the call over to Jessica to give an update on the business and financial results for the fourth quarter and full year 2025. Jessica Buss: Full year as CEO. From day one, my focus has been clear: stabilize the business and position it for durable growth. That meant improving profitability, reducing volatility in our profit share revenue, growing total revenue and customer retention, strengthening operational execution, and building a culture of accountability. I am pleased to report that one year in, we believe we have made meaningful progress on executing these goals. We have improved the stability of our profit share unit economics, strengthened underwriting standards, and expanded our platform through Apex One Auto. With that launch, we are evolving from a single-product company into a full-spectrum decisioning and dynamic pricing engine. We believe this progress is reflected in our full year results and, more importantly, in the stronger foundation we have built to drive higher-quality growth in the years ahead. Over the past year, we have also strengthened the leadership team by bringing in new executives and elevating internal leaders across the organization as we position Open Lending Corporation for the next phase of growth. Before jumping into our results, I want to put a finer point on the strategic reasons behind the significance for maintaining tighter underwriting standards and appropriately pricing risk, both of which contributed to our CERT results in the fourth quarter. As an experienced executive coming from the underwriting and insurance industry, I believe that we have positioned ourselves to deliver disciplined, profitable growth to our stakeholders over multiple credit cycles, not just the one we currently find ourselves in. Trust, relevance, and discipline combined with our unique product offering define Open Lending Corporation. As I have said many times in the past, we are, at our core, an auto credit pricing and decisioning engine. The name of our flagship product, Lenders Protection Program, is not branding; it is our operating philosophy. When we look at the current commercial credit environment, the importance of this discipline is clear. Over the last few years of volatility, we have seen several auto lenders go out of business, largely due to overextension, loosened underwriting standards, and rates that were not balancing the actual risk. When economic pressures and delinquencies rose, they could not sustain the losses they had at the prices they were charging. I mention this to say that we have clearly chosen a different path for our company, our employees, and our stakeholders. The decisive changes made in 2025 and the strategic initiatives we have put into place and outlined on all of the earnings calls since I became CEO have all contributed to our continued relevance in the near and non-prime space. We believe that these changes are working and driving real value for our stakeholders in the form of sustainable, profitable growth regardless of the changing macroeconomic environment. With that as a backdrop, I would like to move on to results. For the full year, we facilitated 97,348 certified loans and recorded total revenue of $93.2 million, resulting in adjusted EBITDA of $15.6 million. For the fourth quarter, we facilitated 19,308 loans, generating revenue of $19.3 million and adjusted EBITDA of $2.8 million. We believe that our deliberate tightening of lending standards will result in a higher-quality book, and we have already observed improved 2025 vintage performance as compared to prior year vintages. For vintage year 2025, the over-60-day delinquency at twelve months on book is approximately 200 basis points lower than both the 2023 and 2024 vintages. In the fourth quarter, our certified loan shortfall compared to guidance was driven by a temporary headwind in conversion rates as we actively managed risk and made targeted adjustments to how retail vehicle values were treated in our pricing models. As new information became available, we tested price elasticity, measured the response results, and then refined our response accordingly. After reviewing the performance of the quarter, we determined that certain rate increases implemented were creating unnecessary obstacles in our certified loan pipeline. After rolling back a subset of the changes in phases, concluding the week of January 16, we are now seeing improved momentum and sustainable growth while credit performance remains strong. This is disciplined risk management: test, measure, and refine. Exercising this process and creating this muscle memory is essential not just to our LPP product, but for our Apex One Auto platform and the full spectrum of credit products. Ultimately, our decision to maintain a tighter credit box and appropriate pricing was deliberately done to reinforce the strategic principles we have emphasized all year of discipline in our underwriting and pricing. We believe this approach reduces exposure to elevated defaults, rising delinquencies, and adverse loss ratios over time. While that discipline may have resulted in fewer certified loans in the fourth quarter, intentionally avoiding business that we believe is mispriced or inconsistent with long-term profitability is ultimately in the best interest of Open Lending Corporation and our stakeholders. While we were not happy with the impact on CERTs, the silver lining is that our controls and feedback loops are working as intended. I am also pleased to report that since February 1, we have averaged 353 CERTs per business day compared to 293 CERTs during the impacted period. Importantly, the 353 level is consistent with the average CERTs per business day we experienced in the sixty days prior to the change being implemented. Additionally, through February, our application flow was approximately 20% up year over year. We are getting more at-bats with the business we want, which is direct evidence that our lender profitability initiatives and newly launched dashboards are working and that our customers see tangible value in the full life cycle of the Open Lending Corporation relationship. Now I would like to move on to talk about our ongoing initiatives across the company. First, as discussed on our prior earnings call, we have been actively working with our third-party modeling partner on a more sophisticated real-time simulation engine that we have internally called Project Red Rocks. Once completed, we expect Red Rocks will allow us to instantly see the impact of any proposed rate or credit box change on volume, loss ratio, and profitability before we implement it. It will also serve as a safety valve and control check on the trade-off between rate and market acceptance, which we believe will prevent future headwinds like we experienced in the fourth quarter. We remain committed to disciplined pricing and building more sophisticated models to predict our actions on the market. Understanding the dynamics of price elasticity, volume, and profitability is critical to being best in class, and we believe Project Red Rocks will deliver that for us. This project is running on time and on budget, and we are seeing preliminary benefits as we roll components of the model quarterly. We also entered 2026 with a strengthened go-to-market engine. Anthony Capazano joined us early in the first quarter as Chief Growth Officer. His first four priorities are clear. One, increase wallet share with existing credit union partners and continue to focus on existing customer retention. Two, penetrate larger credit unions, banks, and other institutions which we have historically underserved. Three, build the go-to-market strategy around Apex One Auto platform and the additional product and credit spectrums we now service with this introduction. And four, reorient and expand the sales team with additional hunters focused on new logo acquisition and deeper penetration. Anthony will also begin exploring opportunities to organically expand our platform into additional credit products, leveraging our proprietary data and analytics to extend the reach of our model. Anthony has hit the ground running and quickly made an impact in the sales organization. We have been operating without a Chief Growth/Revenue Officer for several months and believe there are significant opportunities for Anthony to help us accelerate our growth throughout the year. Now I would like to report on the impacts of our initiatives to improve profitability and drive CERT volume growth. Mas will do a deeper dive into the fourth quarter and full year results, but our profit share unit economics for the 2025 vintage continue to be booked at a constrained 72.5% loss ratio, and we believe will perform at our target loss ratio of mid-60%. For the full year, our profit share change in estimate resulted in a $400,000 positive impact to adjusted EBITDA or, in essence, was non-volatile and flat. Our Apex One Auto platform was launched in the fourth quarter with two customers in the prime credit auto segment, making us a full credit spectrum dynamic pricing auto solution. Applications flowing through the platform from customers and our pilot partners are already in the mid–five figures, all in a subscription-based minimum volume model. The pipeline has more than doubled since launch, with several new potential customers in various stages of diligence. Importantly, because Apex One Auto sits on top of the prime credit funnel, it seamlessly routes declined prime loans into our core LPP product and increases application flow. Not only does Apex One Auto operate on a subscription-based, recurring revenue model, but it increases stickiness with customers and gives us an opportunity to capitalize on the $500 million prime decisioning market. The introduction of Apex One Auto platform also means we now have exposure to the entire spectrum of credit scores. Given the massive amount of historical data we have access to, we believe we are well positioned to find new ways to leverage and monetize that across the full spectrum of credit and markets that rely on this data to price loans. Next, on to OEM 3. The ramp-up continues as planned. Volume has grown steadily through Q4, and we are now deploying in Southern California and Texas, which make up a substantial portion of the opportunity. Longer term, we see a substantial opportunity in non-branded business for OEM 3 dealers, where we will become the first-look decisioning engine. Early performance is in line with credit union loss ratios, and we expect OEM 3 to contribute positively to both channel mix and overall book quality in 2026. Credit union health also continues to improve. Share growth, deposit recovery, and lending capacity are all trending positive. I recently attended the Governmental Affairs Conference in Washington, DC, and sat with many of our credit union customers and prospects. One message was clear: they are looking to grow, looking for solutions, and have the capital to do it. Credit unions have seen improved strength with loan-to-share ratios at 83.2% in 2025. We believe this supports an environment where our platform and relationships are poised to organically grow more products and solutions, driving a deeper relationship. Our responsibility is to ensure that growth occurs with the right loans, at the right price. Without that discipline, the industry risks repeating the performance challenges seen in 2021 and 2022 vintage years. Discipline is precisely why they trust us. Moving on to our customer retention efforts, we lost zero customers in the fourth quarter and four in the full year of 2025. We added six new logos in the fourth quarter and 46 in the full year, and saw existing clients send us materially higher application volumes. The lender profitability dashboards have been universally well received and are driving deeper engagement. We are also prioritizing annual profitability reviews with each customer, which is an initiative championed by our new Chief Growth Officer. Our increased same-customer application flow is another proof point that our retention efforts are driving more stickiness. We are of the opinion that the auto refinance market remains an opportunity across the credit union ecosystem, particularly following the elevated interest rate environment of the past several years. While auto loan rates remain higher than pre-pandemic levels, they have begun to moderate following the Federal Reserve's 75 basis points of cumulative easing that began in 2025. Historically, this type of rate environment has driven increased rate refi activity. As borrowers who originate loans during peak rate environments seek payment relief, we expect the refinance channels to show renewed momentum. Against this backdrop, we believe Open Lending Corporation is well positioned to capture incremental certification and partner expansion within the credit union market if rates decline further in 2026. We are actively working with our credit union partners to appropriately and timely loosen ROA targets in response to rate drops to remain competitive. The next area I want to address is our book mix and full-year impact of credit builders and super thin files. As we discussed on prior calls, we virtually eliminated our exposure to super thin files following underwriting guideline changes implemented in 2024. At one point, these represented approximately 11% of quarterly certifications, and today, we underwrite none, making them a negligible part of our portfolio. With respect to credit builders, they remain a relatively small portion of the book. As a reminder, we took a more blunt approach initially with approximately 100% insurance premium rate increase to ensure appropriate risk-adjusted returns. In 2025, credit builders represented approximately percent of our new certifications and are performing as expected. Each quarter, we continue refining our definitions and segmentation of credit builders across cohorts, and we are confident in our ability to screen, price, and underwrite these applications with increasing precision, allowing us to responsibly grow this segment while maintaining strong profitability. Much of this has been made possible by the model enhancements we are already seeing from Project Red Rocks. Next, we turn to the elements of our business that we considered in shaping our outlook for 2026. We feel strongly that our conversion rate headwind from the fourth quarter has been completely solved at this point, and we believe we are well positioned for growth in 2026. However, we believe that growth will compound over each quarter in 2026, or, said another way, will be greater in the latter quarters and is likely to increase incrementally each quarter. This is also impacted by the fact that we had super thins and credit builders in 2025, and we have to replace that volume with growth that we want, which is why we believe our 2025 vintage is performing better than expected. We believe our new models, sales strategy, and underwriting clarity will drive that. In addition, we believe the strength of our go-to-market strategy will improve customer retention and drive new logos in 2026. We believe these factors, coupled with the expected impacts of the refinance market and the anticipated ramp of OEM 3, will be drivers that position us for growth in 2026. As we discussed earlier, due to the increased health of credit union partners, we believe credit unions are in one of the strongest capital positions they have been in over recent years and are seeking responsible growth. Lastly, with the introduction of Apex One Auto, we now have full credit spectrum dynamic pricing and decision capabilities that we believe will help facilitate additional certified loans. This enables customized growth strategies aligned with each institution's risk appetite, with and without insurance, while preserving our core commitment to protecting lenders and serving the underserved. We plan to continue to innovate and deepen our relationships. Taken together, we are providing full-year certified loan guidance of 100,000 to 110,000 for 2026, with between 21,000 and 22,000 expected in the first quarter, and full-year adjusted EBITDA guidance of $25 million to $29 million for 2026. We believe introducing annual guidance for the first time since 2022 reflects our confidence in the growth trajectory of our business in 2026 following the strong execution on improving profitability we delivered in 2025. On the capital allocation side, in the fourth quarter, we paid down approximately $50 million of our senior secured term loan, which, based on projected forward interest rate curves, will result in quarterly interest expense savings of approximately $575,000. With our strong cash balance, partially due to favorable profit share cash flows, our Board of Directors and management team ultimately decided that this was the best use of capital for our shareholders. We also repurchased approximately 564,000 shares in the quarter at an average price of $1.66 per share. We will continue to evaluate capital allocation strategies each quarter and focus our priorities where we believe we are driving the best strategic returns for our shareholders. I would like to conclude with this. By all accounts, 2025 was a successful year for Open Lending Corporation. We set the company on the right course with largely flat CIEs, or back book adjustments, we generated meaningful revenue and adjusted EBITDA in our core business, and we reinforced the strategic pillars of our business and cut unnecessary costs out of our organization. By remaining disciplined in our underwriting and pricing, we believe we have avoided the fate of those who overextended and prioritized volume over building a durable, cycle-agnostic business. As a result, we believe we are positioned to capitalize on future opportunities from a position of strength. And, importantly, we are protecting our carriers, our credit union partners, and our broader financial institution relationships. I am personally excited about the future. We believe this positions us well for growth in 2026, but growth in the right business at the right price and within the right risk framework. This philosophy is embedded in our full-year guidance. Our number one priority is ensuring the durability of our portfolio in order to grow responsibly. Making disciplined decisions in challenging markets is what sustains long-term relevance and long-term shareholder value. We have remained relevant and intend to keep it that way. We have the models, data, and talent to grow profitably at a time when others have lost their way. This is the definition of opportunity. I will now turn the call over to Mas to discuss the financials in detail. Mas? Massimo Monaco: Thanks, Jessica. Before walking through the results, I will highlight a few key financial takeaways from the quarter. First, the business delivered stable financial performance as we continue to move beyond last year's change in estimate adjustment. Second, we made good progress on expense discipline while continuing to invest in key growth initiatives. And third, we strengthened the balance sheet through debt reduction and ongoing share repurchases. Now let me walk through the numbers for the quarter and guidance before Jessica and I open it up for Q&A. During the fourth quarter, we facilitated 19,308 certified loans compared to 26,065 certified loans in 2024. As Jessica mentioned, the shortfall in certified loans was driven by a temporary headwind in conversion rates as we tested pricing adjustments in response to emerging credit trends. These adjustments had an outsized impact on certain segments. Select changes were rolled back in phases and completed by mid-January. Based on current trends, we do not expect this issue to create any ongoing disruptions. Certified loan volume in the quarter also reflected typical seasonal patterns along with further strategic implementation of enhanced underwriting standards aimed at building a higher-quality loan portfolio. Looking ahead, we expect volumes to accelerate throughout 2026, as anticipated in our guidance. We believe the business is well positioned to capitalize on new growth channels such as the Apex One Auto platform and the continued rollout of OEM 3. We are also placing increased emphasis on CERTs from our credit union and bank partners, which typically carry higher program fees and more attractive unit economics compared to OEM CERTs. Total revenue for the fourth quarter was $19.3 million compared to a negative $56.9 million in the prior-year period. The current quarter included an insignificant change in estimate profit share revenue, compared to an $81.3 million reduction in 2024. As a reminder, 2024 included a significant negative change in estimate adjustment driven by macroeconomic factors and unexpected performance issues in certain newer vintage cohorts. Breaking down total revenues in the current quarter, program fee revenues were $10.9 million, profit share revenues were $6.2 million, and claims administration fees and other revenue were $2.3 million. As a reminder, profit share revenue represents our share of the expected earned premiums less the expected lifetime claims and program expenses. Open Lending Corporation receives 72% of net profit share, and any losses in the net profit share are accrued and carried forward for future profit share calculations. When cash consideration previously received is in excess of the expected profit share revenue, the amount of excess funds and the forecasted losses are recorded as an excess profit share receipt liability. Profit share revenue in 2025 associated with new originations was $6.2 million, or $322 per certified loan, as compared to $8.2 million, or $314 per certified loan, in 2024. As we have previously mentioned, we have taken steps to reduce volatility and future change in estimate adjustments by booking more conservative unit economics at the time of certification. At this level, initial booking reflects an implied loss ratio of approximately 72.5%. Based on our current pricing actions and expected credit performance, we believe these vintages will ultimately perform closer to a mid-60s percent loss ratio. Operating expenses were $13.9 million in the fourth quarter compared to $15.4 million in 2024, representing a decrease of 9.3% year over year. As I mentioned last quarter, one of my priorities moving forward will be to closely monitor and control operating expenses. I continue to find efficiencies in our spending. Net income for the fourth quarter was $1.7 million compared to a net loss of $144 million in 2024. Diluted net income per share was $0.10 in the fourth quarter compared to a net loss of $1.21 per share in 2024. Adjusted EBITDA for the quarter was $2.8 million compared to a negative $75.9 million in 2024. Beginning in the quarter ended 06/30/2025, we updated the presentation of adjusted EBITDA to exclude interest income to better align our definition with comparable companies. In addition, beginning in the quarter ended 09/30/2025, we updated the presentation of adjusted EBITDA to exclude certain other nonrecurring expenses that do not contribute directly to management's evaluation of its operating results. Prior periods have been conformed to the current period presentation. A reconciliation of GAAP to non-GAAP financial measures can be found at the back of our earnings press release. Turning to cash flow and balance sheet, for the full year 2025, our cash flow from operating activities was a negative $3.2 million. However, excluding the one-time payment of $11 million made to Allied in Q3, cash flows from operating activities were $7.8 million, inclusive of approximately $16.8 million in profit share cash received. We exited the fourth quarter with $230.7 million in total assets, of which $176.6 million was unrestricted cash. We had $161.7 million in total liabilities, of which $84.8 million was outstanding debt. During the quarter, we used $50 million in cash to pay down a portion of our senior secured term loan. In conjunction with our board, we determined that reducing leverage represented the most prudent use of capital at this time. While the remaining debt continued to carry attractive terms and favorable cost of funds, this action strengthens the balance sheet, reduces leverage, and preserves financial flexibility going forward. Importantly, we remain disciplined in how we deploy capital and continue to prioritize investments that support organic growth and long-term shareholder value. Based on current interest rate expectations, this paydown is expected to reduce quarterly interest expense by approximately $575,000. We believe this will allow further value to accrue to shareholders in the future. In the fourth quarter, we repurchased approximately 564,000 shares for a total consideration of approximately $900,000. We have approximately $20.1 million remaining on our current share repurchase program, which expires in May 2026. Our capital allocation priorities remain consistent: first, investing in the organic growth of the platform; second, maintaining a strong balance sheet; and third, returning capital to shareholders through share repurchases when appropriate. Finally, I wanted to address our guidance. For the first quarter, we are expecting total certified loans to be between 21,000 and 22,000 units. For the full year, we are expecting total certified loans to be between 100,000 and 110,000. At the midpoint of our guidance, this represents an 8% increase over our 2025 results. We are also expecting adjusted EBITDA for the full year to be between $25 million and $29 million. We intend to maintain our dedication to quality over quantity in our book of business, ensuring that this growth rate is additive to our loan portfolio. We believe our strategy and performance have become increasingly strong and predictable, striking the right balance between growth and profitability as we continue to scale Open Lending Corporation and deliver consistent results for our stakeholders across the market cycle. Most importantly, as we move into 2026, we believe the strength of our platform and the investments we have discussed continue to deepen our relevance with partners and position us well for the opportunities ahead. With that, we will open it up for questions. Operator? Thank you. If you would like to ask a question, press 1 on your keypad. To leave the queue at any time, press 2. Once again, that is 1 to ask a question. And we will pause for just a moment to allow everyone a chance to join the queue. Operator: Thank you. Our first question comes from Madison Soor with Raymond James. Please go ahead. Your line is open. Madison Soor: Hi. Good afternoon, and thanks for taking the questions. I wanted to start here just at a very high level. Obviously, there is a lot of concern in the marketplace around AI and AI disruption across both software and payments and all kinds of technology names. So, with that context, I would love to just hear your high-level thoughts about how you view AI both from an opportunity standpoint and then what risks you are assessing as it relates to potential AI threats. Jessica Buss: Hi, Madison, and thank you for your question today. You know, we, as a technology company, obviously use many forms of AI in our tools and in our models, not as much in our pricing mechanisms, but certainly in the build-out of Red Rocks. And so, where we are going as a company, we have built AI—you have probably seen in some of our press releases—and some of the mechanical tools resolved in our claims process as well. Now, we do have humans in the loop, and we are obviously validating those AI processes as we bring them on board. But, again, we believe that our models and what we have built, which are primarily using machine learning, and the data that we have is far superior to what you could build with just a straight AI tool. So we believe the combination of what we have in AI, what we have in terms of proprietary data, what we have built with our machine learning tools and our Project Red Rocks is superior to what anybody else has out in the market. Madison Soor: Okay. Thank you for that. And then I did want to ask on the CERT outlook both for 1Q and 2026. So, obviously, 1Q implies that CERTs are going to be down in the mid-20% range. You mentioned full year up in the high single digits. Can you just help us kind of bridge how we get from the down mid-20s? I know there were some pricing changes and things of that nature that have since been rolled back. But can you just help us frame how we get from kind of that down mid-20s to up high singles? And kind of how quickly do you think the business can return to CERT growth as 2026 progresses? Thank you. Yes. Jessica Buss: That is a great question. So first quarter compared to first quarter last year, if you had been following in 2025, you would know that the first quarter of last year contained a high number of credit builders and super thins, which we had, in essence, eliminated all super thins in 2025 and significantly reduced the amount of credit builders that we approved by implementing almost a 100% rate increase. And then, also, we took a tighter credit stance and put a tighter credit box in our OEM. So that is sort of influencing the change quarter over quarter. Now, the good news is that we do believe that incrementally, quarter over quarter, we are going to experience the growth that we have in our CERT projection, and that is going to come from a variety of different things that I would like to outline for you. So one, we are already seeing application volume up 20%. Second thing is that we have now found, through our Project Red Rocks, a solution to write credit builders at a profitable level. And credit builders currently represent about 30% of our applications. We believe that they are here to stay. We believe that we can price the good ones correctly and write those and not be adversely selected against. We have been monitoring the performance and, again, based on our new model, have additional applicant data that we believe is a better predictor. We have our strategy that we are implementing with OEM 3. We have seen that certification volume jump significantly quarter over quarter, of 76% in the fourth quarter over the third quarter. So OEM 3 will be a driver. We believe if rates continue to go down, refinance. But, as importantly, both Apex One and our new go-to-market strategy and engine with what we are doing with retention tools, with additional hunters, with our profitability tools, is something that is also going to drive growth. So we have many tailwinds, I believe, to our growth story. We believe those will start to ramp up, as I say in my script, incrementally, and get stronger quarter over quarter. It will be, sort of, third and fourth quarter loaded. We did have the issue that was the headwind in the fourth quarter that was reversed on January 16. So the first quarter is slightly impacted by that. But, again, we have a new Chief Growth Officer. We will start to see that in the second quarter. And then from the third and fourth quarter on, we believe those fundamentals will really drive growth for us. Madison Soor: Okay. I appreciate all the color. Thank you so much. Operator: Thank you. We will move now to Joseph Vafi of Canaccord. Your line is open. Joseph Vafi: Hey, everyone. Thanks for taking my questions this afternoon. Nice to see an outlook showing some sequential increases here in Q1. Maybe we just start with that on the CERT line. Maybe could you walk us through a little bit, you know, maybe Q4 to Q1 on kind of a CERT walk? You know, there is OEM 3—would be interested in some commentary on, you know, also how OEM 1 and 2 are doing in terms of stability—and then if you wanted to just drill down a little bit more into health of the credit union channel with some more comments, that would be appreciated. Jessica Buss: Sure, Joe. So I would be happy to do that. So our walk from fourth quarter to first quarter—again, we have the sort of reversal of the headwind, the rate issue that we discussed. That will help. We have OEM 1 and OEM 2 that remain stable and flat to where they have been in the last couple of quarters. We will see a ramp-up in OEM 3. I think you may have heard us talk on prior earnings calls and even in the current script that they will be launching two of our largest states sometime at the end of the first quarter, beginning of the second quarter. So while we are seeing pretty large increases, as I mentioned, 79% fourth quarter over third quarter, we would expect that to continue. We will see that sort of magnify as they add those states on throughout the year and even in the first quarter. So we are excited about that piece as well. We will have the solution to the credit builders that will probably impact more of the second quarter. But, again, we have seen significant increases in applications, the hiring of our Chief Growth Officer. I think all those things will have the impact going from Q4 to Q1. And then if that is kind of the cadence you are looking for. Joseph Vafi: That is great. Thank you, Jessica. And then just want to double click on the health of the credit union channel and, you know, how you see that—potentially, you know, how that could evolve if we get another 50 bps here in 2026 on rate cuts. Jessica Buss: Yes, that is a great question. So, you know, I just spent four or five days in Washington, DC, with our credit unions at GAC, as I mentioned in my script. And one of the messages that was clear is that their loan-to-share values are—and I will not say at all-time lows—but lower than they have been probably the last couple of years, to the 80% mark, and they are looking to grow. They are looking to grow in the auto space, and they are looking to do it in a disciplined way. A lot of their boards are concerned, obviously, with what is going on in consumer credit. That is why our tool is even more important, and our insurance carriers and the credit projection they provide with our insurance product is even more important. That is why we are expanding our conversations with Apex One, which allows us to do both prime and near-prime decisioning and pricing with and without insurance. So the health of the credit unions is good. They have gotten more sophisticated. They are looking to grow. Now with rates, one of the other interesting things that we are working on is working with our credit unions to be more nimble in reducing their ROA targets. Typically, it takes them a little bit longer than, let us say, a sophisticated bank to react to rate changes. We have been working with them to bring those down quicker. As those begin to come down, both with rate cuts from the Fed and with our working with them on their ROA targets, we believe that there is a very large refinance opportunity for us in the future. And we have been opening up and continuing to open up refi channels with our credit union partners. So we are really excited about that as an opportunity for 2026 as well. Joseph Vafi: Great. Thank you for that color, Jessica. Operator: Thank you. And once again, if you would like to ask a question, please press 1 on your telephone keypad now. We will now move on to Mike Grondahl with Northland Securities. Please go ahead. Your line is open. Keaton Chokey: Hi. This is Keaton Chokey on for Mike. You have made a lot of moves in the management with the new Chief Growth Officer, new CFO, and becoming a new CEO. Is the team built out now, or are there any more that you would be expecting for 2026? Jessica Buss: Thank you for the question, and I am really excited to talk about our management team. I think the most important thing to having a great business is having a great team, and the people that we have brought on board and all of the key management positions, all of my direct reports, with most recently the addition of Anthony, as you mentioned, Mas earlier this year or at the end of last year, are all key players to how we are going to be able to execute on these priorities. At this point, all positions are—all sort of senior executive positions that report to me and have accountability for running all aspects of our business—are now filled. I can tell you that team is working very well together. And I think that you can see that sort of in the execution that Open Lending Corporation has been able to deliver this year. The first time, we delivered a new product. Increased our EBITDA. We have had flat CIE. We are in the process of implementing Project Red Rocks. Those are things that were not possible before. And that is really a tribute to our senior management team and all of our employees as well. We spent a lot of time on culture and breaking down silos and focusing on getting four things right this year, and I feel like we have delivered on those promises to our shareholders. Keaton Chokey: Great. And then, I was hoping to get a little more color on your current outlook for delinquencies or credit quality for auto loans in your book. Jessica Buss: So I will start, and I will let Mas jump in here. I think I said in my script that the delinquencies that we are seeing on our most recent vintage are running about 200 basis points better at the sixty-day delinquency mark than they were in vintage years 2023 and 2024. We do not participate in the full subprime market. We are near and non-prime. So we actually feel like we are pricing correctly for the delinquencies. We are seeing better-than-expected outcomes. So we are excited about that. Again, it had to do with our tighter credit underwriting and our pricing mechanism we put into place, and investments that we have made into models. But I will let Mas add any color that he wants. Massimo Monaco: I think you covered most of it. We are seeing it across all measures of delinquency—30-day delinquency, 60-day, 90-day. Every measure that we look at shows favorable improvements in vintage year 2025. So we are very comfortable with where we are pricing our book today. We look forward to a strong performance into the future. Jessica Buss: And I guess the only other piece of color I would add that is sort of an indicator of that is that we have had a flat change in estimate—in essence, a positive $0.4 million for the year in total—on our back book of business, which would indicate that we have correctly sized, we believe we have correctly sized, the delinquencies for our back book as well. Keaton Chokey: Awesome. Thank you for that. I will return to the queue. Operator: Thank you. And once again, that is star one if you would like to ask a question. We will now move on to Peter Heckmann with Davidson. Your line is open. Peter Heckmann: Hey. Good afternoon. Thanks for providing the guidance for full year 2026. I think that is helpful for investors to think about how management is thinking about the full year. Wanted to see if you could maybe give a range about thinking about the conversion from EBITDA to free cash flow for 2026. I know you have a few working capital needs in the form of the excess profit share receipts. But I guess, could you give us a little bit of additional detail to maybe give us some pieces that can help us get to a—maybe even if it is a wide—free cash flow range. Jessica Buss: Sure, Peter. This is Jessica. Nice to hear from you. So first off, again, we are really excited and feel confident in providing our full-year guidance. And that was a nice thing to be able to do after years of not being in a position to do that. So thank you for recognizing that. In terms of free cash flows, we obviously do not provide guidance on free cash flows. And I will let Mas jump in here in a minute. I would say that we did collect profit share this year. We do not have a capital allocation or capital set-aside for the liability you are referring to in terms of a cash flow mechanism. If you remember, that would be collected from the future cash flows, yes, but that is not a cash flow set-aside. Again, so we are not actually predicting that. What we can tell you is what we have talked about before in terms of profitability, in terms of how we are booking our loss ratio at a more constrained level, how we think that book is actually performing, and that sort of drives how our cash flows from profit share come in. But I do not know, Mas, do you want to add anything to that? Massimo Monaco: Yes. Hey, Peter. How are you? I think, as we have mentioned in the past, it is difficult for us to predict when the losses will come in with that book. But as the forecast stands right now, the free cash flows would be relatively in line with the EBITDA guidance we are giving. Peter Heckmann: Okay. That is great. Massimo Monaco: Again, I do caution that it is difficult to forecast the losses—the timing of the losses. Peter Heckmann: Right. Right. Okay. I appreciate it. I look forward to seeing the ramp through the year. At this time, there are no further questions in queue. I would be happy to return the call to Jessica for closing comments. Jessica Buss: Thank you all for your time today, and thank you to our shareholders, investors, credit unions, and insurance carriers for your continued support. I would also like to thank the entire Open Lending Corporation team for their dedication over the past year. We laid the foundation for sustainable, profitable growth in 2025, and we believe we are well positioned to build on that momentum in 2026 while maintaining disciplined risk management. We appreciate your confidence in our strategy and look forward to updating you on our continued progress on our next call. Thank you. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Runway Growth Finance Corp. Fourth Quarter and Fiscal Year Ended 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Quinlan Abel, Assistant Vice President, Investor Relations. Please go ahead. Quinlan Abel: Thank you, operator. Good evening, everyone, and welcome to the Runway Growth Finance Corp. Conference Call for the Fourth Quarter and Fiscal Year Ended 12/31/2025. Joining us on the call today from Runway Growth Finance Corp. are David Spreng, Chief Executive Officer; Greg Greifeld, Chief Investment Officer of Runway Growth Capital LLC, our investment adviser; and Thomas B. Raterman, Chief Financial Officer and Chief Operating Officer. Runway Growth Finance Corp.'s fourth quarter and fiscal year ended 2025 financial results were released just after today's market close and can be accessed from Runway Growth Finance Corp.'s investor relations website at investors.runwaygrowth.com. We have arranged for a replay of the call to be available on the Runway Growth Finance Corp. web page. During this call, I want to remind you that we may make forward-looking statements based on current expectations. The statements on this call that are not purely historical are forward-looking statements. These forward-looking statements are not a guarantee of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements, including, without limitation, market conditions caused by uncertainties surrounding interest rates, changing economic conditions, and other factors we identify in our filings with the SEC. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions can prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions can be incorrect. You should not place undue reliance on these forward-looking statements. The forward-looking statements contained on this call are made as of the date hereof, and Runway Growth Finance Corp. assumes no obligation to update the forward-looking statements or subsequent events. To obtain copies of SEC-related filings, please visit our website. With that, I will turn the call over to David. David Spreng: Thank you, Quinlan, and thanks, everyone, for joining us this evening to discuss our fourth quarter and full year 2025 financial results. Today, I will discuss our highlights for the quarter and the year and provide an update on our pending acquisition of SWK Holdings. Then Greg will discuss our portfolio activity and share our outlook on the current market backdrop, and Tom will conclude with a deep dive into our financial performance. In the fourth quarter, Runway delivered total investment income of $30 million and net investment income of $11.6 million. During the quarter, we completed seven investments in new and existing portfolio companies across the high-growth verticals of technology, health care, and select consumer sectors, representing $42.9 million in funded loans. Taking a step back, 2025 was a dynamic year shaped by several market-moving events and volatility, including ongoing tariff uncertainty, evolving interest rate policy, geopolitical conflicts, and increasing attention to AI-driven disruption. In times like these, it is critical to stay disciplined in our investment process and diligent in our approach to portfolio construction, traits that have defined our company since its founding. We believe our consistent performance across cycles reflects this philosophy. That said, we are not complacent and remain focused on executing against the initiatives we have discussed in recent quarters, which include further enhancing the risk profile of our portfolio through diversification and smaller position sizes, expanding our suite of financing solutions, and maximizing the value of our existing commitments through robust monitoring and diligent risk mitigation. As a part of the BC Partners credit ecosystem, we have made steady progress on these objectives. We have also leveraged their combined resources and network in evaluating attractive and complementary portfolios, as demonstrated by our announced acquisition of SWK Holdings in the fourth quarter. As an update on timing, the transaction with SWK is now expected to close in early April. Our confidence in closing this transaction remains unchanged. One key aspect of our transaction with SWK is the diversification it will bring to our portfolio. While we remain confident in our current asset mix, increasing our exposure and strengthening our capabilities in health care and life sciences will enhance our portfolio and drive optionality moving forward. In the coming quarters, we believe there could be attractive opportunities across all of our areas of focus: technology, health care, and select consumer sectors. Greg will provide additional detail on how we think about software investing, with the takeaway being we have strong conviction in our underwriting and disciplined investment framework, which we believe positions us well to consistently identify and execute on attractive opportunities in the sector. By broadening exposure across sectors and maintaining an allocation to software companies that meet our high standards, Runway is better positioned to generate consistent, attractive, and risk-adjusted results for our shareholders. Before I turn the call over to Greg, I will conclude with an update on our originations in the first quarter. Although this is seasonally our slowest quarter, activity thus far is encouraging, and our pipeline is stronger than it was at this point last year, giving us measured optimism for the remainder of 2026. As we take advantage of enhanced origination channels through BC Partners and SWK throughout the remainder of the year, we will apply the same rigor to new opportunities and act thoughtfully in making any additions to our portfolio. I will now turn it over to Greg for a more in-depth look at our portfolio activity. Greg Greifeld: Thank you, David. Tonight, I will recap our portfolio activity during the quarter, provide an update on our progress against our portfolio optimization initiatives, and discuss how we are competitively positioned for the year ahead. Before I turn to our portfolio activity, I think it is important to reiterate some of what David described about our approach in deploying capital. At our core, Runway upholds a credit-first investment discipline with a preference for less economically sensitive business models. Combined with our focus on first-lien senior secured investments to late-stage companies, we aim to generate durable growth and attractive returns on a risk basis. As it pertains to software specifically, we are confident in our current portfolio and continue to be positive on the sector as an investment opportunity. We believe the best companies will not only be able to coexist with AI, but will be able to leverage AI as a tool to optimize their operating models and accelerate penetration in the markets they serve. As our investment team has evaluated deals over the last several years, finding companies that fit this mold has been a key priority. While this is easier said than done, we believe our dedication to process, our deeply experienced team, and our longstanding relationships across the venture ecosystem allow us to identify the right opportunities to grow our portfolio. More specifically, if you look at our existing portfolio, our software companies share the following characteristics: mission-critical functions with a long diligence and implementation cycle; strong moats defined by domain expertise and high switching costs; and customer diversification, which we believe meaningfully de-risks revenue growth projections. Further, the founders we partner with are forward thinking and always looking for ways to optimize their businesses. This includes using AI to improve operations, lower cost structure, and extend cash runways. From a credit perspective, our software portfolio metrics are on solid footing. The software companies in our portfolio are delivering consistent revenue growth and maintaining stable LTVs. Lastly, we always actively monitor our portfolio companies, remaining in close contact with our borrowers and their sponsors. This allows us to have continued confidence in the outlook for our software portfolio and our portfolio at large. Turning now to our portfolio activity during the fourth quarter, Runway completed seven investments in new and existing portfolio companies for a total of $42.9 million funded. These investments included completion of a new $20 million investment to a fast-growing mobility company offering a seamless, all-inclusive car subscription service, funding $20 million at close; completion of a new $10 million investment to a special purpose vehicle formed by an experienced consumer products investor and operator to support their latest investment, funding $10 million at close; completion of a new $20 million investment to Shield Therapeutics, funding $2 million at close; Shield Therapeutics is a commercial-stage specialty pharmaceutical company focused on delivering innovative therapies to address significant unmet needs in patients with iron deficiencies. We also completed follow-on investments with an aggregate amount of $10.9 million to four existing portfolio companies, including BlueShift, Bombora, Autobooks, and Marley Spoon. Looking at the year ahead, we will continue to focus our opportunities to efficiently scale our portfolio while maintaining our defensive profile. We have a strong funnel featuring contributions from BC Partners and expect the pending acquisition of SWK to be additive to our sourcing capabilities, particularly within health care. Now I will turn the call over to Tom for a review of our financials. Thomas B. Raterman: Thank you, Greg. Turning now to the fourth quarter results, we generated total investment income of $30 million and net investment income of $11.6 million in 2025, a decrease compared to $36.7 million and $15.7 million in 2025. Our weighted average portfolio risk rating increased to 2.45 in 2025 compared to 2.42 in 2025. Our rating system is based on a scale of one to five, where one represents the most favorable credit rating. Our total investment portfolio had a fair value of $927.4 million, a decrease of 2% from $946 million in 2025. To reiterate, we have structured our portfolio to be comprised almost exclusively of first-lien senior secured loans, reflecting our focus on risk mitigation and diligent portfolio management. We delivered $0.32 per share of net investment income in the fourth quarter. Our base dividend in the fourth quarter was $0.33 per share, and at the end of the year, we had spillover income of approximately $0.65 per share. Prepayment fee income during the quarter declined sequentially, returning to more normalized levels, which contributed to the decline in NII. For the first quarter, we expect a $0.02 headwind related to a one-time charge stemming from the full redemption of our 8% notes and partial redemption of our 7.5% notes, both of which were due in 2027. As we evaluated the SWK transaction, a key benefit was its ability to stabilize our asset base amid recently elevated prepayments and the deliberate portfolio optimization we have taken, including exiting or resizing certain positions. We continue to expect this outcome upon closing; however, the modest delay in timing will contribute to some softness in Q1 2026 earnings. With respect to the dividend, we believe it is set at a sustainable level. Our board will continue to evaluate and approve future distributions, knowing how important consistency is to our fellow shareholders. Our debt portfolio generated a dollar-weighted average annualized yield of 14.2% for 2025, decreasing from 16.8% quarter over quarter and decreasing from 14.7% in the comparable period last year. The sequential decline was the result of lower prepayment income in the quarter. Moving to our expenses, total operating expenses were $18.4 million for 2025, a decrease from $21 million in 2025. We recorded a net realized loss on investments of $377,000 in 2025 compared to a net realized loss on investments of $1.3 million in 2025. During the fourth quarter, we experienced two full repayments and one partial repayment totaling $60.6 million and scheduled amortization of $2.2 million. As of 12/31/2025, we had only one loan on nonaccrual status, and that is Domingo Healthcare. The loan has a cost basis of $4.8 million and fair market value of $2.4 million, or 50% of cost, representing just 0.25% of the total investment portfolio at fair value as of 12/31/2025. As of 12/31/2025, Runway Growth Finance Corp. had net assets of $484.9 million, decreasing from $489.5 million at the end of 2025. NAV per share was $13.42 at the end of the fourth quarter, a decrease of 1% compared to $13.55 at the end of 2025. At the end of 2025, our leverage ratio and asset coverage were 0.90x and 2.11x, respectively, compared to 0.92x and 2.09x, respectively, at the end of 2025. As of 12/31/2025, our total available liquidity was $395.2 million, including unrestricted cash and cash equivalents; we have borrowing capacity of $377 million. As of 12/31/2025, we had a total of $145.5 million in unfunded commitments, which was comprised of $122.8 million to provide debt financing to our portfolio companies and $22.7 million to provide equity financing to our JV with CADMA. Approximately $32.4 million of our unfunded debt commitments are eligible to be drawn based on achieved milestones. Subsequent to quarter end, we took steps to enhance our balance sheet and reduce our cost of funds by launching an underwritten public offering of $103.25 million in aggregate principal amount of unsecured notes due in February 2031 at 7.25%. We also redeemed a portion of our 7.5% notes and all of our 8% notes, which were due in 2027, taking advantage of an attractive rate and spread environment as well as extending our debt maturity ladder. Before we conclude, I would like to take a moment to reflect on the progress we have made over the last eighteen months and reiterate our confidence in the transaction with SWK and its anticipated benefits. Prior to our acquisition by BC Partners, Runway was operating in a venture ecosystem facing a valuation reset and muted sponsor activity, so we intentionally looked for ways to strengthen our competitive position. This included the BC Partners transaction, which has meaningfully widened our deal funnel. Now the SWK transaction will expand health care and life sciences exposure and widen our opportunity set further. Through this process, we have meaningfully enhanced the portfolio's earnings power, optimized portfolio composition, and navigated periods of elevated repayments. At the same time, we are reducing the risk profile of the portfolio. Following the close of the SWK transaction, which should be on or about April 6, we expect to reduce our average position size to $23.5 million, or 2.2% of the portfolio. This compares to $30.3 million, or 3.1% of the total portfolio before the BC Partners transaction, marking tangible progress against our portfolio enhancement initiatives. As we have discussed before, other benefits of the transaction include enhancing our financial profile, expanding our shareholder base, generating run-rate net investment income accretion in the mid-single digits, and supporting modest ROE expansion as well as improved dividend coverage. In tandem with the enhanced earnings power and lower risk profile the deal brings, we are potentially expanding our access to new debt financing markets, including ABS and other secured lending markets. We look forward to the deal closing in early April. I will conclude with an update on our capital allocation initiatives. Due to the pending acquisition of SWK, we were not able to utilize our stock repurchase program during the quarter and will not be able to do so until after the transaction closes and we are outside of our normal blackout periods. Our existing stock repurchase program will expire before the blackout window opens; however, in general, we continue to view stock repurchases as an important tool in delivering shareholder value. Finally, on February 25, 2026, our board declared a regular distribution for 2026 of $0.33 per share. While we face some fluctuation in earnings quarter to quarter based on timing of the SWK deal and other factors, we are confident that our earnings power is aligned with the current distribution level on a full-year basis. With that, operator, please open the line for questions. Operator: Thank you. To ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. We will now open for questions. Our first question comes from the line of Erik Edward Zwick with Lucid Capital Markets. Your line is now open. Erik Edward Zwick: Thank you. Good afternoon, guys. David, in your prepared comments, you noted that the pipeline is stronger than it was at this point last year. I am wondering if you or Greg, if you wanted to weigh in as well, just talk about maybe how it looks today in terms of new versus add-on opportunity, if there are any particular industries that are more heavily weighted at this point, and then I think you mentioned also in the back half of the year that you could see some additional growing or growth from the benefits of BC Partners and SWK and whether you would think that broadens the mix. I think you mentioned some new products as well, so just kind of curious an outlook there. David Spreng: Great. Thanks, Erik. I can start, and then Greg can add on. The comment really represents the impact that BC primarily is having on our deal flow. We are seeing a lot of really interesting opportunities from them, and we have done several deals together already, and I expect we will do at least one deal together per quarter going forward. And SWK represents a huge opportunity to upsize loans that they have to their base. And then on top of that, just our normal deal flow, excluding BC and SWK, is pretty strong, and so I think we do believe that we have got good momentum. That can change at any time, and as I think all three of us said in prepared remarks is that we are going to remain conservative in our approach to underwriting, and we are going to continue to look for the strongest companies. The problem is that when we like something, somebody else usually loves it and offers very, very aggressive terms, and, unfortunately, we just, at some point, have to back out and just say it is not worth it. But there are getting to be some really interesting opportunities with very juicy returns, particularly in software and in consumer. We have never been ones to chase after returns. We would rather have a slightly lower return that comes with a lot less risk. But it is interesting to note that the competitive dynamic in those two sectors is offering pretty good returns. Greg, anything else you want to add? Greg Greifeld: I would definitely echo those sentiments. I think that our core pipe of the volume definitely increased year over year, and one thing I would point to is there has definitely been uncertainty in the public market. With fewer providers in the private market, that is a benefit. What I mean by that is, if I am going into the beginning of the year in terms of the potential for IPOs this year, obviously some big blockbusters maybe, I do not know if that would be all, the IPO window for companies overall. That seems to not be happening, which leaves companies to look for a definitive solution themselves with the IPO option being off the table. That would have led to an increase in our core pipeline. And while SWK has not closed yet, I would say that the general craft that we are seeing supports our health care opportunity set, and we have been involved in health care since 2020. But this deal— Erik Edward Zwick: Great color. Thanks, guys. And my question for Tom, do you have a pro forma leverage number after the first quarter actions, or is it materially different than it was at 12/31, and just how are you thinking about the appropriate level of leverage today for the portfolio? Thomas B. Raterman: Thanks, Erik. Post-SWK we will be just under 1.2x. We will each strike our NAV two days before the closing, which should be April 6. And so, as we think about then moving forward, we still want to run between 1.2x and 1.3x and consider that our fully levered run rate, if you will. One of the things that we will consider, and a lot of it will depend on the economic environment and volatility in the capital markets. With the prepayments over the last, call it, eighteen to twenty-four months, we have seen it is very difficult during a portfolio reconstruction period or reset period. We are putting up smaller amounts on a per-deal basis, so we might get $60 million back or $50 million back. We want to put that out in two or three deals. So we may, in the short term, as we have line of sight to either scheduled maturities or anticipated prepayments, run a little high one quarter, knowing that in the coming quarter we are going to see a prepayment. We would not run generally, purposefully, above 1.35x in that scenario. But we may, in the short term, try to protect the core earnings power of the portfolio from some of those prepayments. If it is one thing that we have seen over the last eighteen to twenty-four months it is that it is harder to put that money to work in smaller pieces given the competitive environment and our overall level of picking and choosing our transactions. Erik Edward Zwick: That is helpful. Thanks. And last one for me, is there any new updates on the CADMA JV to communicate? Thomas B. Raterman: We continue to work actively with CADMA. We have got a couple of deals in the JV right now. It has been a little difficult to build that up given the aggregate deal flow, but when we sat down just recently with our partners at CADMA, I think there is a renewed effort to really build that portfolio and juice up the earnings power there. We do expect the first distribution from the JV in Q2, so you will see that flow through the Q2 income statement. Erik Edward Zwick: Great. Thanks for taking my questions today. David Spreng: Thanks, Erik. Operator: Our next question comes from the line of Casey Jay Alexander with Compass Point Research and Trading. Your line is now open. Casey Jay Alexander: Good afternoon. Thanks for taking my questions. Tom, is there any way that you can update us as to the—there had been some changes in the SWK Holdings portfolio after you announced the deal, and I am just wondering if you could update us as to what the balance of their loans and the number of loans you expect to have coming over on April 6 is going to be. Thomas B. Raterman: Sure. Subject to a little bit of modification, there will be 13 loans with a fair value of around $235 million. There is equity in addition to that, so there is an equity portfolio of some stock positions and warrants, and there are a couple of remaining royalties that will come across. Those are generally not yielding right now, or yielding very low. The aggregate yield on that portfolio, the total portfolio, is about 14%. The debt-only portfolio is about 16%. Casey Jay Alexander: Okay. Thank you for that. And, Greg, I do not know, when you were answering the last question, at least to me, you were breaking up quite a bit. I do not know if you are on a speaker or what. But I do have a question for you. If I was a member of the media, I would just ask you when are you going to mark the software portfolio at zero, right? Because that is what the media expectation is at this point in time. But I did want to ask, you have had one loan at the end of the third quarter that was marked at a reasonable discount to par, I think around 82%. And when I read the Las Vegas Sun, I see that Circadence closed a new investment round and is talking about strong revenue growth, and so I was wondering if you could update us on that particular credit because it seems as though things may have turned for the better. Greg Greifeld: Yes, and hopefully this is better sound-wise. I do not know if you need me to repeat anything, but as you pointed out, it successfully closed on an equity round as well as signed a substantial contract with the Defense Department. In combination, those will lead to an increase in performance for them. So it is one that we do continue to monitor. Casey Jay Alexander: Alright. Great. Thank you for taking my questions. Operator: Thank you. As a reminder, to ask a question at this time, please press 11 on your touch-tone telephone. Our next question comes from the line of Richard Shane with JPMorgan. Your line is now open. Richard Shane: Hey, guys. Thanks for taking my questions this afternoon. First, in terms of—and actually, both related—when you announced the SWK transaction, you announced an accretion level from an NII per share perspective, I assume. Given the movements in the stock price and the relative performance, how should we be thinking about that? And are there any floors or collars on the equity component that you are providing, the $75 million? Thomas B. Raterman: Well, thanks, Richard. Thanks for the question, and welcome to your first earnings call with us. We are glad to have you as part of the coverage team. So the amount of equity is set at $75.5 million. That will not change. The number of shares will change modestly based on the calculation of NAV. There will still be meaningful accretion. There is some accounting that happens that actually increases the NII contribution as we—as the SPAC declines. It is kind of counterintuitive, but it, in effect, increases the discount at which we are buying the portfolio, and as I said, it is fixed in terms of the dollar amount. The share count changes based on the NAV. Richard Shane: Got it. But presumably, that means that the deal becomes more dilutive because you are giving more shares in order to provide the $75 million of stock consideration? Thomas B. Raterman: That is correct. But we are talking about an insignificant change in terms of the change in NAV. If you look at the 12/31 NAV versus the 9/30 NAV, it is about 1%-ish, so it is not a meaningful amount, and at least at the moment, the preliminary calculations are that that will largely be offset by the increase in the discount that we are purchasing at because of the decline in the stock price. Richard Shane: Got it. Okay. Very helpful. And then, look, you guys have a history of repurchasing shares. You did not repurchase shares this quarter. You mentioned the fact that you do see that as an attractive opportunity. I am curious if one of the considerations in terms of just forestalling that during the fourth quarter was the impact of the acquisition, and is that something that post-acquisition lifts and you will start to go back to the market and be repurchasing shares again? Thomas B. Raterman: We have done that in the past, and that is our plan to discuss with the board. If history repeats itself, I would think the board would view it, and has consistently with the management team, that it is a good use of capital. But we were not legally able with the pending acquisition. When we were under LOI, we could not use the stock repurchase program. When we had the N-14 pending, we could not use the stock repurchase program. In general, the first time we would be able to do it would be two days after the closing. However, that is in our blackout period for Q1, so the first time that we can be back in the market is probably May. And so, as we look at capital allocation, it is a balancing act between new deals and the long-term core earnings power that that brings to the table versus the immediate accretion from buying at such a discount. We recognize the financial impact to our shareholders on that. Richard Shane: Got it. Okay. Great. That is very helpful, and that was kind of what I was trying to understand. And then very briefly, last question. What is remaining under your repurchase authorization from before? Thomas B. Raterman: It is effectively—there is a number, but we cannot use it. So we will revisit the whole number come April, early May, when we have our board meeting, and we will have much better details on the portfolio. Richard Shane: I appreciate that. A lot of moving parts for the new guy. I appreciate it very much, guys. Thank you. Thomas B. Raterman: That is all right. We appreciate the questions, and, again, welcome. We are glad to have you on board. Richard Shane: Thanks. Fun to be here. Operator: Thank you. Our next question comes from the line of Sean-Paul Aaron Adams with B. Riley Securities. Your line is now open. Sean-Paul Aaron Adams: Hey, guys. On the merger, I understand that you have proxy deadlines and the shareholder meetings, but was there any reason that kind of prevented the mail-outs from going out a little bit sooner in the quarter? Thomas B. Raterman: Nothing to do with us. Technically, the SEC has thirty days to respond to your filing, and we filed November 19, which would have meant a December 19 date for the initial comments back. Unfortunately, with the shutdown and the backlog that the SEC had, and this was not a typical investment company-to-investment company transaction; it was the acquisition by an investment company of an operating company. So I would say there was a little more to digest for the SEC. But the reality is it took seventy-two days to get the majority of the comments and seventy-seven days for the last comments. They were not particularly difficult, and once we had them, we turned them and filed as quickly as possible. But there are absolutely no underlying business issues. It was really just getting through the queue at the SEC, and once they— I have to say, once they gave us their comments and they recognized that we had a deadline embedded in the merger agreement, they were very good to work with and very attentive. Sean-Paul Aaron Adams: Got it. Appreciate the color. Operator: Thank you. I am currently showing no further questions at this time. I would now like to turn the call back over to David Spreng for closing remarks. David Spreng: Great. Thank you, operator, and thank you all for joining us today. We look forward to discussing our first quarter 2026 financial results with you in May. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Rubrik, Inc. Fourth Quarter and Fiscal Year 2026 Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded on Thursday, 03/12/2026. I would now like to turn the conference over to Melissa Franchi, Vice President of Investor Relations. Please go ahead. Melissa Franchi: Hello, everyone. Welcome to Rubrik, Inc.'s fourth quarter and fiscal year 2026 financial results conference call. On the call with me today are Bipul Sinha, CEO, Chairman, and Co-Founder of Rubrik, Inc., and Kiran Kumar Choudary, Chief Financial Officer. Our earnings press release was issued today after the market closed and may be downloaded from the Investor Relations page at investors.rubrik.com. Also on this page, you will be able to find a slide deck with financial highlights that along with our earnings release includes a reconciliation of GAAP to non-GAAP financial results. These measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. During this call, we will make forward-looking statements, including statements regarding our financial outlook for the first quarter and full fiscal year 2027, our expectations regarding market trends, our market position, opportunities, including with respect to generative AI, growth strategy, product initiatives, and expectations regarding those initiatives we discussed in detail with our filings with the SEC. Rubrik, Inc. assumes no obligation to update any forward-looking statements we make on today's call. With that, I will hand the call over to Bipul. Thank you, Melissa. Bipul Sinha: And thank you all for joining us today. Let me start by saying we ended the year that significantly exceeded our expectations. A spectacular Q4. We accelerated net new subscription ARR growth to a record $115,000,000. For the full fiscal year, we generated tremendous free cash flow of about $238,000,000, which is more than 10 times the free cash flow for the prior fiscal year. This is a clear indication that we are indeed laying the foundation of a long-term, highly profitable growth business. With that, we have once again exceeded all guided metrics across top line and profitability. Here are five key numbers. First, subscription ARR reached $1,460,000,000, growing 34% year over year. Second, our subscription revenue was $365,000,000, growing 50% year over year. Third, our subscription NRR remained strong once again above 120%. Fourth, customers with $100,000 or more in subscription ARR reached 2,805, growing 25% year over year. And finally, on profitability, once again we made material improvement in subscription ARR contribution margin, up over 950 basis points year over year. We generated $70,000,000 in free cash flow this quarter. Accelerating growth while improving margins and growing free cash flow at our scale is not only very impressive, but a rare combination. Now let me explain why and how we got here. Enterprise AI and agentic work disruptions are creating significant opportunities for us, and we are leaning into it. Rubrik, Inc. is a multiproduct company built on a unique and highly differentiated platform that solves the most consequential problem across data, identity, and AI. We continue to deliver phenomenal results quarter after quarter because we are comprehensively winning against the competition and enabling enterprise AI acceleration. In fact, our competitive win rates have crossed 90% in Q4 as we continue to disrupt the data and identity protection market with our transformative products that deliver comprehensive cyber resilience. This is why we continue to accelerate our growth while our competition has stalled. At the same time, Rubrik Agent Cloud aims to deliver dynamic, real-time AI agent controls to accelerate enterprise AI transformation. I will talk about Rubrik Agent Cloud in a few minutes. But first, let me talk about why our products are transformative. We have built a single platform that understands data, identity, and application context. On top of this platform, we deliver two solution suites: Rubrik Security Cloud for cyber resilience, and Rubrik Agent Cloud for accelerated AI transformation. Let me start with Rubrik Security Cloud. In our platform, we have the unique ability to bring together time-series data and metadata across complex enterprise environments that span on-premises, sovereign cloud, SaaS, and identity providers. We have built a single policy engine to deliver uniform, policy-driven automation for complete cyber resilience, including protection, security, and cyber recovery. On top of this, we have built a proprietary preemptive recovery engine that precalculates the clean points of recovery across data and identity. These make up Rubrik’s PrO Mote. This is how we deliver record-fast recovery when our customers are compromised by ransomware and identity-based attacks. Our software architecture is hardware- and platform-optimized to deliver cyber resilience to thousands of our enterprise customers. This is why we are winning the cyber resilience market. Rubrik, Inc. is a true platform company, and we provide multiple independent paths for our customers to get started. Whether a customer buys a single product or the whole Rubrik Security Cloud suite, they get the same platform. In fact, our customers realize more value from our platform as they adopt more and more of our products, which is a testament of Rubrik’s true platform strategy. We were the first to recognize the need for cyber resilience and its subsequent evolution in enterprises, which is what underpins success. The trends are clear. Enterprise agentic AI transformation promises tremendous productivity gains. However, these agents also assume your identity and act on trusted data. If compromised, they can perform 10 times more damage in one-tenth of the time. That exposes companies to unprecedented risk. Moreover, cyber attackers are actively deploying AI to breach businesses and governments around the world. In essence, AI has made the world more dangerous. The best metaphor we can provide is protecting your home. You can close the windows and put on the lock, but ultimately, you need a bunker underneath your house to survive the doomsday so your cloud and AI transformation journey continues uninterrupted. Rubrik Security Cloud is that bunker for enterprises. When ransomware inevitably hits, an LLM or white code will not recover your business. Rubrik will. We can do this because we have years of cyber resilience and enterprise customer experience built into our platform. Rubrik not only understands the complexity of enterprise data and identities, but also delivers the minimal viable services that companies need to run their digital businesses 24x7. We help enterprises rapidly recover their services by quickly pinpointing the cleanest state of data and identity, all the while isolating the threat to prevent malware reinfection. The Rubrik bunker delivers complete cyber resilience across on-premises, sovereign cloud, and SaaS applications. Rubrik Security Cloud is powered by a unique and proprietary system of record of last resort of data and identity. This is our secret sauce. Let me provide two specific customer examples of legacy replacement in very large enterprises. First, Rubrik, Inc. secured a major win with a Fortune 500 global hospitality company this quarter. The company chose Rubrik, Inc. to enhance their cyber resilience and recovery speed from ransomware attacks, deploying our single platform across their hybrid and multicloud environment. This company displaced a deeply entrenched legacy provider and a cloud-native backup solution, and we also outcompeted several next-generation vendors. Furthermore, the move is projected to deliver multimillion-dollar savings by eliminating native backup cost. Second, a leading European financial services firm selected Rubrik, Inc. as their strategic cyber resilience partner to meet stringent DORA and ECB guidelines, replacing their multidecade legacy incumbent. Rubrik, Inc. was selected for our single unified platform providing data protection and resilience across their entire environment, including enterprise, cloud, and SaaS applications, as well as their mission-critical identity system. Speaking of SaaS applications, our SaaS protection had a particularly strong Q4, as customers look to Rubrik, Inc. for end-to-end risk and remediation across their mission-critical applications including M365 and identity services. In fact, over 50% of Rubrik, Inc. M365 bookings this quarter were attached to our identity solution. Let me give you one representative customer example. A major global logistics provider expanded Rubrik, Inc. to protect M365, Active Directory, and Entra ID, critical systems that run their mission-critical business operations. Rubrik, Inc. displaced an incumbent new-gen competitor because of our superior identity coverage and faster recovery time across these tier one applications, reducing considerable business risk in case of a cyberattack or operational disruption. Next, let us talk about our identity business. Our identity line of business continues to be highly successful in garnering budget from CISOs, extending Rubrik, Inc. beyond our traditional CIO and CTO buying persona. We have been rapidly disrupting the identity protection market with our identity recovery and resilience product. This quarter, we announced protection for Okta Identity, making Rubrik, Inc. the only identity recovery platform to expand Okta, Active Directory, and Entra ID. In just one quarter of selling, we have already seen notable deal activity for Okta Recovery, and we are excited about what is ahead. Let me give you two specific examples of identity customer wins. A Fortune 500 U.S. financial services firm added Okta Recovery in a significant expansion that also included Identity Resilience Suite, as well as protection for unstructured data and cloud data. This customer chose Rubrik, Inc. to meet a board-mandated less than 48-hour recovery time objective, displacing a cloud-native backup solution and a legacy protection vendor. Second, a major U.S. healthcare provider also expanded the Rubrik, Inc. partnership this quarter, adopting Identity Resilience and unstructured data protection for over 10 petabytes of data. This strategic move is expected to cut Active Directory and Entra ID cyber recovery time from over 30 days to under four hours, substantially reducing potential downtime losses estimated at tens of millions in revenue daily. Now let us talk about Rubrik Agent Cloud, which accelerates AI adoption with agent guardrail controls. Rubrik, Inc.'s mission is to secure and accelerate the world’s AI transformation. I have already discussed the security and cyber resilience aspects of our business. Let us focus on how Rubrik accelerates AI transformation. Agentic AI is now a business imperative. While agents promise 100 times more productivity, they also introduce 100 times more risk. Since agents autonomously execute business processes, the cascading impact of agent hallucinations, as well as cyber compromise, will result in catastrophic damage for enterprises. While AI gives you a better, faster car, you need an intelligent autonomous driving system for control to steer, change lanes, and brake safely. We believe enterprises need a comprehensive AI operations platform that can dynamically monitor, control, and remediate agentic actions. You need to have visibility into what agents, sanctioned or unsanctioned, exist in your environment and what they are doing. You also need real-time guardrails to dynamically authorize agentic interactions that comply with your company’s policies and industry regulations. If agents get compromised or hallucinate, then you need a rewind button to undo destructive action. Rubrik Agent Cloud is this comprehensive AI operations platform. This is the intelligent autonomous driving system that we provide so our customers can safely drive fast with AI agents. Our previous acquisition, which developed LLM fine-tuning and inference serving platform, provides the AI firepower required to dynamically govern agentic interactions. By leveraging AI to control agentic work, agents cannot leak sensitive data, cannot say wrong things, and cannot take wrong actions. AI controlling AI agents is key. After all, you cannot bring a knife to a gunfight. Redeemer is now integrated into the Rubrik platform, which uniquely understands the data, identity, and application layer to deliver the first-of-its-kind enterprise control layer for managing and guardrailing AI agents. Last quarter, we shared that Rubrik Agent Cloud was in beta. Just a few weeks ago, we made Rubrik Agent Cloud generally available, and we have a number of POCs ongoing across early AI adopters, as well as Fortune 500 companies. While we are still in the early innings of a multiyear effort to scale our Rubrik Agent Cloud suite, we believe that we are building the most consequential security and AI operations company for the AI era. We look forward to sharing more details about our traction with Rubrik Agent Cloud in the coming quarters and years. I could not be more happy with this quarter and annual result, and I am excited about what is ahead. We are squarely focused on advancing our mission to secure and accelerate the world’s AI transformation. In closing, I will leave you with three key takeaways. First, Rubrik, Inc. is winning the cyber resilience market across data and identity. Second, we have accelerated our business growth while the competition has stalled. And third, we are defining the enterprise AI market with our unique and differentiated agent control and guardrail solution. To our shareholders, thank you for your trust. We are just getting started. And once again, to all Rubrikans around the world, I cannot be more appreciative of all the hard work and reserve we are creating. With that, I am pleased to pass it over to our Chief Financial Officer, Kiran Kumar Choudary. Kiran Kumar Choudary: Thank you, Bipul. Good afternoon, everyone. Thank you for joining us today. I am pleased to note that we conclude this year with an exceptionally strong performance. This included record net new subscription ARR with accelerated growth and continued improvement in subscription contribution margin. This robust financial outcome demonstrates our focused execution and solidifies our leading position in the mission-critical cyber resilience market, a market that is benefiting from the ramping AI transformation. I will start by briefly recapping our fourth quarter fiscal 2026 financial results and key operating metrics, and then I will provide guidance for the first quarter and full year fiscal 2027. All comparisons, unless otherwise noted, are on a year-over-year basis. We are very pleased to have ended Q4 with subscription ARR of $1,460,000,000, growing 34%. We added over $115,000,000 in net new subscription ARR, another record amount for Rubrik, Inc. Continued adoption of Rubrik Security Cloud resulted in $1,290,000,000 of cloud ARR, up 48%. We are at the tail end of our cloud transition, with cloud ARR now representing 88% of subscription ARR as of Q4. We continue to see strong subscription net retention rate, which remained over 120% in the fourth quarter. We are very proud of the high customer retention and expansion dynamics of our business. Expansion occurs through data growth in existing applications, securing more applications or identities, or adding more security products. In fact, adoption of additional security products contributed over 45% of our subscription net retention rate in the quarter, up from 34% in the year-ago period. In the fourth quarter, we saw significant growth in our largest accounts, with the number of customers contributing $100,000 or more in subscription ARR rising 25% to 2,805. These large customers now represent 87% of our subscription ARR, an increase from 84% a year ago. Furthermore, we added a record 32 customers with subscription ARR of $1,000,000 or more, driving over 50% growth in our over-$1,000,000 subscription base. For our fourth quarter, subscription revenue was $365,000,000, up 50%. Total revenue was $378,000,000, up 46%. Revenue in Q4 primarily benefited from our strong ARR growth. However, we again had tailwinds from our cloud transformation resulting in higher nonrecurring revenue that is accounted for as material rights. Material rights contributed approximately $18,000,000 to revenue this quarter, modestly higher than our expectation. Revenue growth normalized for material rights was approximately 43% in the quarter. Turning to the geographic mix of revenue, revenue from the Americas grew 45% to $268,000,000. Revenue from outside the Americas grew 51% to $109,000,000. Before turning to gross margins, expenses, and profitability, I would like to note that I will be discussing results on a non-GAAP basis going forward. Our non-GAAP gross margin was 84% in the fourth quarter, compared to 80% in the year-ago period. Our gross margin benefited from the revenue outperformance, including higher nonrecurring revenue and greater efficiency in hosting costs. As a reminder, we look at subscription ARR contribution margin as a key measure of operating leverage and believe the improvement in our subscription ARR contribution margin demonstrates our ability to drive operating leverage and profitability at scale. Subscription ARR contribution margin was 12% in the last twelve months ended January 31, compared to 2% in the year-ago period, an improvement of approximately 950 basis points. When normalizing for the $23,000,000 in employer payroll taxes associated with the IPO in the prior period, the improvement was approximately 730 basis points. The improvement in subscription ARR contribution margin was driven by higher sales, the benefits of scale, and improving efficiencies and management of costs across the business. Free cash flow at $70,000,000 compared to $75,000,000 in 2025. Free cash flow for fiscal 2026 was $238,000,000 compared to $22,000,000 for fiscal 2025. This increase was driven by higher sales, improved operating leverage, and optimizing our capital structure. Turning to our balance sheet, we ended the fourth quarter in a strong cash position with $1,700,000,000 in cash, cash equivalents, restricted cash, and marketable securities, and $1,100,000,000 in convertible debt. Let me now provide some context on our guidance. We are confident in our outlook fueled by the robust cyber resilience market, a differentiated technology platform, and scaling up emerging products such as identity security. This momentum, coupled with our consistent and effective execution, positions us to achieve robust growth in subscription ARR. We plan to continue making operational investments across two key areas. First, we will continue to invest in R&D to accelerate innovation in the large but developing markets of data, security, and AI. Second, we will invest in our go-to-market, specifically targeting regions and verticals that offer the most attractive ROI. These go-to-market investments will also focus on scaling our newer innovations, such as Identity Resilience, platform, and Rubrik Agent Cloud. Now turning to guidance for the first quarter and full year fiscal 2027. In Q1, we expect revenue of $365,000,000 to $367,000,000, up approximately 31% to 32%, or approximately 36% to 37% when normalized for material rights. We expect material rights related to our cloud transformation to contribute $4,000,000 to revenue in Q1. We expect non-GAAP subscription ARR contribution margins of 10% to 11%. We expect non-GAAP earnings per share of negative $0.04 to negative $0.02 based on approximately 204,000,000 weighted average shares outstanding. For the full year fiscal 2027, we expect subscription ARR in the range of $1,829,000,000 to $1,839,000,000, reflecting a year-over-year growth rate of approximately 25% to 26%. We expect total revenue for the full year 2027 in the range of $1,597,000,000 to $1,607,000,000, up approximately 27% to 28% when normalized for material rights. We expect material rights related to our cloud transformation to contribute approximately $10,000,000 to revenue in fiscal year 2027. As we have always communicated, subscription ARR is the primary top line metric to evaluate our business performance, as it is not impacted by accounting dynamics related to our cloud transformation. In terms of profitability, we continue to stay focused on taking advantage of the market in cybersecurity and AI, while balancing growth with improved efficiency. Based on our current investment plans, we expect non-GAAP subscription ARR contribution margins of approximately 13% for the full year fiscal 2027. We expect non-GAAP earnings per share of $0.07 to $0.27 based on approximately 232,000,000 weighted average shares outstanding for the full year. We expect free cash flow of $265,000,000 to $275,000,000. As always, we have included some additional modeling notes in our investor presentation. In closing, we are pleased with our strong performance in fiscal 2026 while exceeding our financial targets across the board. Looking ahead, we are excited about the opportunities awaiting us in fiscal 2027 and beyond. We plan to share more about our ambitious vision throughout the year, including at our Forward user conference in Las Vegas. Please note that our inaugural investor day will be held on June 10 during the conference. More details on that event will follow. With that, we would like to open up the call for any questions. Operator: Thank you, ladies and gentlemen. We will now begin the question-and-answer session. To join the queue, please press star one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star key followed by the number two. In the interest of time, we ask you please limit yourselves to one question each. Thank you. One moment, please, while we assemble the queue. Your first question comes from Matthew Martino of Goldman Sachs. Please go ahead. Matthew Martino: Hey, good afternoon. Thank you guys for letting me ask a question here. Bipul, you mentioned ongoing Agent Cloud POCs with the Fortune 500 and AI startups. Can you help us understand what those two customer sets are each trying to solve for, and whether the early pull is showing up more around the monitoring and guardrail side or around remediate and rewind? Thank you. Bipul Sinha: Thanks, Matt. So as you would anticipate, customers first are trying to understand how many agents they have in the SaaS system, both sanctioned ones as well as shadow IT unsanctioned ones. So first understanding of all the agents in the platform, then they want to understand what these agents are actually doing. And then once they have understanding of this kind of monitoring observability, then the second step for them is to understand how they control it. And this is where the real-time dynamic guardrail that Rubrik, Inc. has developed, which is a unique solution, we are actually demonstrating to our customers as how you can stop agentic interactions in real time. The rewind piece will be a day-two problem, so to say. Once the customers get fully operationalized at scale with agents, then they will work on agentic rewind and how you undo the effects of unwanted action. But I think the first and the second piece is the high priority right now. Thanks a lot. Melissa Franchi: Thanks, Matt. Operator: Your next question comes from Fatima Boolani of Citi. Please go ahead. Fatima Boolani: Good afternoon. Thank you for taking my question. Bipul, I wanted to talk to you about the sovereign cloud opportunity and the release of a Rubrik sovereign cloud. We have in principle seen this notion of sovereignty and data sovereignty up in other pockets of software and other domains of cybersecurity. So I wanted to get to the bottom of what has been the customer impetus in order for you to formalize and really build a dedicated product effort around this. And, you know, bringing that into kind of the numbers and how we think about the incremental opportunity, what is that incremental or new TAM that is now capturable as a result of this form factor or flavor of RSC being available? Thank you. Thanks, Fatima. Very, very insightful question. Bipul Sinha: What has really happened is given the geopolitics of the world and how things have evolved in the last, call it, five to ten years, every country is concerned about containing the supply chain, containing the economic infrastructure, which is data center, compute infrastructure, and actual data within their own borders. And so they have two kinds of requirements. The requirement number one is where they want the government infrastructure to be totally sovereign and constrained and in their own data center, controlled by very high ring-fenced security. So that is one. And then the second one is the public cloud infrastructure located in their country but with additional control of what data can go out and what can come in within those infrastructures. So the two flavors of sovereign kind of infrastructure or cloud, if you can call so. And AI is adding a new angle to this. In many countries, they are also thinking about creating AI infrastructure in a way that they can rent it out to other countries. And that AI infrastructure will be about like a digital embassy. And that digital embassy will run the AI infrastructure plus a sovereign way. So this is a new space. It is a fast emerging space. There are significant product changes, development, adaptation required because of the additional control and on-premises data center nature of it. But we are engaged with a number of customers on this. We are watching this market. TAM is still evolving. I do not have a good sense of how big the TAM would be. But whether it is net new, it is also unclear because before the sovereign concept, the customers were consuming IT services, but in a more shared way or cloud way. So it is also unclear if it is net new. But this architectural shift will require modernization of infrastructure, maybe cloud transformation. We believe that it is an interesting opportunity for us, and we are actively working on it. Thank you. Operator: Your next question comes from John DiFucci of Guggenheim Securities. Please go ahead. John DiFucci: Thank you. Bipul, I have a question for you. So I listened closely to your prepared remarks. And Rubrik, Inc. sort of redefined its core market, right? Not only with the new modern architecture that was needed because of shifts in the IT infrastructure of the world, but you also expanded it beyond its traditional boundaries from backup and recovery to security against ransomware to be what became what you guys defined as cyber resilience platform. And it sounds like you are doing it again from an identity perspective. So my question, though, is on AI. It is something I do not like to ask about because I think it is asked too much and I think people talk about it too much. But should we be thinking about AI as another technology shift that will need the IT infrastructure of the world to adjust, which would require something you have talked about all the time, and that is continuous innovation to address not simply the application of old technology, which I think is sometimes what is happening out there. I guess, in other words, is there more to come from Rubrik, Inc. on this topic, and even others from a technology perspective that have similar DNA to adjust to a changing world? I am sorry for the long-winded question. Bipul Sinha: No, that is a good question, John. Thank you so much. Rubrik, Inc. is not a traditional company. Rubrik, Inc. is a living and breathing entity that has no finish line, and we are always thinking about how we help our customers as they adopt newer technology. They go through their own platform transition, and how we are two miles ahead of them, not 200 miles ahead of them, but positively surprise them with newer and newer solutions. And our original vision was that natural disaster and human error does not happen every day, but cyber disaster is the biggest problem in our industry, and we built Rubrik, Inc. to solve for cyber disaster in terms of cyber recovery and cyber resilience. And we created that market. We are dominating that market. And then we saw that identity-based attacks had become a real problem for our customers. And if you look at the recent attacks with BlackCat/ALPHV and Scattered Spider, they are attacking identity-based systems. So we built an identity solution, the most comprehensive identity recovery, identity resilience set of products. And I am very happy to report we crossed 900 customers in Q4, just on identity. So in just three, four quarters of selling, we have now crossed 900 customers. In Q3, we had reported that we had crossed 400 customers. Now we have crossed 900 customers. And it is the fastest-growing product in the history of our company. Identity we built two years ago. We are now building a new S-curve in AI. Because our customers want to adopt AI. They are concerned about the risk of AI because if the agents get compromised, then somebody can be controlling their business sitting in North Korea. And they do not want that. So they want agentic guardrails. The guardrails to be in real time. For example, even if you have an agent that has access to sending emails, you do not want them to send an email to everybody in Guggenheim all the time. So every agentic action has to be judged and stopped or allowed based on every action. We are building a very comprehensive platform for agentic operation for management, control, and rewind of AI agents. And we believe our platform’s unique ability around data, identity, and applications gives us a very natural position to really create the most important solutions to accelerate enterprise AI adoption. I always am a huge believer in non-consensus ideas, and we are building the most important AI company that nobody is focused on. And we will continue to build Rubrik, Inc. into where our customers are going and where our markets are going, and continue to be on the leading edge. John DiFucci: That sounds exciting. We will be watching, but one subtle thing in everything you said was I at least I take away from it is listening closely to your customers. Thank you very much. Operator: Your next question comes from Eric Michael Heath of KeyBanc Capital Markets. Please go ahead. Eric Michael Heath: Hey, thanks for taking the question and nice set of results here and guidance as well. Kind of taking a different direction in the question here. And obviously, broader outside of Rubrik, Inc. and software, there are some concerns on memory pricing. So, Kiran, I wanted to get some of your thoughts and feedback on how we should think about your indirect exposure to memory pricing. Are there any risks from higher memory pricing, or longer lead times affecting customers procuring Rubrik, Inc.'s appliances through your partners, or willingness to engage in infrastructure modernization projects? So just high level, how should we think about it? And then if there are any assumptions embedded in the guide, just curious to hear any thoughts there. Thanks. Kiran Kumar Choudary: Eric, this is Kiran. I will take that question. So we are obviously a software company, and we are in the business of selling software to our customers, whether self-hosted or in the cloud. But all software runs on some powered hardware, which requires components, including memory. So far, we are watching the situation closely, and we have not seen a significant impact on our business. Obviously, there is a portion of our business where customers self-host and they procure hardware, and we work with our customers when needed to ease for them. But, so far, we have not seen any material impact on our business as reflected in the results. Now coming to your question on guidance, I can again make some broad comments there, beyond just the assumptions on weighted hardware. But we have been very pleased with our Q4 and fiscal year 2026 results. It was a quarter of record net new ARR in terms of $115,000,000 as well as acceleration of growth. And when you look at our guidance, the subscription ARR metric, which is the key metric in which we measure success and momentum in our business, the net new growth guide was higher than the start of last year, and that is really a reflection of the momentum we see in the business. I will also add that we talk about our company in terms of three businesses. One is the largest business: data protection and cyber resilience business, which is mission critical, large, still growing, and we believe is largely underpenetrated. And we are very well positioned competitively there. So that is going to be a key driver for growth when you look at this year. We talked about the identity business earlier on the call. Lots of momentum there. That is our business where we sell products more so to the CISO, and lots to build there. The assumption on AI, while we are very excited, is we have not assumed much when we talk about fiscal 2027. The feedback is promising, but we will have to see how the year goes. We have also considered the overall environment, business macro environment, as well as the hardware supply issues you mentioned, and we have taken into account what we see right now and do not see a lot of impact at this very point. In terms of guidance, our approach has been similar. We want to put forward numbers based on all the inputs we have today, but want to put forward something we feel really good about in terms of delivering. And as we have progressed in the public markets, and now entering the third year, it is natural as in other software businesses that the results will tend to converge a little bit closer to guidance over time, and you would expect to see that as well. Hopefully, that has given you context on how we thought about guidance. Eric Michael Heath: Yep. Very thorough. Thanks, Kiran. Operator: Thank you, Eric. Next question comes from Brad Zelnick of Deutsche Bank. Please go ahead. Brad Zelnick: Great. Thank you so much and congrats on just a blowout Q4 and a phenomenal year. Kiran, I guess my question is for you. I appreciate all the reasons why the handoff in go-to-market leadership to Jesse Green should be seamless. But how should we think about the possibility of any pause, you know, any interruption, and the extent you may have contemplated this in your guidance? Thanks. Bipul Sinha: Brad, thank you so much for the question. Let me give you a little bit of a sense of how we thought about it. We hired Jesse almost three years ago with this in mind, that he will start as leader of Americas, then over time will be the successor for Brian. And so he has been a CRO in training for the last almost three years. Because he was running Americas in MongoDB, so he came to Rubrik, Inc. with this kind of clear path to be the CRO. So it was a very natural and easy transition for us. Obviously, we are always paranoid about every aspect of our business and keep thinking about what are different risks. But the transition has gone very smoothly. The team is stable and in place and executing. And again, the opportunity in front of us with respect to three lines of business—data protection, identity resilience, and AI—all three are very exciting, and we have six, seven different ways to land our platform to our customers. Customers do not have to buy our core product or first product to start with Rubrik, Inc. They can buy either just cloud, just identity, just on-prem. So our sellers see multiple different ways to succeed, and now they are selling a true portfolio of products, which actually creates opportunities for them and also stability in the team. Brad Zelnick: Very helpful. Thank you. Operator: Next question comes from Gregg Steven Moskowitz of Mizuho. Please go ahead. Gregg Steven Moskowitz: Great. Thank you for taking the question. So really terrific identity momentum and certainly an exciting opportunity ahead with Agent Cloud. That being said, Bipul, at a time when seemingly every investor is questioning the durability of their software portfolios, have any concerns about data recovery and resilience being meaningfully automated by AI over time, potentially impacting your core business value prop or wallet share with customers over the long term? It would just be helpful to get your perspective on this. Bipul Sinha: Rubrik, Inc. is a very large and complex piece of software, and it is an enterprise-scale boat with about a dozen years of soaking time with thousands of customer feedback and customer use cases in a large enterprise environment that has been built into this. And so it is not something that you can wipe code on, an LLM can solve. And we are the system of record of last resort around data and identity. When a large bank or large hospital faces a ransomware attack, at that time, Rubrik, Inc. is there to help their business come back online and get going. Moreover, as I said in my prepared remarks, Rubrik, Inc. is a hardware-optimized, platform-optimized software. And we have a thousand engineers working on it on a daily basis to enhance it and take customer feedback and soak in time with our product. So I do not believe that we have any disruption risk at all from AI. The second important thing is we are also not an orchestration application software. We are a data infrastructure company. And, you know, system of record, data management is the most important capability you need for this AI transformation. Because if you have no data or the integrity or confidence in the data or the availability of the data, then you have no AI. Data is the foundation of AI. And Rubrik, Inc. is the foundation data infrastructure software. We do not price our product based on number of employees in the company. We price our product based on the size and volume of the data. So Rubrik, Inc.’s importance only grows with the growth of AI and AI transformation of the enterprise. And we want to accelerate that transformation. That is why we introduced Rubrik Agent Cloud. Rubrik, Inc.’s stated mission is to secure and accelerate the world’s AI transformation. Because when the world goes through more AI transformation, it has more data, more software, more cyber threat, larger surface area of attack. More agents means more surface area of attack, more cyber compromise, you need more cyber resilience. You need more cyber recovery. We believe that our opportunity is only growing, and that is reflected in our result. If you look at our result, we deliver the most clean and complete results of any cybersecurity company. And that is not an accident. Gregg Steven Moskowitz: That is very helpful. Thank you. Operator: Thank you very much. Appreciate it. Your next question comes from Todd Adair Coupland of CIBC. Please go ahead. Todd Adair Coupland: Yes. Good evening, everyone. You had record net new in the quarter. As we think about the coming year, any, I guess, pull forward in Q4? Looks like the Q1 guide is seasonally lower by quite a bit. Could you just talk about those dynamics and whether or not you had any pull forward in Q4? Thanks a lot. Kiran Kumar Choudary: Todd, this is Kiran. I will take that one. So we had a very strong Q4, $115,000,000, accelerating growth. But I would say there is broad momentum across the quarter, both large and small deals. And, you know, we have spoken about earlier, you always have some deals which close earlier, close later. That is the nature of the enterprise software business. That is why we look at our business from a net new add on an annual basis. I am very pleased with the 20% growth there. And I will not call out anything from Q4 impacting Q1. Just a reminder that last year, Q1 was fairly unique. When you look at Q4 in the previous year versus Q1, there was a small dip. So it is a tougher compare when you look at growth rate, but from an overall scale perspective, and again, if you look at it on a full-year net new ARR basis, the starting point for the guide is stronger than, in terms of growth, than last year. Operator: Thank you, Todd. We will take our next question from Junaid Siddiqui from Truist. Please go ahead. Junaid Siddiqui: Great. Your growth shows that you are continuing to take market share and making significant inroads in displacing these legacy vendors, as you cited. You know, how much of a runway do you think is left in displacing that legacy base? And maybe if you could just touch upon the competitive environment in the quarter. Thank you. Bipul Sinha: Thank you, Junaid. We are very early in legacy replacement. This is a very large and deep market. And as we are doing cyber resiliency transformation, specifically for the data center environment, we have a tremendous opportunity to continue to displace legacy vendors. Our win rate against the data protection vendors across the board is, I will repeat, north of 90%. North of 90% in Q4. The only deal that we are losing is the fight that we are not in. We are figuring out how we get in more fights, more routes to market, more parts of the world, and continue to disrupt this market. While we are disrupting the legacy space, we are opening up markets around cloud, around M365, around identity, and with AI, this new Rubrik Agent Cloud. So not only have we disrupted the legacy backup and recovery data protection market, but we have vastly expanded this market and completely redefined it to position this towards AI. And we are leaning into that AI and agentic disruption to really create, again, as I said, the most important security and AI operations company. Thank you. Operator: Your next call comes from Keith Frances Bachman of BMO. Please go ahead. Keith Frances Bachman: Hi, many thanks for taking the question. Bipul, this is also for you. I wanted to go back to the Agent Cloud. Seems like a very interesting opportunity as we look out over the horizon, but I wanted to get your perspective on a few things. A, who do you see as the competition? There are lots of companies that you talk about the monitoring control plane, if you will, of agents. And, therefore, who do you see as your competition for this particular sector? And B, how do you think about how your go-to-market may transition? So, for instance, at BMO, the folks who buy Rubrik, Inc. for our backup, they are not the same people who would be buying a tool for monitoring and controlling agents. And just wondering how you think about how you might need to make, if any, any changes to go to market. And then C, when do you think we would be in position to talk about contribution of Agent Cloud to your results, even at any kind of metrics you may be able to provide? When do you think that will be? That is it for me. Many thanks. Bipul Sinha: Thank you, Keith. So let me take the first question about this market. This agent control and governance market is a new market, and it is still very early days of this market. And as you can imagine, everybody with a mother is jumping into this market. And most of the cybersecurity observability, ML observability companies are now repositioning themselves as agentic observability, agentic governance model. My belief is that the traditional cybersecurity companies or people in those cybersecurity companies will not be suitable for this market because traditional cybersecurity is all about rule-based platforms, and they are not in the real-time control of action. This market is about dynamic control. And you need to bring in AI to control agentic action. And AI requires model engineers. And most of the cybersecurity companies, probably none of the cybersecurity companies or these startups have any model engineering. We brought Predibase to solve this problem. And we have what we believe is a unique solution to control agentic action with AI, to really drive intent-based understanding of action and stopping it. So the market is very crowded, a lot of noise. But we believe that we have a unique perspective and solution in this market. Time will tell how this develops, how we grow, but we are excited. In terms of the buyer, again, this is a new market. Somebody under the CIO organization will be the buyer. CIO is our ultimate buyer for our data protection business. So we have some convergence with the ultimate buyer. Some organizations we see chief data officer, chief AI officer interested in this space. Some organizations we see engineering teams interested in this space. We will figure out how it all develops. But we like what we see so far, and we will keep updating you as we make progress in this space. Keith Frances Bachman: Okay. Many thanks, Bipul. Kiran Kumar Choudary: Thank you. Operator: Your next question comes from James Fish of Piper Sandler. Please go ahead. James Fish: Hey, guys. Thanks for the question. Bipul, for you, with the increasing tech workloads and data being created, are you seeing an exponential increase in the amount of data, even more so than that sort of traditional workload, and how you are able to kind of compress this down so that enterprises just are not overwhelmed with the data? And then just as a follow-up on the go-to-market side, you guys talked that up. How much capacity are you guys looking to add, and how did productivity finish for the year? Bipul Sinha: Thanks, James. Obviously, AI requires data, and there is definitely data growth associated with AI. Having said that, agentic deployment in the enterprise is still early, and the main hurdle has been governance and security. And that is the problem we are solving. So I anticipate when the enterprises get fully operational on agents, they will have again more usage and production of data. So we remain very excited about this market. In terms of how much we are going to add from this, again, this is early days for Rubrik Agent Cloud. We are still learning and going through our process, just like what we did for identity last year, where we went to work with the customer to understand their problems, understand how tuned our solution was before actually scaling. And we are going through that learning process right now. Operator: Your next question comes from Srini Nandury from Baird. Please go ahead. Srini Nandury: Hey, and thanks for taking my question. So, Bipul, I know you said time will tell, but you guys have been framing these products as the S-curve, and it already feels because identity recovery has moved from proof point to real growth factor, and I know you said it reflects multiple years of work versus Agent Cloud still early. Of course, I wanted to ask you just if you have to characterize where identity fits today versus your original expectations around the S-curve, and then how should we think about the difference overall from an S-curve perspective in terms of timing, relative magnitude, and size. Again, I mean, I know it is still early, but just curious how you are thinking about those. Bipul Sinha: Sure. Thank you. If you look at our history, Rubrik, Inc. is a multiproduct platform company. And as I said before, the value from the platform increases as our customers adopt more of the Rubrik platform. And over the years, we have multiple products that we have scaled to $100,000,000-plus ARR in a short period of time. And as I said, identity was the fastest-growing product for us. In fact, it did exceed our expectation of how fast the product has scaled. And also, our engineering team did a tremendous job of building an amazing product and also building an amazing set of capabilities, not just Identity Recovery but Identity Resilience, which is both before and during attack, plus also creating an Okta solution, which we are seeing, again, early, high interest from our customer base. So we are committed to building a long-term company. The long-term company can only be built by stacking S-curves. We are always looking over the horizon and thinking, what else should we be building, how else we can serve our customer better, how do we become a long-term strategic partner to our customers, so that we learn from them, we build for them, we serve them in a way that creates a multidecade partnership with them. Srini Nandury: Great. Thanks a lot. Operator: There will be no further questions at this time. I will now turn the call back over to Bipul Sinha. Please go ahead. Bipul Sinha: Thank you so much, everyone, for your time today. As I said on the call, we remain very excited about the opportunities in front of us. Both cyber resilience and AI resilience and AI operations remain strong opportunities in front of us. Our team is dedicated to making sure that our customers go through AI transformation in a low-risk, risk-free manner and really take advantage of the productivity promised by AI. Thank you so much again for your trust. See you in a quarter. Operator: Ladies and gentlemen, that concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Hello, and thank you for standing by. Welcome to the Nektar Therapeutics fourth quarter 2025 financial results 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. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Vivian Wu from Nektar Therapeutics Investor Relations to kick things off. Please go ahead. Vivian Wu: Thank you, Crystal, and good afternoon, everyone. Thank you for joining us today. Today, you will hear from Howard W. Robin, our President and Chief Executive Officer; Dr. Jonathan Zalevsky, our Chief Research and Development Officer; and Sandra A. Gardiner, our Chief Financial Officer. Dr. Mary Tagliaferri, our Chief Medical Officer, will also be available during the Q&A. They are subject to uncertainties and risks that are difficult to predict and many of which are outside of our control. Our actual results may differ materially from these statements. Important risks and uncertainties are set forth in our latest Form 10-Q available at sec.gov. We undertake no obligation to update any of these forward-looking statements whether as a result of new information, future developments, or otherwise. A webcast of this call will be available on the IR page of Nektar Therapeutics’ website at ir.nektar.com. With that said, I would like to hand the call over to our President and CEO, Howard W. Robin. Howard? Howard W. Robin: Thank you, Vivian, and good afternoon, everyone. 2025 was a pivotal year for Nektar Therapeutics, and we continue to build on the success with significant progress in 2026. In 2023, we unveiled our plans to focus on the advancement of our immunology and inflammation pipeline programs, which center around the biology of T regulatory cells. In October 2023, we began the first phase 2 study of our novel Treg biologic Respag Aldesleukin, in patients with moderate to severe atopic dermatitis. In early 2024, we began our second phase 2 study in with alopecia areata. And just last year, a third phase 2 study in type 1 diabetes was initiated with our collaborator TrialNet who is funding and sponsoring this trial. In the 2025, we saw the successful outcome of several years of hard work by our team as we achieved the first positive results from the two phase 2b studies of Rezpeg in atopic dermatitis and alopecia areata. Results validated that our novel regulatory T cell mechanism could produce clinically meaningful outcomes in two dermatological and inflammatory disease settings. And just last month, we reported on the long-term monthly and quarterly dosing results from the 36-week maintenance portion of Resolve AD in atopic dermatitis. These data showed a significant durability of efficacy, that was highly competitive to what is seen with other biologics and establishes what our novel Treg mechanism is capable of achieving. Monthly or quarterly dosing of ResVeg during the maintenance period showed a deepening of response with increases in EASI-75, EASI-90, and up to fivefold increase in EASI-100 scores. Both atopic dermatitis and alopecia areata are inflammatory dermatological diseases that impact a significant number of patients worldwide. In the U.S. alone, there are over 15 million people with moderate to severe atopic dermatitis. It is estimated that today, only 10% to 15% of patients are receiving biologic treatments for this chronic skin disorder. Driven by the rapid adoption of biologics, the atopic dermatitis market is expected to grow to $35 billion by the mid-2030s. Although Dupixent and IL-13s are the predominantly used therapeutics today to treat these patients, about 50% of patients fail to respond or lose treatment effect over time with IL-13 based approaches. This leaves a significant opportunity for a novel immune modulating mechanism like Rezbeg to enter the treatment paradigm. And the competitive landscape has recently narrowed for the late-stage novel MOAs being advanced to BLA filing. We believe this puts Respect in a lead position as a novel MOA, which could offer both a differentiated efficacy and safety profile with a better dosing regimen and the potential to offer patients complete clearance of disease over time. In alopecia areata, there remains a need for an efficacious and safe biologic with a better efficacy and dosing profile. Currently approved JAK inhibitors are effective at regrowing hair in some patients, but they carry a number of drawbacks, and more than half of physicians and patients are hesitant to use these agents because of the safety risks and the associated monitoring burden they pose. Importantly, the JAK class has poor durability, and nearly all patients lose their hair after treatment cessation. With the 36-week data from RESOLVE AA, establishing a clinical efficacy profile similar to low-dose JAK inhibitors in alopecia, we are looking forward to seeing the 52-week data from that study in April. For patients who enter the blinded 16-week treatment extension, we will be evaluating the potential of ResMed to deepen SALT reductions including zoo SALT 20 responses. Rizpeg's differentiated clinical profile and a safety database of over 1,000 patients treated to date equivalent to 381 patient-years of exposure, provides an exceptionally strong basis for advancing ResMed into phase 3 studies. In June, we will be randomizing the first patient in the phase 3 studies in atopic dermatitis. We now have alignment with the FDA on our phase 3 dose, the 24-week induction treatment period, and other critical phase 3 study design elements. Jay Z will review that in a moment. We expect to have the first data from phase 3 in mid-2028 and meet our goal to submit a BLA in 2029. We ended 2025 with $245.8 million in cash and investments and with no debt on our balance sheet. Since year-end, we have also raised approximately $476 million in additional net cash through both a public offering and exercising a portion of our ATM. Our very strong balance sheet now allows us to move quickly into phase 3. I will now turn the call over to Jay Z, who will share more on RespEG and our other immunology programs. Jay Z? Jonathan Zalevsky: Thank you, Howard. To start off, I would like to comment in more detail on the significant progress we have made with Respag. That Howard highlighted moments ago. Respag is a very unique Treg biologic that capitalizes on a critical immune pathway. As a highly selective agonist of regulatory T cells, it is designed to address the underlying immune balance of multiple inflammatory pathways. This past year, we have shown through our phase 2 clinical datasets that Respag is truly differentiated as a novel MOA and late-stage biologic candidate with a compelling efficacy profile and that it can also offer long-term extended dosing frequency. This phase 2 data adds to the 36-week off-drug disease control or remitted potential of Respact that we demonstrated in the earlier phase 1 trial. And now Respag is a phase 3 ready program. And we have one of the largest safety databases for agents in mid to late-stage development in atopic dermatitis, which is now established in over 1,000 patients spanning about 381 patient-years of exposure. In atopic dermatitis, our 16-week induction data reported last June established that ResMed has rapid onset of key efficacy metrics separating early from placebo after one or two doses on EASI-75, EASI-90, and itch relief. And notably, our induction data established Respag as the first novel MOA to show strong itch relief in conjunction with skin clearance without the need for topical corticosteroids. We know that itch relief is a major driver of improved sleep scores and better quality of life for patients with atopic dermatitis, and this translated into achieving statistical significance on these patient-reported outcomes in our study as well. At the high dose of 24 mcg/kg given every two weeks in induction, we also saw comparable efficacy data for both EASI-75 and EASI-90 in the moderate and severe patient populations enrolled in the trial. The study was stratified by vIGA baseline scores of four and three, and efficacy was comparable among both these populations. And this attribute emerges as a key differentiating aspect for what has been seen with Dupixent treatment. Respag has also shown promising positive results in treating atopic dermatitis patients with self-reported comorbid asthma. We reported this data for the ACQ-5 endpoints for Bresolve AD last year at ACAI. Outside of Dupixent, no other approved agent or agent in development has shown the ability to improve atopic dermatitis and comorbid asthma at the same time. In induction, Respag resulted in statistically significant and clinically meaningful improvements in ACQ-5 scores at 16 versus placebo in patients and a 75% improvement in these scores in patients with uncontrolled asthma at baseline. And approximately one in four atopic dermatitis patients also have comorbid asthma, and Respag is the only novel MOA to show improvements in this endpoint. With the 36-week maintenance data reported last month, we demonstrated two additional critical features of Respag that differentiated it from approved agents and those in development. First, we saw significant maintenance in efficacy, and we also saw deepening of response with continued treatment out to 52 weeks, including improvements in EASI-75, EASI-90, itch, and vIGA endpoints. Notably, we saw an up to fivefold increase at EASI-100, as Howard mentioned earlier, underscoring the potential for Respag to give patients complete disease clearance with extended treatment over time, and setting a new benchmark in atopic dermatitis. And second, we established that extended monthly and quarterly dosing could be used as a long-term treatment regimen with Respag after inducing responses. As I stated earlier, with over 1,000 patients treated to date, and about 381 patient-years of exposure, Respag has a well-established long-term and favorable safety profile. As seen in our reported data, we have generated a differentiated safety profile with no increased risk of systemic adverse events such as conjunctivitis, or infection or malignancy. The RESOLVE AD data informed our phase 3 program and we will start the first pivotal study in June. Following our end of phase 2 meeting, we now have alignment on plans for a phase 3 program to evaluate a single dose 24 mcg/kg twice monthly for the 24-week induction period. Patients who achieve EASI-75 or vIGA responses will then be rerandomized to monthly and quarterly regimens out to 52 weeks. The design of phase 3 will be similar to those studies used for registration of other biologics. Our plan is to utilize, as other phase 3 have, the primary endpoint of a vIGA-related endpoint required for U.S. registration and an additional EASI-75 endpoint to support EU approval. Our phase 3 program will evaluate both biologic-naive and treatment-experienced patients. Beyond atopic dermatitis, in December, we also established a proof-of-concept with the data from RESOLVE AA for Respag in severe to very severe alopecia areata. We were pleased that these data have been accepted as a late-breaking presentation at the upcoming AAD meeting at March. It is the only dataset in alopecia areata that was accepted for presentation in the late-breaking session. In the RESOLVE AA study, as we reported in December, Rezpeg demonstrates an efficacy response that met our target product profile expectations, which was to achieve efficacy similar to low-dose JAK inhibition at week 36 with every two-week dosing, and maintain a more attractive and favorable safety profile. We believe the data position RespEx as a potential first-in-class biologic in alopecia. As Howard stated earlier, the RESOLVE AA study also included a blinded 16-week extension for patients who reached week 36 in the study but had not yet achieved a SALT 20 score. We plan to report the data from this treatment extension in April. To that end, we will initiate a quiet period beginning April 1 until we unblind and report the data from the treatment extension. As a reminder, the only available systemic therapies that are FDA approved for the treatment of alopecia areata are JAK inhibitors. But these contain a number of black box warnings and laboratory monitoring requirements. Nearly all patients also experience hair loss after treatment cessation. With the limited treatment options available in alopecia areata, we believe there is a unique opportunity for a novel immune modulating Treg mechanism like Respec to offer attractive dosing as compared to a daily pill and a potentially more favorable safety profile. Following our 16-week treatment extension data, we expect to hold our end of phase 2 meeting with the FDA for alopecia areata in the second quarter of this year. And following that, we plan to share more about our plans for advancing into phase 3. Before I move on to our earlier antibody program, I want to mention our ongoing phase 2 study with Respag for type 1 diabetes. This study, sponsored and funded by TrialNet, is evaluating Respag in patients with new-onset stage 3 type 1 diabetes. Per protocol, patients will be randomized 2:1 versus placebo, and receive Respag every two weeks for six months. The study is broken into three cohorts beginning with adult subjects, ages 18 to 45, and moving into patients as young as 12, and then 8 years of age. We are excited to be working with TrialNet. This consortium of type 1 diabetes specialists in the U.S. also ran the first studies for Tisdale, also known as teplizumab, in type 1 diabetes. They have a strong commitment to finding and evaluating new therapies that can help patients with this devastating diagnosis. We believe and expect initial data from the trial that sponsored phase 2 sometime in 2027. One of the important paradigms of our work is that, by creating a first-in-class Treg targeting approach like RESTPAC, we have confirmed what we have always felt as immunologists, that Tregs were essential for so many different diseases and that they could be therapeutically targeted for disease treatment. Based upon low-dose IL-2, and Treg biology, either genetically or assessed clinically, we know that there are so many indications beyond what we are exploring in our current phase 2 studies that are potential opportunities for Respect. These include therapeutic areas such as our skin, and autoimmune diseases, THC such as food allergies, or asthma where we have already seen a signal, and chronic rhinosinusitis. It also includes skin disorders such as dermatomyositis, and also potentially immune diseases such as Sjogren's syndrome. As we advance Respag in phase 3, we look forward to the possibility of generating additional proof-of-concept data in additional indications which could expand the future label for RespEx. Moving on to our earlier pipeline programs. NKTR-0165 and NKTR-0166, our TNFR2 agonist and bispecific programs. We expect to present preclinical data from this program at a scientific conference in 2026. This molecule has a very high specificity for signaling through TNFR2 on Tregs to enhance and optimize their ability to regulate the immune system, which we believe could be impactful to multiple sclerosis, ulcerative colitis, vitiligo, and other I&I indications. In the first quarter, we announced an academic research collaboration for NKTR-0165 with Dr. Steven Hauser at UCSF to explore the potential role of TNFR2 agonism in the reduction of neurodegeneration, promotion of neuroprotection, and cell repair. The work being funded by UCSF will look at Nektar-0165 in patient-derived B-cell models of multiple sclerosis. We are looking forward to working with Dr. Hauser to inform future development work for this important molecule. Leveraging our learnings from the development of NKTR-0165, we have designed a bispecific molecule called NKTR-0166. This bivalent antibody incorporates a TNFR2 agonist epitope and an antagonist epitope that has been previously validated in the treatment of rheumatology diseases. As a dual agonist/antagonist of known pathways, NKTR-0166 has the potential to modify disease pathogenesis in a number of autoimmune disorders. And we are planning for IND submission for one or both programs in 2027. And with that, I will now turn it over to Sandy to cover the financials. Thank you, Jay Z, and good afternoon, everyone. Sandra A. Gardiner: On today's call, I will review our quarterly and full year 2025 financials and share our preliminary financial guidance for 2026. We ended 2025 with $245.8 million in cash and investments and with no debt on our balance sheet. In February, we completed an underwritten public offering for $460 million resulting in approximately $432 million in net cash proceeds for the company. We also accessed approximately $44 million of net proceeds to date from our existing $110 million ATM facility in 2026. We now have a strong balance sheet to invest in our pipeline and advance our phase 3 program in ResPay. I will now provide a quick review of our 2025 financials. Our revenue was $21.8 million for the fourth quarter and $55.2 million for the full year 2025. Our R&D expenses were $29.7 million for the fourth quarter and $117.3 million for the full year. Our G&A expenses were $11.2 million for the fourth quarter and $68.7 million for the full year. Our non-cash interest expense for the fourth quarter was $9.8 million and $26.2 million for the full year. And our net loss for the fourth quarter was $36.1 million or $1.78 basic and diluted net loss per share. For the full year of 2025, our net loss was $164.1 million or $9.73 basic and diluted net loss per share. We are providing very preliminary 2026 guidance on today's call. The guidance ranges are wide as we are still completing the planning and budgeting activities for the Respag phase 3 program. We began investing in startup activities for this program last year with production of drug supply and placebo. And as Howard stated earlier, we plan to randomize the first patient in June. We expect an updated 2026 budget at that time and will update our financial guidance as necessary. With respect to our 2026 P&L guidance, our non-cash royalty revenue for the full year of 2026 is expected to be between $40 million and $45 million. Based on our current forecast, we anticipate that full-year R&D expense could range between $200 million and $250 million, including approximately $5 million to $10 million of non-cash depreciation and stock-based compensation expense. We expect G&A expense will decline in 2026 over 2025 to a range of $60 million to $65 million. This includes approximately $5 million of non-cash depreciation and stock-based compensation expense. Our full-year non-cash interest expense is expected to be between $30 million and $35 million. Additionally, we do not expect any significant gain or loss on our equity method investment in 2026. Lastly, we expect to end 2026 with approximately $400 million to $460 million in cash and investments. And with that, we will now open the call for questions. Operator? Operator: Thank you. As a reminder, to ask a question, please press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. In the interest of time, we do ask that you please limit yourself to one question at this time. And our first question will come from Yasmeen Rahimi from Piper Sandler. Your line is open. Yasmeen Rahimi: Good afternoon, team. Thank you so much for all the great updates. Maybe a quick question that is sort of two-part. One is, given congrats on presenting the RESOLVE AA study at the AAD, hope to understand, Jay Z, what type of new data we could see. Was it just more an opportunity to showcase it? And then part two is maybe help us frame what you hope to see in this blinded 16-week treatment extension period. What does the ResPEG need to show to be highly competitive both in regards to mean SALT reduction as well as SALT 20? Thank you, and I will jump back in the queue. Jonathan Zalevsky: Thanks, Yasmeen. So of the things that we will be presenting later and that is coming up in the future data presentation is remember that the way the study was designed is that it was a 36-week treatment period. However, patients that had begun to grow hair but had not yet reached a SALT 20, they were permitted to advance into a 16-week additional extension, which was also a blinded portion of the study where they could receive dosing all the way to week 52. And when we presented the data in December, we had already indicated that there were already three patients that had entered into that period as of the time of that December data cut when we presented the results last year that had already reached the SALT 20 after week 36. And those patients were not even considered in the week 36 numerator because their response happened afterwards. So, when you kind of then ask what is the tone of the presentation that we will be making, once we begin our quiet period in April and after we present the top-line results, we will be sharing the additional effect of treatment with Respag and the potential of additional patients to convert to achieving SALT 20 responses as well as deepening their SALT reductions over that additional 16-week treatment period. And I think you are kind of potentially starting to see a bit of a paradigm we saw in atopic dermatitis as we extended the duration of dosing to week two in maintenance. Patients treated with raspeg continued to develop additional efficacy and we think there is a potential that that could happen as well in alopecia areata as we have already seen three patients achieve response that way. So we will be sharing the totality of that patient population. All of the patients will have completed week 52 that entered into that extension period, and that will be the nature of the results. In terms of what we would like to see for what would be competitive, BEST PAC has already demonstrated quite a different profile from a JAK inhibitor. You consider all of the upsides of growing hair, but then balanced by the downsides, as both Howard and I mentioned in our presentation, there are really significant safety issues and risks that may make taking a JAK inhibitor chronically very challenging. And, particularly, it is a class of drug that is difficult for dermatologists to use owing to the laboratory monitoring and the additional work and risk that the patients have. And then when patients have to stop taking a JAK inhibitor for any reason, pretty much everyone loses all the hair that they might have grown when they were on the JAK inhibitor. So we would like to see an efficacy profile that reaches low-dose ILUMENTE. I think we have a very good shot of getting to that level. And then we would like to deliver all of the other things that Respect has already shown, which are a completely differentiated safety profile, a much more convenient dosing frequency relative to a once-a-day pill, and really an opportunity to provide a much better biologic that can be used chronically in this chronic indication. Thank you for the question, Yasmeen. Thank you. Operator: Thank you. Our next question comes from Julian Harrison from BTIG. Your line is open. Julian Reed Harrison: Hi, thank you for taking the questions and congrats on the progress. Regarding the phase 3 program in atopic dermatitis that is expected to initiate next quarter, would you expect the ACQ-5 data to make its way into the potential label from those trials? If so, I am wondering how enabling you would expect that to be commercially relative to dual labeling, both in atopic derm and asthma. And then sorry if I missed it. I am curious also what percentage of bio-experienced patients you plan to enroll in your atopic dermatitis trial that is upcoming. Is there a defined target there? Howard W. Robin: Sure. Mary, would you like to answer that? Mary Tagliaferri: Sure. Hi. So we are including the ACQ-5 in the phase 3 program, and we will look at this at baseline and through induction, and then we will also look at the ACQ-5 through maintenance. And we are going to power for, and we will control for multiplicity for the ACQ-5. And we will, you know, make every effort to include that in the label, and that is certainly a part of our plan. With respect to bio-experienced patients, we are anticipating roughly 25% of the patients in our phase 3 program will be bio-experienced and then 75% of the patients will be biologic/JAK inhibitor naive. Julian Reed Harrison: Very helpful. Thank you. Operator: Yep. Thank you. Our next question comes from Jay Olson from Oppenheimer. Your line is open. Sean (for Jay Olson, Oppenheimer): Hi, this is Sean calling for Jay. Thanks for taking the question, and congrats on the progress. Just on the AD part, I am just wondering for the phase 3 trial and also for future commercial launch, what are the formulation or device for RedfinQ right now? And, also, wondering if there are any protocol guidance or implementation of ISR mitigation strategy for your phase 3 or if you think that is necessary? Thank you. Jonathan Zalevsky: Yeah. Hi. So sure. So I can cover the question about the formulation, and then I will turn it over to you, Mary. So Respag is a very low-volume administered agent. So patients receive—most patients receive 1 milliliter, 2 mL max depending on their body weight. And then our plan is to run phase 3 in the same way that we ran the phase 2 where the drug was presented as a vial, and then at study site, it is drawn up and administered to the patient by staff at the study centers. But our plan for the commercial launch is to launch Respag in an auto-injector, coupled with an auto-injector device. And so for that, we will be switching to what is called weight-banded dosing. So we will not need to use weight-based dosing because patients will be dosed according to their body weight. And then we know that will have a lot of opportunities and also advantages. This will be a very straightforward self-administered product, very similar to all the biologics that are used in single-use pen devices. And then regarding some of the way we will run the phase 3, I will turn that over to Mary. Mary Tagliaferri: Yeah. Hi. So first, I think it would be a good idea to just review the ISR cases that we have seen across our program. And 99% of the ISRs were mild to moderate in severity, with the vast majority being mild and only 1% severe. And we do see a very, very, very low dropout rate due to ISRs. The reason for that is these ISRs are not like what we are experiencing in PULS. Was launched. We do not commonly see pain, do not commonly see pruritus. The vast majority of patients, 96% of them, are just having erythema, or redness. And, likewise, these patients are not having ISRs every time they receive an injection. In fact, we see, really, the vast majority of patients are really only having two or fewer during the course of treatment. In terms of how these are managed, patients use cold compresses with ice. And if need be, they can also use a topical corticosteroid. But since the vast majority of patients do not have pruritus, for the most part, patients are not needing to use a topical corticosteroid. We, you know, did have Dr. Jonathan Silverbirds on in our last presentation of the maintenance data. You know, he certainly underscored that the trade-off is an easy choice for patients. These patients, you know, are having severe itch, and with Rezpeg having that very rapid itch relief and resolution of atopic dermatitis, with the trade-off being an erythematous ISR, that, you know, overall, the risk-benefit highly favors ResTech as a treatment for atopic dermatitis. Sean (for Jay Olson, Oppenheimer): Great. Thank you very much. Operator: Thank you. Our next question comes from Roger Song from Jefferies. Your line is open. Roger Song: Great. Congrats for the progress and thanks for taking the question. My question relates, I think, the last data cut for the alopecia areata. You have three patients reach SALT 20, and then another seven patients reach SALT 30. Just curious, what are the dosing for those three and the seven patients? And then given if they are deepening the response, since you are getting towards high-dose ILUMEN, you know, based on your market research and then your adviser, will this efficacy reaching high-dose ILUMYA change the potential clinical adoption compared to the low dose? Thank you. Mary Tagliaferri: Yeah. Hi, Roger. Yeah. So thanks, Roger. Jonathan Zalevsky: No. Thank you for your question, Raj. So, you know, I just want to reiterate that the study is blinded. Right? And so when we share the results coming up very soon, in April, we will unblind, and we will present all of the results for all of the patients that made it through to the extension period. So that will be, you know, an update for us very, very soon. And then in terms of the TPP, you know, one of the really important elements is that this is a biologic and it brings a completely different profile. And our objective was always to achieve the TPP of low-dose JAK inhibitor Lumant. And we believe we have already met that with the data that we have. We believe that 52 weeks is the correct duration of extension. So for example, in the phase 3 that we plan, we know we would be treating longer than 36 weeks. And we know that there is an opportunity with the additional treatment duration, you know, to potentially elicit even more efficacy of effect. I think there is just this really white slate kind of an opportunity because the first time a biologic moves into an autoimmune indication, it could have a very profound effect on prescribing patterns from physicians. Many doctors are much more comfortable prescribing a safer biologic as opposed to a more difficult-to-manage and potentially more challenging agent like a JAK inhibitor. So it is something we are very, very excited about. And then, you know, it is a data update that we are really looking forward to coming up. And it is a TPP that we think could be a really big opportunity for Respag in the future. Mary Tagliaferri: Got it. Thank you. Operator: Thank you. Our next question comes from Mayank Mamtani from B. Riley Securities. Your line is open. Mayank Mamtani: Yes. Good afternoon, team. Thanks for taking our questions, and congrats on the progress. So another alopecia question. Sorry if I missed this. What incremental data relative to the December update you would get at the conference? And if you could comment on any plans for releasing the off-therapy data for the responders that you had. I know you had efficacy responses still climbing as part of the 16-week extension, so was not sure at what point you would look at the off-therapy data. And then just a little high-level question for Howard, if I may. You know, the EASI-100 responder rate, how important do you think of that as a differentiator? I know if many agents get there. I also ask that in context of the initial framing of a large growing ATD market, you know, which could have multiple entrants around the time, you know, you get on in 2029. I understand the near-term launch landscape has certainly narrowed, but we are just thinking longer term. Howard W. Robin: Well, I will answer the last part of the question first, then turn it over to Jay Z and Mary. I think EASI-100 has not been looked at very closely, and it has not been reported very much because very few people attain the levels that we have been able to attain. So if you look at the maintenance data where we have achieved, you know, 30% or so, EASI-100 scores, again, I think that is very important, and it leads to essentially, it leads to effectively complete clearance of the disease in these patients over time. And it has not been talked about much, and people talk about 75 and 90. That is because it is really difficult to achieve EASI-100, and we have done it. So that I think says a lot about the potential for the Treg mechanism in general. I will turn the rest of the question over to Jay Z and Mary. Jonathan Zalevsky: Sure. Thanks, Howard. And, Mayank, you asked many, many questions in one question, 12-part. So let me just make sure I catch them all. So in terms of the AAD presentation, it is, you know, coming up in just a couple of weeks. So you can see, you know, all of the data that is presented, and it will be presented in the medical conference, right, by a physician. In terms of the rest of the study, we do have a catalyst later this year, which will be the 24-week off-drug period of evaluation from the alopecia areata study. But that is not going to be data that we touch on either at AAD or in the April data presentation, which just focuses on the end treatment at week 52. In the second part of this year, in the later part in the fourth quarter, we will present the results of the 24-week off-drug period. So those will be just future catalysts to look forward to for Respag in alopecia areata. Thank you for your question. Mayank Mamtani: Thank you. Jonathan Zalevsky: Thank you. Operator: And our next question comes from Samantha Cemenko from Citi. Hi, good afternoon. Thanks very much for taking the question. Let me ask one about the type 1 diabetes study. I am wondering if you could just share a little bit more about that trial. I know there is growing interest and development here. I am wondering how you see Respag potentially differentiating from other approaches in the clinic. And should that 2027 data include Samantha Cemenko: C-peptide preservation data? And then if I could squeeze one more in just more broadly, as you think about advancing ResPEG into additional indications. You mentioned quite a few in your prepared remarks, Jay Z. How do you think about prioritizing those for which ones might be the first to potentially advance into the clinic? Thanks very much. Jonathan Zalevsky: Alright. Thanks. Thanks, Sam. So, you know, in the type 1 diabetes, it was very interesting because TrialNet was actually looking for a regulatory T cell targeting approach. And, you know, and it was very exciting because there was a lot of sort of mutual drive for bringing that forward. And then it was also a very competitive process working with them because they have many things that they can choose from. We were very, very excited that they selected Respag to run the study. Now one of the underlying scientific themes is there is a well-known sort of theory about the role of regulatory T cells in this disease and that sort of how thymic antigens end up being, you know, bad for driving the autoreactivity against the islet cells and then a loss of Treg control, you know, really, really exacerbated that. So there was a goal in order to elevate Tregs in these patients in order to slow the progression of the disease and, ideally, you know, overcome it altogether. And so the first step in sort of achieving this long mission is this therapeutic intervention study. And this trial is really run very much in the same way that the first teplizumab studies were run. The big difference is that we are giving a six-month treatment, as opposed to just a short, you know, burst—just a few weeks—as how tefluncimab is dosed. And then the goal is, of course, to really slow down the rate of decline. There will be an opportunity for early data next year, and it is a little early to say the full extent of what that would be, Sam. However, yes, a mixed-meal tolerance test, right, with C-peptides is obviously one of the key endpoints in the study along with HbA1c levels and also insulin usage. And so those are the key activities that are being tracked in the patients. And it is a well-designed study with probably the most highly qualified team of people to do that kind of study in the TrialNet consortium. And then in terms of the other indications, it is still something that we are deciding on, which indications and which ways to go. But I think that we have seen so many examples of data from our own program that would really make some indications quite attractive. I think it is quite clear that this mechanism in both skin diseases and in diseases that have a TH2 drive has quite a lot of potential. And so seeing the results that we saw in patients with comorbid asthma was very exciting. That makes that a very, very interesting indication. And there are a number of allergic indications as well that are also potential. So this is something that we will give more updates on in the future in the coming month. Mary Tagliaferri: Yeah. And we just may want to add too, just in terms of the differentiation in type 1 diabetes, you know, Pezil is not an easy drug to give. It is administered as a 14-day course of IV infusion for the up-dosing schedule. And, you know, patients can commonly have cytokine release syndrome and so, you know, you do have to give enough number of other medications—an antipyretic, an antihistamine, maybe an antiemetic. And then clinicians have to monitor for lymphopenia, rash, and even elevated liver enzymes. So, you know, in contrast, an outpatient dosing regimen with ResTech where there is not routine monitoring and you do not see cytokine release syndrome, I think also affords a highly differentiated and more favorable safety profile as well as, you know, drug that is administered out as opposed to an IV infusion in an infusion center or even hospital. Samantha Cemenko: Thank you. Operator: Thank you. And our next question will come from Arthur He from H.C. Wainwright. Your line is open. Arthur He: Hey, Howard and team. Congrats on the progress. Can you guys hear me okay? Operator: Yes. We can. Yep. Arthur He: Oh, okay. Sounds good. So I have two questions. I know you are going to present the extension data from the AA study in April. But could you, if it is allowed, tell us how many patients complete the extension phase? And also, when the patient finishes the extension, do they have choice to continue on the drug, or does everybody go to the off-treatment period? That is question one. Question two is, could you give us a quick update on the LADY trial? Thanks. Howard W. Robin: JZ, why do you not take the part about the first question? Jonathan Zalevsky: Yeah. So really quickly. So as we announced in December, there were 23 patients that were ongoing in the 16-week extension. If you remember, Arthur, we had a waterfall plot, and they were the green dot people—patients—on that chart. So the data update that is coming in April will be when everybody completed the 52-week treatment. So those 23 people as well as anyone that had completed it prior. And then for this trial, all treatment stops for all patients at either week 36 or week 52 for the people that went into the extension. And afterwards, everyone is followed for 24 weeks after. And then for the second question, I will turn it over to you, Howard. Howard W. Robin: Yeah. Thanks, Arthur. Look, obviously, I cannot comment in detail on, you know, this type of litigation. Trial was scheduled for last year. It was—it's in federal court. So because of the government shutdown last year, it was moved to this year because the courts were shut down. This trial is scheduled for September 8, jury trial in federal court in San Francisco. And we are fully committed to pursuing this. And we, you know, we certainly think we were harmed. And let us see how this plays out in court. Hope that is as much as an answer as I can give you at this point. But thanks for the question. Arthur He: Awesome. Thanks for taking my questions. Operator: Thank you. Our next question comes from Andy Hsieh from William Blair. Andy Hsieh: Great. Thanks for taking our questions. Maybe just one on some of the macro developments in the last couple weeks. Galderma, they kind of talked about increasing confidence in the atopic dermatitis space. So I guess part one, I am curious if that could alter your market sizing guidance that was provided during Morgan, and then also kind of data update from Pfizer with its tri-specific asset in atopic dermatitis. Not a lot of numerical data, but, you know, kind of curious about your take on that. Thanks. Howard W. Robin: JZ, you want to answer that one? Jonathan Zalevsky: Sure. Yeah. So maybe I will start off on the Pfizer one, and then, Mary, you can touch on the Galderma update. So briefly covering—you know, Pfizer did present limited data in the press release covering a couple of molecules for multispecific molecules that were inhibiting either IL-4/13 and tislip or 4/13 and IL-33. And they showed some very encouraging placebo-adjusted efficacy data. One of the things that, you know, we—it is a very interesting question because sort of combining known mechanisms into multispecific agents, whether bi- or tri-specific, is one way of achieving a combination kind of strategy. But it is also a way of kind of bringing in all the known mechanisms into one thing. It has a potential to be helpful, but it is also kind of an incremental approach focusing on known and validated agents. We think there is an opportunity with the mechanism like Respag as a Treg targeting mechanism to provide the patient a much more holistic and potentially comprehensive kind of efficacy. Because, really, what a Treg is aiming to do is to fix the underlying pathology of the disease—not take away pathways that are disease drivers per se, but to fix what caused those pathways to be disease-driving in the first place. And that is why we think we have been observing, you know, in atopic dermatitis with ongoing dosing, such a growing level of efficacy, a deep maintenance, and the potential for patients to really do better. It is very interesting. I mean, most medicines you take, they tend to do worse for you over time. But in studies with Respag, we see that patients do better with time. So we think there is a lot of opportunity there. We also are very excited that Respag is much further ahead. Right? So when you think about the programs that are initiating phase 3, Respag is at a very competitive position and it is a novel MOA. And it has the opportunity to provide very differentiated opportunity for patients. Mary, let me turn it over to you for the Galderma question—summary. Howard W. Robin: Mary, before you jump in, let me just add to one thing JZ said. Look. It is a great question. I just think it is important to the size of this market. Market, as I said earlier, is expected to be, you know, by the mid-thirties, $35 billion. And, you know, only about 10% of patients who have atopic dermatitis are taking a biologic. So the potential for market growth is enormous. There is lots of room for various mechanisms of action here. So I do not think that becomes a real hurdle. I do think Jay Z is absolutely correct that we, as an agonist—taking a—as a Treg agonist, we are taking a very, very different approach than, you know, IL-13, IL-4, whatever blockade. So let us see how it all plays out, but we are dealing with a market that is very, very large. And I think there is room for a number of different opportunities here. Mary, you want to go ahead? Mary Tagliaferri: Yeah. No. I would just say that, you know, when we look at the Arcadia phase 3 data for—remember, those trials were in combination with topical corticosteroids. And, you know, patients really do not like to slab themselves with topical corticosteroids. You know, by the time they start a biologic, it is because they have already, you know, for a very long time, been using topicals, they have not controlled their disease. You look at those phase 3 programs, the EASI-75 ranges between 42% and 44% for enolizumab in combination with the topical corticosteroid. I would just point everybody to look again at our presentation from February. We showed those placebo patients who were the placebo patients from the induction and crossed over for both 16 weeks of treatment and 24 weeks of treatment, where the EASI-75 was higher than what we saw with nimo plus topical corticosteroids. It was 53% at week 16 and 58% at week 24. So I just think even, you know, we saw a very rapid itch relief. And then when, you know, you look head-to-head at 75, those tags seem to provide a deeper response than nalizumab plus a topical corticosteroid. So, you know, from, you know, perspective that Howard said, of course, this is a huge market, and there is lots of opportunity for multiple agents. I think when we stack up our data compared to nimo plus, you know, we have very, very compelling data which would really show that a physician would like to select an agent with a deeper EASI-75 for the benefit of their patients. So thanks for the question. Operator: Thank you. And I am showing no further questions from the phone lines. I would now like to pass the conference back over to Howard W. Robin for any closing remarks. Howard W. Robin: Well, thank you. And I want to thank everyone today for joining us and for your continued support. We really greatly appreciate it. And I want to thank our employees who tirelessly work on behalf of patients. And together, we have transformed our scientific hypothesis into real and potentially meaningful therapeutic options for patients. We look forward to initiating our phase 3 studies in atopic dermatitis in June and sharing our 52-week alopecia areata data in April. So stay tuned. Thanks, everybody. Operator: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.
Operator: Good afternoon, and welcome to the Karat Packaging Inc. fourth quarter 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Roger Pondel, Investor Relations. Please go ahead. Roger Pondel: Thank you, operator. Good afternoon, everyone, and welcome to Karat Packaging Inc.'s fourth quarter and full year 2025 conference call. I am Roger Pondel with Pondel Wilkinson, Karat Packaging Inc.'s investor relations firm. It will be my pleasure momentarily to introduce the company's Chief Executive Officer, Alan Yu, and its Chief Financial Officer, Jian Guo. Before I turn the call over to Alan, I want to remind our listeners that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous conditions, many of which are beyond the company's control, including those set forth in the Risk Factors section of the company's most recent Form 10-Ks as filed with the Securities and Exchange Commission, copies of which are available on the SEC's website, https://www.sec.gov, along with other company filings made with the SEC from time to time. We will be discussing adjusted EBITDA, adjusted EBITDA margin, adjusted diluted earnings per share, and free cash flow, which are non-GAAP financial measures as defined by SEC Regulation G. A reconciliation of the most directly comparable GAAP measures to the non-GAAP financial measures is included in today's press release, which is now posted on the company's website. I will now turn the call over to CEO, Alan Yu. Alan Yu: Thank you, Roger. Good afternoon, everyone. Despite ongoing trade volatility, Karat Packaging Inc. continues to deliver profitable growth, demonstrating the strength and resilience of our business model. We closed 2025 with an increase of 13.7% in net sales in the fourth quarter, fueled by strong, double-digit volume growth across all major markets. Notably, pricing also turned positive for the first time since early 2023, adding further momentum to our performance. Our ongoing efforts to diversify sourcing continue to deliver positive results. We have adjusted our import volume across sourcing countries following tariff and foreign currency developments. During the fourth quarter, our import mix consisted of 46% from Taiwan, 14% from China, 13% from the United States, and 11% each from Vietnam and Malaysia. Our resilient global supply chain enabled us to maintain a solid 34% gross margin despite significantly higher tariff and duty costs during the quarter. Following the recent favorable global tariff developments and the stabilization of favorable U.S. dollar and New Taiwan dollar exchange rates, we expect tailwinds on the margin to be realized beginning in the second quarter of this year. Our new paper bag business product category continues to gain strong momentum, expanding steadily and driving meaningful revenue growth. In addition to supplying one of our largest national chain accounts, we are actively pursuing additional opportunities, some of which are at the final confirmation stage. We are also strengthening this category by supplying generic paper bags to smaller customer accounts in addition to custom paper bags, and we expect to continue gaining market share in this category in the years ahead. Our eco-friendly product sales, boosted in part by paper bags, grew to 37.3% of total revenue in 2025, up from 34.5% in the same quarter of 2024. As our paper bag category business continues to expand, we are further strengthening our position as a leading provider of sustainable, eco-friendly, disposable foodservice products. In today's consistently shifting trade environment, we believe that Karat Packaging Inc.'s global sourcing flexibility and efficient logistics capabilities position us well to support continued growth and margin improvement. We are also maintaining our focus on operating efficiency, reflected in the improvement of our operating cost leverage to 26.7% in 2025 from 32% in the prior-year quarter. Together, these efforts provide a solid foundation as we look forward to another strong year. I will now turn the call to Jian Guo, our Chief Financial Officer, to discuss the company's financial results in greater detail. Jian Guo: Thank you, Alan. I will begin with a summary of our fourth quarter performance followed by an update on our guidance. Net sales for the 2025 fourth quarter increased to $115.6 million, up 13.7% from $101.6 million in the prior-year quarter. The increase primarily reflected $8.2 million in volume and a $6.3 million favorable impact from pricing and product mix. Sales to chain accounts and distributors, our biggest sales channel, were up by 17.5% in the 2025 fourth quarter. Online sales rose 1.9% over the prior-year quarter, and sales to the retail channel declined 4.8% from the 2024 fourth quarter. As part of our initiatives to optimize margin, we continued to shift away from online sales fulfilled by Amazon and focused more on driving traffic through our own LolliCup store, fulfilling our own orders on third-party platforms. We achieved significantly higher contribution margins in our online sales with reduced online platform fees and marketing costs. Cost of goods sold for the 2025 fourth quarter increased 23.4% to $76.3 million from $61.8 million in the prior-year quarter. Product costs increased $6.1 million due to sales growth, partially offset by more favorable vendor pricing and product mix. Within the import cost, duty and tariff costs increased $8.4 million due to higher tariff rates and a $0.4 million adjustment to the duty reserve previously recorded on certain imports. Gross profit for the 2025 fourth quarter was $39.3 million compared with $39.8 million in the prior-year quarter. Gross margin for the 2025 fourth quarter was 34% compared with 39.2% in the prior-year quarter. Gross margin was impacted by higher import costs, which included ocean freight and import duty and tariffs. As a percentage of net sales, import costs increased to 14.5% from 8.3% in the prior-year quarter. However, we were able to partially offset the headwind on margin by reducing product costs as a percentage of net sales due to more favorable vendor pricing and product mix, as well as lower logistics expenses as a percentage of net sales. Operating expenses in the 2025 fourth quarter decreased to $30.9 million from $32.5 million in the prior-year quarter. As Alan mentioned, our focus on cost containment yielded significant results here. Compared to the prior-year quarter, we reduced online platform fees by $1.6 million while maintaining our sales growth trajectory, lowered marketing expense by $0.5 million, and reduced professional services expense by $0.4 million. At the same time, our rent expense increased $0.5 million, primarily due to the opening of a new Chino distribution center in 2025. Operating income in the 2025 fourth quarter increased 16% to $8.5 million from $7.3 million in the prior-year quarter. Total other income, net, increased 17.7% to $1.2 million for the 2025 fourth quarter from $1.0 million in the prior-year quarter. Net income for the 2025 fourth quarter increased 22.8% to $7.2 million from $5.9 million for the prior-year quarter. Net income margin rose to 6.2% in the 2025 fourth quarter from 5.8% in the prior-year quarter. Net income attributable to Karat Packaging Inc. for the 2025 fourth quarter increased 21.3% to $6.8 million, or $0.34 per diluted share, from $5.6 million, or $0.28 per diluted share, in the prior-year quarter. Adjusted EBITDA for the 2025 fourth quarter rose to $12.5 million from $11.3 million for the prior-year quarter. Adjusted EBITDA margin was 10.8% compared with 11.1% for the prior-year quarter. Adjusted diluted earnings per common share increased to $0.34 per share for the 2025 fourth quarter from $0.29 per share in the prior-year quarter. We executed strong working capital management during the fourth quarter, generating operating cash flow of $15.4 million and free cash flow of $14.6 million despite continued heavy duty and tariff payments. During the fourth quarter, we also made an early loan repayment of $8.0 million for our consolidated variable interest entity’s term loan. In addition to our regular quarterly dividend of $0.45 per share, paid to shareholders on 11/28/2025, we further utilized our newly approved share repurchase program and repurchased 137,374 shares of our common stock at an average share price of $21.74 per share, for a total amount of $3.0 million. As of 03/11/2026, approximately $12.0 million remained available for repurchase under the authorized repurchase program. We ended 2025 with $91.0 million in working capital and maintained financial liquidity of $45.6 million. On 02/05/2026, our Board of Directors approved a regular quarterly dividend of $0.45 per share, payable 02/27/2026 to shareholders of record as of 02/20/2026. Looking ahead to the 2026 first quarter, we expect net sales to increase by approximately 8% to 10% from the prior-year quarter. Sales for the first quarter are typically subject to weather conditions; although we experienced facility shutdowns due to inclement weather this January and February, we are seeing strong sales growth momentum. We expect gross margin for the 2026 first quarter to be within 34% to 36% and adjusted EBITDA margin to be within 9% to 11%. For the full year 2026, we expect net sales to grow in the low double-digit range over the prior year, and we anticipate continued improvements in both gross margin and adjusted EBITDA margin compared with the prior year under the current global tariff import environment. As Alan mentioned earlier, we are seeing accelerated growth in our pipeline supported by the continued expansion of our paper bags category and addition of several key customer accounts. We remain committed to accelerating top-line growth while continuing to improve operational efficiency and cost management. Alan and I will now be happy to answer your questions, and I will turn the call back to the operator. Operator: We will now open for questions. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question today comes from Ryan Merkel with William Blair. Please go ahead. Ryan Merkel: Hey, good afternoon, and thanks for the question. I wanted to start with the outlook for 2026, the up double digits. Alan, what are you assuming for the market in that outlook? I was thinking something like flat and that most of your sales growth is going to be market share gains, but tell me how you are thinking about that. Alan Yu: Well, I do see the environment for our competitive, it is a very competitive environment right now. And I see numbers coming out from our competitors are negative growth to maybe low single-digit growth. While we are foreseeing our company have a low double-digit growth, I think that is being conservative. The way that I see that is, yes, market share gain, mainly on the new categories that we are offering. On the paper bag, the SOS bag. We are adding, for example, we have about maybe perhaps 40 SKUs on the paper bag; we are going to add an additional 50 or more SKUs just on the paper bag category. Maybe we did not have a complete line of SOS bag; we are adding all of it. It is paper shopping bag; we are adding more of that, and we are adding more custom printing. We are doing a lot of things to add addition to our line of offering to increase our revenue. Ryan Merkel: Got it. Okay. That is great. And then I wanted to ask on 1Q, kind of up nine year over year for revenue. That is a bit of a slowdown from the up 14% this quarter. Jian, you mentioned weather. So I guess my question is, is it just weather that is causing the slowdown in 1Q? And now that the weather has cleared a bit, have you seen the trends pick back up? Alan Yu: Yes. Texas, one of our major hubs, we had it shut down over a week. We could not work in, it was like a snowstorm. And also East Coast had several weather issues, New Jersey and South Carolina. But mainly, it was Texas that we had with January and some part of February. But we do see that weather is getting better now in March, so we are seeing a strong momentum coming back from March and onward. Ryan Merkel: Okay. Thanks. Pass it on. Jian Guo: Thank you, Ryan. Operator: Again, if you have a question, please press one. The next question is from Ryan Meyers with Lake Street Capital Markets. Please go ahead. Ryan Meyers: Yep. Hi, guys. Thanks for taking my questions. Congrats on the solid fourth quarter. First question for me, just thinking about the full-year revenue guidance, do you guys factor in any of these business opportunities that you commented on that are in the final confirmation stages? Or is this full-year revenue guidance just based on the business that you guys have already signed and visibility to already? Alan Yu: Well, a part of it. The one that we were adding in is that we know how we have a lot of pipeline that we are confirming on the final stages. The key part is, in most cases, these chain accounts, even after they confirm, there is a testing phase, and they might just delay and drag for six months to nine months. So we want to be conservative. Of course, we do not just have one or two or three; we have more than a dozen, several dozen potential new accounts that we are adding in. They are either existing customers or new accounts. So we are adding that, and that is why we are forecasting low double-digit growth, but my goal is actually a mid or a higher high double-digit growth. That is our ultimate goal. Ryan Meyers: Okay. Got it. That is helpful. If we can—if some of those opportunities can mature. Jian Guo: Materialize. Ryan Meyers: Yep. Okay. Makes sense. And then I just want to make sure I am understanding the gross margin guidance correctly. So Jian, are you expecting an increase from the 36.8% full-year 2025 number in 2026, or are you expecting an increase from what you guys reported in the fourth quarter? Just one clarification there. Jian Guo: We are expecting year-over-year increase under the current tariff environment. Ryan Meyers: Okay. Got it. Fair enough. Thanks for taking my questions. Alan Yu: Thank you, Ryan. Jian Guo: Thanks, Ryan. Operator: The next question is from George Staphos with Bank of America. Please go ahead. Kyle Benvenuto: Hi. This is Kyle Benvenuto stepping in for George. Quick question for you. You discussed tariffs, FX, and logistics as key margin drivers. And in the past, you have talked about transportation. Can you comment on whether energy costs are baked into your margin outlook, your margin guidance? Alan Yu: Yes, we have. Because this is not the first time we are in the energy crisis, like the oil crisis. We have seen in 2022 the ocean freight liner, the shipping ocean freight skyrocketed from $1,500 to $10,000 per container. But we do not foresee the price will be that incrementally high. We are foreseeing a little bit of increase, and in the past three months basically, the ocean freight carriers, they tried to increase the prices of the ocean freight cost, and for the past three times, they failed. It went up for just merely two or three weeks, and they dropped back down. But mainly, we normally sign the full-year agreement, which normally is signed in the month of April, which is next month we will be able to sign that. And for temp so far, the guidance is just about 10% to 15% increase year over year on the ocean freight shipping cost. And for locally, domestic diesel gas, it has been up and down throughout the year. So these have been accounted for. Kyle Benvenuto: Thank you, Alan. And then just one more question. In regard to the online sales, we saw some positive growth this quarter. Back in Q2, I believe you mentioned double-digit growth potentially in the back half of this year. I guess I was just wondering what is the progress on that maybe going forward into 2026 and a little bit more detail about how that is evolving. Alan Yu: Thank you. Yes. No problem. We do foresee 2026 we will have double-digit growth online, because we are adding additional platforms where currently we have our own Shopify store, we have Amazon, we added Cisco.com platform. We will be adding Target.com, and there is ChenneyBrothers.com, and there are other platforms we are adding our product into. That will increase our sales. And also we are driving our sales by increasing bulk sales from our own stores and our Amazon stores. What I mean by bulk sales is we are encouraging customers to buy not just one case, one case, but five cases and ten cases. That increases our volume, not only volume; it increases our revenue and also our profit margin, because we do get a bulk discount from the carrier. If we ship more product to the same location, our shipping cost comes down. We are optimizing that and passing that saving to the customer to increase revenue. So we do foresee that our 2026 online growth will be double digit. Kyle Benvenuto: Thank you. Good luck in the quarter. Jian Guo: Thank you. Operator: The next question is from Joshua R. Axel with KTF Investments. Please go ahead. Joshua R. Axel: Good afternoon, Alan. Jian, I hope you guys are doing well. I have a question for you, or really two questions. Number one, can you expand a little bit on the demand you are seeing for the eco-friendly business, maybe outside of the paper bags? Just curious if you are still seeing high demand with the current environment. And then secondly, can you comment a little bit on what you are seeing in the California market? Jian Guo: Thank you. Alan Yu: Sure. First question. Demand in eco products has never dropped, mainly on the molded fiber product and on the paper bag due to regulation. And we are seeing more and more chains are moving away from Styrofoam into paper products. So we are seeing more of that. On the compostable product, PLA items, we also see growth in that due to the price decrease. They used to be pretty expensive to buy a compostable PLA cup, but now as price has come down, it has become more affordable, and more and more customers are actually looking to that. We are seeing newly opened restaurants are trying out the eco-friendly products because they want to perceive themselves with the consumer as being part of the initiative to save the environment. So I would say that more and more are going to that; that is driving the demand from the consumer perspective. Now in the California market, we are seeing a slowdown in the California market overall. Restaurants are shutting down, and it has become a very competitive environment. But in our aspect, our company, we are seeing—a double—we have seen recently a double-digit growth in our company. We are seeing, due to the tariff containment, some of the importers stopped importing product because they went out of business, and so it is actually driving the business to our company, as well as other larger companies with more inventory on hand. That is what we are seeing in the California market. Joshua R. Axel: Great. Thank you both. Operator: Thank you, Josh. This concludes our question and answer session. I would like to turn the conference back over to Alan Yu for any closing remarks. Alan Yu: Thank you, operator. Thank you, everyone. It has been a wonderful quarter, and I look forward to hearing from you all next quarter. Jian Guo: Thank you all. Bye-bye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to The Joint Corp. Fourth Quarter 2025 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, to withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Richard Land, Investor Relations. Please go ahead. Richard Land: Thank you, Operator, and good afternoon, everyone. This is Richard Land of Alliance Advisors Investor Relations. Joining us on the call today are President and CEO, Sanjiv Razdan, and CFO, Scott Bowman. Please note we are using a slide presentation that can be found at ir.thejoint.com/events. This afternoon, The Joint Corp. issued a press release for the fourth quarter and full year ended 12/31/2025. If you do not already have a copy of this press release, it can be found in the Investor Relations section of the company’s website. As provided on Slide 2, please be advised that today’s discussion, including any financial and related guidance to be provided, consists of forward-looking statements as defined by securities laws. These statements are based on information currently available to us and involve risks and uncertainties that could cause actual future results, performance, and business prospects and opportunities to differ materially from those expressed in or implied by these statements. Some important factors that could cause such differences are discussed in the Risk Factors section of The Joint Corp.’s filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date the statements are made, and the company assumes no obligation to update forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. Management uses non-GAAP financial measures such as EBITDA, adjusted EBITDA, and system-wide sales. A description of these non-GAAP financial measures is included in the press release, and reconciliations of these non-GAAP financial measures to their most directly comparable GAAP measures are included in the appendix, both of which are available in the Investors tab of our website. Turning to Slide 3. With that, it is my pleasure now to turn the call over to Sanjiv Razdan. Sanjiv, please go ahead. Sanjiv Razdan: Thank you, Richard, and I welcome everyone to the call. Turning to Slide 4. Today, I will review the fourth quarter results and provide an update on the progress we have achieved over the last year. On our 2024 fourth quarter results conference call a year ago, I introduced the key strategies underlying Joint 2.0, the first phase of our transformation journey to reignite growth and improve profitability. I noted at that time that completing this first phase would take 18 to 24 months, and I am pleased to report that we are on track to complete our work on Joint 2.0 on schedule by the end of this year. Among the key progress points we have achieved to date are: we have significantly strengthened our management team with six of our senior leaders having extensive healthcare industry experience, and a number of us having franchise management experience. We have made significant progress with our refranchising efforts as we now have 48 corporate-owned clinics remaining in our portfolio compared to 135 at the start of this process. We are in active conversations with multiple parties about the refranchising of the remaining corporate clinics. As evidenced by the better-than-expected adjusted EBITDA performance in Q4 and for the full year, we are making progress with improving our operating leverage. As we complete the transition to a pure-play franchisor model, our operating leverage will continue to significantly improve, which Scott will review later on this call. We have also focused on strengthening our marketing activities to drive new patient acquisition and strengthen the returns we generate on our marketing investments. Progress on this initiative includes centering our message on chiropractic care for pain relief, to improve mobility, and get patients back to doing the things they love. And finally, we wanted to optimize our capital allocation, which we are achieving through more diligent, return-focused growth investments and opportunistic share repurchases. While the full financial benefit of these strategies will take time, these initiatives are improving the financial position of our franchisees and the stockholders. And as we complete our transformation journey, The Joint Corp. will be a highly efficient, capital-light pure-play franchisor with more consumer touch points and with strong free cash flow generation. Turning to Slide 5 now. I will summarize our Q4 2025 financial results compared to Q4 2024, and our CFO, Scott Bowman, will provide greater detail in a moment. Revenue from continuing operations increased 3.1% and consolidated adjusted EBITDA increased 7.8%. This improvement reflects the benefit of rightsizing our costs. In the fourth quarter, we repurchased 1,100,000 shares for total consideration of $9,000,000. And for 2025, we repurchased 1,300,000 shares for total consideration of $11,300,000. At 12/31/2025, our unrestricted cash and cash equivalents remain strong at $23,600,000. Turning to Slide 6. I will review the progress we have made with refranchising our remaining company-owned clinics. Towards the end of the 2025 fourth quarter, we signed an asset purchase agreement for the sale of 22 corporate-owned or managed clinics for $1,500,000 to three buying groups. The buyers have assumed business operations via management service agreements pending the completion of the lease reassignments, which we expect to be completed in the second quarter. All three of the buying groups are either current franchisees or have several years of experience operating within our system. In March, we entered into a letter of intent for the sale of five corporate-owned or managed clinics. This leaves us with 48 remaining company-owned clinics, or just 5% of our total clinic portfolio, all but two of which are in California. We continue to be in active dialogue with buyers for the sale of our corporate clinics and remain confident we will complete our refranchising initiative and become a pure-play franchisor this year. Given how close we are to completing this process, later on this call, Scott will provide an overview of what our operating and financial model looks like as a pure-play franchisor. Let us review our marketing efforts turning to Slide 7. As we have noted previously, to drive stronger new patient demand and lead generation, we have shifted marketing content from broad, wellness-focused communications to a message centered on chiropractic care for pain relief, so that patients can improve their mobility and get back to doing the things they love to do. While brand awareness initiatives take longer to produce results, we are inclined to attract patients who remain with us for longer. As noted on our Q3 call, we have shifted a portion of our marketing investment to target an earlier stage in the sales funnel. We are shifting from predominantly local spend to one that also leverages our national scale. The goal is to increase awareness of The Joint Corp. so that when individuals first experience discomfort, they are predisposed to think of us to alleviate their pain. This high-impact national media program started in November. We also previously discussed the updates we are making in our digital marketing efforts. These efforts are focused on improving search visibility, including within AI-driven search environments. These are key drivers of organic traffic and leads to our new microsites, or localized clinic pages. All of our clinic microsites have now been migrated to the new template and have returned to growth, with overall traffic and organic traffic continuing to trend up. Importantly, high-intent actions have strengthened, with phone calls and overall submissions both also continuing to increase. At the same time, we launched a redesigned national blog in January with fresh content and digital linkage. Overall traffic and organic traffic are reflecting early benefit from our ongoing SEO work and awareness investment. In addition, updates to national website pages enhance visibility among early awareness audiences searching for topics such as back pain, neck pain, and mobility or lifestyle improvement. As a result of shifting to more national advertising and our improving SEO, we have seen improvement in our new patient acquisition trends each month since program launch, indicating that these efforts are driving consideration and new patients, albeit at a rate that remains lower than last year. Turning to Slide 8. We are making progress with sales-driving initiatives to reignite system-wide sales growth and drive long-term profitability. To recap, we are working to improve comp sales by growing our active member base. This will be accomplished by stronger lead generation, better conversion within our clinics to drive new patients, improved retention of our existing patients, and optimized pricing. For Q4, similar to the last several quarters, we improved our patient attrition rate through the introduction of an offering for low-frequency patients. We are now maintaining patient attrition at a level that provides a solid foundation from which we can drive growth as comp sales begin to improve. That said, Q4 sales comps were lower than expected, largely due to lower new patient count. One of our initiatives targets taking pricing in the near term. To give some perspective on this, we last took meaningful enterprise-wide pricing in 2022. Since November, we have been piloting three different levels of price increases across three diverse demographic areas. We continue to test and optimize pricing in approximately 300 clinics before we roll out adjustments across our system. We expect comp sales trends will improve during the course of the year as our new national brand awareness campaign continues to roll out, as we benefit from improvements to SEO, and implement the optimized pricing structure nationally. Turning to Slide 9. We are focused on elevating our patients’ experience through improved technology. We are continuing to introduce feature updates for our patient-facing mobile app. In addition, more than 23,000 patients have shared app feedback through our survey, giving us an average rating of 4.91 out of 5. Seventy-five percent of patients reported waiting less than five minutes while 17% waited less than ten. Lastly, our intent to recommend is 9.7 on a 10 scale, indicating that patients are having consistently positive experiences. With that, I will turn the call to Scott. Scott Bowman: Thanks, Sanjiv. Turning to Slide 11. Let us discuss our operating metrics. In the fourth quarter, system-wide sales were down 3.9% to $140,000,000. Comp sales were down 3.8%, and adjusted EBITDA for consolidated operations grew 7.8% to $3,600,000. For the full year, system-wide sales of $532,000,000 were flat compared to the prior year. Comp sales declined 0.4%, and adjusted EBITDA from consolidated operations rose 13.9% to $13,000,000. Turning to Slide 12. Let us discuss our clinic count and new clinic performance. Our total clinic count of 960 at year-end compares to 967 clinics in the prior year. During 2025, we opened 29 clinics, refranchised 41, and closed 36 clinics for a total clinic count of 885 franchise clinics and 75 company-owned clinics. This includes the 27 clinics that are currently under an asset purchase agreement or letter of intent for their sale. Our efforts to improve new clinic performance through improved preopening protocol have resulted in clinics reaching their breakeven point in half the time compared to prior years. Turning to Slide 13. Let us discuss our financials. I will review continuing operations for the fourth quarter unless otherwise specified. Revenue grew 3% to $15,200,000, mainly due to additional marketing funding for national advertising. Cost of revenues was $2,800,000, down 11%, reflecting lower regional developer loyalty. Selling and marketing expenses were $3,500,000, up 25% due to enhanced national marketing and one-off costs associated with transitioning to a new marketing agency. G&A expenses increased 2% to $7,700,000, mainly due to increased payroll costs and other costs that will decline as we complete refranchising. Consolidated net income was $1,000,000 for the quarter, adjusted EBITDA from consolidated operations improved 8% to $3,600,000, and adjusted EBITDA for continuing operations was $1,600,000 compared to $2,000,000 in the same period last year. Turning to Slide 14. Let us discuss our full year financials compared to the prior year. Revenue was $54,900,000 compared to $52,200,000 in 2024. Consolidated net income increased $8,700,000 to $2,900,000, which compares to a $5,800,000 loss in 2024. Net loss from continuing operations was $268,000 compared to a loss in 2024. Adjusted EBITDA from consolidated operations increased 14% to $13,000,000 while adjusted EBITDA from continuing operations improved to $3,100,000 compared to $2,300,000 in 2024. On to Slide 15, I will review our liquidity and stock repurchase plan. At the end of the fourth quarter, unrestricted cash was $23,600,000 compared to $25,100,000 in the prior year. We maintain our line of credit with JPMorgan Chase for $20,000,000 and had zero funds drawn during the quarter. During the fourth quarter, we repurchased 1,100,000 shares for $9,000,000, averaging $8.45 per share. For the full year, we repurchased 1,300,000 shares for total consideration of $11,300,000, averaging $8.73 per share. At the end of 2025, we had $5,700,000 remaining on our share repurchase plan that was authorized in November 2025. On to Slide 16, we are initiating our full year 2026 guidance as follows: We expect system-wide sales to range from $540,000,000 to $552,000,000. We expect comp sales to be in the range of negative 3% to positive 3%. We expect consolidated adjusted EBITDA to be in the range of $12,500,000 to $13,500,000. And on a net basis, we expect our clinic count at the end of 2026 will be lower than at the end of 2025, as new clinics opened this year will be offset by closures as we reshape our portfolio with a focus on stronger operators and healthier sites. We continue to believe that over time, there is potential for more than 1,800 clinics in the U.S. alone. This short-term optimization of our portfolio leaves us with a stronger foundation to grow from. Due to our refranchising efforts and realignment of corporate costs, we expect 2026 continuing operations to be more profitable than 2025. Given the progress of our refranchising efforts, the next few slides will provide you certain key attributes of our go-forward model as a pure-play franchisor starting in mid-2026. Slide 17 shows that our revenue target as a pure-play franchisor will be approximately 11% of system-wide sales, which compares to 10.3% in 2025. On Slide 18, we are showing our expected run-rate financials once we complete refranchising mid-2026. In this case, gross margin would be between 83% and 85% of revenues, which compares to 90% in 2025. G&A expense would be between 40% and 42% of revenues, which compares to 64% in 2025. CapEx would be approximately 3% of revenues, and free cash flow conversion would be between 60% and 70%. For this purpose, we define free cash flow conversion as free cash flow divided by adjusted EBITDA. These assumptions result in an estimated adjusted EBITDA margin of 19% to 21% compared to 12% in 2025, and net income margin of 13% to 15% compared to 3% in 2025. For CapEx, our internal IRR target for growth projects is 25%. Keep in mind that these estimates are what we believe to be the starting point once refranchising is complete, and we intend to build on these returns over time. To further illustrate how our model works as we generate revenue growth, I will review some assumptions for our run-rate financials in the future based on a couple of growth examples. If we were to generate 5% revenue growth, this would result in an estimated adjusted EBITDA margin of 20% to 22% and an estimated net income margin of 14% to 16%. And if we were to generate 10% revenue growth, this would result in an estimated adjusted EBITDA margin of 22% to 24% and an estimated net income margin of 16% to 18%. Finally, on Slide 19, I will highlight that with the expected strong free cash flow we will generate, we will remain committed to disciplined capital allocation with current priorities being investments in growth initiatives, share repurchases, and the repurchase of RD territories where feasible. And with that, I will turn the call back over to Sanjiv. Sanjiv Razdan: Thanks, Scott. Turning to Slide 21. While the full financial benefit of our strategies will take time to come to fruition, we are making consistent progress with improving the financial position of our franchisees and stockholders. Phase one of our transformation journey has us on track to become a pure-play franchisor, with the cost savings initiatives which are beginning to drive improved operating leverage. And our allocation of capital towards stock repurchases highlights our strong conviction that we will achieve our long-term goals of growing system-wide sales, comp sales, net new clinic openings, and adjusted EBITDA. I noted at the top of the call that we are on track to complete the first phase of our transformation journey, The Joint 2.0, by the end of this year. As we move closer to this goal, we are beginning to focus more time and attention on Joint 3.0, the next phase of this journey, which will begin in earnest in 2027. That phase will prioritize growth through expansion of our operations into new channels, B2B, and entering new markets in the U.S. where we are underpenetrated as well as into our first international markets. We are seeing secular trends around longevity, health span, mindfulness, sleep quality, and noninvasive whole body care. Hence, we see significant opportunity to further define and activate our brand promise around the notion of moving better and feeling better. This means deepening our focus on clear, differentiated proof points like creating options for signature integrated treatments, nutrition, orthotics, and finding ways to integrate data from wearable technology to shape treatment plans, while we also establish new ways to measure quantifiable, positive patient outcomes. With that, Operator, we will now open for questions. Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Jeffrey Van Sinderen with B. Riley Securities. Please go ahead. Jeffrey Van Sinderen: Hi, everyone. Wondering if you can share the attrition and new patient ad metrics maybe sequentially and year over year. Any color or any metrics you can share there would be helpful. Scott Bowman: Yes, I can start off on that one. We typically do not give the specific metrics, but what I can tell you is what we are focused on is active member growth. And so when you think of active member growth, you have to draw in new patients. You have to convert those new patients to a plan. Then you have to retain them. And so of those three different components of active member growth, new patient flow has been the weakest for us. And so the new marketing that we have out there to create brand awareness as well as improve our SEO is helping. As you can imagine, it does take time to build. But the early signs that we are seeing are positive. When we look at conversion and when we look at attrition, those numbers were actually slightly better than last year. Not to say that there is not room for improvement, but new patients is our largest focus right now. Jeffrey Van Sinderen: And then maybe you can touch on how—I know you gave some color in your prepared comments—but any more you can add on how you are evolving marketing initiatives for 2026? Sanjiv Razdan: Yes, I am happy to take that one, Jeff. I think the focus continues to remain where we have been. So let us break that down. Number one, we believe that we continue to shift investment from local to national in order to amplify brand awareness, and we are seeing positive outcomes as a result of that. So we will continue to double down on that together with our franchisees. We will continue to evolve creative messaging to make sure that message cuts through, is on point, and is in keeping with the consumer needs. The second thing that has worked well for us that we continue to work on is addressing the shift in search behaviors as a result of AI. We made a massive amount of progress in that in Q4, and made significant investment to do that. And we will continue to work because that is a moving target. So we will continue to focus on making sure that we are relevant when it comes to shifting search behaviors. The third thing that we are working on is then around the whole conversion piece of it. We brought on a new operations leader, Ron Stilwell, who joined us in January. And he is already working with our franchisees on very specific in-clinic training on making sure our wellness coordinators are focused on converting leads. They have the right scripts. They have the right things to say to our patients in terms of what is their benefit, and converting them to a plan. So that is a huge area of focus for us, the whole conversion activity. And last but certainly not the least, we are finding ways of addressing the reasons for attrition. Where we have patients that may be looking for reduced frequency treatment because they are already feeling they are no longer in pain as when they came to us or may feel like they do not have the time, we introduced a package for them called AlignOne, which gets them a minimum of one adjustment per month at the cost of $35 and allows them to add on incremental visits on a flexible and discounted basis. We have also just gone into test with something that we are calling AlignTwo, which is two visits per month. So I think we are recognizing that there may be patients who are not able to afford the time or the cost or need the four visits to one plan, and testing various options. In fact, the AlignOne is already live. So we are attacking the full fulcrum: bringing on new leads, making sure we are visible, right message, converting strongly, and coming up with plans that help our wellness coordinators to prevent attrition when patients feel a whole lot better and are no longer in pain. So, hopefully, that gives you a sense, Jeff, for what we are doing on the marketing front. Jeffrey Van Sinderen: Yes, that is really helpful. And then just one last one, if I could squeeze it in. How does the three-tiered pricing pilot go? And then how do you evolve that going forward? Scott Bowman: Yes. So we have some pricing out there, as you know, at a $2, $5, and $10 increase. A $2 increase did not really show us much. I do not think it was really big enough to cause a big difference. So we are focused more on the $5 and the $10. And I would say overall, the $10 increases are showing a little bit more benefit, so we are going to continue to test. We just launched some new markets a few weeks ago to get a read on some additional markets, to give this a little bit broader perspective. But overall, we feel pretty good about it. But at the same time, we want to give it a little bit more time before we roll it out further. But we think that will be a component of our growth going forward for sure. Sanjiv Razdan: Just in addition to what Scott has shared, I think I would like to add to that perspective. Our patients—70% of our patients—really are in the average household income of somewhere in the range of $60,000 to $110,000 a year. That patient base or that consumer base has felt the impact of the macroeconomic climate probably more significantly than some others. So as we are testing and optimizing for this price increase, we are being very mindful of timing and regional impacts, and that is why we are being very purposeful and thoughtful about this test and reading these results very carefully before we extend it beyond the 300 clinics that it is already in. Jeffrey Van Sinderen: Okay. Thanks for taking my questions. Scott Bowman: Sure. Operator: The next question comes from Jeremy Scott Hamblin with Craig-Hallum. Please go ahead. Will (for Jeremy Scott Hamblin): Hey. This is Will on for Jeremy. Thanks for taking my questions. Just wondering if you could give us a sense for how the comp progressed throughout the quarter and then what you have seen here quarter-to-date? I know you are facing a little bit easier comp in Q1, but just trying to get a sense for where things are. And then I was just wondering if you could give us a sense for the relative performance of the remaining 50-ish clinics compared to those in the Southeast that were sold. I think those California clinics might be a little bit higher in productivity, but anything you could share there would be helpful. Scott Bowman: Yes, sure. Our comps were down the most in the month of November, and they were the best in December as we closed the year. Now some of that is we had a little bit of a timing change in some of our year-end promotions. But I think on balance, December was slightly better than the other two months. As for the clinics, the California clinics on the balance are better performers than the clinics in the Southeast. Will (for Jeremy Scott Hamblin): Got it. Appreciate it. Operator: The next question comes from Nicholas Sherwood with Maxim Group. Please go ahead. Nicholas Sherwood: Thank you for taking my questions. So what specific leading indicators give you confidence that comps will improve in 2026? And when do you think we can expect an inflection point? And then two follow-ups. Can you elaborate on some of those positive early signs that you are seeing? Then looking at comps, you know, it was down this past year. Is that more due to higher rates of attrition from repeat customers or an inability to bring in new customers to replace people that are leaving? And then my last question is, this new AI SEO marketing investment, is this something that costs significantly more than your old marketing, or is this more so just reallocating resources and not actually going to be increasing your marketing spend substantially? Or is there some sort of upfront or higher investment required with this? Scott Bowman: Yes. It is a good question. So two things that I think about on that question. Number one, just the initiatives that we are working on right now do take some time. But we are encouraged by some of the early signs that we are seeing that could help us in the coming months. So I think that is number one. And then number two is just the comps that we saw this past year and just the distribution of those comps. We were positive about 2% in the first half of the year last year and negative 3% for the back half of the year. And so we have some easier compares in the back half. So that plus more traction on our initiatives leads us to believe that second half should be quite a bit better. I will answer the last question first. The key issue for us is just fewer new customers coming in. And so that is why our marketing efforts are so important right now—creating brand awareness, improving our SEO, being more visible on AI searches. And so that is the key focus right now. We are still working on conversion and attrition because even though they were slightly better than last year, there is still opportunity there. And so broadly from a marketing standpoint—Sanjiv can tag on as well—what we are seeing is we have been at work for a while now on improving SEO, and that takes some time to actually get traction. And so we expected that, but we are starting to see some good signs in terms of our measurement of SEO effectiveness. It was quite a bit under the average, and now it is at or even slightly above average. And so good progression there. And then as we look at our website activity and our leads coming in, we have seen steady improvement in the leads being generated from that new marketing and from the SEO improvement. Now that has also led to some degree of improved sequential run rate in new patients—still negative, but less negative. But it has been a steady trend over the last few weeks. So we are still relatively cautious there, but those things are lining up for us, saying that it is working to some extent, although it will take time to really show through on inflection in comps. As for the AI SEO marketing investment, it is an incremental spend. And so we are doing that while we are also spending money on brand awareness and more top of funnel. And so we have shifted some of the local marketing being spent by the franchisees to national marketing. And so that has given us more funding to fund more brand awareness campaigns and SEO. And so on balance, we are not spending really any more net dollars because we are getting more NMF funds from the franchisees to spend on these additional initiatives. Sanjiv Razdan: Yes, sure, Nick. Just to recap so everybody on the call understands what we are doing because obviously this is an important topic for us. We are going after it in three different ways: generating more leads, converting those leads to active members, and then preventing attrition by improving retention. What are we doing to improve lead generation? Number one, we pivoted our messaging from general wellness to pain. We refreshed all our creative. Eighty-two percent of our patients cite discomfort or pain as a reason for why they come to us, so it becomes a much more compelling reason to use The Joint Corp. Now that we have that message pivoted to pain, we did two things. We shifted some local market dollars to national. The bulk of those dollars were invested behind high-impact media purchases on the demographic that we believe gives us the highest yield and comes to us most often. The benefit of that, what we are seeing, is sequential improvement in lead generation and new patients. SEO to offset search behaviors due to AI was the other investment that that shift went into. And the combined impact of pain-related message, high-impact media, with search optimized for AI is what is giving us that. And the early indicators on the search, as Scott indicated, were that we are actually now able to measure our effectiveness on search against benchmarks, and we are finding that we are slightly ahead of the benchmark after the catch-up that we have had to do. So that is number one. Number two is once the patient is in, how are we getting after converting them to active members, which we are tackling more through operations and training, which we have initiated and expect to see even more traction as time goes by. Our conversion year on year has remained more or less flat. Our attrition—our retention—has actually improved. Retention of patients is improving because we are finding ways to keep those patients longer and are putting in place offers that allow patients whose needs shift and are no longer in pain, require lower frequency, lower cost solutions to stay with us. We have put that in place and are doing more around that. So that is what is giving us confidence that we will see an improvement in our comps and are already seeing sequential underlying metrics improve. Operator: Okay. Our next question comes from George Arthur Kelly with ROTH Capital Partners. Please go ahead. George Arthur Kelly: Hey, everyone. Thanks for taking my questions. First couple for you on your comp guide. I was curious if you could at least directionally help us with what you have seen in January and February—just curious if there has been an improvement there from what you reported in Q4. And then secondly, I am wondering if you included a pricing increase in your guide. And then a question on your capital allocation priorities. The slide—I think it is 19—you list the three different key priorities. On investing in growth initiatives, I am just a little unsure on what that might include. So could you highlight some of the different investments you are contemplating and size of those? And then secondly, on the buyback of RD territories, I was curious if you could give us an update just on the status of those ongoing negotiations. Do you feel like you are getting closer on any RD buybacks? And then one last one for me. The previous slide—I guess it is 18—where you go through the post-refranchising run-rate profitability and everything. Is the margin target there, the 19% to 21% EBITDA margin target, incorporated with your gross margin target and your G&A target? Is there a marketing investment beyond the funds that is incorporated in that 19% to 21% guide, or is there something else that maybe I am missing? Just trying to kind of bridge the different OpEx lines to get there. I guess I am just wondering if you plan to spend more marketing dollars than you are bringing in. Scott Bowman: Yes. This is Scott. So what we have seen so far is similar trends to what we saw in Q4. And so, like I said, we are seeing some early signs on the leads and new patients, but still the comps are about where they were. We are rolling over some higher comps from last year, so I think that is part of it. So that is why I said I think the second half of the year we should see more of an inflection in comps, and between now and then, we should see some incremental improvement as well because the traction we see right now will accelerate and we have easier comps in the back half. And no, our guide does not include any pricing increase right now because we were just in test. We did not know for sure what the result of that would be, and so we were a little cautious and did not include that in the guide. On investing in growth initiatives, we want to be prudent in that category but still invest in the business. I mentioned a target of about 3% of revenues for that category, with a target IRR of about 25%. And that is an average. When we look at initiatives like that, we have things in the technology area where we can rework our whole MarTech stack to be more efficient as we capture leads and as we use those leads to fuel the marketing engine that we have. Lots of opportunities there, and we are doing some good work there to improve that platform and to bring it in-house. That is one good example. Another example is where we are making a lot of improvements for the front-facing user interface for each of our wellness coordinators in our clinics. As you can imagine, with each individual customer and all the plans and packages that we have, there are a lot of different options. We are doing some really good work there to consolidate that user interface so it is much easier for the wellness coordinator to communicate the different plans available and to transact with that patient seamlessly. That will be a big win from an operations standpoint in clinic. Those are just two examples, but the major theme here is how can we invest in technology or other areas to grow the business and have a positive ROI for those projects. On the RD territories, we are in active negotiations on some of those RD territories. Some of them are getting fairly close, but we will continue those conversations, making sure that we understand the value in those buybacks and understanding what improvements we can make. Those will be ongoing, and as we make further progress, we will report back on what that is going to look like going forward. On your margin bridge question, that is a good question. Marketing expense is not in G&A. It is a separate line item. We will spend more dollars, but the extra dollars that we are spending are being funded by the franchisees as they shift some of the local dollars into our national campaign. Operator: This concludes our question and answer session. I would like to turn the conference back over to Sanjiv Razdan for any closing remarks. Sanjiv Razdan: Thank you for joining us. Have a good day, and know that at The Joint Corp., we always have your back. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to Quest Resource Holding Corporation fourth quarter 2025 earnings call conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. Please be advised that this call is being recorded today, Thursday, 03/12/2026. I would now like to turn the conference over to Ryan Coleman, Investor Relations. Please go ahead. Ryan Coleman: Thank you, operator. And thank you, everyone, for joining us on the call. Before we begin, I would like to remind everyone that this conference call may contain predictions, estimates, and other forward-looking statements regarding future events or future performance of the company. Use of words like anticipate, project, estimate, expect, intend, believe, and other similar expressions are intended to identify those forward-looking statements. Such forward-looking statements are based on the company's current expectations, estimates, projections, beliefs, and assumptions, and involve significant risks and uncertainties. Actual events or the company's results could differ materially from those in the forward-looking statements as a result of various factors, which are discussed in greater detail in the company's filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such statements and to consult SEC filings for additional risks and uncertainties. The company's forward-looking statements are presented as of the date made and the company undertakes no obligation to update such statements unless required by law to do so. In addition, this call may include industry and market data and other statistical information as well as the company's observations and views about industry conditions and development. The data and information are based on the company's estimates, independent publications, government publications, and reports made by market research firms and other sources. Although Quest Resource Holding Corporation believes these sources are reliable, and the data and other information are accurate, we caution that Quest Resource Holding Corporation has not independently verified the reliability of the sources or the accuracy of the information. Certain non-GAAP financial measures will be disclosed during this call. These non-GAAP measures are used by management to make strategic decisions, forecast future results, and evaluate the company's current performance. Management believes the presentation of these non-GAAP financial measures is useful to investors' understanding and assessment of the company's ongoing core operations and prospects for the future. Unless it is otherwise stated, it should be assumed that any financials discussed in this call will be on a non-GAAP basis. Full reconciliations of non-GAAP to GAAP financial measures are included in today's earnings release. With that, I would like to turn the call over to Perry W. Moss, Chief Executive Officer. Perry W. Moss: Great. Thanks, Ryan. And thanks, everyone, for joining this afternoon. Our fourth quarter financial performance reflected a continuation of the soft volume environment we have been navigating for the past year and while our fourth quarter always presents a seasonal slowdown, we observed a more pronounced sequential decline this year than we have experienced in years past. The soft manufacturing and industrial output environments continue to weigh on volumes from our industrial customers. Importantly, we have not lost any customers in our industrial end market, which lends us confidence that we will see much improved financial performance when this sector recovers. At the same time, areas of the portfolio that typically perform better during the fourth quarter, such as retail and restaurants, also observed lower volume levels. As such, they exacerbated the decline rather than provide the usual offsets we see. This environment also has a dampening effect on new business pipeline. Our sales cycle with current prospects is elongated relative to more recent history and most companies remain in a wait-and-see approach. The overall pipeline remains very healthy and potential clients have not fallen out, but economic uncertainty continues to lead to some decision delays. We saw better new business wins in the 2025 compared to the first half. We have seen many opportunities that have been pushed into 2026. We remain very engaged with these prospects and we believe that we will be able to successfully win and onboard many of these potential clients as the macro backdrop improves and confidence returns. In response, we are focused on controlling what we can control. We continue to execute the operational excellence initiatives we have discussed in recent quarters and we are very encouraged by the results these efforts are delivering and intend to continue to drive additional efficiencies into our future. Our operating foundation is strong, and we have built a resilient team that is prepared to take on challenges like those we have faced over this past year. Earlier last year, we placed added emphasis on share-of-wallet opportunities with existing customers, which remains a central focus of ours. We are methodically evaluating every existing key account and are prioritizing our largest opportunities with the highest probabilities of winning. Over the past few quarters, we have seen encouraging progress as we are broadening the number of waste streams that we are handling for individual clients, adding new value-add services to existing client accounts, and expanding our coverage with large multi-location customers to handle a larger portion of their waste. One great example is the addition of several hundred new locations to an existing customer in our automotive services end market. This customer recently made a large acquisition and the acquired company's network is now being added to our scope of service with this customer. This is a strong testament to our asset-light model, breadth of our vendor network, and overall value proposition, as it demonstrates our ability to deploy assets and solutions nationwide as circumstances change quickly. Our progress to date leaves us confident that these initiatives will contribute to greater levels of organic growth for us going forward. These are customers that know our services well and should be a shorter sales cycle given the preexisting relationship. They will also be strong contributors to gross profit dollar growth as we add and optimize services and further our commitment to expanding our business in non-industrial end markets like retail, hospitality, grocery stores, health care, and more. These are all markets that we anticipate will provide a good counterbalance to our earning profile and seasonality as they help to offset the typical slowdown in industrial production in Q4. Meanwhile, we also continue to onboard wins from the past eighteen months which are progressing as expected. The large retailer and restaurant chain that we discussed on prior calls are launched and up and running. They are becoming more meaningful contributors to revenue. Although, as we have discussed, the initial volumes from new business wins tend to be lower margin given the one-time startup cost associated with adding new service lines. We also continue to make advancements in our operating platform to better leverage our technology and data. These investments are designed to improve customer experience and continue to improve the record-low service disruption rates we are currently experiencing. Our portal is a single-point location where customers can view the full scope of services provided, waste materials generated and handled, associated cost, and the ultimate destination. The value of this data is undeniable for Quest Resource Holding Corporation and its customers. And it empowers us to drive meaningful operating efficiencies in the form of cost reduction or avoidance as well as streamlined service that is tailored to their unique needs. Our zero-touch capability will drive real efficiencies for their operations while improving profitability and customer service levels for Quest Resource Holding Corporation. It will also help to improve our cash cycle given the end-to-end visibility from service request through billing and payment. These operational excellence initiatives are driving better visibility into our customer needs, enhancing the productivity of our sales team, elevating our vendor management practices, maximizing efficiencies for our operating teams, and improving cash generation. Overall, 2025 was a challenging year for Quest Resource Holding Corporation, as volume declines from our industrial end market led to revenue declines. Additionally, we divested an underperforming business, making year-over-year comparisons difficult. Despite the difficult operating environment in these specific portions of our business, we drove growth across the majority of our business in 2025 by adding approximately $29 million in new revenues from the prior year. These gains came from the full-year impact of client wins from 2024, incremental new wins in 2025, and wallet share expansion of existing clients. There is progress being made. As the operational excellence initiatives we have implemented are delivering real results and creating a much stronger foundation to grow from. Our sales function is more focused and effective, and our value proposition of driving operating efficiencies and cost savings for our customers continues to resonate. We are confident that the business is well positioned to deliver improved results as the macroeconomic environment lends incremental confidence for our customers and activity picks up. Looking ahead, our key priorities remain unchanged in 2026. We remain focused on growing the business with new and existing customers, driving margin improvements as we execute our excellence initiatives, continuing the development of our operating platform, improving cash generation, and reducing our debt balance. With that, I would like to turn the call over to Brett W. Johnston to review our fourth quarter financial results in greater detail. Brett? Brett W. Johnston: Thanks, Perry. Good afternoon, everyone. Revenue for the fourth quarter was $58.9 million, a 16% decrease from one year ago and a sequential decrease of 7% compared to the third quarter. The decline compared to the prior year was driven by clients in our industrial end market, where market conditions remain challenged, as well as from the divested mall-related business. Both factors combined to account for a $10.7 million reduction in quarterly revenue compared to the prior year. Sequentially, revenue from the industrial clients declined by approximately $4.3 million compared to the prior quarter. While we typically see lower seasonal volumes during the fourth quarter, the sequential revenue decline this year was larger than expected, driven by a more pronounced reduction in volumes than we had anticipated. Additionally, we saw reduced volumes across the larger portfolio where we expected to help offset this impact. In the fourth quarter, we also launched a new customer and a couple of wallet share initiatives which we expect to get the full benefit of in 2026. Finally, from a full-year perspective, isolating the industrial client headwinds and mall-related divestiture, the remaining two-thirds of the business saw modest growth of $7.4 million, or about 5%. Our partnerships with our industrial clients remain very strong, but macroeconomic conditions and continued softer levels of manufacturing activity in 2025 drove lower overall volumes. Importantly, these customers remain active and engaged. As a result, we fully expect to continue to support these clients when conditions normalize and return to growth. In the meantime, we have greatly elevated our focus on share-of-wallet opportunities with these clients. Moving on to gross profit. In the fourth quarter, gross profit dollars totaled $9.1 million, a decline of 15% compared to the prior year and a sequential decline of 21%. This resulted in a gross margin of 15.5%. The sequential decline in gross profit was more pronounced than the outlook we provided on the Q3 call and was the result of the following factors. First, we saw reduced gross margin leverage driven by the decline in overall volume. We also had lower margins isolated within the industrial sector which contributed approximately $1 million to the reduction in gross profit. Finally, we had some one-time costs of approximately $0.5 million, mostly from implementation costs for the new clients and wallet share launches in the quarter. The impact of these was factored into our outlook but were more pronounced than expected, and, again, reduced volumes across the broader portfolio inhibit our ability to offset this pressure. However, we were able to partially offset this decline with optimization improvements and other efficiency measures. As a reminder, contributions from newer clients and wallet share expansions are typically minimal in the first few months of launch due to one-time cost, the timing of optimizing the initial book of business, and initial lower margins as we execute a land-and-expand strategy. We believe we are well positioned coming into 2026 to get a full year of gross profit contribution from these recent launches. Additionally, we still have a previously announced new client win and a wallet share expansion win that are both expected to launch in the first half of the year. As we are now well into the first quarter, we are confident that sequential comparisons for gross profit dollars will improve. Our outlook is based on a slightly improved volume environment in Q1, especially compared to a seasonally low Q4, continued execution of our commercial and customer initiatives to optimize the business, and improved contributions from our new client and wallet share wins launched in the fourth quarter. We expect to continue to experience some margin pressure in 2026 in a challenged industrial volume environment and from the mix impact of our land-and-expand strategy. However, we anticipate we will be able to help offset these pressures through optimizing service levels, growing our share of wallet with existing clients, optimizing the client wins from the previous years, and continuing to drive operational improvements across the business. Moving on to SG&A, which was $7.7 million during the fourth quarter, a 24% reduction year over year and a 17% reduction on a sequential basis. The declines year over year are primarily related to reductions in headcount, bad debt expense, and other costs specifically related to the divested mall-related business, and the reduction in workforce in 2024. We also had reductions from increased efficiencies and the aggressive takeout of costs across the organization throughout the year. These were partially offset by severance and retirement expenses in the quarter. In addition, subsequent to the year end, we finalized an agreement to sublet our office space and rationalize the physical footprint for our headquarters by securing a new office lease in a more cost-effective space. With this, we expect to realize an annualized cost savings of approximately $400,000 in 2026. Looking ahead to the first quarter, we would anticipate SG&A to be below $9 million with the sequential increase driven by the resumption of our normal bonus accrual. Moving on to a review of the cash flows and balance sheet. At the end of the fourth quarter, we had $1 million in cash, which was roughly unchanged from the prior quarter, and approximately $37.7 million of available borrowing capacity on our $45 million operating borrowing line. For the fourth quarter, we generated just over $1 million in cash from operations, and $1.7 million of free cash flow. As we have discussed on past calls, we have taken steps to optimize our payment and collections process with vendors, with the goal of improving our order-to-cash cycle and overall working capital management. We have been able to homogenize this process and are now paying the vast majority of our vendors to term. We also have shortened our invoicing time and will continue to optimize our cash collections process. Our DSOs finished the quarter in the mid-70s, which was a modest increase of a few days from the end of the third quarter. Unfortunately, the larger-than-expected sequential revenue decline masked improved receivables management as our AR fell sequentially by $1.7 million. Stepping back, the trend in DSOs remains downward, falling from the low 80s one year ago, and we continue to implement measures to improve our cash cycle. We would expect these systems and processes improvements to contribute continued cash generation and further DSO reduction in the coming quarters. Our underlying progress can also be seen in our reduction of working capital days, which declined from 23 days at the 2024 to 11 at the end of the most recent quarter. We also paid down approximately $2 million of debt during the fourth quarter, bringing our full-year debt reduction to $13.2 million, a $16.4 million reduction for the full year. As of the end of the fourth quarter, we had $64 million in net notes payable versus $76.3 million at the beginning of the year. We expect to continue to aggressively reduce debt as cash generation continues to improve. Lastly, we continue to look for proactive measures to improve our financing costs and give ourselves greater flexibility on our lines of credit as our initiatives to improve profitability and cash flow take hold. To that end, we recently refinanced our ABL with Texas Capital Bank to replace the prior ABL with PNC. Concurrently, we negotiated with Monroe Capital, who holds our term debt, to provide both fixed charge and leverage covenant easements across 2026 and into 2027. These combined efforts will provide ample cushion to operate in this challenging operating environment while we continue to focus on the execution and completion of our initiatives to drive efficiencies and operating leverage across the business, while also investing and in driving growth through new clients and wallet share. Additionally, the new arrangement with Texas Capital Bank gives us more flexibility to swap ABL debt for term debt and to reduce interest expense as we execute throughout the year. With that, I will turn the call back over to Perry for some closing comments before we open it up for Q&A. Perry W. Moss: Great. Thank you, Brett. Our fourth quarter was not the finish to the year that we would have liked or expected. 2025 was a year of considerable change at Quest Resource Holding Corporation, and we made tremendous progress on several key initiatives that span the entire enterprise. From standardizing and streamlining our internal processes, enhancing customer engagement, elevating our go-to-market and share-of-wallet focus, reducing cost, improving our cash cycle, and more. We know that these initiatives are working and that Quest Resource Holding Corporation is, without a doubt, a leaner and more productive operation. We began to see the fruits of these efforts in the third quarter, but the reality is that the volume environment remains difficult and is masking the full benefit of the team's hard work. In the meantime, we are controlling what we can control, remaining highly engaged with our customers, establishing a foundation that can generate shareholder returns in difficult environments, and we know that we are well positioned to accelerate our financial performance and drive shareholder value as conditions improve. With that, I would like to turn the call over to our operator and move us to Q&A. Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the one. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. One moment please for your first question. Our first question today comes from Aaron Michael Spychalla, Craig-Hallum. Please go ahead. Aaron Michael Spychalla: Yes. Hi, Perry and Brett. Thanks for taking the questions. You know, maybe first for me on just some of the KPIs that you have implemented, can you just give an update there? Maybe what has been going better versus plan and anything that has been a little bit more stubborn, any lessons learned on that front thus far? Perry W. Moss: Yeah. Hi, Aaron. It is Perry. How are you doing? Look. The as we stated in the call, the KPIs, the operations, the operational efficiency initiatives, all of those are on track. And the business is performing surprisingly well in this very difficult volume environment. So as you can see from our SG&A, we have been very intentional about how we are managing this business. We intend to continue to control what we can. And the one thing that I cannot control is the volume from our customers. As their businesses struggle, so does the volume that they provide to Quest Resource Holding Corporation. So what we can do is we can manage our efficiencies and our cost, and we will continue to do that regardless of the environment. So all of the KPIs and initiatives that we have talked about, our order to cash, or procure to pay, and source to contract, are all continuing to progress very well. All of our KPI trending is positive. We have not lost any ground in those areas whatsoever. But, unfortunately, it is difficult to see as I said, it is masked by the disappointing volume that we are currently experiencing. Aaron Michael Spychalla: Okay. That is good color there. And on source to contract, can you just maybe give a little bit of an update there broadly? How is the health of the vendor network, just given the macro and things like that? Perry W. Moss: Yep. So I think I said on our last call that our vendors are beginning to ask for business again, and that continues. So a number of things have continued to improve. Certainly, relationships with those vendors, but we also conducted a project with our vendors to continue to lower cost. And that delivered some very positive results for us. We have our vendors now accepting payment to term, where in the past, they were pushing Quest Resource Holding Corporation to pay them ahead of schedule. And we continue to experience the lowest service disruptions really in our history. And the importance of that is obviously, service interruptions are problematic for our customers. So we greatly appreciate that we have made a lot of progress there. But there are associated costs that come along with those service disruptions. And those associated costs are at historic lows as well. So all things are going very well with our vendor base. And, in fact, we continue to grow the vendor base that we currently have vetted within our network. Aaron Michael Spychalla: Alright. Thanks. And then maybe one last question. Saw one of your industrial customers potentially opening up a couple of plants here in 2026. And so just curious, you highlighted some cross-sell opportunities and focus on expanding market share. Just wondering if you could elaborate a little on some of those opportunities as well. Perry W. Moss: Yeah. Well, you know, we do not, as you know, Aaron, we do not cite or talk about any specific customers. I will tell you that if any of the industrial base is adding plants or if the macroeconomic environment turns around, we certainly stand to benefit from that. Because our relationships with these industrials are extremely healthy. You know, I sat in on a quarterly business review just last week, and this client could not be more pleased with the services that we are providing. But their business itself continues to struggle. But I would tell you that if these businesses begin to improve either by building plants or improving or increasing production, we stand to benefit from all of that. Aaron Michael Spychalla: All right. Understood. Thank you for taking the questions. I will turn it over. Perry W. Moss: Yeah, of course. Thank you. Operator: There are no further questions at this time. I will now turn the call over to Perry W. Moss, Chief Executive Officer, for closing remarks. Please continue. Perry W. Moss: Great. Thank you, operator. And thanks to everyone for joining this afternoon. We really appreciate your continued support and interest in Quest Resource Holding Corporation. And we look forward to updating you all next quarter. Operator: Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to Pixelworks, Inc. Fourth Quarter 2025 Earnings Conference Call. I will be your operator for today's call. At this time, all 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, please 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. As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the call over to Brett Perry with Shelton Group Investor Relations. Please go ahead. Thank you, Didi. Brett Perry: Good afternoon, and thank you for joining us on today's call. With me on the call are Pixelworks, Inc.'s Chairman and CEO, Todd A. DeBonis, and Chief Financial Officer, Haley F. Aman. The purpose of today's conference call is to supplement the information provided in Pixelworks, Inc.'s press release issued earlier today announcing the company's financial results for fiscal year 2025. Before we begin, I would like to remind you that various remarks we make on this call, including those about projected future financial results, economic and market trends, and our competitive position constitute forward-looking statements. These forward-looking statements and all other statements made on this call that are not historical facts are subject to a number of risks and uncertainties that may cause actual results to differ materially. All forward-looking statements are based on the company's beliefs as of today, Thursday, March 12, 2026. The company undertakes no obligation to update any such statements to reflect events or circumstances occurring after today. Please refer to today's press release, the company's Annual Report on Form 10-K for the year ended 12/31/2025, and subsequent SEC filings for a description of factors that could cause forward-looking statements to differ materially from actual results. Please note throughout the company's press release and management's statements during this conference call, we refer to net loss attributable to Pixelworks, Inc. as simply net loss. With that, it is now my pleasure to turn the call over to Pixelworks, Inc.'s Chairman and CEO. Todd, please go ahead. Todd A. DeBonis: Thank you, Brett. Good afternoon, and welcome to everyone joining us on today's conference call. As a foundation for discussing our go-forward business and strategy, I want to begin today's call with a review of our recently completed sale of the company's Shanghai-based subsidiary. Following a roughly yearlong process, in October, we signed a definitive purchase agreement to sell all of Pixelworks, Inc.'s ownership of a Shanghai semiconductor subsidiary to a special purpose entity controlled by VeriSilicon. Then, on January 6 of this year, we announced the successful closing of the transaction, which resulted in net cash proceeds to Pixelworks, Inc. of approximately $51 million. The cash proceeds from the sale were received in early January, and with the approximately $11 million we had on hand at the end of 2025, our cash balance starting this year was approximately $62 million. In addition, there is still approximately $1.2 million in escrow for a tax dispute that looks to be resolved in our favor. As outlined in my letter to shareholders last November, the rationale for the transaction was threefold. First, it unlocks significant value for our shareholders by monetizing a key asset that was exposed to increasingly complex business and geopolitical environments. In addition to repatriating the cash proceeds to the U.S., the transaction also completely eliminated all prior obligations of Pixelworks, Inc. to minority investors in the Shanghai subsidiary. Second, with the exit of the semiconductor hardware business, we were able to reposition Pixelworks, Inc. as a global technology licensing business focused on cinematic visualization solutions, which I will talk more about in a minute. Lastly, the transaction meaningfully strengthened our balance sheet, increasing both the company's financial stability and flexibility. Without the financial and capital burdens associated with operating a resource-intensive semiconductor business in China, Pixelworks, Inc. can focus on expanding our core strengths in visualization enhancement solutions, pursuing new and existing licensing initiatives, and allocating capital to the highest ROI market opportunities. Since the transaction closed in January, we have taken additional steps to transform the remaining organization. These included reducing headcount that primarily was supporting the Shanghai subsidiary, as well as adding a few key hires, most notably the appointment of our new EVP of Business Development, Sevan Brown. We also made changes to Pixelworks, Inc.'s Board of Directors to better align with and support our go-forward strategy. Having provided that background, I want to frame what our business looks like today post-transaction. We have effectively transformed Pixelworks, Inc. into a lean, asset-light, global technology licensing company. We continue to have a 100% ownership of a significant intellectual property portfolio underpinned by over 60 issued and pending patents related to our TrueCut Motion grading platform, as well as broader visual enhancement technologies. As of today, the company is comprised of fewer than 25 full-time employees, with roughly 60% being dedicated to R&D. To the extent we choose to grow the size of our team, it will be based upon demand for our technology as opposed to arbitrary growth targets. Today and going forward, as a pure-play technology licensing company, we are focused on providing a combination of new and existing cinematic visualization solutions that enable truly differentiated viewing experiences. Our current portfolio of solutions is anchored by Pixelworks, Inc.'s TrueCut Motion platform, which continues to be utilized by leading filmmakers to enhance the cinematic experience across premium theatrical screens. In 2025, we were credited with several notable releases featuring TrueCut Motion, including DreamWorks Animation's The Bad Guys 2 and Universal Pictures' Nobody 2, released to worldwide premium large format theaters. Additionally, Jurassic World Rebirth was showcased in TrueCut Motion format on CinéD premium screens, and our motion grading technology was most recently used in Universal Pictures' theatrical release of Wicked For Good. As part of our refined strategy to accelerate expanded adoption of our TrueCut Motion platform, we are putting increased emphasis on supporting premium, visually stunning films that are released theatrically. Together with today's growing premium large format (PLF) theatrical experiences, these tentpole titles generate an outsized share of total theater box office sales. Further validating this fact is the rapidly growing number of PLF screens, with the industry's largest exhibitors allocating a majority of their new CapEx spending to expand their premium theatrical experiences. As such, we are pursuing further engagement with the leading premium exhibitors, who are naturally aligned with our objective of engaging studios and filmmakers to deliver more premium format content. The initial results of these direct engagement efforts have been very positive. In January, we announced a partnership with Marcus Theatres to prioritize TrueCut Motion across their premium screens. For context, Marcus is the fourth-largest theater chain in the United States with nearly 1,000 screens across 78 cinema complexes operated under multiple different brands. Most recently, we secured a similar endorsement from Odeon Cinemas Group, the largest cinema operator in Europe and also an affiliate of AMC, to bring additional titles in TrueCut Motion format to their premium auditoriums. We are currently in discussions with, and expect to announce partnerships with, additional leading premium exhibitors in the near future. Collectively, we anticipate these collaborations with exhibitors will result in increased demand for our TrueCut Motion format. Our near-term objective is to be associated with many of the most visually impactful titles released to theaters in a given year, which we believe will accelerate our growth path towards increased market awareness and expanding ecosystem partnerships. With TrueCut Motion's unique ability to enable the most authentic, high-fidelity viewing experience in a growing number of premium screens, we continue to believe there is a large and compelling market opportunity for our motion grading technology and expertise. The primary focus of our advanced algorithm team is to further expand the capabilities of our motion grading tools, both for productivity and better picture quality. Today, we are working on our most complex projects to date, which is providing us with real-time feedback from our motion grading supervisors. In addition to this activity, we identified adjacent opportunities for our motion processing technology. We, like others, are leaning into the benefits that AI technology can bring to our development process. In summary, the successful exit from our previous semiconductor business has enabled us to transform the company into a more nimble, scalable, and asset-light organization that is well-capitalized. Our immediate strategic focus is enabling additional premium large format theatrical experiences, and we currently have a growing demand for our TrueCut Motion grading services. I also want to emphasize that maintaining a robust balance sheet remains a high priority. We are committed to prudently managing resources and efficiently using our cash on operations as we work to build a broader and highly profitable licensing business centered around cinematic and visual enhancement solutions. With that, I will turn the call over to Haley to provide some additional information and details as well as our current balance sheet position. Haley F. Aman: Thank you, Todd. As Todd previously discussed, on 01/06/2026, we completed the transaction to sell all equity interests and associated assets of our Pixelworks Shanghai semiconductor subsidiary business. In December, this business met all criteria to be considered held for sale, at which time the operating results of our Shanghai subsidiary became designated as discontinued operations. Therefore, the company's reported financial results contained in today's press release for fiscal years 2024 and 2025 represent the company's results on a continuing operations basis. With respect to the reported approximately $690,000 in revenue from continuing operations for fiscal year 2025, this is comprised entirely of revenue generated from our, now classified as discontinued operations. I will predominantly focus the remainder of my comments on continuing operations and the company's financial position subsequent to the sale of the subsidiary on 01/06/2026. Starting with the balance sheet, I want to briefly review several items that contributed to our current and projected cash balance. Following our previously announced and completed registered direct offering and sale of non-strategic patents during the fourth quarter, the continuing company ended the year with approximately $11.2 million in cash and cash equivalents. Then, in January, we closed the sale of the Pixelworks Shanghai semiconductor subsidiary, resulting in cash proceeds to Pixelworks, Inc., net of transaction costs and withholding tax paid in China, totaling approximately $51 million. Hypothetically, had all of these items taken place before year-end, we would have entered 2026 at approximately $62 million. Subsequent to closing the sale of our Pixelworks Shanghai subsidiary, we paid out all remaining transaction expenses, including accounting, legal, and advisory fees, as well as bonuses. We also completed a series of restructuring actions to streamline the remaining organization, which will result in recognizing certain severance costs in the first quarter. Lastly, we believe that a previously pending tax matter in China has been fully resolved, and we expect an additional approximately $1.2 million of cash proceeds from the transaction to be released from escrow in the coming weeks. Taking all of these items into account, combined with expected results from continuing operations in the first quarter, we currently anticipate our cash and cash equivalents balance as of March 31 to be approximately $58 million. We believe this cash balance provides ample runway and flexibility to execute on our strategy of building a pure-play technology licensing business. As such, in early March, we elected to cancel our previously available but recently unused at-the-market stock facility. Lastly, with respect to the balance sheet, I want to reiterate that all previously reported liabilities and commitments, including redeemable noncontrolling interests associated with our prior Shanghai subsidiary, were fully released in conjunction with the closed sale. The elimination of these prior contingencies will be reflected in the company's reported financial statements for the first quarter ending March 31. Another important change to our financial profile going forward relates to operating expenses. As mentioned earlier, during the first quarter we took a number of actions to meaningfully reduce the company's overall cost structure and streamline the continuing operations portions of the business. These measures included a reduction in headcount and associated organizational expenses, reflecting our transition to focus on technology licensing. As a result, we expect cash used for operating expenses to be approximately $2 million per quarter beginning in the second quarter. Although we are not providing quarterly financial guidance, I would like to provide a high-level framework for thinking about the company's current cash position and anticipated near-term operating results. First, we expect to maintain cash operating expenses of $2 million or less, again starting in the second quarter. Then, based on the current interest rate environment, we expect to generate at least $1.5 million of interest income annually from the cash currently held on the balance sheet. That completes our prepared remarks, and we look forward to taking your questions. We will now open for questions. Operator, please proceed with the Q&A session. Operator: Thank you. Our first question comes from Suji Desilva of Roth Capital. Your line is open. Suji Desilva: Hi, Todd. Hi, Haley. Congratulations on the transaction and the go-forward opportunity. Maybe, Todd, you can start with the big picture in terms of the media chain from content creators to end theaters and streaming in between. Where are the best near-term opportunities for you to drive revenue? Maybe we can start there and talk about the model for those components. Todd A. DeBonis: I think I have been through this before. Maybe people did not focus in last year when we were in the middle of the transaction, but I will bring it up again. Our business model is first, we have advanced tools and technology where we create cinematic high frame rate, or motion-graded content, that is branded under the TrueCut Motion brand. When we do this work, we get paid for it, but we usually do not charge what the cost structure is. Even though we make revenue there, we do not want it to be an inhibitor for content creators to come to us. All the revenue that we have had in the last couple of years has come from this content creation, but it is in a subsidized format. We are as busy as we have ever been. We are working on more complex projects today. We are advancing the tools that work on these projects. You could probably see an increase in revenue, but once again, that will not be the primary source of revenue. Today, for those content creators and studios that engage with us, we give the theatrical rights to that content for effectively free. It is included in the engagement to do the motion grading work. We encourage them, and we encourage more theaters, to bring cinematic high frame rate content—TrueCut Motion content—to as many theaters and as many visually stunning pieces of content as possible. We have been in discussions with several people that, as this continues to expand, studios and distributors of content will want to deliver this premium experience to premium home entertainment devices. We will engage with those studios and distributors that want to distribute the content, and we will engage with device manufacturers of premium devices that want to have that differentiated content on their device. They need to be certified. They need to meet certain criteria. It needs to operate in a mode that effectively guarantees the creator's intent will be shown on those devices. We expect most of the revenue to come from this home entertainment ecosystem. TrueCut Motion is not the only technology we are working on. We are working on other licensing technologies. They may or may not use the same model. Listen, we are running pretty lean, Suji, and I believe if we execute on this, we will be profitable with TrueCut Motion standalone. Suji Desilva: Maybe, Todd, you can help think about the margin structure of this as the revenue forms—where you think it will head, and a pathway of thinking about what the breakeven revenue opportunity might be so we can think about your runway there? Todd A. DeBonis: Our margin is very high even on the content creation, but understand we put a lot of R&D investment in and we have a lot of administrative costs in both marketing and as a small public company, and those are not always absorbed. You will see gross margins be very high. Most revenue, whether it comes from content creation, or distribution licensing, or device certification licensing, will have extremely high margins. Suji Desilva: As we look forward, can you talk about how you think about your pipeline or how it is formed today, and maybe some metrics we would be using in the future to track your progress? Todd A. DeBonis: We are not going to go out and publish metrics. I would say how to track our progress is, today, we clearly have a good cash position. We are not subsidizing the content like some people have in the licensing business who have gone out and subsidized the engagement early on prior to making money on it. We are not doing that. We are being somewhat selective. The way to gauge this is how fast we are expanding the exhibitor footprint that is pulling the studios to deliver more premium content to them—TrueCut Motion content—and how much content we deliver to those theatrical experiences. That is the best way to figure out how we are succeeding in the near term, and then you will see announcements at some point from the home entertainment portion of the ecosystem. Suji Desilva: That makes sense. Haley, I appreciate you giving us some Q1 guidance we can work with—the OpEx being less than $2 million and the interest income for the year. What was the cash burn number you gave? Did you give an expected cash flow from operations for Q1? Haley F. Aman: I said we expect to end the quarter with approximately $58 million as of March 31. Suji Desilva: Did you imply an amount of cash used in the quarter? Haley F. Aman: We are paying severances and bonuses and other transaction costs plus operating cash, and we started with approximately the $62 million number. That is the delta. Suji Desilva: Got it. Okay. I saw some patent sales—maybe last year. Was that a one-off, or is that something that could recur, Todd, or Haley? Todd A. DeBonis: That is not going to be recurring revenue. Recurring revenue is going to come from licensing. We sold off some patents that were not really specific to our TrueCut business. If you go back and look at the pre-transaction subsidiary sale, I would say about 60% of our total patent portfolio was in the subsidiary, so that went with the subsidiary and the sale. Of what remains from what we did not sell with the subsidiary transaction or outright to this person that wanted to buy these other patents, I would say we have no real intention of selling any more patents, and we are actively trying to add to that patent portfolio specific to our go-forward business. Suji Desilva: Todd, I might ask this question that I ask a lot of companies who are embarking on newer paths. What are, as an executive, your two or three top priorities to accomplish in 2026 to get this off and running in the right direction? Todd A. DeBonis: First and foremost, today our technology is only used by Pixelworks, Inc. TrueCut Motion editors. We are working on getting the product in a place where we could actually license it, so you could expand upon our own people working on the technology to where we have third parties doing motion grading work using our tools. That is a big priority for us. Then developing the demand profile—those are the two biggest issues I have right now. Frankly, I was very focused on a transaction. I had a group of people running this. They gave me something. Now I am very focused on this business. It takes a long time to create awareness for technology like this, and I would say that the awareness is strong. Now we need to convert that into pull and content. Suji Desilva: Great. Just one quick housekeeping item. To be 100% sure of the cash that you have gotten, it is all in the U.S. at this point. Is that correct? Haley F. Aman: Yes. Suji Desilva: Great. Alright. Thanks. Haley F. Aman: It has been in the U.S. since mid-January. Suji Desilva: Got it. Appreciate it. Todd, Haley, thanks. Haley F. Aman: Thank you, Suji. Operator: Thank you. This concludes our question and answer session. I would like to turn it back to management for closing remarks. Haley F. Aman: Yeah. Todd A. DeBonis: Thanks, everybody, for keeping up to speed on this transition of the company. From time to time, we will have more salient information to give to you. Thank you. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good afternoon, and welcome to the SenesTech, Inc. Reports Fourth Quarter and Fiscal Year 2025 Financial Results Conference Call. After today's presentation, there will be an opportunity to ask questions. To submit a question, you may type it into the Ask a Question box on the webcast screen. Please note, this event is being recorded. I would now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead. Robert Blum: All right. Thank you very much, operator, and good afternoon, everyone. Welcome to SenesTech, Inc.'s Year-End 2025 Financial Results Conference Call. Joining us today are Dr. Jamie Bechtel, Interim Executive Chair, and Thomas C. Chesterman, Chief Financial Officer. Joel L. Fruendt, the company's President and CEO, was unable to join us today. Earlier today, the company issued its financial results press release for the year ended 12/31/2025. As the operator indicated, at the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. If you are listening through the webcast portal and would like to ask a question, again, submit that through the Ask a Question feature on the webcast player. Before we begin, I would like to remind everyone that today's call may include forward-looking statements within the meaning of federal securities laws. These statements are based on current expectations and involve risks and uncertainties that could cause actual results to differ materially from those described. Please refer to the company's SEC filings for a discussion of these risks. The company undertakes no obligation to update forward-looking statements except as required by law. Alright. With that said, let me turn the call over to Dr. Jamie Bechtel. Jamie, please proceed. Dr. Jamie Bechtel: Thanks, Robert. Thank you, operator. Thank you to everyone who is joining us today. I am Dr. Jamie Bechtel, and I am the Chair of SenesTech, Inc.'s board. As we recently announced, Joel L. Fruendt is retiring following several years of leadership at SenesTech, Inc. On behalf of the board, I want to thank Joel for his and for helping position the company for the next phase of growth. To support continuity during this transition, the board created the role of Interim Executive Chair, and I was asked to step into that position. To help ensure alignment between the board and management the CEO search is underway. The transition is planned and orderly, and the business continues to move forward without interruption. The Board has initiated a formal search process to identify the company's next CEO. Our focus is on finding the right leader help scale the business and build on the progress that has been made. In the meantime, the board remains closely engaged in man with management and focused on execution. Our directors bring experience across areas such as e-commerce, international markets, finance, strategic growth, which we believe will be valuable if the company continues to expand. Importantly, the company's core strategy remains consistent. We are focused on delivering our current initiatives, scaling the areas where we are seeing traction, and maintaining discipline in how we allocate resources. We will continue to keep shareholders informed as the leadership transition progresses. With that, I will turn the call over to our CFO, Thomas C. Chesterman. Thomas C. Chesterman: Thank you, Jamie. I will begin with a summary of the year's performance and key developments before reviewing the financial results in more detail. Overall, 2025 reflected continued progress in expanding our commercial reach and strengthening our business model. For the year, revenue increased 20% to approximately $2.2 million compared with $1.86 million in 2024. It is important to note that the fourth quarter included an approximately $200,000 revenue impact associated with the company's transition to directly managing the EVOLVE Rat and EVOLVE Mouse on Amazon. Excluding that transition effect, full-year revenue growth would have been closer to 30%. That transition represents an important step in our e-commerce strategy. Directly managing Amazon allows us to improve product presentation, optimize marketing performance using platform data, and retain a greater portion of the revenue generated through that channel. E-commerce continued to be our fastest growing segment. For the year, e-commerce revenue increased 88%, driven by strong growth on Amazon and our direct-to-consumer website. Even with that temporary transition impact, e-commerce now represents more than one-half of our total revenue. And now that we have direct control of Amazon selling activity, we can better tailor the message and accelerate growth much, much further. Beyond e-commerce, we continue to expand activity across several additional verticals. In municipal markets, interest in fertility control approaches continues to grow as cities evaluate alternatives to traditional rodent control methods. Programs such as the rat contraception initiatives in New York City, Chicago, and elsewhere reflect this broader shift towards integrated pest management strategies. The Chicago neighborhoods deploying EVOLVE continue to reorder and expand deployment. New York City will soon conclude their trial of EVOLVE, and we are already in discussions with potential deployment partners so as to be able to move quickly. Internationally, we expanded our footprint during the year with regulatory approvals and new distribution relationships. EVOLVE received regulatory approval in New Zealand, and we shipped the initial stocking order to our exclusive partner, Evicom. We have expanded distribution activity in Belize, through the Belize Raptor Center, and we have other areas with potential regulatory approval pending as well. On the retail side, where decision making is a longer process, we have made multiple presentations to some of the largest brick-and-mortar retailers about stocking EVOLVE on their shelves. I should point out that success on Amazon and the press around deployment feeds well into the retail decision making. We laid the groundwork last year, this is the year we will see the benefit of that work on the top line and the bottom line. Finally, should mention, some of you have been about our legal dispute with Leafotech. I am pleased to say that this dispute has been resolved in a manner satisfactory to all involved. All litigation has been dismissed and cannot be reinstated. Turning to the financial results in more detail. For 2025, gross margin improved to 62.5% compared with 54.1% in 2024. This reflects improved product mix and a growing contribution from e-commerce channels. The company reported a net loss of $6.4 million compared with $6.2 million in 2024. The 2025 results include approximately $131,000 in one-time legal expenses, some of which associated with Leafotech, and $135,000 in non-cash operating lease expense. Excluding these items, the adjusted net loss for the year would have been approximately $5.6 million. Adjusted EBITDA loss for the year improved to $5.3 million compared to $5.8 million in 2024. From a liquidity standpoint, the company ended the year with $8.6 million in cash and short-term investments, which we believe provides a solid operating runway as we continue executing our strategy. As we look towards 2026, our focus remains on maintaining financial discipline while investing in areas where we are seeing traction, including e-commerce expansion, municipal adoption, and continued validation of our technology. At the same time, we are managing operating expenses carefully and prioritizing investments that support measurable commercial progress. And, importantly, we are also maintaining flexibility for the company's next CEO to help shape that longer-term strategy. With that, operator, we are ready to open the call for questions. Robert Blum: All right. Thank you very much, Jamie, and Tom. We will now open for questions. Once again, if you have a question, you can type it into the Ask a Question queue there on your webcast player. First question here, given that 2025 revenue growth would have been 30%, excluding the impact of transition to directly managing Amazon sales, should we expect a similar growth rate in 2026 or could this be higher? Thomas C. Chesterman: That is a great question. Yes, absolutely, it can be higher, and that is in fact what we are aiming for. We want to accelerate growth in the areas where we can and make sure that we maximize that growth as long as it remains profitable. Robert Blum: Alright. Our next question here. What are likely to be the contributors to 2026 revenues? Amazon and D2C, pest management professionals networks, municipal orders, or international expansion in New Zealand, Belize, and beyond. Thomas C. Chesterman: So it will definitely be a mixture of all of those. But let me walk through kind of how each of them looks as we are moving forward. I mentioned the e-commerce and Amazon particularly. This is an area where with Amazon, we were not managing it directly. We were using a third party. And so we were not really in full control of the message and the rate of spend. As we begin taking over Amazon and also working on improving our own website, we know that further investments in the messaging, and in the ad campaign will drive sustainable and increasing growth. So, definitely, we expect to see strong growth in that area. Municipal certainly is an area of growth. There have been a number of successes in that area. All eyes are on New York right now where we have a trial underway. We do not know exactly what their deployment plans will be. We will see that when the request for proposals come out. But we do see that as a growth area. Retail is an area where we have not yet seen the growth that we would hope, but when you see growth in that area, you see it is a very explosive area. And to give you an example, we have made multiple pitches to brick-and-mortar retailers. We have worked with them on their website. We have worked on trials. At some point, one of them is going to say, alright. Let us go ahead and send one pallet to 200 stores. One pallet each. That is a $2 million order. So the growth there can be very, very explosive in that segment. International continues to look very good. There are a number of areas internationally where they have a similar need to improve their rodent management techniques, and they seek alternatives to traditional methods like EVOLVE, like ContraPest, etcetera. We do definitely see some improvement there. We have mentioned before, Australia is nearing the conclusion of the regulatory review. We are expecting an answer from them shortly. There are other jurisdictions as well. So in closing, it really is a combination of a variety of shots on goal as Joel used to put it. Robert Blum: Alright. Very good. Our next question here is what kind of follow-up should we expect from the two field validations in urban areas? What level of revenue should we expect from these two areas? Thomas C. Chesterman: Well, I am not quite sure what the second one is that they are talking about. The one right now, the trial that has all eyes on it is in New York. And as I mentioned, that trial will be concluded sometime in the spring. We do not know what their deployment will be, so we cannot give you a good sense of how much revenue or how quickly. In the other areas, such as Chicago, they have already begun the deployment in Chicago in a number of neighborhoods and areas. So that will expand as additional neighborhoods come on into the program. Robert Blum: Alright. The next question here is why have all the social media accounts, Facebook, for example, been quiet since December 2025. Talk about the marketing department employment there. Thomas C. Chesterman: Yeah. Jamie, actually, why do you not take this one? Dr. Jamie Bechtel: Thanks, Tom. Robert, that is a great question. The marketing team is absolutely still in place. Over the past few months, we have been focused on strengthening our core commercial efforts, customer outreach, sales enablement, channel and partnership development rather than prioritizing social media. Social media will definitely pick back up as we roll out a couple of initiatives this year, but the team has actively been working on growth and brand positioning. So you will see a more structured communication cadence as we launch our new milestones this year. Robert Blum: Next question here, and I think Tom, you have addressed this in your prepared remarks, but if there is anything to add on to it. What is the status of the court case of Leafotech versus SenesTech, Inc.? Thomas C. Chesterman: So that case has been settled. It has been settled, as the lawyers put it, to the satisfaction of all parties. The results were immaterial to us both financially and operationally. So at this point, we consider it a past issue. Robert Blum: Okay. And a bit of a follow-up on that. You guys mentioned in the prior quarter that you had incurred $100,000 of one-time legal costs due to the Leafotech IP infringement and NDA violations. It says here, I noticed that the one-time legal fees in this quarter came to $275,000. Let us see here. Can you, I guess, expand upon and clarify this cost and whether it is expected to recur going forward. Thomas C. Chesterman: So let me take the last part first. No. It should not recur now that we have successfully concluded that litigation issue. It is, you know, litigation is very expensive these days. And so it takes quite a bit to defend oneself from charges or allegations. So, unfortunately, it did end up costing us quite a bit in terms of legal expense. But it was an investment well worth it given the positive outcome. Robert Blum: Okay. Following up on a question on legal fees, could you provide more granularity in how much of those fees during this last year related to financing? Thomas C. Chesterman: The legal fees which were expensed do not have anything to do, are not classified as operating expense. Those would be part of the cost of the financing. So you would not see any of legal cost of financing in the income statement. Robert Blum: Next question here is what is the status of product registration in Australia? Thomas C. Chesterman: Yeah. As I mentioned, we, with our partner, have submitted all the necessary information. The regulatory authorities have gone through it. They expect to be able to produce an answer to us, as our partner says, quote, in the spring. I do not have any more precise dates than that, but we are expecting a response from them. We are not expecting a positive response. Robert Blum: Okay. Our next question here is how much revenue do you expect from Belgium during the coming two years? Thomas C. Chesterman: We actually do not have any direct input or insight into Belgium. We have no partner that is in Belgium. So, it really is more a matter of as we look at the European market and our distributors there, what are we selling to them? And, you know, whether it is in Belgium or somewhere else, really do not have a whole lot of insight into that. Robert Blum: K. Next question. Can you break out the SG&A, which is up? How much is sales and how much of the G&A and, well, there will be a follow-up to that. Thomas C. Chesterman: So we are, at conclusion of this call, scheduled to file our 10-K. So all of the detail of the SG&A and R&D expenses will be in the 10-K. So I would encourage you to, our investors, to look at that, read that. If you have any questions on that, follow up with us. We would be glad to go into as much as we need. Yeah. Robert Blum: Next question here is, what are the new international opportunities? Thomas C. Chesterman: Well, unfortunately, I cannot really comment on them until we have signed agreements in place. So I am going to have to let you wait for our press releases as we sign them. We will let our investors know. Robert Blum: Okay, very good. Next question here is how likely is it that EVOLVE bait gets to brick and mortar during 2026? Thomas C. Chesterman: So we are already in some of brick and mortar, but not much. I think that given the time frame in which they make their decisions, that it may not be likely until at least the end of the second quarter, but it is more likely in the second half of the year for retail in a big way. Robert Blum: Okay. Our next question here is what municipalities besides New York City are evaluating EVOLVE? Thomas C. Chesterman: Well, that is the biggest trial that has been out there. Baltimore concluded their study and has been deploying EVOLVE there. Chicago did not, they went right past a study, at least in the neighborhoods, but the city of Chicago continues to be assessing fertility control. I do not know if there are, I am sure, others that are doing trials that are not necessarily formal trials. But that would be a level of detail that I would not have readily available right now. Robert Blum: Alright. The next question here is on how is the agricultural sector working out? Thomas C. Chesterman: It is working out quite well. There are, you know, we have talked about some of the successes in the past and the almond groves in the West. Those go well. They are expanding those as well. We continue to work on some of the crop issues like sugarcane. We continue to see actually some expansion as well into poultry. That is another area of growth. And we are beginning to see actually some of that in an interesting area, irrigation. Turns out that rats are very destructive to irrigation, so we are seeing some progress in that area as well. So it is going well. Very well. Robert Blum: Alright. Here, another follow-up here, and I am not sure if there is anything that could be added here. But how soon will you know about the trials in the New York City program, and what is the potential market for that? Thomas C. Chesterman: Yeah. Unfortunately, as I have mentioned, the trial will be ending this spring. I believe it is the middle of the second quarter. We do not know what they are going to be doing immediately after that, but we have begun discussion with some people that are expecting to bid on whatever comes out. These are large pest management organizations that would like to be able to respond to New York's requirements. So we have already begun those discussions as to how to best be flexible and nimble when the information does come out. Robert Blum: Our next question here. How has the e-commerce business been when it comes to Home Depot and Lowe's? Thomas C. Chesterman: So these are areas where they are really almost trials before they make their decisions about their shelf placement. We are focusing, as has been mentioned before, our own e-commerce program on Amazon now and on our website. So these programs have not been a huge e-commerce per se push. But rather are ways of continuing the discussions with them. So that at this point, they are nowhere near the size of what we are seeing in Amazon or on our own website. Robert Blum: Okay. Our next question here, are there any new species you anticipate in 2026 or 2027, such as ground squirrels, gophers, etcetera. Thomas C. Chesterman: Well, I will let Jamie comment on this, but I will also kind of mention that, from my perspective, I think the rodent market is the rat and mouse market. It has enough potential that we could be quite successful maximizing those opportunities, but Jamie, you are one of our lead scientific types. Any comment there? Dr. Jamie Bechtel: I will just add that the technology is really exciting because it is broadly applicable, especially to mammalian species. And while there is a lot of opportunity there, I second Tom with the idea that we are going to remain very focused and deliver what is in front of us with extraordinary discipline. Thomas C. Chesterman: Alright. Thank you for that both. Robert Blum: Our next question here is, will evolverodentbirthcontrol.com be available in the future? Someone noticed that the site was down. Thomas C. Chesterman: I will have to look into that to understand why it is down. I was not aware of that, but I will look into that immediately. We own it. Very good. So it should be up. Robert Blum: Alright. Very good. Our next question here, what qualities is the board looking for in the next CEO to improve profitability, or the, I am sorry, the probability of successful commercialization? Jamie, that sounds like a question for you. Dr. Jamie Bechtel: It does, does it not, Tom? Robert, thanks for that. That is a great question. We are looking for a leader who can take the company through its next phase of growth. That means someone who has a strong commercial instinct, experience scaling a business, the ability to build and lead high-performance teams. Just as important is operational discipline. Someone who can translate strategy into consistent execution. The opportunity in front of us is significant, exciting and significant. So we want a CEO who can bring both that strategic vision and the day-to-day rigor necessary to capture that vision. Robert Blum: Alright. Thank you for that. Question here, discussing cash runway implies, obviously, losses at its current revenue levels. Is there any reason why improvement should not be expected? Thomas C. Chesterman: There is no reason why improvement should not be expected and sought after. But the attorneys tell us to be very conservative in how we disclose things in the 10-K and on the press releases about such matters. So we take the most conservative approach in terms of that disclosure. But yes, improvement should be expected. Robert Blum: Okay. Next question here is on inventory. Inventory grew 25% year over year, which is relatively high compared with the quarterly revenue. Is the current inventory reflecting anticipated demand from newly expanded locations or slower-than-expected turnover. Thomas C. Chesterman: It is the former. It is trying to make sure that we are ready for that surge demand I mentioned. If we do get a call from a retailer saying we want the pallets in every store, we want to make sure that we have that inventory available to fulfill. Robert Blum: Alright. Next question here is why was Joel not able to be on the call today? Thomas C. Chesterman: I was going to say, Jamie, you probably should take this one. Dr. Jamie Bechtel: Robert, thanks—oops. Sorry. Go ahead, Tom. That is exactly how aligned we are, Tom, and that is the answer to the Right? We have a really strong leadership team in place. As I mentioned earlier, there is continuity in this transition. And we are all fully engaged in communicating progress and executing on the strategy. While Joel was not on today's call, the team is completely aligned, we are moving forward. Robert Blum: The next question here is what other target markets will SenesTech, Inc. focus on this year? Will there be increased focus on the agricultural sector, for instance? Thomas C. Chesterman: Yeah. To some extent, I have already answered that. It is going to be all of the markets that we have talked about before. We are going to be going after all of them. They each have a different strategic approach identified as to how we will address them, what the pacing will be. But these are the markets that we are focused on now. The specific verticals that we have talked about in past calls. Until we have sufficiently hit and hit our targets, our own internal targets and external targets, in these markets, we do not think that there is a need to expand to other verticals. These are the ones that look like they have the highest potential in the shortest amount of time. And so that is why we have chosen them to focus on. Robert Blum: Alright. Thank you for that. Our next question here, I think you have addressed some of this, but have there been any new trials or deployments in major cities, specifically on the West Coast? San Francisco, Los Angeles, for instance. Thomas C. Chesterman: Well, San Francisco has a trial ongoing. We have talked about it before. It is being done with a local pest management company there, using some state funding. I am not aware of any other West Coast formal trials, although there certainly are a number of the smaller municipalities that tend to look at it first before they make their decisions, but those are more informal. We did have an interesting trial that we did produce some data on at the UC Irvine housing project, where they have quite a bit of interest in looking at innovative ways of controlling pests. And so that trial did conclude quite successfully. We put out a press release on it earlier, but they were very pleased with the approach and have continued to deploy and expand in that. I am not aware of any others that are as formal as that. Robert Blum: Next question here is does management attend any, I guess this would reflect to industry conferences, to showcase EVOLVE? Thomas C. Chesterman: Management does not necessarily, but the sales department certainly does. Sales is responsible for identifying those conferences and those meetings that have the highest potential for a return. They tend to be very, very focused on that return. Is it really going to be something where we get a lot of orders? And these can be both professional organizations, but we also attend some of the, I will call them, retail or other shows. For example, we were very recently at the Bradley Caldwell show, where they bring in all of their potential customers into one place and present different companies like ourselves. We have also been to the ACE show. So we are at both kinds of shows. We are also at the PestWorld. We have had a booth there for a couple years now. So, yes, answer is yes. We do. Robert Blum: Okay. Next question here. Will the new CEO have incentives built around the price of the company's stock? I am sure that Jamie is ready to answer this one. Dr. Jamie Bechtel: Robert, the short answer is yes. As with most public companies, the CEO's compensation structure, we expect a meaningful portion of that to be equity based and aligned with long-term shareholder value. The board's compensation committee will finalize the specific structure, of course, but alignment with stock performance will absolutely be a key component. Robert Blum: Okay. The next one, I am not sure if there is a question in here, but maybe more of a comment at top. Agricultural production state California would greatly benefit from expansion of the label for use in ground squirrels. With ever-increasing regulations on pesticides, 25(b) products have incredible potential. So maybe this circles back to expansion into adjacent species. Thomas C. Chesterman: Yeah. I would agree. It is very definitely, California is not the only area that would benefit from an expansion. There are lots of different pest species that need some work, need better solutions. When we have, again, when we have managed to demonstrate success in rat and mouse, we certainly would look at that. I will tell you there is an issue around ground squirrels. They are not considered the same kind of pest as rodents are. So they have a different regulatory approach that is required there. So there are a few complexities that would need to be worked out before we could really consider that kind of an expansion. Robert Blum: Okay. The next question here is, will you be expanding your sales team? Thomas C. Chesterman: The short answer is yes. We will. We actually had the sales team in for a kind of a beginning-of-the-year conference not that long ago. We are going to have another one coming up shortly where we are really focused on exactly what resources do we need to maximize the B2B sales effort, and whether it be more people, and if so, where, or how are they focused, what materials are needed, what, again, all the resources that are necessary to really expand and drive the B2B growth to its maximum potential. Dr. Jamie Bechtel: And, Robert, before we move on, I just want to add to Tom's answer there that because we have brought e-commerce in-house, not only are we going to see a bigger sales force, both in the D2C and the B2B profile, but we are going to see a higher ROI on that because we are going to be able to collaborate across those two verticals. Robert Blum: Alright. Fantastic. Our next question here, can you clarify when the New Zealand order was shipped and if it was in Q1, how much of the did that eat up, and has it been replaced? Thomas C. Chesterman: And, yes, it has been replaced. Yes. That shipment was in Q1. Robert Blum: Alright. I think that was all the questions. I think you hit it there. Next question here. Is sales working with UC Davis regarding Kern County and other California counties being overrun by rats. Thomas C. Chesterman: The short answer is yes. We are focused on that, in general. But that is also one of the areas where we think some additional resources might very well be useful. And so as they have been, one of the things that came out of that sales meeting was looking specifically at different opportunities in California being not only a large market, but also a market which has taken the step to ban or limit the use of certain rodenticides. So, there are definitely the problem now is fewer solutions, and so even more opportunity for rat birth control. Robert Blum: Alright. Tom, quick asking of clarification on the New Zealand order. Was that revenue recognized in Q1? Or was that revenue recognized in Q4 for the New Zealand order? Thomas C. Chesterman: Q1. Q1. Robert Blum: All right. And as a follow-up to that, how frequently do you expect follow-up orders from New Zealand and for how long? Thomas C. Chesterman: Well, New Zealand has an initiative, which we have talked about before, to rid itself of predators and other pests, invasive pests. And their target is, I think, 2050 to complete that. That is a massive, massive, multibillion-dollar undertaking. How exactly they are going to be going through that may change now with fertility control being added. I think, I know Evicom is working with the authorities in New Zealand to really focus on how to best now incorporate rat birth control with the other methods that have been used. So I do not have a forecast for you yet. But the opportunity there, the need there, is tremendous. Robert Blum: Alright. Coming back to California here with a question is, do you have any other distributors in California outside of Ace Hardware? Thomas C. Chesterman: Well, Ace Hardware, we do not consider a distributor. We consider that a retail. But in terms of other distributors, yes, we do. As a matter of fact, with AgriCom, AgriTurf, a couple of the ones that have come across my desk recently. They are focused more on the agricultural side, particularly poultry. So, yes, we do have other distributors there. And, of course, our top distributors, two top distributors in the pest management industry, Veseris and Target Specialty, both of them have a solid presence in California. Robert Blum: Alright. Very good. I am showing no further questions. So with that, I will turn it back over to you both for any closing remarks. Thomas C. Chesterman: Great. Well, thank you all for joining us. And we certainly look forward to being able to update you as frequently as we can on our progress. This is, as I said in my prepared remarks, last year was a year of preparation, of setting the groundwork, setting the foundations. This year is undoubtedly going to be the most exciting year that we have. And you do not usually hear CFOs saying things like that, but I am truly excited for the potential in the coming year. So thank you very much. Dr. Jamie Bechtel: Thanks, everybody. Operator: Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Atlanticus Holdings Corporation 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 of buzz and 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 first speaker today, Dan Mock of Atlanticus Holdings Corporation. Please go ahead. Dan Mock: Thank you, operator, and good afternoon, everyone. Atlanticus Holdings Corporation released results for the fourth quarter and full year 2025 ended December 31, 2025 this afternoon after market close. If you did not receive a copy of our earnings press release, you may obtain it from the investor relations section of our website at investors.atlanticus.com. We have also posted an updated investor presentation. With me on today's call are Jeff Howard, President and Chief Executive Officer, and Bill McKamey, Chief Financial Officer. This call is being webcast and will be archived on the investor relations section of our website. Today's discussion may contain forward-looking statements that reflect the company's current views with respect to, among other things, the benefits of the acquisition of Mercury, including expected synergies, and future financial and operating results. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking statement. Please review our earnings release and the risk factors discussed in our SEC filings. The forward-looking statements speak only as of the date on which they are made, and except to the extent required by federal securities laws, the company disclaims any obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made, or to reflect the occurrence of unanticipated events. In addition, during this call, we may refer to certain non-GAAP financial measures. Please refer to our earnings release and investor presentation for important disclosure regarding such measures, including reconciliations to the most comparable GAAP financial measures. I will now turn the call over to Jeff Howard. Jeff Howard: Thanks, Dan. And again, good afternoon, everyone, and welcome to Atlanticus Holdings Corporation's first public earnings call. To state the obvious, 2025 was a transformative year for our company. Not only did we deliver sustained above-market growth across our core businesses, but we also completed the acquisition of Mercury Financial, a transaction that meaningfully enhanced the scale, capabilities, and long-term earnings power of our company. With the Mercury acquisition, we effectively doubled the size of our balance sheet to $7.0 billion. We added more than 1.3 million customers that we serve, we deepened and strengthened our data analytics and product capabilities in the near-prime space. Most importantly, we added significant human resource talent. Strategically, this acquisition expands the markets we can serve and accelerates efficiencies gained from scale. It also provides us a $3.0 billion portfolio to optimize with our portfolio management expertise, expertise gained from our numerous portfolio acquisitions throughout our history. As a result, we anticipate significant long-term earnings accretion driven by disciplined portfolio management, cost savings, and incremental origination growth in the near-prime space. Integration of Mercury has progressed well ahead of plan. Our team has done an exceptional job in integrating the organization and bringing about the realization of the many value-creating opportunities that will be derived from the acquisition. Our first priority is portfolio management, undertaking actions to properly position the Mercury portfolio. Phase one of those actions has been completed and is performing better than modeled. Additional phases will continue throughout 2026. At the same time, we are already realizing meaningful operating cost efficiencies across the combined company. We expect these revenue enhancements and cost benefits to contribute increasingly to earnings growth in 2027 and 2028. During the quarter, we also acquired a $165.0 million retail credit portfolio from a competitor, further solidifying our leadership position in the second-look point-of-sale market. Turning to our financial performance, we once again delivered strong results in the fourth quarter and for the full year. For the fourth quarter, diluted earnings per share grew 23% year over year, and for the full year grew 25% over prior year. We also continue to deliver strong returns to our shareholders, return on average equity above 20%, even while maintaining more than $600.0 million of unrestricted cash at year end. While I have highlighted the Mercury acquisition, it was our historical business that drove results in 2025. Excluding Mercury, managed receivables increased 37% year over year. New account originations increased 73% to more than 2.2 million for the year, and were up 56% in the fourth quarter compared to the prior-year period. Purchase volume increased 54% for the quarter over last year and 32% for the year. Revenue increased 27% for the full year, and 35% in the fourth quarter year over year. As a result, we finished 2025 with record levels of receivables, record originations, and record accounts served while exceeding our earnings growth return on capital goals. On the consumer front, our data indicates that the consumers we serve remain stable. We are seeing consistent payment performance, steady purchase activity, and stable delinquency trends. While much has been made about a K-shaped economy, we continue to see rational consumer behavior. While purchasing decisions may be shifting, consumers are still maintaining their credit. For those newer to our story, we have seen through multiple cycles, the utility provided by our offerings is one of the most valuable financial tools in a consumer's wallet. As a result, when given time to adjust to the macro landscape, open-ended consumer credit products like ours show less variability during downturns. We see nothing today that suggests our consumers are not managing their finances prudently. On a different note, the competitive landscape remains robust, and we are seeing record solicitations in our space leading to some softening in response rates and marketing efficiency. Nonetheless, given our diversified product offerings, our broad consumer reach, and multiple origination channels, we are highly confident in our long-term positioning. As we look ahead, it serves us well to look at how far we have come. Five years ago, we had $1.1 billion in managed receivables. Today, we have $7.0 billion, a compounded annual growth rate of 45%. Five years ago, we had $560.0 million in revenue. In 2025, we generated just under $2.0 billion in revenue, a 28% annual growth rate. Our customers served have grown from 1.2 million to approximately 6.0 million, a 38% annual growth rate. Importantly, we achieved our return on equity targets of greater than 20% each year, even with the inflationary bubble in 2022 and 2023. Over the next five years, our long-term objectives remain unchanged. While the addition of Mercury naturally moderates our asset growth rate due to the larger base, we are targeting long-term earnings growth of 20% or more annually while delivering returns on average equity of 20% or greater. We have a talented and experienced team, scalable technology, a proven platform, and ample capital. We have a diversified product offering and marketing capability allowing us to meet customers where they are. We operate at scale in an underserved market where we offer highly valued services to consumers on fair terms. Consumers are experiencing modest but real wage growth, stable employment, and tax policies have been enacted that favor the middle class. We are well positioned to empower better financial outcomes for even more everyday Americans, and provide for durable, profitable growth and long-term value creation for our shareholders. I will now turn the call over to Bill McKamey. Bill McKamey: Awesome. Thanks, Jeff, and thanks, everybody, for joining us. I will begin my section with revenue. For the fourth quarter, total operating revenue and other income increased 107% year over year to $734.0 million. This growth was primarily driven by the acquisition of Mercury, continued expansion of our managed receivables, and increased merchant fee recognition associated with higher origination volume. Our fair value mark declined modestly as we onboarded the Mercury portfolio as well as added meaningful new receivables to our existing general purpose card asset. Newly originated and newly acquired receivables typically carry lower initial fair values because lifetime loss expectations are front loaded until the accounts season beyond peak charge-off periods. The Mercury receivables were initially recorded at fair values below our legacy general purpose credit portfolio, reflecting both mix and acquisition accounting. As these portfolios season and as product policy and pricing adjustments Jeff referenced earlier are implemented, we expect fair value marks to improve over time. Our year-over-year improvement in delinquency and charge-offs continued through the fourth quarter, and was amplified with the addition of the Mercury assets. We expect to see the positive impact of the current tax season on delinquencies and subsequent charge-offs. Interest expense increased consistent with receivable growth and higher funding costs. This reflected expanded warehouse capacity, term securitizations, and the issuance of senior notes to support our ongoing growth. Total operating expenses increased 67% year over year, primarily driven by increased servicing costs associated with portfolio growth, the addition of Mercury personnel and operating infrastructure, and higher marketing investment. As we integrate Mercury and scale the combined platform, we continue to identify and realize operating efficiencies. Net income attributable to common shareholders increased approximately 25% year over year to $32.8 million in the fourth quarter, or $1.75 per diluted share. We ended the year with ample capital, and continue to maintain substantial borrowing capacity across our warehouse facilities and term securitization platforms. Our funding model remains diversified across bank partners, term securitizations, and corporate debt markets. We believe we are well positioned to support continued receivable growth while maintaining disciplined return thresholds. For the quarter, we generated a return on average equity of approximately 22%. Our focus remains clear: empower the more than 5.0 million customers we serve by prudently deploying capital into at or above targeted return receivables, manage credit conservatively, and drive long-term earnings growth while maintaining balance sheet strength. In summary, the quarter reflects strong top-line growth, disciplined credit management, improving portfolio seasoning dynamics, and continued operating leverage as we scale the combined platform. I will now turn the call back to the operator for questions. Operator: Thank you. At this time, we will conduct the question-and-answer session. Please press star 11 on your telephone. The first question will come from Vincent Kaintic with BTIG. Your line is now open. Vincent Kaintic: Good afternoon. Thanks for taking my question and congratulations on your first earnings call. First, I wanted to talk about the integration in Mercury. It is nice to hear that it is moving ahead of schedule. Maybe if you can go into more detail where we are at, what has been achieved so far, and what is left to do. How long it might take. I thought in the press release, there was discussion about the product policy and pricing changes and I am sort of curious about what higher yields we should be expecting once all of that is said and done. Thank you. Jeff Howard: Yeah. Thank you, Vincent. I appreciate the question. As we said, the integration of Mercury is well ahead of plan. Fortunately, we had ample time to plan post-acquisition for that integration given the length of time we were in negotiation with our counterparty before that acquisition. But that integration entails a number of different things. One, as I mentioned earlier, was the repricing and repositioning of the portfolio. We started that process on day one, literally the closing of the transaction, and undertook a significant change in terms on the portfolio that was effective back in December. That was obviously a very accelerated timeline, and kudos to our team to really undertake what was a heavy lift to get that change in terms out in market. That change in terms entailed a lot of different actions across the portfolio. Again, we have done this seven or eight other times in our history. We have got a lot of experience in doing this, and we leveraged that experience as well as our more recent portfolio management actions undertaken in 2022 and 2023 to have a high degree of certainty in those actions. In some instances, we added fees. In some instances, we increased APRs. In some instances, we lowered APRs and increased credit lines. It really was a risk-segment-by-risk-segment undertaking across the entire portfolio to better position the portfolio for longer-term profitable balance build. That was effective, as I said, beginning in December. We have had a number of operational efficiencies that we are starting to realize. The integration of the two organizations with a system-of-record integration will be undertaken later this year. That will help align all of our systems, continue the cost savings, and help us further along the process of gaining the benefits of scale. In that process, we are getting the benefits from scale from many of our third-party service providers throughout the entire ecosystem of our business. We are starting to realize those efficiencies already. I think the entirety of our integration plan was around 18 months, so into 2027, we feel like we will have the integration pretty much under our belt. But the realization of a lot of that integration and synergy and portfolio repositioning will continue to accrue into 2027 and even 2028. The way that a lot of the change in terms is undertaken post-CARD Act is you can only affect new balances with new APRs, and so it takes some time for the older protected balances to run off and to be replaced with the newer, higher-yielding balances, which is why we see what I would consider a longer-tailed realization of a lot of this change in terms. Vincent Kaintic: Okay. Great. Thank you very much for that detail. Second part I wanted to talk about was the funding structure of Atlanticus Holdings Corporation. I think we have heard maybe some broader macro concerns about funding availability out there, such as with private credit and so forth. So if you could touch on that. And another thing we have seen amongst many of the fintechs out there is some fintechs exploring becoming a bank, and so I wanted to get your thoughts on that as part of your funding structure as well. Thank you. Jeff Howard: Yeah. Vincent, happy to address that. We have got great funding partners really all over the world and they remain very supportive. We continue to access the securitization market routinely and have seen no deterioration or widening of our spreads as we approach those markets. We have diversified funding sources that include banks and life insurance companies and sovereign wealth funds and lots of different pools of capital, including private credit. We have not seen any lack of enthusiasm when we go to market. We have done a number of things with the Mercury asset that we have acquired. I think we announced at least one of those in December. That was very well received. We have got good partners in the whole program, so we do not sense that there is any softening there or support for our business. We also tap the corporate debt markets and have other places where we source capital. I think we have almost $1.0 billion of committed and undrawn bank warehouse lines across the whole business. We have got good capital support for our growth. With regard to your question about a bank, we obviously observe others that are applying for bank acquisitions or seeking new charters. We are studying that ourselves, and that is an interesting element for the industry more broadly and something that we are considering. Operator: Thank you. The next question will come from Alex Howell with Stephens. Your line is open. Alex Howell: Hey, thanks for taking my question, and congrats on the quarter. Quick question, and some of this was touched on during the opening remarks. Curious also what you guys are thinking about, or how you are rather thinking about, this particular tax refund season and the implications to the portfolio and just growth of receivables over, I guess, the start of this new year. Jeff Howard: Yeah. Listen. Our expectation is that this is going to be a fairly robust tax season. We have not seen anything to dissuade us of that view up to this date. We obviously recognize a number of tax policies that were enacted that we believe will benefit our consumers, and we expect to see the paydown accordingly, which will obviously hurt balances a little bit and slow our growth in the quarter, not necessarily year over year, but certainly in sequential quarters. It also has the longer-term benefit of reducing delinquencies. We feel very good about the way our portfolio is positioned. Like I said, the data that we are seeing suggests that tax season is in line with expectations, and it will follow its normal seasonal trends is our expectation. In consumer behavior throughout the rest of the year, our consumers will typically pay down with their tax dollars and tax refunds, then reborrow over the course of the year and rebuild those balances through the use of our card throughout the remainder of the year. We do not expect anything different at this point. Alex Howell: Okay. If I could just also sneak another one in. In your filing, you guys talk about customer concentration. I am just curious if you could provide a little bit more context on a particular relationship with your largest partner and how that relationship has evolved, and what you are doing to manage concentration risk? Jeff Howard: Yeah. Thanks for the question, Alex. We have a number of, well, frankly, thousands of merchants that we work with within our retail point-of-sale channel. Some of them have bigger concentrations than others. Obviously, you see the table in our 10-K. We have not disclosed who those individual partners are, but I think the scale and the way that that has grown is reflective of how we approach that whole market. It is very technology driven. The integration with each of our merchant partners is very sophisticated, very API driven, and very mobile first. That really enables us to make great underwriting decisions in partnership with our account owner banks at the point of sale, and it gives us a lot of defensive moat in that operating structure. I would say all that as an example relates to how that relationship has scaled because for at least six or seven years, we have been adding great value to that partner, like we do with all our partners, and we have been winning more and more market share with them and others. That has been a good growth story for us. It is not a concern from our perspective from a concentration perspective, because that one partnership is a part of a bigger portfolio, which in turn is a part of a bigger balance sheet. We have good underwriting of the individual consumers that we support there, and good counterparty risk with that merchant as well. So not an area that we are concerned about. In fact, I think it is the continuation of our ongoing strategy for us to become more strategically important to fewer, more enterprise-level clients, so that we can get the full benefit of our custom solutions, our technology integrations, the breadth of underwriting, and create something that is really customized to each of those enterprise-level relationships. That is what you see as our portfolio has matured. Alex Howell: Alright. Thanks for taking my question, guys. I will hop back in the queue. Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone. The next question will come from David Sharp with Citizens Capital Markets. Your line is open. Zach: Hi, everyone. Good afternoon. This is Zach on for David. Thanks for taking our questions. I wanted to dig in a little bit on the macro side of things. Obviously, there is a lot going on with oil prices right now. I want to see if we can get some more commentary on that, and also obviously, that is a large part of your average customer's budget. There were a lot of similar dynamics in 2022, and I want to see if it is a little bit too early to read into what is going on right now versus then, or if we can draw other parallels. Jeff Howard: Yeah. Great question. Thank you. We, like you, draw the same parallel to 2022. We are not forecasting or pretending that we know how to forecast what gas prices are going to do in the coming weeks or months. But we are watching it very, very closely and will react to any change in behavior that we see with our consumer just like we did in 2022. You may recall that we were very early to identify change in behavior coming out of tax season in April 2022 and changed pretty meaningfully our underwriting, our approach to market, our pricing strategy, our origination tempo, even our existing back-book pricing, and undertook a meaningful change in terms and repositioning of our own portfolio because of what we saw very early on based on our, at that point in time, 25 years’ worth of data aggregation to identify deviations from expected payment performance. When we saw that, we changed very, very quickly. That allowed us to continue to serve our customers in a way that we felt was representative of the risk and getting an appropriate return on that capital. As you look back at our financial performance, it still enabled us to hit our target return on capital of 20-plus percent. We feel we are in the same position today. Obviously, this inflation bubble might be more limited to gas prices, at least short term, than what we experienced in April and May and June 2022. But we are going to watch the data, and as soon as we see a change in behavior, we are going to react accordingly. We obviously have a pretty deep toolbox available to us and a lot of experience on how to make changes once we see changes in that behavior to respond to it appropriately. We feel like our portfolio is very well positioned to absorb that as well. We do not wait on changes in behavior to start pricing for that behavior. We have been doing this long enough to know that you have to price your asset for through-the-cycle performance, meaning in the good times you have to build some buffer for when there is some stress. We feel like we have done that and have been planning for events like this. When we actually observe it taking place, we will take further action based on tools that we have developed over our now 30 years of operating history. Zach: Got it. Thanks for the color. I wanted to also ask a little bit on the fair value mark to see if we can drill down a little bit and get a little bit more insight into it, particularly around the mix versus other impacts in the number. Bill McKamey: Yeah. Happy to talk about that. As I think I mentioned in my comments earlier, we took the mark down a little bit because the Mercury portfolio is a little different asset than the one that we had traditionally acquired or originated through our normal organic originations, and then we did a lot of organic originations in the third and fourth quarter too. As I mentioned in my comments earlier, newer receivables are new to their seasoning and their life cycle. We have a little bit more conservative—actually, we have a very conservative—approach to our fair value underwriting since we adopted fair value, and I think that is really what you see in this number. The number is some 60 basis points or so below where we were last quarter. It is really a very conservative approach to how we think about the asset itself. Then, as we also mentioned, as our improvements to the Mercury book and our continuing origination and tempo advances through 2026, we anticipate seeing that fair value mark improving. Zach: Got it. Thank you very much. Operator: Thank you. The next question will come from Hal Goach with B. Riley Securities. Hal Goach: Hey. Thank you. Thanks for the call. I have one question on integration costs and one on maybe a revenue question. You mentioned maybe an 18-month timeline to get everything on a similar system-of-record integration. From start to finish, what kind of overall dollar savings of being on a common system of record bring the company over the next year versus where we are at today? Jeff Howard: Yeah. Good question. We do not disclose the specifics of those synergies. But I think, as you saw when we announced the transaction, we anticipated somewhere between $2 and $4 a share in accretion on a go-forward basis. Suffice it to say, there are meaningful savings to be garnered from the full integration of two—close-to-scale platforms—and getting one significantly scaled platform in place. That extends well beyond just a system of record into servicing and marketing, internal cost, etc. We feel like there are a lot of levers for us to pull to continue to gain efficiencies through that scale and through that integration. Again, I would refer back to our initial transaction disclosures where we said we felt like we had $2 to $4 a share of accretion in 2027. Hal Goach: Okay. And the next question is, it sounds like you have a chance to reprice some customers. As you mentioned, the CARD Act and some protected balances are going to run off. What kind of increase in overall yield might that be for some of those accounts that might be able to be repriced a little higher or better unit economics if the balances do run off? What would that be? Jeff Howard: Yeah. Great question. As you can imagine, given the sophistication of our data and analytics and the experience we have in both near-prime and subprime, the impact varies widely depending on where you sit in the risk spectrum. It is hard to say at the portfolio level what that might mean. We have not disclosed that. But we felt like from day one, we could get 100 to 350 basis points of ROA improvement on this portfolio. Hal Goach: Okay. Okay. And I guess one follow-up. It relates to the tuck-in acquisition of the Vibe portfolio from Prague Holdings. That was a subscale kind of operation for Prague, and it was not that profitable. I was just curious what Atlanticus Holdings Corporation can do with its expertise in card programs to improve the unit economics of that program that was not very large. Jeff Howard: Yeah. Another good question. Thank you. One of the things that we did was buy it properly, and therefore, create a little bit more yield for the asset based on the purchase price. Two is our servicing costs are substantially less than the sellers’ just because of the scale that you referenced. Thirdly, we also have the opportunity to get more organic originations through the partnerships that we inherited at prices that we were then able to determine worked for us. We felt like the combination of those three things got us a return profile for that acquisition that we deemed attractive. Hal Goach: Alright. Terrific. Thank you very much. Operator: Thank you. The next question will come from Alex Howell with Stephens. Your line is open. Alex Howell: Hey again, guys. Quick question on the private-label receivables, the delinquency rates. You guys call out that you do not include certain receivables from the private-label card business. Just curious if you could help me understand the thinking behind that and, perhaps just for comparability’s sake, help me understand what the delinquency metrics might look like if they were included. Bill McKamey: Yeah. Happy to speak to that. We make that reference because some of our merchant relationships have support from the merchant with regards to asset performance. In some cases, the merchant will reimburse us for principal losses in that program. Because there is no loss experience, no expected loss experience, nor any actual loss experience with those particular receivables, we do not include them in those ratios. We are trying here to present what we think is an accurate description of how the assets are performing. Including those receivables here would be, I think, confusing with regards to how the asset is actually performing. So those assets we do not include in that table. I do not know how—we have not broken them out in terms of size or impact—so I do not know if I can directly answer your question with regards to what would they look like if they were included, but they would be different because there are no losses there. That is how we think about it. Operator: This does conclude today's question-and-answer session. I would now like to turn it back to Jeff Howard for closing remarks. Jeff Howard: Yeah. Thank you, and thank you all for your interest and support in our company. We are obviously very pleased with the quarter that we have posted and, obviously, the year as well. A lot took place in 2025 in terms of both organic opportunities and the transformational acquisition that we spent a good deal talking about. As much as there was to talk about in 2025, we are even more excited about what lies ahead and the opportunities for our business and the earnings power that we have created in this platform over the course of the last five years as we referenced in some of our prepared comments. We look forward to sharing the results of those opportunities in the coming quarters. So thank you all again, and thank you for your interest. We look forward to talking to you again in the next quarter. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.