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Operator: Good day, ladies and gentlemen, and welcome to The Toro Company's Fourth Quarter Earnings Conference Call. My name is Gigi, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of today's conference. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Heather Lilly, Vice President, Corporate Affairs and Relations. Please proceed, Ms. Lilly. Heather Lilly: Good morning, everyone, and thank you for joining us for The Toro Company's Fourth Quarter and Year-End 2025 Earnings Conference Call. I am Heather Lilly, Head of Investor Relations. On the line with me today are Rick Olson, Chairman and Chief Executive Officer, Edric Funk, President and Chief Operating Officer, and Angie Drake, Vice President and Chief Financial Officer. Rick, Edric, and Angie will provide an overview of our fourth quarter and full year results, which were released earlier this morning, and discuss our priorities and outlook for fiscal 2026. Following their remarks, we will open the phone lines for a question and answer session. As a reminder, any forward-looking statements that we make this morning are subject to risks and uncertainties, including those described in today's earnings release, investor presentation, and most recent SEC filings, and may cause actual results to differ materially from those contemplated by these statements. Also, in our remarks, we will refer to certain non-GAAP financial measures, which we believe are important in evaluating the company's performance. Reconciliations of all non-GAAP numbers to the most directly comparable GAAP numbers are included in this morning's press release, which, along with the fourth quarter presentation containing supplemental information, is posted in the Investor Information section of our corporate website. With that, I will turn the call over to Rick. Rick Olson: Thanks, Heather, and good morning, everyone. Our team remains focused on leveraging our diverse portfolio of leading brands, controlling what we can control, and driving operational excellence. In doing so, we delivered fourth quarter sales and adjusted EPS that exceeded our expectations. We achieved a full-year professional segment earnings margin of 19.4%, demonstrating the resilience and quality of our core business that represents about 80% of our portfolio. We generated record free cash flow of $578 million, a conversion rate of 146%, returned $441 million to shareholders through dividends and share repurchases, increased our AMP savings target to $125 million by the end of 2026, and continued investing in technology and innovation that enhance our customer productivity. We beat our sales expectation for the fourth quarter, reporting consolidated net sales of $1.07 billion. Fourth quarter Professional segment margin grew to 19.2%. This increase was driven by sustained momentum in the underground construction business and better-than-anticipated growth in snow and ice management. Adjusted diluted earnings per share for the fourth quarter were $0.91. This reflected year-over-year earnings improvement in both segments, offset by higher expenses related to the restoration of employee incentive compensation. For the full year, we hit the higher end of our net sales guidance, reporting total consolidated net sales of $4.5 billion. That was down 1.6% from fiscal 2024, with a significant portion of this decrease attributable to the strategic divestitures of company-owned dealers and our pulp product line. We delivered adjusted earnings per diluted share of $4.20, beating both our current year EPS guidance of about $4.15 and $4.17 reported last year. These results were incredibly strong, given the challenging environment of the past two years. Through our focus on key growth markets and deliberate efforts to improve productivity, we are strengthening our competitive position and accelerating our performance. Specifically, we continue to invest in our golf and grounds, underground specialty construction businesses, reflecting the multiyear secular growth trajectory we anticipate for those markets. Our acquisition of Tornado Infrastructure Equipment, which closed last week, is a great example of the strategic investments we are making to better serve customers facing complex infrastructure projects. Tornado is a leading manufacturer of vacuum excavation and industrial equipment solutions for the underground construction, power transmission, and energy markets. Their products are designed to safely excavate around critical infrastructure to minimize the risk of damage. We are excited to expand our geographic presence and product portfolio as we welcome Tornado to The Toro Company. Additionally, we continue to protect both our profit margins and market competitiveness through significant productivity improvement and thoughtful net price realization. Our multiyear Amplifying Maximum Productivity, or AMP, program has already delivered annualized run-rate cost savings of $86 million. Some of the actions that are driving these savings include strategic facility closures, reducing our operational footprint by more than 1 million square feet, a reduction in salaried workforce of nearly 15%, and divestitures of non-core businesses and product lines totaling approximately $60 million in revenue. These actions, combined with thoughtful supply chain strategies and selective price increases, enabled us to mitigate the effect of tariffs and maintain strong margins in fiscal 2025. Additionally, we are pleased to announce that we are increasing our AMP run-rate savings target to $125 million or more by 2026, up from our original target of at least $100 million. We are also carefully managing inventory levels across the spectrum, from raw materials to finished goods. As our lead times have recovered to more normal levels, customers are ordering closer to need, positioning us for a clean start as we enter 2026. Largely due to improvements in working capital, our free cash flow for the year was a record $578 million. This resulted in a free cash flow conversion rate of 146%. We continue to launch products at the forefront of innovation in alternative power, smart connected products, and autonomous solutions that differentiate our offerings and drive significant customer value. Our autonomous GeoLink fairway mower is receiving very positive reviews. It is another excellent example of our expanding technology portfolio. In particular, golf course and commercial customers who are facing labor shortages and budget constraints have expressed their excitement about the tremendous efficiencies inherent in the mower's autonomous capabilities. Customers are also enthusiastic about our Toro Grandstand Multiforce, a stand-on mower that allows them to attach a plow, power broom, and bagging system. The result is higher productivity across all seasons. For landscapers and homeowners with acreage, we recently introduced our X Mark Radius, a zero-turn mower with product styling and features that mirror the highly successful Lazer Z. Collectively, our actions are enhancing our customer productivity, strengthening our operations and market-leading position, and sustaining our profitable growth. I want to thank our employees and channel partners for their diligence in advancing our product innovations and technology-driven solutions and supporting our efficiency initiatives. Now, Angie will share additional insights for our fourth quarter and full-year results and provide our outlook for 2026. Angie Drake: Thank you, Rick, and good morning, everyone. We delivered strong fourth quarter results that exceeded our expectations and demonstrated the strength of our diversified portfolio, market-leading innovation, and commitment to operational excellence. As a result, our full-year 2025 sales and earnings also outperformed our guidance. Both the Professional and Residential segments contributed stronger-than-anticipated sales across multiple businesses, which drove favorable year-over-year operating leverage in the fourth quarter. Professional segment net sales in the fourth quarter were $910 million, virtually equal to last year's exceptionally strong performance. Net price realization and higher shipments of underground and snow and ice products nearly offset anticipated lower shipments in golf, ground, and zero-turn mowers, as well as the impact of prior year divestitures. Professional segment earnings for the fourth quarter were $174.7 million, up 2.9% year-over-year. The resulting earnings margin in the quarter was 19.2%, up 60 basis points from last year, primarily due to net price realization and productivity improvements. This was partially offset by higher material and manufacturing costs and lower net sales volume. For the full year, professional segment net sales, which comprise about 80% of the total company, rose 1.9% to $3.62 billion. Full-year Professional segment earnings were $702.5 million, and earnings margin was 19.4%. This was up from $638.9 million and 18% in fiscal 2024, underscoring our commitment to cost improvement and our purpose for cost reduction measures. In our residential segment, fourth quarter net sales were $147 million, which were 5.1% lower than the prior year but exceeded our expectations due to net price realization and higher shipments of snow products, reflecting channel enthusiasm for preseason stocking. Additionally, through our deliberate measures to reduce costs, improve productivity, and achieve pricing, we delivered higher-than-expected fourth quarter residential segment earnings and outperformed prior year results by $13 million. For the full year, residential segment net sales were $858.4 million, down 14% from the prior year. Full-year earnings were $35.8 million, 4.2% of segment net sales. This compares with fiscal 2024 earnings and earnings margin of $78.4 million and 7.9%, respectively. Now turning to our consolidated results for the fourth quarter and full year. Consolidated net sales for the quarter of $1.07 billion were down 0.9% from Q4 last year, due to lower shipments in both segments and prior year divestitures, partially offset by net price realization. For the full year, net sales were $4.51 billion, essentially in line with 2024 net sales, adjusting for the impact of divestitures. Our fourth quarter adjusted gross margin of 34.5% improved from 32.3% in the prior fiscal year, primarily due to net price realization and productivity improvements, partially offset by lower net sales volume, higher material and manufacturing costs, and product mix. Full-year adjusted gross margin was 34.1%, compared to 33.9% in fiscal 2024. This increase was primarily due to net price realization and productivity improvements, partially offset by lower net sales volume, higher material and manufacturing costs, and inventory valuation adjustments. SG&A expense for both the quarter and the year was 22.5% of net sales, a 30 basis point increase from Q4 a year ago and up 80 basis points from full-year 2024. The change for both periods was primarily due to lower net sales volume, partially offset by cost savings. In summary, our fourth quarter adjusted earnings per diluted share were $0.91, compared to $0.95 in the prior year. The change was driven by higher expenses related to restored employee incentives, mostly offset by an increase in both professional and residential segment earnings. For the full year, adjusted earnings per diluted share were $4.20, compared to $4.17 in fiscal 2024. Primary drivers include higher professional segment earnings and share repurchases, partially offset by lower residential segment earnings. Turning to our cash flow and balance sheet. Our free cash flow for the year was a record $587 million, a meaningful year-over-year increase that was largely due to net favorable changes in working capital. This resulted in a free cash flow conversion rate of 146%. Additionally, we returned $441 million to shareholders in fiscal 2025 through dividends and share repurchases, demonstrating continued confidence in our ability to generate cash and our commitment to value creation. Our balance sheet remains strong and continues to provide financial flexibility. Our leverage ratio of 1.3 times is healthy and well within our stated target range. We continue to take a disciplined approach to capital deployment by prioritizing strategic investments to drive profitable growth through both organic opportunities and acquisitions. We have generated strong positive momentum in our return on invested capital. Looking ahead to fiscal 2026, we are thoughtfully balancing the strengths and growth opportunities within our businesses with the ongoing pressures of the macro environment. We are excited about our recent acquisition of Tornado and the longer-term growth trajectory of the vacuum excavation industry. We are poised to execute on the continued strong demand for our underground construction business. This demand is being driven by new infrastructure installation projects and ongoing maintenance of existing networks. We are continuing to leverage our leadership in golf course equipment and irrigation and are being proactive in attracting new customers and opportunities for our grounds business. Recent snowfall in key regions across the country is an encouraging sign, and we are prepared to capitalize on the favorable weather trends. We remain committed to delivering on our new higher AMP target by 2027. At the same time, we remain cautious about macro factors, including inflation and interest rates, that may continue to pressure consumer confidence. However, we believe the steps we have taken position us well to benefit as the environment improves. For fiscal 2026, we expect annual total company net sales to rise 2% to 5%, reflecting professional segment sales that are expected to grow mid-single digits and residential segment sales that are expected to decline low to mid-single digits. We anticipate total company adjusted gross margin to improve in 2026, underscoring the strength of our business model and our ability to navigate cost pressures while continuing to invest in innovation. We expect this adjusted gross margin improvement, combined with our continued focus on productivity and prudent management of tariffs and other inflationary pressures, to drive higher adjusted operating earnings margin for the year. This total company outlook reflects a range of 18.5% to 19.5% professional segment earnings margin in 2026 and a range of 6% to 8% residential segment earnings margin as we build on our 2025 progress. Our guidance also reflects mid-single-digit earnings growth for the near term, with a clear path to higher growth over time as we execute on margin expansion and innovation priorities. As a result, we expect full-year 2026 adjusted earnings per diluted share to be in the range of $4.35 to $4.50. This assumes interest expense of approximately $65 million, an adjusted effective tax rate of about 21%, and capital expenditures of $90 million to $100 million. Furthermore, we remain committed to returning value to shareholders through dividends and share repurchases and are confident in our ability to generate cash. As we announced last week, we have raised our quarterly dividend from $0.38 to $0.39, and our Board of Directors authorized the repurchase of up to an additional 6 million shares of TTC's common stock. We expect to repurchase shares at a rate similar to last year and anticipate a free cash flow conversion rate of greater than 100% in 2026. Our outlook for first-quarter performance reflects the natural seasonality of our business and our current conservative view of economic factors, including homeowner and consumer sentiment. We expect total company net sales in Q1 to be up slightly from the prior year, with professional segment sales up mid-single digits and residential segment sales down high teens. Professional segment earnings margin is expected to be flat in the quarter, and residential segment earnings margin is expected to be lower. For the total company, adjusted earnings per diluted share are expected to be flat to slightly lower than last year's first quarter. As a reminder, from an earnings perspective, our first quarter is typically the smallest of the fiscal year and can carry seasonal cost headwinds. With the growing traction of our AMP initiatives, we expect margin momentum to build as we move through 2026. Though the environment continues to pose some challenges, we are steadfast in our approach to driving operational excellence and thoughtfully managing factors within our control. We are confident this discipline, combined with continued innovations that improve our customers' productivity, will drive sustained profitable growth and deliver meaningful shareholder value. With that, I will turn the call over to Edric. Edric Funk: Thank you, Angie, and good morning, everyone. As evidenced by our better-than-expected results for the year, our decisive actions are enabling us to increase the resilience of our business and to build momentum for future growth. We are strengthening our product portfolio and competitive positioning, strategically investing in technology solutions and markets with strong multiyear growth drivers, like golf, grounds, and underground construction. Our pipeline of new products and features that provide value for our customers is robust, and we are excited by the future potential of several innovations that are still early in their growth life cycle. For example, golf course superintendents will benefit from two new software-as-a-service irrigation products. Our LINX Drive central control system is a mobile version of our industry-leading platform that is changing the way superintendents manage golf course irrigation. It gives users increased flexibility and control, allowing them to address issues in real-time and to improve their efficiency through enhanced communication capabilities while on the move. Our AI-enabled spatial adjust software, which was released in November, integrates with Toro irrigation systems for even more precise water management. It works with turf rad soil moisture sensors to optimize the amount of water used on fairways, automatically recommending daily water application rates to achieve the user-defined target moisture level. Feedback from users who participated in our pilot program was extremely positive, including frequent mention of both improved turf uniformity and playing conditions. Driven by what we expect to be a third consecutive year of record US golf rounds played, we have experienced exceptional growth in golf equipment sales and irrigation projects. In addition to the continued momentum in golf, we are also increasing our focus on grounds opportunities within municipalities, universities, sports fields, and other markets. We are also actively pursuing opportunities to capitalize on the growing demand for underground construction equipment, which is being propelled by aging infrastructure, the growth in data centers, and energy and telecommunications projects. Our Tornado acquisition is an exciting development in this space, building on our existing relationship with Tornado as a strategic supplier to Ditch Witch. It enables us to expand our reach and capitalize on accelerated growth in vacuum excavation. Furthermore, we are executing on our commitment to operational excellence through disciplined implementation of our AMP productivity program and optimization of our global supply chain. Our efforts have helped us mitigate increases in materials and manufacturing costs, streamline our supply chain operations, and better align our production capacity with demand. We also continue to prioritize our relationships with key partners, and we are committed to building on our legacy of engagement to ensure mutual success and customer satisfaction. Last month, we hosted our Toro University hands-on training event for more than 300 members of our distributor partners who span geographies and markets. We equipped them to sell and service our new products so that customers realize the exceptional value we collectively deliver. In addition, we recently celebrated an incredible one hundred-year relationship with a key distributor partner, Smith Turf and Irrigation. This long-tenured partnership is a testament to the importance we place on building and sustaining strong relationships. As we look ahead, the factors that contributed to our growth for one hundred and eleven years continue to be critical drivers of our performance. Investing in growth markets and innovation, maintaining our operational discipline and focus on productivity improvement, and keeping our customers' needs front and center with support from loyal partners. All of these remain key priorities of The Toro Company's strategy and culture, and they are absolutely foundational to our future success. Now Rick has a few closing remarks. Rick Olson: Thank you, Edric. To close, I want to emphasize our confidence in The Toro Company's trajectory. The steps we are taking to enhance our customers' performance and increase our efficiency will strengthen our competitive advantage and drive continued profitable growth. In addition, we are being proactive and purposeful as we maintain a disciplined approach to capital allocation, balance sheet flexibility, and strong cash flow. Together with our strategic focus on key growth markets and operational improvements, these actions give us confidence that The Toro Company is positioned to deliver significant value to all our stakeholders for many years to come. Now, Edric, Angie, and I would be happy to take your questions. Operator: Thank you. Ladies and gentlemen, if you wish to ask a question, please press star, followed by one. If your question has been answered or you wish to withdraw your question, please press star, followed by one again. The first question comes from the line of David MacGregor from Longbow Research. David MacGregor: Yes. Good morning, everyone. Congratulations on the strong quarter. Rick Olson: Thanks, David. Good morning. David MacGregor: Good morning. I wanted to start off by just asking a couple of questions around the guidance. The sales growth, 2% to 5%, Tornado is going to add a couple of hundred basis points. I am guessing you got a couple of hundred basis points of pricing in there as well. The implication for volume is still, I guess, a negative outlook. Can you just kind of walk us through the individual lines of business and just talk about the volume expectations for next year? Even if just anecdotally rather than quantitatively? Rick Olson: Yeah. Sure. I can walk through a few of those. First of all, you did point out a good portion of the growth on the top line is due to the Tornado acquisition. But organically, we also can see continued strength on the pro side with the underground business continuing to be strong. Golf will continue to be strong, as we talked about in the prepared remarks. And really starting last quarter, but again, this quarter, we see the landscape contractor, particularly the true contractors, not as much the homeowner with acreage, but the true contractors through our Exmark brand, for example, really coming back strong and contributing to growth. We expect that to continue. On the residential side, this has been an extraordinary cycle that we have gone through. It started at the beginning of COVID. If you could just draw that sine wave, you know, the cross point where it crossed the midpoint was really the 2023. So that homeowner business has kind of been in recovery since then. And we are at the right side of that curve on the way back, but the rate at which that happens really will be determined by things like consumer confidence, the macroeconomic environment, interest rates, and so forth. So we have built a little bit more muted expectations on that side. So it is really a combination of all of those things. That is what we are looking at for next year. We have built in our best estimates. We have included the strong start to snow, but as that plays out through the rest of the season, that could be a positive for us if that trend continues. But we have worked everything into our guidance at this point. Does that answer your question, David? David MacGregor: Yeah. If I could just maybe drill in on the residential, though, for a moment. You are guiding first quarter down high teens. I am guessing you know, you are factoring in some kind of an improvement here because you are guiding the full year down low single to mid-single digits. So I guess just what do you see improving in residential in 2Q through 4Q? Are you expecting a restock in the channel to help you out there? Just maybe talk about how you are thinking about that guide improvement. Rick Olson: Yeah. Go ahead, Angie. Angie Drake: I was just gonna jump in and say, yes, we are comping to 8% down in the prior year, but we do expect some continued homeowner caution, as Rick mentioned, with the macro environment continuing to be what it is. But we have seen continued progress on productivity and cost savings, which are going to help our margin a little bit. But overall, snow, as Rick mentioned, could be favorable to us in residential as we have seen some, you know, we have got some encouraging signs helping us right now. David MacGregor: Okay. Maybe I could shift and just ask you a couple of questions around the AMP program. You have popped up the guide from $100 million to $125 million, so congratulations on the progress there. I mean, can you just talk about the source of the extra $25 million that was not in the first phase that you now see as being achievable? And do you need volume growth to get to that kind of performance? Angie Drake: Yes, thank you for asking. We continue to be really excited about the AMP initiative that we started in 2024. And did raise that target to have full run-rate savings by '27 to $125 million. We are going to see that savings continue to come from the work streams that we had talked about initially. Those are really supply-based, designed to value, route to market, and then our operational efficiency. We made significant improvement in F25 and we will continue to see, you know, it just achieved better results than we expected to through F25. And so the momentum, we are going to continue to see that go forward. And we do not believe we need increased volume to get that. We have got a lot of engines working in that initiative right now and want to continue on that momentum. David MacGregor: Great. And initially, you had thought you would take 50% of the gains to the bottom line, the other 50% would be reinvested. Could you just update us on where you are with that as of today? And how that target might change, evolve with the increase in the goal to $125 million? Angie Drake: Sure. Yes, we really expect to continue the same and reinvest up to as much as 50% of that. We probably had to over-index a little bit on the investment in the last couple of years, especially in F25, just due to the headwinds that we saw with tariffs, inflation, some transition expenses with some of our product moves and network optimization. But what we did continue to do is also take some of those funds and reinvest in innovation and technology to set ourselves up for future growth. So we would expect to continue to see that savings be somewhat reinvested up to the 50% level. But we have realized $75 million of those savings in F25. And through the program to date, almost $80 million. David MacGregor: Right. Great news there. Last question for me. Just how you are thinking about raw material costs for '26? Thank you. Angie Drake: Yes. So from our raw material costs, we expect to see some inflation early in the year, maybe kind of settling out about midyear. But overall, we have built all of those things to the best of our ability into our guidance. David MacGregor: Thanks very much. Rick Olson: Thanks, David. Operator: One moment for our next question. Our next question comes from the line of Joshua Wilson from Raymond James. Joshua Wilson: Good morning, and thanks for taking my questions. Rick Olson: Good morning, Joshua. Joshua Wilson: First, could you run through the different product categories and give us a sense of where channel inventories currently stand? Rick Olson: We could go through each segment, but just overall, I would say, especially relative to the commentary for the last couple of years, we are in good shape from a channel inventory standpoint. Residential, it is very much tied to the earlier comments about how that flows this year and the rate of recovery. But, really, across the board, we are in good shape from a field standpoint. That helps us. For example, when we talk about snow, the field inventory is in a good place, so we should see the benefit of snow plays out. We really saw the benefit of that in the fourth quarter. Where our especially our commercial contractors, we are seeing the outlook for snow and started to order because field inventory was in a better position that translated into orders for us. On the underground side, we are back closer to a better healthy position there, slightly lower than it should be. And the rest of the rest of the business, I would say, businesses, I would say, are in normal range. If you took an individual model here and there, it would be plus or minus from where you would like to have it, but much closer back to normal operating with the field inventory. So we are in good shape with field inventory. Spend a lot of work by a lot of people to make that happen, but we are in good shape today. Joshua Wilson: That is good to hear. And I know you said your lead times have normalized. Could you give us a quantification of where your backlog was in the year? Angie Drake: Yeah. We actually had backlog improved by $100 million year over year. We typically give those results at the end of the year. And last year, we were sitting at $1.2 billion. So had a $400 million improvement in backlog. So overall, we feel like we are in really good shape. It is, you know, probably even still a little elevated to where we thought we would be at this time last year. But very strong demand continues in golf and ground, underground construction, and in our other businesses. And, you know, one of the key points there, I think, is that our lead times have come in. So folks may not be ordering and putting their orders on as far out as they once were, because just as a reminder, that is really all open order at that point in time. Rick Olson: That really reflects our improvement in lead time. So we are lead times in some categories that were out two years. We are now able to deliver more closer to normal historically, sixty, ninety days type of period. So the confidence, we are gaining back the confidence of our customers to be able to order when they need it. Joshua Wilson: And then looking at the 26 margin guidance for professional, of 18.5 to 19.5 versus the 19.4 you just reported, what are the positives and negatives that are leading you to that range? Year on year? Rick Olson: Yeah. On the positive side, some of the same benefits that we have seen from AMP that we have talked about, some of that will be offset with mix that is not quite as strong in '26 as it was in '25, and that just has a lot to do with which product lines we prioritize in production and ultimately ship to the field. Angie Drake: And then the other thing I would add is just the addition of Tornado. So we will see some top-line growth from Tornado in the professional segment. However, it is not being fully accretive to the operating margin in the first year just due to acquisition costs and transaction costs. However, it is accretive to EBITDA. Joshua Wilson: Got it. Thanks. Operator: Thank you. One moment for our next question. Our next question comes from the line of Ted Jackson from Northland. Ted Jackson: Thanks. I have a couple left. So congrats on the quarter, first of all. Rick Olson: Yeah. Ted Jackson: I mean, I want you to know that I own two Toro snow blowers, and they have been getting heavy use so far this year. Heavy use. Rick Olson: Fantastic. You cannot own enough. Two is not enough. Ted Jackson: So first of all, the performance, you know, you had a step up in incentive comp this year. I mean, that is a good problem to have. When you look at your guidance for '26, what are your assumptions around incentive comp? How does that compare to '25? Angie Drake: Yeah. Great question. That was a change as you look at Q4 year over year. Corporate expenses were a bit higher because of the easy comp that we saw in F24 because of incentives being restored. We have built back in normal incentive plans for our F26 plan. So those coming back in at a normal rate, which they have not been or were not over the past couple of years. Ted Jackson: And what would like, if we were to say, like, a normal rate like, I do not know, some kind of percentage? Like, how would you define that just to kinda give us a baseline? Angie Drake: Well, we typically try to budget those or build those into guidance at 100%. So, that is what, you know, whatever those incentive targets are, that would be 100%. Ted Jackson: Okay. And then I am just shifting over to tariffs. You know, I mean, you provided some good color with regards to your expectations of their impact for this coming fiscal year and then, you know, what you have seen in the last few fiscal years. As you kinda look through those assumptions, maybe give some highlights in terms of what is driving that and, you know, where you might see any kind of, you know, areas that could, you know, you could further mitigate that impact and what that might be. And then just how you know, given how fluid tariffs have been over the year, maybe just the confidence level you feel with regard to that outlook? That is it for me. Thank you. Rick Olson: Yeah. Maybe just overarching. First of all, we have had a very focused team working on tariffs since the latter part of 2024. Anticipating tariffs. And throughout '25, as we mentioned in the remarks, we were able to offset the effect through productivity strategic moves, through, you know, selective price increases to be able to offset. As we look forward, so in 2025, we had a total of about $65 million in tariffs that included $20 to $25 million that were there all the way back to 2018. If we look at the same number for 2026, that number is about $100 million, and it really primarily reflects a full year of the tariffs that we experienced in 2025. Plus a small factor of a few additional tariffs. If you break that down for 2026, it is roughly 50% -ish, a little bit more than that is, February primarily steel and aluminum tariffs. The second largest category would be China-related tariffs, and we have a small exposure to China. We systematically reduced that exposure since 2018. But still, due to the size of the tariff, it is number two, but it is somewhere in the 15%, something like that. The remainder are general tariffs across different countries, the reciprocal tariffs. So that is kind of how it breaks down. With regard to variability of tariffs, we will be making sure that we understand the two thirty-two and some of the details of how those are calculated, make sure that we are accurate and optimized to mitigate those to the best of our ability. And then, you know, part of what you mentioned, Ted, in terms of the unknown of tariffs is built into our guidance. So it is reflected, you know, that there could be variability. We do not have the worst case built in. We do not have a best case built in either, but it is reflected in the way that we have guided for next year. Ted Jackson: Okay. Thanks for the answer, Rick. Congrats again on the quarter. Rick Olson: Thank you. Operator: Thank you. This concludes the question and answer session. Ms. Lilly, please proceed to closing remarks. Heather Lilly: Thank you, everyone, for your questions and interest in The Toro Company. We look forward to talking with you again in March to discuss our first quarter 2026 results. Operator: Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.
Operator: Hello and welcome to the General Mills, Inc. Second Quarter Fiscal Year 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I would now like to turn the conference over to Jeff Siemon, Vice President, Relations and Corporate Finance. You may begin. Jeff Siemon: Thank you, Sarah, and hello to everyone. Thanks for joining us today for our Q&A session on our second quarter fiscal 2026 results. I hope everyone had time to review our press release, listen to our prepared remarks and view our presentation materials, which we made available this morning on our Investor Relations website. Please note that in our Q&A session, we may make forward-looking statements that are based on management's current views and assumptions. Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call. I'm here today with Jeff Harmening, our Chairman and CEO; Kofi Bruce, our CFO; and Dana McNabb, Group President of North America Retail and North America Pet. Now let me turn it over to Jeff for some opening remarks. Jeffrey Harmening: Thanks, Jeff, and good morning, everybody. When we started this year, our primary goal was to increase organic sales, and to do that in conjunction with continuing to outperform on holistic margin management (HMM) and our transformation initiatives. And those are all reflected in our 3 priorities for the year. And as you look at our Q2 results, I'm pleased to say that we're really executing well against all of those. We continue to see improvement in our organic sales and continue to do that very efficiently through our HMM efforts and our transformation efforts. Jeffrey Harmening: In particular, I look at North America Retail (NAR). We said we would improve our North America Retail volumes through the remarkability framework, and that's exactly what we've done. And part of that is pricing. We set strategic base price adjustments on base pricing and to get under price cliffs. And 90-plus percent of what we've done in pricing that we started talking to you about a year ago has worked as well or better than what we had thought. So we're pleased with that. But Importantly, the remarkability framework doesn't just stop with pricing actions. Our new product innovation is better. We expect it to be up about 25% this year. We've got a good lineup in the second half. Our product news is really good. Our events have worked harder for us, and our media ROIs are up. And so as I think about our North America Retail business, it's not really an accident that we're growing pound share in 8 of our top 10 categories so far this year. And so I'm really pleased with the way North America has improved its momentum this year, in particular, how we've seen improved momentum in the second quarter. Jeffrey Harmening: Then on North America Pet, we said we had to do a couple of things. We need to improve our core business at the same time, incorporate Love Made Fresh. I know there's a lot of emphasis on Love Made Fresh and rightly so. But I'm pleased with our base business performance. As I look at our Life Protection Formula, we're back to share growth on that. Our Cat business is growing mid-single digits. We're up in pound share on our treats business. We have some more work to do on Wilderness. But otherwise, our Pet core business has gained a little momentum, too, and we're pleased with that. And so as we look at Love Made Fresh, I'm just exceptionally pleased with the way we've started. Jeffrey Harmening: We're executing very well. We said we'd be in about 5,000 coolers by the year-end. I heard yesterday morning that we're in 4,658. So we're well on our way to that 5,000, and we'll get there by the end of January. And our Love Made Fresh launch has reached about 5% market share and our earliest first wave customers. We prioritize having plenty of inventory across our business in Love Made Fresh, because we know the trial is so important for our business. 4.8 out of 5 star ratings on our products. We'll put on additional customers in distribution in the third quarter, as well as launch a new format of the standup resealable pouch. And then as we talk about HMM, we're tracking another 5% of HMM this year. Jeffrey Harmening: And so as we look to the second half, the job to do really is to keep the momentum on the top line, and we plan to do that as well as then turn the corner on profitability. And as we look ahead, we expect top line improvement in the second half and then profit growth in the fourth quarter, thanks in part to favorable trade timing and the 53rd week. So with that, I'll open it up to questions that you all have. Jeff Siemon: Great. Sarah, so let's go ahead, and you can start the Q&A. Operator: [Operator Instructions] Your first question comes from Peter Galbo with Bank of America. Peter Galbo: Jeff, I just wanted to pick up on maybe some of your commentary just now in terms of the sustainability of the volume growth in North America Retail. I think there was mention of a bit of maybe some shipment timing benefit in the quarter. But just want to get a sense as we start to look at the comps and looking in the back half of the year, how you're thinking about maybe the sustainability of that positive volume trajectory in North America Retail. Jeffrey Harmening: I've got Dana McNabb here next to me, so I'll have her talk about North America Retail specifically. Dana McNabb: All right. We're really encouraged by the progress that we've made in North America. As Jeff said, 8 of our 10 categories are growing pound share. Our pounds grew. But as you mentioned, we did have a little bit of shipment timing benefit. Our Nielsen pounds are about flat. And so we do expect that to unwind a little bit in the back half. So as we look to the second half of this year, we expect to continue to drive category improvement and competitiveness, which is really, I think, all we'll mention about back half to avoid giving any forward statements. Peter Galbo: Okay. No, helpful. And Jeff, I think the discussion around price cliff management and solving some of the price gaps has grown even louder in the past week with one of your largest peers also announcing some pretty dramatic price reductions. Just curious kind of how you're viewing the competitive environment, what you're expecting from some of your other peers? Just are we in a phase of the cycle where others are going to have to follow? Kind of what's been a first-mover advantage for General Mills? Jeffrey Harmening: Yes. I think it's a good question. What I would say is that we haven't really seen an increase thus far in the competitive levels within our category, which is to say that levels of discounting are about the same as they were a year ago, broadly speaking, across our categories. I think when you think about what we have done, there are a couple of things I would say. Going first is fine, but doing it well is even better. And our team has executed the pricing really well. If you think about being in 26 different categories across lots of different customers, it takes a lot to get the pricing reflected in a manner that is consistent with what you're looking for. And so we've done that really well. Jeffrey Harmening: But also, I mentioned the innovation and the marketing improvements and the product news, because those are really important too. The reason for the pricing is to make sure that the other elements of your marketing mix work as well as you want. And so as we look ahead, we feel great about the other elements of our marketing mix. And so we've got great product news coming in the second half. And as we think about it, we're not too concerned about the competitive environment based on what we've seen thus far. And importantly, on our pricing, we're not getting down to the levels of private label or something like that. We're just kind of getting under price cliffs and kind of getting within a certain range. And if you look at our price mix in North America Retail, it's down maybe about 3% or so far this year. That's after 30-plus percent increases over prior years where we had a lot of inflation. Operator: The next question comes from Andrew Lazar with Barclays. Andrew Lazar: Jeff, in your current quarter, so fiscal 3Q, General Mills starts to lap some of the pricing moves from last year. And I think you've talked about how you anticipate the sort of the gap between volume share, which has been improving, and value share, right, to begin to narrow, which is ultimately necessary to get to overall organic sales growth. So I guess my question is like what specifically should our expectations be in sort of fiscal 3Q and 4Q as to sort of how quickly this gap can narrow as we all kind of assess the scanner data moving forward? And like where would you hope to be on this score as General Mills enters fiscal '27? It sounds like you expect sustained year-over-year volume growth in the back half. How do we think about sort of price mix and particularly in light of your comments regarding the cost of volume rising a bit? Jeffrey Harmening: Yes, Andrew, I appreciate the question. I would start by saying, I mean, it's a pretty volatile environment. So I'm going to refrain from getting too specific only because there are a lot of things that can come our way. I didn't really see the government shutdown coming in the second quarter or SNAP being reduced. Having said that, we do expect improvement in the second half, and it will be based on price mix as we start to lap some of our initial pricing from last year, although it won't fully be reflected until fiscal '27. The other thing is just based on timing. I talked a little bit in my opening remarks about positive mix in the fourth quarter due to some trade phasing timing, and that will be positive in the fourth quarter. That will be a little bit negative in the third quarter. So there's a trade-off between those 2 quarters. As you look at entering the next fiscal year, I think we're going to see momentum on our core sales business. We feel good about where our pricing is and where the remarkability is kind of across our business, not only in North America Retail, but we grew in Pet this quarter, and Foodservice. But for index pricing, we would have grown 3% in our North America Foodservice business. We grew in international. Andrew Lazar: I know you're seeing some momentum, obviously, in progress in core Pet. I'm just curious what you're seeing in just the overall, let's call it, like dog feeding category. I know you've been probably hoping for that broader category to be a little bit stronger than it has been, but what are you seeing there in terms of consumer behavior? Dana McNabb: Andrew, this is Dana. I'll jump in and answer that question. If we look at the Pet category, what we'd say is the category was up about 1% in Q2. Pounds were down modestly. It continues to be cat feeding that is growing the fastest, and the treat segment has also gotten back to growth. What we're seeing in dog feeding is that it continues to lag a little bit on both pounds and dollars. And there's really 3 reasons for that. The first is that we do estimate that there's still a shift to unmeasured channels. That's about 50 basis points. We're seeing a shift towards smaller dogs, and that's weighing down pounds a bit as dogs that are smaller consume fewer pounds. And then also, we are seeing a little bit of pullback from consumers in discretionary segments such as wet dog food, which happens when the consumer is stretched. When we look to the long term, though, we still think that this is a segment that is going to continue to grow. The humanization trend will continue to accelerate that growth, and we think Blue is well positioned to win in the category. Operator: The next question comes from Max Gumport with BNP. Max Andrew Gumport: It's nice to see volumes turning positive in the quarter on the back of your investment in Retail and also to hear the continued confidence you have in this continuing in the back half. I guess what I'm trying to get a sense for is, one, if you have an update on your thinking on the ability for volumes to stay positive after you lap these price cuts? And then two, as you look at the investments you've got in the business through the first half, whether you think it's been enough, or you might go back to the well next year as well given that they are working. Dana McNabb: Well, as I think about the North America price investments, again, we are really pleased with the progress. We are seeing pounds improve. What we had said is that we are going to adjust prices on 2/3 of our portfolio, and that would be done by the end of Q2. And as we look at performance, almost 90% of where we've added that price investment is at or ahead of what we modeled. Of course, we'll continue to monitor the environment. If we think we need to add more, we'll consider it. But at this point, we believe that our price is at the right place where it needs to be. And again, it was about getting those prices at shelf to be at the right spot under key cliffs and manageable gaps to the competition. Dana McNabb: And now as we turn to the back half, it's about once your prices are in the right place, is the rest of your remarkability framework strong? And we really like our plans and how they're working when these prices are right. So as Jeff said, our new products are performing very well. We're on track to be up 25% versus last year. We have strong news. Our advertising content and ROIs are significantly improved, and they're up. And we have strong advanced plan to get good in-store and online support. So again, winning in the back half is not just about price, it is about remarkability, and I think we're well positioned to continue to improve. Max Andrew Gumport: Great. And then just one follow-up with regard to the over-delivery on profit in 2Q. So it sounds like you would say it's essentially going to unwind in 3Q given the timing benefits you laid out in the prepared remarks, versus consensus, you had about $0.08 of outperformance in the quarter. So would it be fair to say there could be $0.08 coming out of 3Q and EPS might be down, roughly speaking, 20% or so year-over-year? Kofi Bruce: Yes. I appreciate the question, and I will try to give you clarity. I think the underlying for us is that against our own internal expectations, we saw favorability due to the 3 factors I mentioned in my prepared remarks. North America saw supply chain favorability, primarily driven by inventory absorption in the quarter, stronger international performance on both top and the bottom line, a portion of which was timing related, and a modest, about 0.5 point of shipment timing benefit in NAR, which Dana covered earlier. We do expect all of those to reverse. So that favorability that we saw in the quarter against our expectations, we do expect to reverse in Q3. Operator: The next question comes from John Baumgartner with Mizuho. John Baumgartner: Maybe Jeff or Dana, in the prepared comments, you noted the inclination of consumers to buy more on promo. And I'm curious if you can elaborate on that. Just given the mention of the higher cost of volume, are you finding that you need to embed some wiggle room for larger promo to cater to that shopping dynamic? And I'm also curious, I guess, bigger picture, how you're seeing the balance between EDLP versus maybe a high-low strategy in this kind of an environment relative to past periods of economic weakness? Jeffrey Harmening: Let me start with that and then maybe turn it over to Dana for some commentary. But what I would say is that in general, we're seeing -- I mean, this is no surprise, I don't think, but continue to see consumer weakness, particularly for those making under $100,000 a year. Those in the kind of the middle and lower income range. We continue to see that consumer being stretched even as consumers in the higher end of the range are faring a lot better with the current stock market. And so that plays itself out in a few different ways. One is that people continue to eat at home quite a bit. So 86% or so of eating occasions are still at home and 14% away from home. We haven't really seen a change in that for a couple of quarters, but it's still at a very high level of eating at home. Jeffrey Harmening: We see people switching some categories. We see consumers switching where they purchase, switching channels and that kind of thing. But we also see it reflected in how much gets purchased on discount when we have it on display or what have you. And so we haven't really been displaying more. It's just that when -- what we see is that consumers, when there is a discount, we see them buying more because they're financially strained. Dana, anything you want to add to that? Dana McNabb: No, I would just reiterate that we continue to categorize the promo environment as being quite rational. As Jeff said, the frequency and the depth is similar to last quarter. It's similar to last year. We did see promo activity come up a little bit in November, but we think that's largely related to manufacturers reacting to some of the SNAP changes. Operator: The next question comes from Tom Palmer with JPMorgan. Thomas Palmer: First, just wanted to ask on inflation and tariff. Previously, 4% to 5% of COGS was the outlook. The bakery index pricing would suggest what costs are favorable and then maybe there was a small amount of tariff relief to consider. So just any update on that outlook and kind of maybe as we think about the back half of the year, if there's any sort of favorability. Kofi Bruce: Sure. So as a reminder, our original guidance included an expectation of about 1 to 2 points of additional headwind to base inflation of about 3%. Our base inflation forecast, despite puts and takes, remains roughly around that 3% mark. Tariffs certainly comfortably within that range. And as we look at kind of the phasing impact, I would just remind that our expectation was that we'd be able to mitigate some but not all of the tariffs with the tariff headwind within the year. And the tariff phasing was pretty minimal in Q1, stepped up in Q2, and we'd expect in the second half for that to step up a little further. So in aggregate, 3% base, we're still comfortable with the 1% to 2% guide on the tariff additional headwind. Jeff Siemon: Maybe, Tom, I'd just add, this is Jeff, that you also have to consider our coverage. And so we tend to be covered at least 6 to 9 months across some of our biggest inputs and wheat would be one of those. So while you see it play through in the sales line on our P&L, the cost line would be delayed. And so what you see from wheat prices being down in the short term is probably more going to impact '27 than it is '26 on the cost side. Thomas Palmer: Okay. And just a follow-up on international. I think in the first quarter, you called out a 3% timing benefit that you expected to unwind in the second quarter, and you kind of noted some timing headwinds in 2Q as well. I just wanted to confirm, were there incremental tailwinds? Kofi Bruce: Yes. Yes, certainly. And it is mostly the latter, to your question. Operator: The next question comes from Steve Powers with Deutsche Bank. Stephen Robert Powers: Jeff, pivoting back to Pet, you talked in your opening remarks about positive delivery against Love Made Fresh, but also progress on the base business. And I guess I'm curious as to what degree you think Love Made Fresh has, in some ways, contributed to that base business progress, even though it's still early. I guess any evidence as to whether you're seeing favorable interplay between the Fresh initiative and/or Blue Buffalo? Jeffrey Harmening: Yes. It's a good question and an important one. I would say we're still a little bit early to really know that, that's the case. I mean we're only 8 weeks into the launch and probably 5 weeks into advertising. So I think it's too early to see if the Love Made Fresh advertising, which, by the way, is really good, is going to rub off on the rest of the core. We may be able to tell you a little bit more after Q3 or Q4 once we get some more time in market. Jeffrey Harmening: So it wasn't really that. It was really kind of sharpening up our kind of go-to-market on Life Protection Formula and doing a really good job on the advertising on that and continuing to grow our Tiki Cat business, which we acquired 9 months ago, that's growing solidly. And then adding some more marketing to our Tastefuls line in Cat is doing really well and getting the price points right. It's really -- we probably use all the elements of the experience framework in Pet this quarter and saw a nice lift back to positive growth. Stephen Robert Powers: Fair enough. Kofi, if I could, just a little bit more in the back half. Just anything to call out in terms of how much HMM impact is yet to come? And any phasing considerations in terms of how that's likely to layer in 3Q versus 4Q? Kofi Bruce: Yes. Let me frame the comments just and kind of root them in our profit expectations for the back half, Q3, Q4. We do expect, as we've referenced earlier, continued organic sales improvement in the second half. And we, as a reminder, always expected our Q3 to be down just because of the overhang from our divestiture, the level of investment that we baked into the year behind the remarkability framework and in particular, getting value right in NAR, and then trade expense timing, which, as we've referenced before, is going to be a drag on the first 3 quarters of the year. Kofi Bruce: As you step into Q4, you have 2 big factors to keep in focus. We'll see about $100 million favorable tailwind from that trade expense timing due to the phasing impact of last year's investment and the 53rd week, which will also be a pretty significant tailwind. So together, those 2 items alone are about 30% profit growth in Q4. Operator: The next question comes from Megan Clapp with Morgan Stanley. Megan Christine Alexander: I wanted to ask about the higher cost of volume that you called out in the prepared remarks. And Kofi, I think in your prepared remarks, you talked about how you expect that to pressure margins in the third quarter. You obviously still reaffirm the full year guidance. So can you just help us understand how that's embedded into the full year outlook? Kofi Bruce: Sure. Let me answer it maybe in the context of where we left guidance. So you will probably note we left our annual guidance unchanged with effectively half of the year to go. That was a big part of the reason along with obviously the volatility that continues to hang about the sector, whether it's the tariffs, shutdown, SNAP benefits for challenges to the consumer environment and the consumer sentiment. So I think for us, as we look forward to the back half, the cost of volume and the pace of volume recovery are probably the 2 biggest determinant of where we land within that range. Megan Christine Alexander: Okay. That makes sense. And maybe just as a follow-up, last quarter, you talked about how your category pounds were lagging your full year expectations a bit driven by a few discrete categories. I was just curious if you could give us an update on how the category growth within the quarter trended? Jeff Siemon: So maybe I'll start. Just from a number standpoint, our category volumes in fiscal '25 for General Mills categories were flat. They were down about 1% in Q1. Cereal was one of those, which had seen a little bit more pressure. That improved to down about 0.5 point in Q2. So still not quite back to where they were in '25, but an improvement. Dana McNabb: Yes. I mean, as Jeff said, we did see categories improve, and we outperformed the categories. The one category that still lagged a little bit of our expectations was cereal. Cereal pounds are down about 3%. Typical historical, they're down in the down 1%, down 2% range. And the reason for the category being down is we're really seeing consumers move to more high-protein alternatives. So the good news for us is that as category leader, our plans are very focused on capturing those growth trends going into the back half. Dana McNabb: The 2 areas that we're probably the most excited about for the back half or if we look at our innovation, we are really leading there. Cheerios Protein is already a 0.9% share. That business is on track to be $100 million by the end of our fiscal year. And in Q2, Cheerios grew dollars and pounds for the first time in 3 years. And then if you look at the granola segment, which is what's driving growth in cereal right now, we have the biggest brand. We're the category leader, and it's growing double digits. But granola is only about 6% of our business. It's 12% of the category. So we're coming in January with 10 new granola SKUs, really great tasting products, really good nutrition benefits. Operator: The next question comes from Chris Carey with Wells Fargo Securities. Christopher Carey: Can you just expand a bit on the percentage of your portfolio where you've taken or initiated pricing investments? Just to get a sense of the percentage of portfolio where you haven't done it. And connected, say this cost to compete environment sustains or it gets worse. Can you just talk about visibility on savings initiatives that would give you an ability to respond? Dana McNabb: Well, that's a great question. If we think about our price investments, as we said, we were going to have 2/3 of our business have price investments and it would be completed with that investment by the end of Q2. And we're encouraged that in almost every case where we've made investments, we've seen the volume response that we are expecting. And those categories, to answer your question, were refrigerated dough, fruit snacks, salty snacks and soup. Dana McNabb: I'd also call out our snack bars, which pounds are down a little bit due to a key competitor comping a period of lower distribution, but the elasticities that we've seen on our snack bars are at or ahead of model. There is one business where we're still working on it, and that's Totino's Heart snacks, where you've seen our pound performance take a little bit of a step back. Now we are managing through a price pack architecture conversion from a bag to a box to improve our shelf visibility, and we're still working through that. Kofi Bruce: And then to your point about leverage and flexibility in the middle of the P&L, I would reiterate, we have really good visibility to HMM delivery at the 5% plus mark this year, and we are delivering every cent of the transformation savings we outlined at the beginning of the year. As we play forward, while I won't give you a specific guide on HMM for next year yet, we continue to remain confident in our ability to deliver at least above 4%. Christopher Carey: Okay. Just a quick follow-up is on Wilderness. Can you just expand on where we're at with Wilderness, the current strategy with Wilderness, and how you could envision potential tweaks? Dana McNabb: Yes, it's a really great question. If I look at our Q2 performance, it was similar to Q1, business is down, and we don't find that performance acceptable. What we know about Wilderness is the total product offering across all the levers of remarkability needs to be improved. So the team is really working on a new positioning. As we turn to the back half, we're going to be bringing protein new -- some strong protein first new products. We've got new comparative advertising that we'll be launching in the market, and we've got to improve our in-store execution. Operator: The next question comes from David Palmer with Evercore ISI. David Palmer: Down to one sort of big picture question. Fiscal '26, it's been about return to volume growth and understandable that would be step one. But I'm thinking about consensus expectations for some profit growth, particularly lapping the extra week as we look out in fiscal '27. I'm wondering maybe you could help us coach us how we should be reviewing your consumption data in North America Retail and Pet to really inform us about whether profit growth might be in the cards for fiscal '27? Kofi Bruce: Sure. I will start by just affirming we are pleased with the progress we've made on improving our growth trajectory. That work is not yet done. So it would be premature for me to get on record and start building too heavily for F '27. I think you're right to call out the 53rd week as a comparison factor that will definitely just be a built-in structural -- mathematical headwind next year. But beyond that and underlying, our expectations are to continue to build on momentum that we've started this year. We've got a touch point at CAGNY, and that's probably a better place for us to start having discussions about the road ahead. Operator: The next question comes from Matt Smith with Stifel. Matthew Smith: Dana, you talked about a high hit rate where you have the price adjustments and remarkability framework in place, I think, 90% or so. But there's obviously 10% that's still lagging your expectation. You talked about Totino's a bit, but is there a common thread that needs to be addressed around some of the areas where you've seen less effectiveness? Dana McNabb: I wouldn't say that there's a common thread. I mean it really is Totino's. Maybe a few SKUs in Old El Paso on our kits business. But for the most part, again, on the Totino's business, it's really about this conversion and price pack architecture. So the data isn't clean, and it's hard to see exactly how things are performing and diagnose it correctly. And I would say on that business, once we feel like we're through the conversion and we've got a better sense of the price investment, I really like the advertising that we've got going. We are talking about 10 rolls for $1. That's resonating really well. And we just launched our Ultimate Pizza line, which is this really great tasting pizza, probably the best we've launched maybe ever. Jeffrey Harmening: Yes. And I would just build on Dana's comments by just reinforcing the fact that 90-plus percent, as good or better than what we anticipated. I would take that kind of on any forecast, but particularly on something as important as these price adjustments that we have made. Accuracy on something this big and complicated and important over a period of time, I'm really thrilled with the work that the team has done. Matthew Smith: And as a follow-up question, as it relates to the channel shift you mentioned in Pet, it's been ongoing that consumers are moving towards unmeasured channels. But what channels are you currently seeing take share from traditional channels? Dana McNabb: It's a great question. The place that we're seeing the shift go to is definitely e-commerce. So Pet purchases over-index in the e-commerce channel, and that's the place where we're seeing the dollars go to. Operator: This concludes the question-and-answer session and we will conclude today's conference call. We thank you for joining. You may now disconnect.
Operator: Greetings. Welcome to Jabil's First Quarter Fiscal Year 2026 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Adam Berry, SVP, IR and Communications. Thank you. You may begin. Adam Berry: Good morning, and welcome to Jabil's First Quarter Fiscal 2026 Conference Call. Joining me on today's call are Chief Executive Officer, Mike Dastoor; and Chief Financial Officer, Greg Hebard. Please note that today's presentation is being live streamed. And during our prepared remarks, we will be referencing slides. To view these slides, please visit the Investor Relations section of jabil.com. After today's presentation concludes, a complete recording will be available on our website for playback. In addition, we will be making forward-looking statements during this presentation, including, among other things, those regarding the anticipated outlook for our business, such as our currently expected second quarter and full fiscal year 2026 net revenue and earnings. These statements are based on current expectations, forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially. An extensive list of these risks and uncertainties is identified in our annual report on Form 10-K for the fiscal year ended August 31, 2025, and other filings with the SEC. Jabil disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. With that, I'd now like to hand the call over to Greg. Gregory Hebard: Thanks, Adam, and good morning, everyone. Thanks for joining our call today. This quarter, we exceeded expectations across the board: revenue, core operating income, core margins and core earnings per share all came in strong. Our performance underscores the value of our diversified portfolio and our consistent execution. Intelligent Infrastructure led the way with impressive growth while Regulated Industries and Connected Living and Digital Commerce delivered steady results in line with or above our outlook. Let's now walk through our numbers. Net revenue for Q1 was $8.3 billion, at the high end of our guidance range. The mix in revenue and ongoing cost discipline helped us achieve core operating income of $454 million and a core operating margin of 5.5%. On a GAAP basis, operating income was $283 million, and GAAP diluted earnings per share was $1.35. Core diluted earnings per share for Q1 was $2.85, coming in at the upper end of our guidance range. Gregory Hebard: Turning now to performance by segment in the quarter. Regulated Industries generated $3.1 billion in revenue, in line with expectations and up 4% year-over-year. Automotive and renewables came in largely as expected, and health care continued to deliver steady, reliable revenue performance. Core operating margin was 5.8%, up 110 basis points year-over-year reflecting solid and disciplined execution across the segment and ongoing strength in health care. Intelligent Infrastructure revenue was $3.9 billion, ahead of expectations. The upside was primarily driven by strength in our cloud and data center infrastructure as well as our networking end markets. In cloud and DCI, we saw higher revenue due to strong execution as we ramp our second hyperscale customer in Mexico, along with robust results from our data center power operations in Memphis. The upside in networking was primarily driven by stronger demand for next-generation liquid-cooled platforms, which we currently support in India. Core operating margin for the segment was 5.2%, up 40 basis points year-over-year, supported by mix and strong execution. Connected Living and digital commerce revenue was $1.4 billion, ahead of expectations with broad-based strength in automation, robotics and retail warehouse programs. Core operating margin for the segment was 5.5%. Gregory Hebard: Next, I'll provide an update on our cash flow and balance sheet metrics. Inventory days for the quarter came in at 70 days. Net of inventory deposits from customers inventory days were 57 days, consistent with our targeted range of 55 to 60 days. Cash flow from operations in Q1 was $323 million, and net capital expenditures were $51 million, resulting in adjusted free cash flow of $272 million for the quarter. We remain on track to deliver $1.3 billion in adjusted free cash flow for the full year. We ended the quarter with a healthy balance sheet, including net debt to core EBITDA of 1.2x and cash balances of $1.6 billion. During Q1, we repurchased $300 million of shares under our existing share repurchase authorization. Gregory Hebard: With that, let's turn to our guidance for Q2 FY '26. Beginning with revenue by segment, we anticipate Regulated Industries revenue of $2.78 billion, up 2% year-on-year, reflecting an appropriately disciplined outlook for automotive and renewables with continued growth in health care. Intelligent Infrastructure revenue of $3.76 billion, up 42% year-on-year, supported by sustained strong demand across cloud, data center infrastructure, data center power, networking, liquid cooling and capital equipment. This also includes a modest contribution from the previously announced Hanley Energy acquisition, which our guidance assumes will close sometime in January. Connected Living and Digital Commerce revenue of $1.21 billion, down 10% reflecting planned program attrition and customer pruning, partially offset by continued growth in warehouse and retail automation. Putting it all together to enterprise level, total company revenue for Q2 is expected to be in the range of $7.5 billion to $8 billion. Core operating income is expected to be in the range of $375 million to $435 million. GAAP operating income is expected to be in the range of $312 million to $382 million. Core diluted earnings per share is expected to be in the range of $2.27 to $2.67. GAAP diluted earnings per share is expected to be in the range of $1.70 to $2.19. We expect second quarter net interest expense to be approximately $69 million and full year interest expense to be approximately $270 million. The increase in interest expense next quarter reflects 2 key factors: first, additional debt associated with the anticipated acquisition of Hanley Energy Group, which we intend to fund through a combination of cash and new borrowings. And second, the anticipated refinancing of our existing senior notes maturing in April. Our core tax rate for Q2 and the full year is 21%. In closing, Q1 was a strong start to the year, and we carried good momentum into Q2. Our results reflect the strength of our diversified portfolio and the consistency of our execution. As we move through the balance of the year, we remain focused on margin expansion, capital efficiency and sustained cash generation. With that, I'll turn the call back to Mike, who will offer additional color on fiscal 2026 and our updated guidance. Michael Meheryar Dastoor: Thanks, Greg, and good morning, everyone. I'd like to begin by personally recognizing and thanking our global team for their extraordinary efforts they continue to deliver. I'm extremely pleased with the strong start to fiscal 2026, which could not be accomplished without your focus, discipline and commitment to our customers. I see that dedication every day across our operations, and I am sincerely grateful for everything the Jabil team continues to deliver. As Greg outlined, the first quarter was better than expected in both revenue and core margin, which ultimately drove core EPS high end of our guidance range. And while AI continues to be the primary driver of growth, it was great to see all of our 3 segments contribute to our better-than-expected performance. In summary, our Q1 results, I believe, reinforced the strength of the strategy we laid out in September and the value of our diversified model. And more importantly, we now expect this momentum to continue throughout fiscal 2026 and beyond into fiscal 2027. Michael Meheryar Dastoor: With that momentum as a backdrop, I'd now like to take a few minutes to walk through each of our segments for FY '26. Beginning with Intelligent Infrastructure. We're raising our fiscal 2027 outlook by approximately $900 million, driven by higher revenue in both cloud and DCI as well as networking. Cloud and DCI is now expected to be up an incremental $600 million for the year to $9.8 billion. The stronger-than-expected outlook is primarily driven by the recent program wins with our second hyperscale customer in Mexico and upside in our data center power business in Memphis. This also includes approximately $200 million associated with the Hanley Energy acquisition, which we expect to close in January. Hanley strengthens our capabilities in modular power distribution and energy systems for next-generation data centers. This will diversify our racks and server business. We now expect our networking and comms end market to be up approximately $300 million for fiscal 2026 to $2.7 billion. This is supported by stronger demand for next-gen liquid cool platforms with meaningful demand increases in India as customers expand high-speed interconnects, including both Ethernet and InfiniBand capacity to support the rapid growth in AI workloads. Altogether, we now expect AI-related revenue of approximately $12.1 billion in fiscal 2026, which represents approximately 35% year-over-year growth, up from 25% originally expected in September. The strength we're seeing here clearly validates our strategy. By designing and delivering fully integrated systems that combine compute, networking, power distribution and advanced cooling, we materially shorten deployment time lines and reduce total cost for customers, precisely what is required as AI capacity scales. Michael Meheryar Dastoor: On a separate note, and as we discussed in September, we're in the process of retrofitting our East Coast rack and silver factories to accommodate for liquid cooling. And these efforts remain slightly ahead of schedule, positioning Jabil very well for the second half of fiscal 2026 and into fiscal 2027. In Regulated Industries, fiscal 2026 is tracking above our September expectations by roughly $100 million, driven by better-than-expected results in renewables, although we remain cautious with our outlook for the year. Automotive continues to perform as expected, and we continue to focus on powertrain agnostic solutions in next-gen vehicles. Importantly, over the longer term, we remain well positioned in both renewables and automotive markets as the team has consolidated share with existing customers. In health care, our business remains solid and aligned with our expectations for growth, supported by continued strength in drug delivery platforms, including GLP-1, and continuous glucose monitors as well as ongoing demand across diagnostics and minimally invasive technologies. Our pipeline remains healthy with good visibility into program ramps across drug delivery, chronic disease management and other regulated devices categories. Overall, we expect health care will be a durable multiyear growth engine for Jabil. Putting it all together, we now expect our regulated segment to return to growth this year, representing nearly 40% of our revenue in fiscal 2026. Michael Meheryar Dastoor: And finally, in Connected Living and Digital Commerce, our outlook is also ahead of our expectations at the beginning of the year as we now anticipate approximately $100 million in incremental revenue for the year driven primarily by broad-based strength in automation, robotics and advanced retail warehouse program. Altogether, we now expect CLDC to be down by roughly 11% year-over-year due to previously announced customer pruning in Connected Living, offset slightly by growth in digital commerce. Given the strength of Q1 and the visibility we have across the business, we're raising our full year guidance for revenue, core margins and core EPS. For fiscal 2026, we now expect revenue of approximately $32.4 billion, an increase of $1.1 billion from our prior outlook. Importantly, we are also raising our margin expectations for the year. We now anticipate core operating margins of roughly 5.7%, a meaningful improvement of 10 basis points versus our earlier view. This improvement reflects strong mix, continued execution and the underlying leverage in our model. As a result of both higher revenue and higher margins, we now expect core diluted earnings per share of $11.55 for the year, an increase of $0.55 from our previous estimate. And we continue to expect adjusted free cash flow of more than $1.3 billion, consistent with the framework we outlined in September, which will allow us to continue to invest in future growth while continuing to return capital to shareholders. Across the company, our priorities remain the same: profitable growth, diversified mix, margin expansion, consistent cash generation and strong commitment to buybacks, which was evident in Q1. This focus is driving momentum across the business, allowing us to navigate changing market conditions, deliver consistent results and steadily build long-term earnings power. To summarize, our first quarter results were better than expected and fiscal 2026 is now tracking well above our initial expectations. What's notable to me about a higher FY '26 outlook is that it's broad-based. All 3 segments are contributing with intelligent infrastructure leading the way. As we move forward, we remain focused on driving long-term value for our shareholders. Before closing, I want to again thank our teams, customers and suppliers for their commitment and partnership. The consistency in our results is a direct reflection of their efforts, and I am grateful for the trust they continue to place in Jabil. I also want to wish everyone a safe and healthy holiday season and a happy New Year. With that, I'll turn the call over to Adam. Ruplu Bhattacharya: Mike, you raised the full year revenue guide by over $1 billion. There's lots of things that are happening in the intelligent infrastructure space. The slides mentioned some new wins, can you give us some more color on those? There are a lot of new projects coming up as well, like the OpenAI, AMD, Anthropic, AWS. I mean do you think Jabil has the intent or the opportunity to benefit or some of those projects? And then there are other things you mentioned like retrofitting factories for liquid cooling and acquiring Hanley Energy Group. So maybe just lay out for us the impact of all of these factors. And overall, would you say the guidances for the fiscal year is still conservative? Michael Meheryar Dastoor: I really think our intelligent infrastructure is outperforming. I -- one of the reasons I think our AI strategy is working so well is because of the holistic view that we're taking of data centers. So we're not just focused on sale products. So product lines, we're actually invested in design and engineering across the board which allows us to cross pollinate, which allows us to cross-sell, which allows us to use our liquid cooling capability with some of the Silver X and other parts of our Intelligent Infrastructure business. So Intelligent Infrastructure performing really well. I think in '25, our revenue was $9 billion, in September, we've taken it to $11.2 billion, which was up 25%. We've now taken it up to $12.1 billion, which is 35%, about a $900 million increase in that revenue level. I think out of the $900 million think of it in 2 buckets. One is the cloud and DCI bucket, which is up about $600 million, $200 million of that is Hanley, and I'll touch on that in a minute. The balance is made up of upside on some recent wins that we had maybe during Q4 of last year with our second hyperscaler, and that's in Mexico. It's all AI storage racks that we're manufacturing for that second hyperscaler. And then on the DCI business in Memphis, I think there's a whole bunch of upsides there. The switch gear business is going really well, the inroad heat exchanges, again, going really well. So cloud and DCI up by $600 million in total. Networking and comms is up by about $300 million, and that's mainly in India operations around air and liquid-cooled switches, adapters, network adapters across Infiniband and the Ethernet portfolio. So $900 million is a big number for us to be taking it up in a short -- a relatively short period of time. On Hanley, if I could just touch on that, I think the revenues that we indicated in my prepared remarks is about $200 million for FY '26. We expect it to complete in January. I would think of Hanley as being modestly accretive in '26. '27 will be when it's more accretive. It's -- I think everybody knows it's a power and energy management solutions company that we acquired. It's more services-enabled business as opposed to manufacturing. And it gives us a really good sort of platform, not just for deployments, but for maintenance as well, which will be an ongoing revenue stream. So overall, really happy with Hanley. Do I think guidance is conservative? I think it's appropriately conservative. We're seeing solid upside everywhere. And as is now being appropriately conservative by there, Ruplu. Ruplu Bhattacharya: For my follow-up, if I can ask operating margins, Jabil is going to be at 5.7% operating margin this fiscal year. So is it reasonable for investors to assume that operating margin can get above 6% in fiscal '27, what are the puts and takes there? And longer term, how high can operating margin go? Like with the current mix of business, do you see Jabil getting to 7% operating margin at some point? So -- just your thoughts on -- next or what should we keep in mind in terms of operating margin progression and how high that can go over time? Michael Meheryar Dastoor: So Ruplu, we put out 3 quarters left in FY '26. So we're just going to be focused on that. We'll provide guidance nearer the time for FY '27. As you know, we increased our margin from 5.6% to 5.7%, which is about 30 bps up from the '25 number and that's for FY '26 due to 2 or 3 reasons, which is mainly better mix. I think the mix is coming in stronger or better utilization of capacity. Our capacity utilization has gone up from that 75% range, closer to the 80% range. And then SG&A leverage as well. So I think overall, the incremental revenue, what we're seeing, the $1.1 billion that you referenced earlier, that's giving us some nice leverage. In FY '27, we will be seeing a full year impact of Hanley. So there will be some level of accretion on the margin there. And then we'll see continued leverage from the incremental revenues. The pipeline that I'm seeing, Ruplu, is extremely strong. It's been a long time since I've seen such a healthy pipeline. So I feel better about 6% than I ever have. I think if you're asking beyond 6% and getting to 7%, of course, we're not going to stop getting leverage, you're not going to stop getting efficiencies as soon as we hit 6%. So 6% is just a point in time on a march to a much higher number. Is it '27, '28, '29, I don't know. 6%, though, I feel really good about at this stage for future. Ruplu Bhattacharya: Got it. If I can sneak one more in. Looking at health care and packaging, for the last 3, 4 years, it's been mostly flat. This year, it's growing low single digits to $5.6 billion. Any thoughts like you had talked about some further J&J type of deals and you've got this impact from Croatia. So just -- can you give us some more color on how you think that business can evolve? Is it still a low single-digit business going forward? Or do you think it can accelerate? Michael Meheryar Dastoor: So Croatia was going really well. I think we've always referenced sometime in '27, maybe second half '27 is going to actually start delivering some good returns. Again, just remind you, the margin is higher in that GLP-1 space. So Croatia going really well. As opposed to -- on the whole deal piece, I do think the team is actively working all of that. They are currently engaged in B2B conversations. They're engaged in M&A sort of capability-driven type of sort of deals as well. So it's an active sort of process that we're going through right now, and we'll provide updates again throughout FY '26 in terms of what we're seeing out there from a deal. And again, just to remind you, the deals that we're looking at mainly would be to sort of add capabilities so that we can go vertical in the health care space. A bit like our -- a bit like our -- the GLP-1 OSD transaction that we did last year, where we added a capability on pharma sort of filling up the GLP-1 itself, oral doses, et cetera. So there'll be more of those more capability driven across the board where we operate. Unknown Analyst: This is [ Hampi ] on for Samik Chatterjee. Firstly, congratulations on great results. My question is on second hyperscaler. I think you highlighted high second hyperscale driving up to your intelligent infrastructure outlook for the year. Like how much of it is your better execution relative to your customer demand versus customers -- customer actually preponing their deployment plans? And then in the past, you have highlighted $750 million of revenue scale for this business for FY '26. Like how should we think about that scale now? And then any color on the broader potential hyperscaler customers? Like how exactly those discussions are going? And then I have a follow-up. Michael Meheryar Dastoor: Yes, the upside on the second hyperscaler, as I mentioned earlier on, is on the AI storage piece, we continue to get some upside on that business. I'm not sure if that's predeployment or it's just the demand has always been there. It's a matter of fulfilling it. I -- we feel really good about upside even from there on some of these hyperscalers that we're in discussion with. So I think if you're looking at the revenue piece for the second hyperscaler roughly in that $1 billion range. I think earlier we said $750 million, so taking that up by some amount as well. So really good interest levels coming through. And we're not just stopping in the second hyperscaler, we're in discussions with even more hyperscalers. So pipeline, again, looking very strong. Unknown Analyst: Yes. And then my next question is around gross margins for this quarter. I think like despite the revenues being higher quarter-over-quarter from F 4Q, like gross margins were lower, like can please help us understand the drivers for that? Gregory Hebard: Yes. So Q1, our gross margins were at 8.9%. Year-over-year, it is up 10 basis points. So typically, we do have a little bit of a lower gross margins on the year. So really nothing there other than just mix in Q1 for the gross margin piece. Michael Meheryar Dastoor: And Samik, we've always sort of mentioned 9% to 9.5% is the range for our gross margin. That's still the FY '26 estimate. Steven Fox: I had 2 questions, if I could. I guess, first of all, just switching gears. On the health care business, like you mentioned, Mike, it's been very steady. My understanding is providing pretty good margins for you guys as well. I guess off of all the growth you're seeing in cloud, what's the prospects for maybe us more aggressively to accelerate that growth since it's such a good contributor to profitability? And then I had a follow-up. Michael Meheryar Dastoor: Yes. So Steve, we're constantly evaluating M&A activity in that space. We're constantly in discussions on B2Bs. So I think it's highly likely that we'll do something. We're obviously a conservative company from an M&A perspective. So we'll do all the right groundwork for that. But I feel like health care is such a steady business with higher margins, long, long product life cycles and steady cash flows that it's a great sort of upset from a diversification standpoint for us, and that is an area that I'm most excited about from a deal perspective. Steven Fox: Great. That's helpful. And then just on the cloud business. So a quarter ago, you were warning us about that you still face some bottlenecks later in the year. Now you're ahead of schedule a little bit, which is great, and you're talking about what sounds like a bigger pipeline. So I'm just wondering how we sort of equate your ability to meet demand or meet the growth expectations of adding a new customer or existing customers with all the capacity you have or may need? Like how are you planning out beyond this year for capacity in order to continue to grow that cloud business? Michael Meheryar Dastoor: When we talked about the retrofitting piece on the September call, it was mainly associated with our hyperscaler factory on the East Coast of the U.S. A lot of the upside when we talked about upside that $900 million, some of it is in Mexico where we had some surplus capacity, some of it is in India where it's a combination of existing capacity and new capacity. As you know, North Carolina is going coming up relatively soon in the next 6, 7, 8 months, and that were prefitting, if you want to use that phrase for liquid cooling. So we've got some decent upsides. We're planning our capacity in that way, Memphis is another area I talked about, that's seeing some really good growth as well. So we might expand there as well. So this current expansion plans that we're looking at, and those might be even sooner than the North Carolina facility. Again, it doesn't change CapEx outlook. The CapEx outlook has been 1.5% to 2% of revenue, and that's going to remain consistent for FY '26. Ruben Roy: Mike, I wonder if you could spend a minute on just kind of longer-term thinking around Hanley. And I'm wondering, there's been a lot of discussion, obviously, around power and power distribution as the industry is trying to figure out how to get to 800 volts current. And if you think about this acquisition longer term, one of your competitors have been talking a lot about modularized power. Does this help you, do you think, in terms of content per rack and gaining more server rack business by having this? Or is the strategy maybe a little bit different as you think about adding that into the mix? And also one follow-up on that is, would they own the design of the power distribution? I imagine that's the answer would be yes, given the EBIT margins that you get, but any color on that would be helpful. Michael Meheryar Dastoor: So I'd like to call out a couple of transactions as it relates to that whole thermal management piece. Obviously, Hanley is a service provider. I'll talk about that in a minute. But the liquid cooling acquisition we made with Mikros in '24 has also been a big game changer. I think thermal management, thermal participation is not new to hyperscalers, whether it's cooling at the chip level or a switch level or a component level or even at an infrastructure level with liquid -- to liquid heat exchanges. That's one of the reasons we invested in Mikros as we acquired a technology, we didn't acquire a product. We acquired a design and engineering team which is constantly pushing the boundaries for forward-looking liquid cooling activities. So to me, that old Mikros acquisition is a game changer. I think particularly as the thermal management piece becomes more critical, the ability to design, the ability to engineer liquid cooling at chip level, at the network switch level at different sort of parts and integrate it into a pool system. That's the big differentiator where Jabil will last steps in. Michael Meheryar Dastoor: As it relates to Hanley, it's more of a services organization. It's the provider of power and energy management solutions. I think the engineering expertise that we have in there is across power distribution, switchgear, energy monitoring, digital power management platforms. It allows us to go vertical as well. And I'll give you an example. Today, we build low-voltage, medium voltage switchgear in Memphis. Hanley will allow us to deploy, install and then maintain those in data centers, which previously was done by other parties. So if you sort of combine the whole silver ad business with the ability to delay install and maintain, that is highly accretive type of business for us. So Hanley, I think is a really good transaction. We sort of welcome the team hasn't closed yet. We expect it to close in that first week of Jan. So as soon as that takes place, just like the Mikros transaction has created so much opportunity for us, so does Hanley. And again, it's exactly the area that you talked about and it's all around thermal management and -- it's not a surprise to any hyperscale. It's not a surprise to anyone who has a data center that that's something that they need to address, and they are addressing that. So I do think the 2 transactions will be well received. Ruben Roy: It's a lot of detail. I hope this is a quicker follow-up. But just on the capital equipment. I think you said that was in line with your expectations, maybe a little bit better. Is there any change to I guess, on your sort of thinking around overall spend in the capital equipment market relative to 90 days ago as you think about this year? Michael Meheryar Dastoor: So the automated testing equipment side of the business, the back end, I think has been outperforming, it outperformed last year. It's outperforming this year, and we'll continue to be -- it will outperform the WFE site for sure. I think there's multiple dram stacking for high-bandwidth membrane that's creating more demand. One good thing we are seeing, and it's forward looking, so we haven't built that into our forecast, but there's some level of WFE improvements coming along as well with the whole AI compute expansion and the NAND factory sort of upgrades. So WFE, think of that more as an opportunity. In the past, we like WFE is going to be steady and static. We are seeing some signs of improvements there. And until that happens, those sort of expectations normally move to the right or to the left, so we haven't included that in our guide, but the WFE side could actually be a sublevel of upside for us. Melissa Dailey Fairbanks: I wanted to start off by asking about automotive and transport. You see that you maintained the outlook for the full year, down a little bit from last year. Just wondering if the mix of that business or any of kind of the geographical trends have changed. We have heard from some suppliers, Europe suppliers are being a little bit more cautious going into next year? Just wondering what the complexion of that business looks like in the near term? Michael Meheryar Dastoor: So let me start by saying automotive is an area that we continue to be appropriately conservative on. I think we're seeing relatively good performance. I think -- has it hit a bottom, I do feel like it has and there will be upside going forward on automotive. Is it a '26 event or a '27, '28 event? We just don't know the exact timing. So we're being appropriately conservative from an automotive standpoint. One of the things the team has done really well is invest in powertrain agnostic technologies and what do we mean by that is software-defined vehicles. ADAS, those sort of programs go into any platform, whether it's hybrid or EVs or combustion engines. They're all -- we're talking to all sorts of companies. And then if you factor in the whole Tier 1 sort of the OEMs still want to the design and the IP as they want to do with the EV platforms, that's a good opportunity for us EMS companies as well. And I think those program wins, we do expect where we're in discussion again for '27-'28. And we're doing really well because there's a shift in the way the whole automotive space is working out, not just for EVs. It's now being extended to hybrids and ICE as well or at least the concept is. So we'll continue to add some capabilities, and I do think '26, and best way to define '26 is a conservative year. In '27, we could see some upside. I don't forget a program in automotive takes 12 to 18 months to win. So programs we're winning today will only show up in '27-'28. Melissa Dailey Fairbanks: Okay, great. Keep up the good work. Maybe just a quick follow-up. Everyone has to ask about at least one question on data center. As you're ramping your second hyperscale customer. I know your lead hyperscale customer. A lot of that business goes through consignment. Just wondering how much, if any, of some of these new programs that you're ramping are on consignment, and the gross revenue is actually coming in a little bit better than even what we're seeing on the net revenue side? Michael Meheryar Dastoor: I think it's a little bit of a mix. I think the consignment model is more our largest customer perspective. Some of the other customers were still going through gross versus consignment discussions. But at this stage, we're just factoring in gross levels, I do think that's more likely than consignment models popping up everywhere. I think that was more -- that was specifically for that first hyperscaler, will it apply across every single hyperscaler. I'm not sure. I think it's a wait-and-see approach. Mark Delaney: Do you able to took up its view for AI growth this year to 35%. I realize you already spoke on your own capacity planning. Can you speak to any constraints your data center customers may face from the supply side, including having enough power supply to their data center sites? And to what extent you factored any constraints they may be seeing into your guidance? Michael Meheryar Dastoor: Look, our power sort of constrained the data center is not a new thing. I think it's always been around, and we've grown, I think, I can't remember the exact numbers from '24 to '25, we grew exponentially '25 to '26, again, we're growing at 35%. And this is all while data center power issues continue to perforate. I think overall, like I said, the offering that we have, the solutions that we have, the design, engineering and including some level of liquid cooling across our offerings, be it on the chip, be it on the rack service, be it on networking switches, be it run in the data center infrastructure itself, we're actually engaged with customers to address a lot of those heat questions. So I'm not seeing any major impact of slowdown. Like I said earlier, it's actually -- I've never seen such a healthy pipeline now before it is strong, and it continues to be strong. I don't know, people talk about AI bubbles. We're not seeing any of that at all. Mark Delaney: Very helpful. Mike, last quarter, you mentioned the possibility of winning that third hyperscaler customer and you spoke to that possibility again on the call today. Can you give more color on that, including what types of product or products you're hoping to sell to that CSP and when you think you may know if you've converted on that opportunity? Michael Meheryar Dastoor: We continue to have discussions, Mark. It's a little premature to talk about the products and the revenue. I think that was more -- the last call was more of, hey, this is our overall strategy. We're not just targeting one hyperscaler or 2 hyperscalers. There's definitely a third hyperscaler, fourth hyperscaler so needed our offering. It's that design and engineering architecture capability that's driving a whole bunch of hyperscalers to us. And in a weird way, the discussion could start about a server in a rack and server before you know it, it's moved into liquid cooling, and certainly move into silicon photonics. It's moved into other parts of our data center infrastructure piece with heat exchanges and some of the liquid cooling solutions that we're providing. So it's the offering that we have today that is driving hyperscalers to have these discussions with us. And like I said, it's not built into any of the numbers. We're not talking about our third hyperscaler yet in any of the numbers, but I think going forward, we're still in current discussions currently. Timothy Long: Two, if I could, as well. First, I was hoping you could touch a little bit on that the larger hyperscale customer wasn't really excited as a part of the strength here. So curious what kind of trends are going on there. I do think there's some product transitions in some of their compute platform. So curious if impacting or if there's anything else going on there? And then secondly, just more broadly, a lot of movement around custom ASICs and XPUs. Curious how you see Jabil participating, obviously, PPU gaining a lot of traction and announcements at least over the last few months, how you see Jabil playing in the toll XPU directly and related type of equipment? Michael Meheryar Dastoor: So when we talked about the whole retrofitting piece on the September call, we were specific on one site only. Like I said, the rest of the new business is coming in all different sites. The retrofitting is ahead of schedule. I do feel our second half will be stronger in terms of getting it ready. I think originally, we'd anticipated retrofit out to be combination of Q2 and Q3 that might come in earlier in Q3, which would give us some level of upside there. The demand is there. The -- it's crazy what we're seeing in terms of demand. So I have no concerns about the demand side. Regarding chips, I think we're relatively agnostic in terms of chips, in terms of what we're doing and who we're doing it with, the custom chips or even multiple individual companies on those chips. I don't think one replaces another. It's all complementary in my view. So I see it more as an upside than a replacement. David Vogt: So Mike, maybe one for you and one for Greg. So you talked about strength in data center infrastructure powered networking. We're folding Hanley into the numbers. We're seeing strength in the second hyperscaler above expectations. I guess what I'm trying to think through is how do you think about the second half of your fiscal year, particularly given what the growth implies is a fairly meaningful deceleration where the underlying demand probably doesn't support that view. Is that just a rev rec issue? Is it a capacity issue? How should investors think about sort of the second half of the year, which kind of implies like 10% growth dynamic is there enough capacity? And then maybe I'll give you my question as well. Obviously, you took up the full year numbers for revenue margin in EPS and less kind of the free cash flow outlook unchanged. I recognize that CapEx is probably going to go up, I don't know, $50 million to $100 million year-over-year. Anything else from a working capital perspective or a timing perspective that impacts free cash flow this year versus your original expectations? Michael Meheryar Dastoor: So on the second half piece, I think with the $900 million that we've sort of added a large part of that comes through in Q3 and Q4. Q2, I think we've taken that up by $300 million to $400 million from our previous sort of indications. The retrofitting obviously had a little bit of impact on the Q2. We're continuing to win -- we'll continue to win share. I think if you look at last year, the comps from last year, a little difficult to sort of match up with. We went from 0 to 60 literally in a matter of a few seconds there, where Q3, Q4 saw solid performance from the previous Q1, Q2, where we didn't have some of the additional facilities that we took over from a competitor. So I would caution against doing comps for Q3 and Q4 because that was a huge growth number in Q3 and Q4, which was going from nothing to multiple buildings in that facility. I feel -- look, I think there's no rev rec. There's no other issues going on here. We're being conservative. And I do think second half now reflects a much better picture than it did 90 days ago. And I think it will continue to evolve through the year. We have a tendency of being conservative, appropriately conservative. So second half, I think there is some good upside for us as well. Gregory Hebard: David, it's Greg. So on your free cash flow question, yes, still sticking to our guidance of $1.3 billion plus for the year. Again, a real strong Q1 with $272 million. You're absolutely correct. We do see CapEx slightly ticking up, but still staying in our range. And we also do see working capital with the growth we're seeing in the back half of the year, slightly going up as well. So what I'd say is our guide is -- we feel is prudent at this time, and we'll continue to update as we go through the year. Adam Berry: Thank you. Thank you for your interest in Jabil. This now concludes our call. Operator: Thank you. This now concludes today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
Operator: Greetings. Welcome to ABM Industries Incorporated Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. At this time, I'll now turn the conference over to Paul Goldberg, Senior Vice President, Investor Relations. Thank you, Paul. You may now begin. Paul Goldberg: Good morning, everyone, and welcome to ABM's Fourth Quarter 2025 Earnings Call. My name is Paul Goldberg, and I'm the Senior Vice President of Investor Relations at ABM. With me today are Scott Salmirs, our President and Chief Executive Officer; and David Orr, our Executive Vice President and Chief Financial Officer. Please note that earlier this morning, we issued our press release announcing our fourth quarter 2025 financial results and outlook as well as a press release announcing our planned acquisition of WGNSTAR. A copy of those releases and an accompanying slide presentation can be found on our website, abm.com. After Scott and David's prepared remarks, we will host a Q&A session. Before we begin today, I would like to remind you that our call and presentation contain predictions, estimates and other forward-looking statements. Our use of the words estimate, expect and similar expressions are intended to identify these statements, and they represent our current judgment of what the future holds. While we believe them to be reasonable, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially. These factors are described in the slide that accompanies our presentation as well as our filings with the SEC. During the course of this call, certain non-GAAP financial information will be presented. A reconciliation of historical non-GAAP numbers to GAAP financial measures is available at the end of the presentation and on the company's website under the Investor tab. And with that, I would now like to turn the call over to Scott. Scott Salmirs: Good morning, everyone, and thank you for joining us to discuss ABM's fourth quarter and full year fiscal 2025 results as well as our 2026 outlook. I appreciate you taking the time, and I'll get right into our performance and the progress we're making as a company. We finished the year on a strong note, posting record quarterly revenue, supported by 4.8% organic growth. Encouragingly, if you exclude the impact of the prior year self-insurance adjustment, our adjusted EPS and adjusted EBITDA and adjusted EBITDA margin were all ahead of our expectations heading into the quarter. This performance reflects strong volume, favorable mix, disciplined cost management and the benefits from our restructuring actions. Across the portfolio, our teams executed exceptionally well. Technical Solutions delivered another standout quarter, completing a significant number of complex projects, particularly in microgrids and mission-critical infrastructure. We also saw strong revenue growth in Aviation and Manufacturing & Distribution, fueled by recent client wins and customer expansions. Meanwhile, in Business & Industry and Education, margins improved year-over-year, demonstrating the resiliency of these segments and our continued focus on operational efficiency. Our fourth quarter results capped an outstanding year for ABM, highlighted by record annual revenue of $8.7 billion, an increase of 5% over last year. We also generated record new sales bookings of $1.9 billion, a 12% increase over 2024. Those bookings are diversified across the business and provide confidence in our growth trajectory entering fiscal 2026. On top of the strong 2025 bookings, I'm pleased to announce 2026 is off to a great start for us with a major new contract in Aviation. Specifically, we won a significant passenger services contract at a leading global gateway airport set to ramp up in the first quarter of calendar 2026. This win highlights our continued focus on the Aviation sector, the strength of our team and the value of technology-driven solutions. This is one of the largest single Aviation awards in ABM's history. I'll also note that our pipeline across the enterprise remains strong, and we are targeting another bookings record in 2026. 2025 was a year defined by progress in several strategic areas. We invested in AI capabilities that are already improving our internal processes, including enhanced RFP automation, more intelligent HR support tools and early exploration of Agentic AI to enhance client-facing operations. We also made substantial progress in our ERP implementation. As you know, the transition created working capital friction earlier in the year, but the team worked relentlessly to stabilize and scale the system, and we saw a meaningful improvement in cash performance in the back half of the year. Also exciting is today's announcement of our agreement to acquire WGNSTAR, a leading provider of managed technical workforce solutions and equipment support services for the semiconductor and high-technology manufacturing sectors. This is a highly strategic transaction for ABM that is expected to close in the first calendar quarter of 2026. It significantly expands our technical capability set in fabrication environments, adds a skilled workforce of more than 1,300 employees and strengthens our position in a sector that is experiencing multiyear growth from U.S. semiconductor onshoring. With only about 15% of the market currently outsourced, WGNSTAR gives us a meaningful foothold in a space with substantial runway. I also want to take a moment to highlight the continued efforts across ABM to improve margin and strengthen earnings power. The initial components of our restructuring program launched in Q4 are now largely complete. As mentioned last quarter, the annualized savings related to the initiatives already undertaken is $35 million, with over 3/4 of the savings to be realized in fiscal 2026. These benefits, combined with disciplined cost management and improved labor efficiency played an important role in our performance in the fourth quarter. Turning now to the year ahead. We are confident in ABM's momentum heading into fiscal 2026. Demand across our key end markets remain healthy. With these tailwinds, we expect fiscal 2026 organic revenue growth of 3% to 4% and adjusted EPS to be in the range of $3.85 to $4.15 before any potential positive or negative impact from prior year self-insurance adjustments. With that, I'll turn it over to David to walk through the financial results in more detail. David Orr: Before we get into the results, I want to take a moment to clarify how to think about prior year self-insurance adjustments. As a reminder, following discussions with the SEC, we updated the definition of all our non-GAAP financial measures. Under the revised definition, we no longer exclude the positive or negative impact of prior year self-insurance adjustments from our non-GAAP results. These represent net changes to our reserves for general liability, workers' compensation, automobile and health insurance claims that relate to incidents that occurred in prior years. Because these are impossible to forecast with precision, our forward-looking outlook does not include any potential impact from these adjustments. Prior year self-insurance adjustments had a significant impact on our Q4 results. For example, in the fourth quarter, the adjustment created a $0.26 headwind to adjusted EPS. So while our reported adjusted EPS was $0.88, to understand the underlying performance, you would need to add back that $0.26. Let's start on Slide 7. Revenue grew 5.4% year-over-year to $2.3 billion, a new quarterly record, driven by 4.8% organic growth. Strongest contributions came from Technical Solutions, Manufacturing & Distribution and Aviation. Turning to Slide 8. Net income from the quarter increased to $34.8 million or $0.56 per diluted share compared to a loss of $11.7 million last year. The year-over-year improvement reflects the absence of the RavenVolt contingent consideration adjustment. These benefits were partially offset by a $15.8 million negative impact from prior year self-insurance adjustments and $9.5 million in restructuring costs. Adjusted net income was $54.7 million or $0.88 per diluted share. Adjusted EBITDA was $124.2 million and adjusted EBITDA margin was 5.6%. Taking into account the self-insurance adjustments (which had a $22.2 million pretax negative impact on EBITDA), provides a clearer view of core performance. Now let's turn to segment performance. B&I revenue was up 2% to over $1 billion, driven by higher work orders and U.K. strength. Operating profit was $80.6 million with a margin of 7.7%. Aviation revenue grew 7% to $296.7 million. Operating profit was $16.8 million with a margin of 5.7%. M&D generated $417.4 million in revenue, up 8% year-over-year. Operating profit was $35.8 million with a margin of 8.6%. Education revenue rose 2% to $233.7 million. Operating profit increased 44% to $18.8 million, with margins expanding to 8%. Technical Solutions revenue increased 16% to $298.7 million, with 11% organic growth driven by microgrids. Operating profit rose 32% to $37.1 million, and margin was 12.4%. Now turning to Slide 11. We ended the year with total indebtedness of $1.6 billion. Our total debt to pro forma adjusted EBITDA ratio was 2.7x. Available liquidity stood at $681.6 million. Fourth quarter free cash flow was $112.7 million, a significant improvement over last year due to ERP conversion progress and tight working capital management. During the fourth quarter, we repurchased 1.6 million shares for a total cost of $73 million. For the full fiscal year, we repurchased 2.6 million shares, reducing our outstanding share count by 4%. Turning to our fiscal 2026 outlook on Slide 12. We expect full year organic revenue growth of 3% to 4%. The WGNSTAR acquisition will contribute roughly 1 additional point of revenue growth. We are introducing a new metric: segment operating margin, and we expect it to be between 7.8% and 8% for fiscal 2026. Interest expense is forecast to be $95 million to $105 million. We expect free cash flow of about $250 million in 2026 (before certain transformation/integration costs). We expect full year adjusted EPS in the range of $3.85 to $4.15. Moving to the adjusted EPS bridge on Slide 13. We start by adding back the full year 2025 prior year self-insurance adjustment of $0.27 to get to core adjusted EPS. Layering in performance gains and planned investments, we expect to grow our core EPS by more than 10%. With that, I'll hand it back to Scott. Scott Salmirs: Fiscal 2025 was a year of real accomplishment. We delivered record revenue and new sales bookings even while working through a significant ERP upgrade. Looking ahead, 2026 looks promising with large new clients ramping and the WGNSTAR acquisition contributing. We will continue to evolve ABM into a higher growth organization by pushing further up the value stream and expanding technical capabilities. Happy holidays to everyone. With that, we'll open up the line for questions. Operator: [Operator Instructions] Our first question is from the line of Josh Chan with UBS. Joshua Chan: I'm going to ask about the margin trajectory. You introduced a segment operating margin metric. What are the drivers between what seems like a relatively flat margin outlook for '26 despite restructuring savings? David Orr: Yes, we introduced that metric to reflect the operating health and remove the noise from prior year self-insurance adjustments. We have some benefit from the restructuring built into those margins, but we also have some mix rolling into those numbers that we're working through, some from the pricing decisions we discussed on the Q3 call. It mirrors how we manage the business internally. Joshua Chan: Could you talk about the strategic attraction of the WGNSTAR deal? And from a financial perspective, why the switch from dilutive in '26 to accretive in '27? Scott Salmirs: The strategic imperative is compelling. We already have over $300 million in the semiconductor space. Think of a bull's eye: ABM core has operated in the outer ring of the facility (cleaning, technical service), but we've never been able to get inside the fabrication facility (the inner ring). That's what WGNSTAR brings. They have over 30 clients in the semiconductor space. David Orr: Regarding dilution, we expect some in the first year largely due to factoring in amortization and interest. But based on the growth trajectory, we expect a real path to accretion in year 2. On a forward-looking basis, we see a multiple between 12 and 13x. Operator: Our next question is from Jasper Bibb with Truist Securities. Jasper Bibb: Last quarter you talked about pricing concessions in challenged U.S. office markets. Have you seen more of that in B&I or has it slowed? Scott Salmirs: It has stabilized. We had some pricing discussions in Q4, but they weren't as dramatic as Q3. We see total normalization now. Regarding M&D, those pricing discussions were about capturing market in semiconductor. We knew WGNSTAR was coming, so some of those discussions were in anticipation of this deal. Jasper Bibb: Could you provide detail on the remaining ERP road map for '26 and how that factors into free cash flow? David Orr: Nearly 90% of transactions are now on the new system. The remaining groups are much less complex. Cash flow-wise, we ended the year strong. Our DSOs were down 11% from their peak in Q2. For 2026, our $250 million normalized cash flow target includes $30 million for buses for an airport contract we won. We feel strong about that number. Operator: Our next question is from Andy Wittmann with Baird. Andrew J. Wittmann: David, on the free cash flow bridge, can you call out the unusual one-time items? David Orr: Starting at $250 million, we'll have about $20 million in transformation, $10 million in integration/acquisition, and $5 million in restructuring costs. The last piece is an anticipated $30 million payout for the RavenVolt contingent consideration. That gets you to a free cash flow number of around $185 million. Andrew J. Wittmann: What was the segment operating profit in fiscal 2025? David Orr: It was 7.9%, which is roughly in the middle of our 7.8% to 8% range for fiscal '26. Operator: Our next question is from Tim Mulrooney with William Blair. Timothy Mulrooney: What is the assumption for B&I in your 3% to 4% organic growth guide? You didn't call it out as a driver. Scott Salmirs: We feel like the commercial real estate crisis is behind us. Work-from-home versus work-in-office has stabilized. We think B&I is back to steady state, growing at a GDP rate. That is what is baked into our guidance. Timothy Mulrooney: Can you unpack that $0.26 impact from prior year self-insurance adjustments? Is there a longer tail here? David Orr: This is a $500 million pool (workers' comp, general liability, auto). A 4% adjustment on a pool for 100,000 employees is within industry standards. We had a similar adjustment last year. The key is that after discussions with the SEC, we are now reporting this differently (above the line). It's a reporting change, nothing more. Scott Salmirs: We have a very strong safety culture. Keeping the adjustment within 4% given rising healthcare costs is something we are proud of. Operator: Our final question is from Faiza Alwy with Deutsche Bank. Faiza Alwy: Why is such a small portion of the semiconductor sector outsourced right now? And how should we think about future M&A? Scott Salmirs: It's because the work is highly technical. Bridging that gap requires a high bar of trust. WGNSTAR has 20-plus year relationships because they are so good at it. We see tremendous potential to introduce this capability to our existing semiconductor and pharma clients. Regarding M&A, there aren't many big competitors; it's mostly small ones. We could have roll-up potential or expand organically. Faiza Alwy: Can you give more detail on the WGNSTAR margins and '26 assumptions? David Orr: EBITDA margins are in the mid-teens. For '26, we assumed roughly $13 million of amortization and $12 million of interest (prorated for about 3/4 of the year). We anticipate double-digit growth rates continuing into '27. Operator: One late question from Marc Riddick with Sidoti & Company. Marc Riddick: What does the leverage look like post-transaction and what is your comfort range? Scott Salmirs: This gets us to about 3x leverage, which is the range we want to be in. We'll be very balanced about acquisitions for the rest of the year. It has to be a compelling strategic imperative. Marc Riddick: Any seasonality for the WGNSTAR acquisition? Scott Salmirs: No, they operate indoors in the fabs. Geography is good—they operate in 9 basic regions where semiconductor facilities are located. Operator: At this time, I'll hand the call back to Scott for closing remarks. Scott Salmirs: We are thrilled at ABM to deliver these results. The team came through, and we are energized about 2026. Happy holidays and we'll see you in Q1. Operator: Thank you. This concludes today's teleconference. You may now disconnect.
Operator: Good evening, and welcome to MillerKnoll, Inc.'s Quarterly Earnings Conference Call. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Wendy Watson, Vice President of Investor Relations. Good evening. Wendy Watson: Welcome to our second quarter fiscal 2026 conference call. On with me are Andi Owen, Chief Executive Officer, and Kevin Veltman, Chief Financial Officer. Joining them for the Q&A session are Jeff Stutz, Chief Operating Officer, John Michael, President of North America Contract, and Debbie Propst, President of Global Retail. We issued our earnings press release for the quarter ended November 29, 2025, after market closed today, and it is available on our Investor Relations website at millernoll.com. A replay of this call will be available on our website within 24 hours. Before I turn the call over to Andi, please remember our safe harbor disclosure regarding forward-looking information. During the call, management may discuss information that is forward-looking and involves known and unknown risks, uncertainties, and other factors which may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of these factors which are detailed in today's press release. The forward-looking statements are made as of today's date, and except as may be required by law, we assume no obligation to update or supplement these statements. We also refer to certain non-GAAP financial metrics, and our press release includes the relevant non-GAAP reconciliations. With that, I'll turn the call over to Andi. Andi Owen: Thanks, Wendy. Good evening, everyone, and thank you for joining us. I'm pleased to report MillerKnoll, Inc. delivered another strong quarter exceeding expectations and demonstrating the effectiveness of our strategy to drive long-term value. Our performance this quarter is a result of disciplined execution across our core growth levers. Expanding our retail footprint, delivering innovative new products across our portfolio, and deepening customer engagement globally. We are entering the second half of our fiscal year with solid order growth in every segment. Let me begin with our Global Retail segment. Second quarter orders increased 6% year over year, with sales up 5% and comparable sales growth of 3.5%. In North America retail, we navigated one of the busiest periods of the year. Our orders were up 8%, and comparable sales growth was also up 8% while holding promotions and marketing spend flat to last year. During our holiday cyber promotional period, the twelve days from the Friday before Thanksgiving through GivingTuesday orders rose 12% compared to the same period last year, when orders were up mid-single digit. We set multiple records in North America Retail including the highest orders in DWR brand history both in-store and online, as well as the most single-day web visits for DWR. We continued our store expansion opening four new locations in Q2, a DWR in Salt Lake City, and Herman Miller stores in Nashville, and an El Segundo in Walnut Creek, California. We also relocated two stores opening a new DWI location in Houston and a new Herman Miller location in Berkeley, California. For the full fiscal year, we now anticipate opening 14 to new stores in the US, advancing our strategy to double our DWR and Herman Miller store footprint over the next several years. Our North American retail growth is driven by four strategic levers. New store openings, expanded product assortment, e-commerce acceleration, and increased brand awareness. We are encouraged by our customers' engagement with our brands and positive response as we execute this strategy. Another key advantage we have in this business is the strength of our supply chain. With approximately 70% of North America retail's cost of goods sourced from the US, our pricing is significantly less exposed to tariff risk compared to most competitors. Turning to our contract businesses, momentum continues to build in North America. And internationally as organizations prioritize bringing employees together, and refreshing their workspaces. Orders, industry benchmarks, and dealer sentiment were all up this quarter. The return to office trend is positively impacting demand for commercial real estate, design services, and contract furniture. And we're winning projects globally in resilient sectors such as healthcare, where solutions for the entire care journey from waiting rooms to labs to patient rooms. Are making a meaningful impact Our total healthcare orders are up 5% year to date. New product innovation also remains a key driver Our Noel Dividend Skyline launch has been met with strong enthusiasm from customers in the A and D community resulting in several large project awards well ahead of the official order entry date in January 2026. Internationally, we continue to enhance our global showroom footprint Last month, we introduced a Miller North showroom in Shanghai to engage A and D global accounts, and key partners in Mainland China. Through my ongoing conversations and visits with our international dealers, I am energized by the significant growth opportunities these markets present. Looking ahead, we expect to grow share with the most desired product portfolio in the market, and through expanding our dealer share wallet while continuing to generate enviable margins. In closing, we remain optimistic based on our execution and accomplishments in the first half of the fiscal year. Looking ahead, we see encouraging signals that indicate we will continue to grow through our enhanced innovation initiative, our expanding retail footprint, and our powerful partnerships and dealer networks. Our strategy is developing as planned, We are highly focused on flawless execution. We have demonstrated that we are tenacious and we have the capacity to adapt in order to capture our full potential and navigate disruption. We are on pace to our plans, and disciplined, focused on meeting our potential as a growth-minded company. We have the cash flow and balance sheet strength to capitalize on our opportunities and drive continued momentum. December is also a time to reflect on our achievements, and look forward. I want to extend a heartfelt thank you to our associates across MillerKnoll, Inc. for their extraordinary commitment every day. Your dedication is the foundation of our success. I am so proud of your unwavering commitment to delight our customers in every brand and our collective with products that define modern design around the globe. With that, I'll turn it over to Kevin to discuss our financial results in more detail and share our outlook for the fiscal third quarter. Kevin Veltman: Thanks, Andi, and good evening, everyone. I'll begin with a summary of our second quarter results and then discuss our outlook. In the second quarter, adjusted earnings per share of $0.43 exceeded expectations. Reflecting stronger than expected sales and gross margin. Consolidated net sales for the quarter were $955 million, down 1.6% year over year on a reported basis and 2.5% lower organically. As we have previously discussed, we expected lower year over year sales this quarter given the $55 million to $60 million in pull-ahead activity in North America contract that pulled forward sales into our first quarter. For the first half of the fiscal year, consolidated net sales reached $1.9 billion, up 4% year over year, with this normalized view demonstrating the strength of our business. Orders for the quarter grew to $973 million, up 5.5% as reported and 4.5% higher on an organic basis. Our order momentum across all three segments reinforces our confidence in an improving demand environment and our ability to execute our growth strategy. Second quarter consolidated gross margin was a strong 39%. This includes approximately $1 million in net tariff-related costs. We expect our proactive mitigation actions to fully offset tariff costs in the second half of our fiscal year, supporting both gross margin and earnings per share resilience. Turning to cash flows and the balance sheet, we generated $65 million in operating cash flow and ended the second quarter with $548 million in liquidity. Our net debt to EBITDA ratio of 2.87 times remains comfortably below our lending covenant limits. Reflecting our disciplined approach to capital allocation and financial flexibility. Continue to balance investments and growth with maintaining a strong balance sheet. Our disciplined approach focuses on driving operational efficiency. Leveraging scale and optimizing production capabilities across our facilities As part of this approach, we recently announced the consolidation of our Muskegon, Michigan facility with production transitioning to other plants. This consolidation is expected to deliver $10 million in annual run rate savings by fiscal 2028. With that, I will move to the second quarter performance by segment. Net sales in the North America Contract segment were $509 million, down 3.1% year over year following last quarter's 12.1% sales growth that was partially driven by the tariff-related pull forward. For the first half of the fiscal year segment sales were up 4.1%. Orders increased to $507 million, up 4.8% from prior year, Operating margin was 8.7% and adjusted operating margin was 9.7%, down 50 basis points year over year primarily from deleverage on lower sales. International contract segment net sales were $171 million, down 6.3% on a reported basis and down 9.2% on an organic basis year over year. Orders rose to $162 million, up 6.6% versus prior year on a reported basis and up 3.4% organically, driven by strength in Europe, the UK, China, and India, partially offset by lower orders in Korea and the Middle East. Second quarter reported operating margin was 9.3%, with adjusted operating margin of 9.7%. Down 280 basis points primarily due to deleverage on lower sales and regional and product mix of sales in the Global Retail segment, net sales were $276 million, up 4.7% on a reported basis and up 3.4% organically. Orders improved to $304 million, up 6% year over year on a reported basis and up 4.5% on an organic basis. Operating margin was 1.5% in the quarter On an adjusted basis operating margin was 2.1%. Down 170 basis points year over year. Primarily due to costs related to the new stores, net tariff costs, foreign currency As Andi mentioned, we opened four net new stores in the second quarter. We expect to open two to three additional stores in the third quarter and anticipate opening a total of 14 to 16 new stores in the full fiscal year. Turning to our Q3 guidance. Our outlook incorporates the latest information on tariffs and new store investments, as well as the typical seasonal softness in our contract businesses as the calendar year comes to a close and the timing of the Chinese New Year holiday. We expect net sales to range between $923 million and $963 million, up 7.6% versus prior year at the midpoint. Gross margin is projected between 37.9% and 38.9%, and adjusted expense is expected to range from $300 million to $310 million higher year over year primarily due to increased variable selling and incentive expenses along with new store costs. Adjusted diluted earnings are expected to range between $0.42 and $0.48 per share. Based on current tariffs in place, we expect our proactive pricing and tariff mitigation actions to fully offset tariff impacts to gross margin and EPS in the second half of the fiscal year. Included in our expectations for operating expense and EPS are costs associated with new stores and global retail. We estimate approximately $5 million to $6 million in incremental operating expense year over year for the new locations in Q3, with a similar range expected in Q4. These investments are aligned with our strategy to expand our retail footprint and drive long-term growth. For further details related to our outlook, refer to our press release, With that overview, I'll turn the call over to the operator. As always, we welcome your questions and look forward to discussing our progress outlook, and strategic priorities. Operator: Now begin the question and answer session. I would like to remind everyone in order to ask a question, please press star followed by the number one on your telephone keypad. First question comes from the line of Reuben Garner with The Benchmark. Please go ahead. Reuben Garner: Thank you. Good evening, everybody. Evening. Maybe just to start, having the second quarter that you just reported, gross margin came in above what was expected, revenue came in at the high end and OpEx was a little higher. Was that mix of business, or can you talk about what drove kind of the puts and takes relative to what you were expecting a few months ago? Kevin Veltman: Yeah. So if you look at gross margin for the quarter coming in better than expected, it was a bit of channel mix and a bit of product mix. We also had some good pricing realization, particularly credit to our teams on working through the tariff mitigation as we work through both price increases and surcharges. And then operating expenses was variable selling costs, from the sales over delivery as well as the timing of some expenses, and FX was something else that played a factor. Reuben Garner: Okay. And then in the press release, you talked about kind of the order rate, the twelve-day holiday period, those growth rates are pretty strong. And later in the quarter, On the contract side, specifically in The Americas, can you talk about kinda how that ebbed and flowed or orders through the quarter? Were they a little softer, during the shutdown period and just kind of more talking points in terms of pipeline or any other data points you have internally would be helpful. Kevin Veltman: Yeah. So we had, from an orders perspective, really across all the businesses, with orders up organically 4.5%, in the quarter. It was consistent across all three months of the quarter So seeing a lot of consistency there and then even in the first couple weeks of the new quarter, we're in that mid-single-digit range. So it's been fairly consistent. The other thing I would call out as we look at a number of both external measures and internal measures is if you go back to the springtime, the world was at its highest point of tariff uncertainty. And so we're seeing a lot of sequential improvement and a lot of both external, whether it's leasing activity, but also some of our own internal measures that as we kind of get past that we're seeing sequential improvements as well. Reuben Garner: Sorry. I got stuck on mute. And then I'm gonna sneak one more in on, America's contract. Any specific geographies, or customer types, industries, I guess, that you're seeing particular strength or changes in? And then you know, AI has been a question we've gotten a lot lately just wanted to kinda get your thoughts on how that may or may not be impacting demand going forward in the contract space? John Michael: Hi, Reuben, it's John. I would say from a geographic perspective, some of the markets that have been slower to come back are starting to really percolate. So if you think about the Bay Area, Southern California, we're definitely seeing a pickup there. Really, the Northeast Coast has been strong. For a number of months. I think in terms of industries, energy, professional services, legal, are all very active. Obviously, public sector or federal government is a little softer than normal given earlier in the year, the doge work and then the government shutdown that's had a bit of an impact And pharma and banking are down slightly over prior year. But other than the public sector, pretty strong across the board. And as Andi mentioned in her opening comments, healthcare continues to be a growth driver. Andi Owen: And hey, Reuben, can you clarify your question on AI? Are you asking about AI implementation in the company? Are you asking about from customers? Just to be clear. Reuben Garner: From customers, how that may impact them employment, how that may impact how the office looks going forward? Are you seeing changes in floor plates or anything else, in the way that we work? Andi Owen: You know, I think we'll see changes. It's a little early to tell from our customer viewpoint, but as we kind of plan and innovate for the future, we imagine that there will be productivity gains and absolutely changes on how work together. So we're thinking about that in a more future-forward way. I think today the impact on actual workspaces has been pretty minimal. But I do think the conversations are pretty broad and fast in how all of our customers are thinking about it and using it. Reuben Garner: Thanks for the detail, guys. Good luck in the New Year, and happy holidays. Andi Owen: Thanks, Reuben. You too. Operator: Your next question comes from the line of Philip Bley with William Blair. Please go ahead. Philip Bley: Thank you. Good evening, everyone. Can you maybe just talk about your expectations for the contract business in the third quarter a bit more? Maybe some color around key drivers between price versus volume? Whether we're fully through the prior quarter pull forward or whether or not any of that sort of still bleeding into the third quarter as well? Then obviously, it's a slow time of year for contracts seasonally, but anything to suggest volume trends shouldn't continue at current levels or potentially move up from here in second half, assuming all macro remains the same? Thank you. Kevin Veltman: Philip? Yes. Philip, this is Kevin. I'll start. North America contract, orders in the quarter were up about 5% on an organic basis at Similar to the comments earlier, we've been seeing some pretty good, consistent encies. And so we think in that mid-single digits is kind of a nice spot that that business was in during the quarter. And seems to be running from an order level perspective as well. Year to date, the to your question on order pull ahead, we think our orders are clear of any of that activity. If you normalize our sales year to date, in North America contract, those are up about 4%. So also kind of in that mid-single-digit range. John Michael: Tom, how would you add? Tom: I would add that. In terms of in terms of external indicators for continuing demand, if I think about the conversations we're having of late with commercial real estate brokers, They seem to generally be very bullish across the board on 2026, and that obviously bodes well for for our industry. Similarly, architectural designs firms, while the overall ABI is down a bit, The more premium-based firms seem to be very busy. And if you look at from an absorption perspective in commercial real estate, it's the class A space and even the class A plus space that is getting the most attention right now as companies are trying to elevate the office experience to get their employees back. And our brands tend to play very well in that sector. Philip Bley: Okay. Excellent. Very helpful. Oh, go ahead. Kevin Veltman: I just gonna add. You asked about price versus volume. And it tends to be in the contract businesses. You tend to be able to pass along inflation fairly well through the industry. And so over the long run, you're passing along that 2% to 3%, and we've been seeing a fairly even mix at those level of growth rates of price and volume. Philip Bley: Okay. Excellent. Very helpful. And then your growth in retail is very exciting. Particularly with the insight into how North America performed during the peak holiday week. So you can maybe you talk about a bit about the acceleration there. What drove that sort of response from the consumer? The competitive environment seems particularly promotional, so did you have to lean in there? Or how do you kind of think about the durability of that kind of growth particularly as we exit the holiday season? Thank you all. Andi Owen: Yeah. So one thing I'll I'll I'll add and then I'm gonna have Debbie give you some of her thoughts. I think the team has done a great job building brand awareness. And since this is such a nascent business for us, I think as we have new stores and as people become more familiar with the DWR and Herman Miller brands, really helping us. I think our promotions were at the same level as they were last year, which I think is pretty phenomenal considering the results we showed. Our marketing spend was also equivalent to last year. So I think building brand awareness, opening new stores, having people be more familiar with our proposition was a winning combination for us in the cyber period. And Debbie, what would you add? Debbie Propst: I would add the assortment acceleration that we've been pursuing. With our collection count up 22% year on year. Is really helping to contribute to that growth as well. Philip Bley: Awesome. Very helpful. Thank you all, and have a great holiday. Debbie Propst: You too. Operator: Next question comes from the line of Greg Burns with Sidoti and Company. Please go ahead. Greg Burns: Good evening. Just to follow-up on the retail momentum Are you seeing with the assortment growth, are you seeing bigger bigger order order sizes, more more more net customers coming through your your retail locations in e-commerce or, you know, more engagement with existing customers higher higher order rates? Like, what what is the dynamic you're seeing within your your customer segment? Debbie Propst: Thanks for the question, Greg. I'd say there's two real highlights that we're seeing. Our average order value is up year on year beyond our pricing increases net pricing increases are only about 2.5% year on year. Thanks to our sourcing strategy, proves to have, you know, 70% of our COGS in North America from North America. So we've been able to be we've been able to be more conservative in our pricing increases. But average order value up That's really being driven by the assortment expansion that we're doing as well as design services as we continue to drive up the penetration of those in stores. Andi Owen: And I think through opening stores and new markets, we're obviously attracting new customers to the brands as well. Greg, so it's a combination of those things. Absolutely. Debbie Propst: Seeing greater demand of our new customers than we have historically as well. Greg Burns: Yep. Okay. And could you talk about the the kind of the road map to doubling the store store count Is that are are you gonna stay on this kind of 14 to 15 stores a year? Is that your thought right now? And how should we think about maybe the margin profile of that business? Like, are we are are you gonna operate it kind of at this low single digit range for the foreseeable future? How should we think about maybe leverage on some of these investments starting to show through? Debbie Propst: So, yes, we are planning to open in the range of 14 to 16 a year. And as you can imagine, we have leases signed through middle to back half of next fiscal year. Already. We have seasonality in our operating income, so the back half of the year always looks better than the front half of our our year based on largely where marketing spend falls in support of the cyber period. And we expect by the beginning of next fiscal year we'll start to see accretive operating income dollars from these new store investments. Andi Owen: I think, Greg, as we've mentioned to you guys a few quarters now, we're sort of in the depth of investment right now to open new stores. And as we get into Q3 and Q4, you'll start to see that impact on our bottom line. Get smaller and smaller. As the new stores begin to add revenue to really offset that investment. So we're optimistic that that will turn around in Q4 and Q1 of next year. I will start to leverage some of the overhead and expense Okay. So the like, a a gross five to six a quarter net declining starting to decline as we move into next fiscal year. That that net number will start to decline. Debbie Propst: That's right. Yes. Greg Burns: Okay. Alright. Thank you. Andi Owen: Well, thank you. Operator: Your next question comes from the line of Doug Lane with Water Tower Research. Please go ahead. Doug Lane: Yeah. Hi. Good evening, everybody. Just looking at the at the top line here with the the beat in the first quarter, the beat in the second quarter and the third quarters, pretty meaningfully above consensus. And your orders went from down mid-single digits to up mid-single digits sequentially. So something's getting better out there, and I don't know. What it sort of goes counter to what I'm reading anyway about the macro. So what are the two or three key macro trends that are really starting to work here? Is it back to office? Or really, what's going on? Andi Owen: I think in the contract business, globally, probably primarily in North America, but definitely globally, we are seeing return to office really taking off. I think the debate about whether to be together is is kind of over. And so we are busy at our showrooms. We're busy at our corporate headquarters. We are seeing people make decisions faster. We're seeing orders that are coming through our funnel with more velocity and less people waiting as long as they were waiting during COVID. So I think the impetus is there. Think some of the noise you see in the economy and from a macro standpoint is also driving senior leaders in organizations to get more serious about their spaces and more serious about bringing people together. And it helps us a lot especially in class A spaces. So I think we're in the right place at the right time from a standpoint. And then international, we have a ton of growth potential just in general. We aren't in as many markets as we could be. We can add dealers and still gain a lot of market share. That business tends to be a little lumpier with the size of orders so you really have to look at a six month, nine month, twelve month trend to understand the growth potential there, but at very enviable margins. And I think with retail, we're in a really good spot. We're attracting consumer right now. That is resilient and that is attracted to the proposition that we're offering. So I think we're in a really good place in both sides of our business and in all channels. Doug Lane: No question. Something's really coming together there. So what shifting gears a little bit with the consolidation going on in the industry. How have you thought about or what changes are you thinking about with in reaction to the consolidation now that you've had about six months or so to digest it? Andi Owen: Listen, I think we've been down that road. We know how hard consolidations are. We think the industry the contract industry has definitely shrunk, so consolidation in the end is good for everyone. We know that consolidations and integrations can be distracting, so we plan to definitely be on the front foot now that we're on the other side of that. Doug Lane: That's true. You've been through a lot of consolidation yourself over the years. And just finally on capital allocation, can what is the is there a target for a leverage ratio here? You seem to be hovering just under three times. And is that sort of target, a soft target of where you want to be? And then how do you think about capital expenditures in share repurchases in that context? Kevin Veltman: Yeah. So the way we're thinking about capital allocation right now is, one, you've heard us talk about some of the growth investments that we're making sure we can fund, and so we feel well positioned with the balance sheet to fund those. Paying down debt is the second priority. Would see kind of a midterm target to get to that two to two and a half turns range from the 2.87 are now as we continue to pay that down, those would be the first two priorities and then obviously continuing to maintain dividend at periodic share repurchase to offset dilution. Doug Lane: Okay. That's helpful. Thank you. Operator: There are no further questions. We turn the floor back to CEO, Andi Owen, for any closing remarks. Andi Owen: Thank you again, everyone, for joining us on the call tonight. With solid order momentum across every segment, and encouraging signals in our markets we were entering the third quarter with confidence Our teams remain focused on delivering operational excellence, scaling innovation, executing against our strategic priorities. We appreciate your support. Wish you all happy holidays and look forward to updating you next quarter. Thank you. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Thank you for standing by. Welcome to Micron Technology, Inc.'s First Quarter 2026 Financial Call. At this time, all participants are in 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 11 on your telephone. If your question has been answered and you would like to remove yourself from the queue, please press the pound key. As a reminder, today's program is being recorded. And now I would like to introduce your host for today's program, Satya Kumar, Investor Relations. Please go ahead, sir. Satya Kumar: Thank you, and welcome to Micron Technology, Inc.'s fiscal first quarter 2026 Financial Conference Call. On the call with me today are Sanjay Mehrotra, our Chairman, President and CEO, and Mark Murphy, our CFO. Today's call is being webcast from our Investor Relations site at investors.micron.com, including audio and slides. In addition, the press release detailing our quarterly results has been posted on the website along with the prepared remarks for this call. Today's discussion contains forward-looking statements that are subject to risks and uncertainties. These forward-looking statements include statements regarding our future financial and operating performance, as well as trends and expectations in our business, contractual terms, market, industry, products, and regulatory and other matters. These statements are based on our current assumptions, and we assume no obligation to update these. Please refer to our most recent financial reports on Forms 10-K, Forms 10-Q, and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. Today's discussion of financial results is presented on a non-GAAP financial basis unless otherwise specified. A reconciliation of GAAP to non-GAAP financial measures can be found on our website. I will now turn the call over to Sanjay. Sanjay Mehrotra: Thank you, Satya. Micron Technology, Inc. had an outstanding start to fiscal 2026, delivering fiscal Q1 revenue, gross margin, and EPS well above the high end of our guidance. This financial performance was driven by our strong execution across end markets and products in a tight supply environment. We achieved a number of records in fiscal Q1. Total company revenue, DRAM and NAND revenue, as well as HBM and data center revenue, and revenue in each of our business units also reached new records. We have completed agreements on price and volume for our entire calendar 2026 HBM supply, including Micron's industry-leading HBM4. We forecast an HBM TAM CAGR of approximately 40% through calendar 2028, from approximately $35 billion in 2025 to around $100 billion in 2028. This $100 billion HBM TAM milestone is now projected to arrive two years earlier than in our prior outlook. Remarkably, this 2028 HBM TAM projection is larger than the size of the entire DRAM market in calendar 2024. We are excited about our customized HBM4E customer engagements, which offer further differentiation opportunities to us, and we continue to make excellent progress on our HBM roadmap. Memory is now essential to AI cognitive functions, fundamentally altering its role from a system component to a strategic asset that dictates product performance from data center to the edge. This structural shift means that system capabilities heavily rely on advanced memory for real-time contextual processing, which is vital for achieving autonomous and intelligent behaviors in AI data centers as well as in applications ranging from self-driving cars to advanced medical diagnostics. With our technology leadership, differentiated product portfolio, strong operational execution, and solid balance sheet, Micron Technology, Inc. is in the best competitive position in its history and is one of the semiconductor industry's biggest enablers of AI. We anticipate substantial new records in revenue, gross margin, EPS, and free cash flow for both the second quarter and the full fiscal year 2026, and we expect our business performance to continue to strengthen through the year. Sustained and strong industry demand, along with supply constraints, are contributing to tight market conditions, and we expect these conditions to persist beyond calendar 2026. We are making progress with customers in our multiyear contracts with specific commitments. Simultaneously, we are focused on maximizing our production output from our current footprint, ramping our industry-leading technology nodes, and investing in new clean room space to add to our supply capability. Micron Technology, Inc.'s technology leadership is foundational to our strong competitive position. Micron Technology, Inc. has led the industry for four consecutive technology nodes in DRAM and three nodes in NAND with progressively faster yield ramps in every node. Our 1-gamma DRAM node is ramping well. 1-gamma will be the primary driver of our DRAM bit growth in calendar 2026 and will be the majority of our bit output in the second half of the calendar year. Looking beyond 1-gamma, development is underway for 1-delta and 1-epsilon nodes, which will feature innovations that we expect to extend our differentiation and technology leadership. In NAND, we are ramping our G9 node with robust yield ramps across both data center and client SSDs. Our QLC NAND mix, including G9 QLC, reached a record high during the quarter. Technology transitions to G9 will be the primary driver of our NAND bit growth in calendar 2026, and we expect it to become our largest NAND node later in fiscal 2026. I am pleased to report that calendar 2025 is a record year for Micron Technology, Inc. in terms of both internal and customer quality measures, positioning us well to deliver for our customers as the memory industry's quality leader. As our products are increasingly integrated into higher-value applications, our leadership in quality is becoming a more important differentiator. Turning to our end markets, as the world's leading technology companies advance toward artificial general intelligence and transform the global economy, our customers are committing to an extraordinary multiyear data center build-out. This growth in AI data center capacity is driving a significant increase in demand for high-performance and high-capacity memory and storage. Server unit demand has strengthened significantly, and we now expect calendar 2025 server unit growth in the high teens percentage range, higher than our last earnings call outlook of 10%. We expect server demand strength to continue in 2026. Server memory and storage content and performance requirements continue to increase generation to generation. Micron Technology, Inc. has a differentiated portfolio of high-value data center solutions to address these requirements, including our HBM, high-capacity server memory solutions, and data center SSDs. Micron Technology, Inc.'s HBM4, with industry-leading speed over 11 gigabits per second, is on track to ramp with high yields in the second calendar 2026, consistent with our customers' product ramp plans. Our HBM4 uses advanced CMOS and advanced metallization process technologies on the base logic die and DRAM core dies, which are designed and manufactured in-house. This, along with our unique HBM design, packaging, and test capability, enables Micron Technology, Inc.'s industry-leading performance and low power leadership. Micron Technology, Inc. pioneered the adoption of LPDRAM in the data center. Micron Technology, Inc.'s low-power DRAM server modules consume one-third the power of DTR DRAM server modules. Building on this leadership, we have sampled our 192-gigabyte LP SOCAM2 product, which enables a 50% increase in capacity per module and a rack-scale LPDRAM density of over 50 terabytes. Our data center NAND portfolio revenue exceeded $1 billion in fiscal Q1, and we are seeing strong momentum across our data center SSD portfolio enabled by our leadership NAND technology. In the performance SSD category, Micron Technology, Inc. has introduced the world's first PCIe Gen6 SSD, leveraging our G9 NAND. We are seeing rapidly increasing qualification commitments for this product, including at hyperscalers. In mainstream storage, our SSDs based on G9 NAND are already seeing robust demand in 2026. In capacity storage, our QLC-based 122 and 245 terabytes G9 SSDs are entering qualification at multiple hyperscale customers. PC demand continues to be driven by Windows 10 end-of-life and AI PCs. We forecast PC unit sales to grow in the high single-digit percentage range in calendar 2025, above our prior expectations provided in our last earnings call of mid-single digits. As we look ahead into 2026, we expect these demand drivers to continue while memory supply constraints may affect some PC unit shipments. Micron Technology, Inc. has completed multiple OEM qualifications of our 16-gigabit, 1-gamma-based DDR5 and our G9-based PCIe Gen4 QLC SSDs. Turning to mobile, smartphone unit volumes in calendar 2025 are on track to grow in the low single-digit percentage range. AI is driving memory content growth. The shipment mix of flagship smartphones with 12 gigabytes of DRAM increased to 59% in calendar Q3, more than twice the level from a year ago. Micron Technology, Inc. is accelerating innovation across our mobile DRAM portfolio. In fiscal Q1, we began sampling our breakthrough 1-gamma 16-gigabit LPDDR6 product to leading OEM and ecosystem partners, marking a major milestone in next-generation memory technology. LPDDR6 will power AI at the edge, delivering over 50% higher performance and improved power efficiency for flagship smartphones and AI PCs. Micron Technology, Inc. also sampled our 1-gamma LP5X 24-gigabit product and began volume shipments of the previously announced 1-gamma LP5X 16-gigabit product to multiple OEMs. Turning to auto, industrial, and embedded, in automotive, L2+ and LC adoption is driving robust demand today, and our customers' roadmaps indicate significantly higher memory content in fully automated vehicles. Micron Technology, Inc. is uniquely positioned for growth with our differentiated product portfolio and automotive market share leadership. Our ASIL-rated LPDDR5X and UFS 4.1 NAND products, optimized for automotive and advanced robotics that include bandwidth-enhancing features, are seeing strong demand and have already secured billions of dollars in design wins. In industrial, demand continues to strengthen, driven by the growing adoption of autonomous systems across various applications. Long-term demand trends trajectory remains robust for memory and storage in industrial applications, such as in factory automation, aerospace and defense, humanoid robotics, edge networking, and video surveillance. Across both auto and industrial markets, LPDDR4X and DDR4 are also experiencing strong demand, and we are making investments to provide long-term supply from our Manassas, Virginia fab. Now turning to our market outlook. Over the last few months, our customers' AI data center build-out plans have driven a sharp increase in demand forecasts for memory and storage. We believe that the aggregate industry supply will remain substantially short of the demand for the foreseeable future. The dramatic increase in HBM demand is further challenging the supply environment due to the three-to-one trade ratio with DDR5, and this trade ratio only increases with future generations of HBM. Additional clean room space is necessary to address this increased demand, and lead times for clean room build-out are lengthening across geographies. Together, these demand and supply factors are driving tight industry conditions across DRAM and NAND, and we expect tightness to persist through and beyond calendar 2026. Calendar 2025 DRAM and NAND bit demand growth expectations are higher than in our last earnings call outlook. We now expect calendar 2025 DRAM bit demand growth to be in the low 20% range versus high teens previously. We expect 2025 NAND bit demand growth to be in the high teens percentage range versus low to mid-teens previously. We expect calendar 2026 industry DRAM and NAND bit shipment growth to be constrained by industry supply. We expect both DRAM and NAND calendar 2026 industry bit shipments to increase around 20% from 2025 levels. Micron Technology, Inc. is working hard to support our customers' demand during this time, and we expect to grow our DRAM and NAND bit shipments approximately 20% in calendar 2026. Despite significant efforts, we are disappointed to be unable to meet demand from other customers across all market segments. Micron Technology, Inc. plans to increase our fiscal 2026 CapEx to approximately $20 billion versus our prior estimate of $18 billion. This increase will primarily support our HBM supply capability and also our 1-gamma supply in calendar 2026. We are pulling in equipment orders and accelerating installation timelines to maximize output capability. Micron Technology, Inc. is also investing across our global manufacturing footprint to add supply to support longer-term demand. We are seeing an enthusiastic customer response to our planned US supply. We are pulling in our first Idaho fab timeline, and we now expect first wafer output in mid-calendar 2027, earlier than our prior expectation of the second half of calendar 2027. Earlier this year, we announced our plans for the second Idaho fab, which will begin construction in 2026 and be operational by 2028. We are making good progress on securing necessary permits for our New York site and appreciate the partnership with the state of New York and the Trump administration. We plan to break ground on our first New York fab in early calendar 2026, which we expect will provide supply in 2030 and beyond. In Japan, with the support of METI, we are making technology and manufacturing investments. We are enabling future DRAM technology transition in coordination with our Boise R&D team. We are also adding clean room space in our Hiroshima fab to support these advanced nodes, which will increase production scale and optimize fab economics. In Singapore, our HBM advanced package facility is on track to contribute meaningfully to our HBM supply in calendar 2027. As HBM becomes a part of our Singapore manufacturing footprint, we expect opportunities for synergies between NAND and DRAM production. We are pleased with the progress on our assembly and test facility in India, which has initiated pilot production and will ramp in 2026. As we make progress on our strategic manufacturing initiative, we will continue to be responsive to the market environment and disciplined with our CapEx plans. I will now turn it over to Mark for our fiscal Q1 financial results and outlook. Mark Murphy: Thank you, Sanjay, and good afternoon, everyone. Micron Technology, Inc. delivered strong financial results for the fiscal first quarter, with revenue, gross margin, and EPS all exceeding the high end of our guidance. During the quarter, we generated record free cash flow, reduced our debt, and returned to net cash. Total fiscal Q1 revenue was $13.6 billion, up 21% sequentially and up 57% year over year, setting a quarterly record for the third consecutive quarter. We saw sequential revenue growth across all our business units. Fiscal Q1 DRAM revenue was a record $10.8 billion, up 69% year over year, and represented 79% of total revenue. Sequentially, DRAM revenue increased 20%, bit shipments were up slightly, and prices increased 20%, driven by tight industry DRAM supply, pricing execution, and favorable mix. Fiscal Q1 NAND revenue was a record $2.7 billion, up 22% year over year, and represented 20% of Micron Technology, Inc.'s total revenue. Sequentially, NAND revenue increased 22%. NAND bit shipments increased in the mid to high single-digit percentage range, and prices increased in the mid-teens percentage range, driven by tight NAND industry supply, pricing execution, and favorable mix. The consolidated gross margin for fiscal Q1 was 56.8%, up 11 percentage points sequentially. This improvement was driven by higher pricing with strong cost execution and favorable mix. Now turning to quarterly financial performance by business unit. Cloud Memory Business Unit revenue was a record $5.3 billion and represented 39% of total company revenue. CMBU revenue was up 16% sequentially, driven by an increase in bit shipments and higher prices. CMBU gross margins were 66%, higher by 620 basis points sequentially, supported by cost execution and higher pricing. Core Data Center Business Unit revenue was a record $2.4 billion and represented 17% of total company revenue. CDBU revenue was up 51% sequentially, driven by robust bit shipments and higher pricing. CDBU gross margins were 51%, up 990 basis points sequentially, supported by higher pricing and cost execution. Mobile and Client Business Unit revenue was a record $4.3 billion and represented 31% of total company revenue. MCBU revenue was up 13% sequentially, driven by higher pricing partially offset by lower bit shipments. MCBU gross margins were 54%, up 17 percentage points sequentially, driven primarily by higher pricing. Automotive and Embedded Business Unit revenue was a record $1.7 billion and represented 13% of total company revenue. AEBU revenue was up 20% sequentially, driven by higher bit shipments and higher pricing. AEBU gross margins were 45%, up 14 percentage points sequentially, driven primarily by higher pricing. Operating expenses in fiscal Q1 were $1.3 billion, up $120 million quarter over quarter and in line with our guidance range. The sequential increase was driven by higher R&D expenses in support of technology and product development on our new DRAM and NAND technology nodes. We generated operating income of $6.4 billion in fiscal Q1, resulting in an operating margin of 47%, up 12 percentage points sequentially and 20 percentage points year over year. Fiscal Q1 taxes were $977 million on an effective tax rate of 15.1%. Non-GAAP diluted earnings per share in fiscal Q1 was $4.78, with 58% sequential growth and 167% versus the year-ago quarter. Turning to cash flow and capital expenditures. In fiscal Q1, operating cash flows were $8.4 billion, and capital expenditures were $4.5 billion, resulting in free cash flow of $3.9 billion. Fiscal Q1 free cash flow was a quarterly record, exceeding our prior record in fiscal Q4 2018 by over 20%. Ending inventory for fiscal Q1 was $8.2 billion, down $150 million sequentially, with days of inventory at 126. DRAM inventory days remain tight and below 120 days. On the balance sheet, we held $12 billion of cash and investments at quarter-end and maintained $15.5 billion of liquidity when including our untapped credit facility. In fiscal Q1, we repurchased $300 million of shares as permitted by the terms of the CHIPS agreement. During the quarter, we also reduced debt by $2.7 billion, paying off a $1 billion balance of term loans and redeeming $1.7 billion of senior notes. We closed the quarter with $11.8 billion of debt and a net cash balance over $250 million. Through the fiscal year, we expect to further strengthen our balance sheet as we generate additional free cash flow. Before turning to our outlook, I would like to share an update on how we are benefiting from AI use across Micron Technology, Inc. Today, over 80% of our professional workforce actively uses GenAI, with total usage up tenfold since last year. In manufacturing, integrating AI into yield and quality management has cut root cause identification time by half in cases. Our coding teams are realizing gains of 30% or more using AgenTeq AI. In R&D, GenAI is accelerating development by reducing cycle times in design verification, product validation, issue triage, and root cause analysis. Across business functions, GenAI is broadening automation opportunities, and we are deploying conversational analytics to accelerate and improve decision-making. We expect Micron Technology, Inc.'s use of AI across the enterprise to further strengthen our competitiveness in the coming years. Now turning to our outlook for the fiscal second quarter. Industry demand is greater than supply for both DRAM and NAND. We expect higher prices, lower costs, and favorable mix to all contribute to gross margin expansion in Q2. Operating expenses for fiscal Q2 are projected to be approximately $1.38 billion. As mentioned last quarter, Micron Technology, Inc.'s fiscal Q4 2026 OpEx will also reflect the effect of an additional work week in this 53-week fiscal year. We expect a fiscal Q2 and fiscal year 2026 tax rate of around 15.5%. Micron Technology, Inc. is investing in a disciplined manner across our global manufacturing footprint to better meet demand. To address tight supply-demand conditions, if extending beyond 2026, we now project our capital spending in fiscal 2026 to be approximately $20 billion, weighted to the second half of the fiscal year. We expect free cash flow to strengthen in fiscal Q2, and we expect to generate significantly higher free cash flow year over year in fiscal 2026. Any impacts that may occur due to potential new tariffs are not included in our guidance. With all these factors in mind, our non-GAAP guidance for fiscal Q2 is as follows: We expect revenue to be a record $18.7 billion, plus or minus $400 million, gross margin to be in the range of 68%, plus or minus 100 basis points, and operating expenses to be $1.38 billion, plus or minus $20 million. Based on a share count of approximately 1.15 billion shares, we expect EPS to be a record $8.42 per share, plus or minus $0.20. I will now turn it over to Sanjay to close. Sanjay Mehrotra: Thank you, Mark. AI-driven demand is here, and it is accelerating. And Micron Technology, Inc. is capturing these opportunities with the best competitive position in its history. This success is built on the strength of our global team, and I want to thank our team members worldwide for their hard work and dedication. We are in the most exciting time in Micron Technology, Inc.'s history, and the best is yet to come. We will now open for questions. Operator: Operator, can you queue up the questions? Operator: Yes, sir. And I show our first question comes from the line of Timothy Arcuri from UBS. Timothy Arcuri from UBS, your line is open. Timothy Arcuri: Thanks a lot. Sanjay, I wanted to ask you about customer LTAs. I know we are hearing about DDR5 that's being bundled with HBM, and in some cases, even NAND. So can you just talk about these LTAs? I know it sounds like these are, you know, stretching out through 2026 and in some cases even 2027. I have even heard of some stuff into, you know, 2028. So can you talk about the nature of these LTAs? And then I had an AI follow-up as well. Thanks. Sanjay Mehrotra: These are multiyear contracts that we are in discussions with several of our key customers. And these contracts, of course, involve DRAM as well as NAND. And, you know, with respect to the returns, of course, these contracts that we are under discussions for are very different from prior LTAs. They have specific commitments in them and a much stronger contract structure. And beyond that, I cannot be giving you specifics at this point. Of course, in the future, if and when appropriate, we will be sharing further details. Timothy Arcuri: Thanks. And then, Mark, I want to ask you about CapEx. So you took it up to $20 billion net, but it still seems, I mean, you are not guiding all fiscal '26 revenue, so we do not really know what the capital intensity number is. But it seems like it is like 25 to 30%, which is a little below your 35%, you know, metric that you usually think of. So is that because you are constrained because of fab space? And can you just talk about does that sort of like roll into fiscal '27 where we would see, you know, cap up more near that 35% range? Thanks. Operator: Thank you. And I show our next question in the queue comes from the line of CJ Muse from Cantor Fitzgerald. Please go ahead. CJ Muse: Gotcha. Back to you. CJ Muse, your line is open. Operator: Yeah. Yeah. They did not answer the prior question. Operator? Operator: Yes, sir. Can you turn it back to management so they can answer the prior question? Operator: Sure. Management's line is open. Please proceed. Mark Murphy: I believe the speaker's lines are muted at this time. Operator: Ladies and gentlemen, please continue to stand by. Your call will resume momentarily. Mark Murphy: Operator, can you hear us? Operator: Yes. We can now. You are unmuted, sir. Please proceed. Mark Murphy: Okay. I am not sure what happened there. We were on mute here. So I just want to make sure that you heard Sanjay's response. Correct? Timothy Arcuri: We did not. Mark Murphy: You did not hear Sanjay's response. Okay. Thanks, Tim. So Sanjay, we heard the I heard Sanjay's response to the first question, but I did not hear your response, Mark, to my question on CapEx and on capital intensity. Mark Murphy: Okay, Tim. Okay, Tim. Thank you. So you are right, Tim. We are not providing a full-year revenue guide. We did indicate that our CapEx was going up in fiscal '26. And, you know, a substantial part of that CapEx is to support DRAM and specifically HBM and the 1-gamma and 1-gamma RAM. You know, I would say that from '25 to '26, the plan is roughly to double the brick-and-mortar construction CapEx. And at this time, we would expect '27 CapEx to be up, you know? But I want to emphasize that Micron Technology, Inc. is going to remain disciplined on CapEx growth to support, you know, bit demand and that bit supply and that supply will be in line with demand. Timothy Arcuri: As your question of capital intensity, our capital intensity, of course, is dropping as the market conditions remain very constructive, and of course, we are working to be very efficient with our capital spend. Mark Murphy: Okay, Mark. Thank you. Operator: Thank you. And I show our next question comes from the line of CJ Muse from Cantor Fitzgerald. Yes. Good afternoon. Thank you for taking the question. I guess, Mark, to follow up on the prior question around CapEx and the relative growth seems very conservative in the backdrop that we are in. And, you know, it feels like you are just sitting here without clean room space, and it also does not sound like you are, you know, meaningfully pulling in clean room. So can you talk about the philosophy there? And, you know, I guess what I am taking away from your commentary is that you are being very conservative and judicious with adding capacity here. Mark Murphy: Well, I would say that we have been indicating issues with supply for several quarters, that we were working inventories down, that node transitions were going to be the principal source of supply growth in fiscal '26. And that is, you know, that is exactly what is happening. And, you know, we know that clean room space takes time. And the HBM growth, which has only picked up with AI-driven demand, has further pressured supply. So there is no, you know, near-term solution. As we said in the prepared remarks, the entire industry we expect to be short to demand. And we are no different in that case. But we are moving quickly to do our best to provide customer supply. And we have pulled in tools. We have accelerated construction in Idaho. We are doing everything we can within our existing footprint and near-term capacity expansions to deliver supply. And so, you know, we provided a bit growth number for '26. And that is supply constrained. Sanjay Mehrotra: And I will just add that, of course, we are continuing to make the investments in technology transitions in our existing footprint. And as we highlighted, that 1-gamma node will be, you know, the majority driver of our supply growth in '26. And, of course, you have seen us make investments not only in technology transitions but also in greenfield capacity, but also enabling greater technology production capability in our existing clean rooms in Japan, and we are making the necessary investments there as well. So of course, we remain disciplined, but we are very much focused and trying to work hard toward increasing our supply there. And pleased with our plans for Idaho one, Idaho two, and, of course, New York as well. Of course, in the short term, very much focused on maximizing production efficiencies, maximizing our production output from the existing footprint as well. But, yes, I mean, demand fundamentals are pretty strong. Driven by AI from data center to edge with the build-out of our customers, supply is significantly short. And, you know, I would say that, you know, in the medium term, we are only able to meet about 50% to two-thirds of our demand from several key customers. So we remain extremely focused on trying to increase the supply here and making the necessary investments. CJ Muse: Very helpful. And then I guess as a follow-up for gross margins, obviously, the guide is quite stellar. But curious as you go through calendar '26, how should we think about cost down across both DRAM and NAND? And as you transition from 3E to 4, is there anything that we should keep in mind or we should think about contemplating in our models where there might be, you know, higher cost temporarily giving yields or whatnot? Thanks so much. Mark Murphy: Yeah. So our cost execution has been very good across both DRAM and NAND. Of course, we are getting some volume leverage, but spend control has been very good. Yields have been good. We do have some startup costs coming in for the new fabs, new construction across the network. That starts to come in '26 and into '27. But at these, you know, size of the business, at these levels, it is a relatively small impact on margin. We are not going to provide cost guidance for the rest of the year as it depends on many factors, including mix. But to our earlier question, I can say that, you know, we have talked about up 1-gamma DRAM and G9 NAND. That LAN for supply in '26. And those ramps are proceeding well and will be a tailwind to our cost as these nodes ramp. Sanjay Mehrotra: Regarding your question on HBM3E and HBM4, as we have said, we will be beginning to ramp production of HBM4 in CQ2 time frame in line with our customer demand. And, of course, our HBM4 is progressing extremely well. Very pleased with our product, industry-leading product with the highest performance of over 11 gigabits per second. And so, I mean, that is the highest performance. And we are very pleased with its overall yield ramp, and we expect that HBM4 to be expecting having a faster yield ramp than our HBM3E. And, of course, our mix of HBM3E and HBM4 during '26 will be very much based on our overall customer demand, and we will have both of these products with a strong profile in our '26 revenue. Mark Murphy: Thank you. Operator: And I show our next question in the queue comes from the line of Harlan Sur from JPMorgan. Please go ahead. Harlan Sur: Hey. Good afternoon, and great job on the quarterly execution. You know, just over the past three to four months as we track the different ASIC AI XPU programs, there has been a significant upward revision on ASIC XPU volume shipments next year. You have Google TPU, AWS Trinium, and so on. Right? And all of these XPUs are still going to be using HBM3E. Have you has the team seen this near-term positive dynamic in your order book for 3E? And given that you are fully contracted for calendar '26, like, what and what appears to be growing upside to next year's view, how is the team how is the Micron Technology, Inc. team going to try and manage this upside dynamic in 3E alongside a strong HBM4 demand profile? Sanjay Mehrotra: As I mentioned, Harlan, earlier, the top course, 2026 will have a mix of HBM3E and HBM4. And we have shared with you in the past that, you know, we are engaged with multiple with the entire ecosystem here of HBM customers. And very much engaged with them. And, you know, they will all contribute to our strong year-over-year growth in revenue in '26, and of course, that will be made up of both HBM3E and HBM4. So as I said, I mean, we will continue to manage the mix of the two based on, you know, customer requirements. I can tell you that, you know, in 2026, supply on HBM will be tight. A non-HBM DRAM will be tight as well. So we are continuing to see as we have highlighted in our prepared remarks, you know, tightening supply environment. And, of course, we see strong year-over-year growth in '26 for our HBM. We today upped our, you know, revenue forecast or if for each HBM, we highlighted that by 2028, we expect it to be $100 billion TAM, and that is two years ahead of our prior outlook. So, of course, HBM is on a good trajectory. And what I can also tell you is that customers, as their architectures are evolving, you know, as their platforms are evolving, and these are customers across the ecosystem, of course, they are requiring more and more HBM. I mean, the value of memory in terms of ability to deliver the AI capabilities and the functionality and the performance memory is critical, and more HBM is required, and that is across the various AI platforms in the industry. Harlan Sur: No. I appreciate that, Sanjay. And then after two to three quarters of enterprise, this is the sort of muted trends. I believe the team saw a strong reacceleration in the business, right, according to some of the third-party research estimates I think your enterprise SSD business grew, like, 25% sequentially. In the most recent quarter. Right? So you are the number three market share leader amongst eight or nine competitors. Right? Very strong share position. Given, I would assume, increasing demand trends here, expanding lead times, is the Micron Technology, Inc. team also entering into long-term supply agreements with your ES SSD customers? And then secondarily, I mean, SSD demand, is it more tied to expansion in inferencing workloads as customers aggressively move to monetization? In other words, is storage intensity higher on inferencing versus training workloads? Sanjay Mehrotra: So with respect to enterprise SSDs, really, very proud of our engineering and business teams and, of course, our sales teams in terms of our customer engagement and the strong momentum and the share gains that we have with our enterprise SSD. Of course, our enterprise SSDs are a big part an important part that we say, of our data center strengthening mix. You know, of course, DRAM is continuing to increase in mix toward data center, but data center SSDs are an important part of our overall revenue mix. And, you know, we expect to continue to focus on share gains with our take a strong SSD roadmap, customer engagement, and great quality that we provide to the customers. And as I mentioned, that our multiyear contract that we are in discussions with with our several key customers. Our SSDs, our data center SSDs are also part of that. And let me tell you that these multiyear contracts are not just about data center customers. They also are about multiple customers across our market segments here. And in terms of your questions on you know, is the SSD requirement growing with inferencing versus training? What I can tell you is that in the data center AI applications, I mean, as the generative AI moves to more and more video, of course, that drive greater demand. For more SSDs as well. So I mean, you know, the rapid evolution of AI from training to inferencing and the evolution rapid evolution of AI models and applications they are all driving greater growth of enterprise SSDs. Yes. Fueled by GenAI. Harlan Sur: Thanks, Sanjay. Operator: And I show our next question comes from the line of Thomas O'Malley from Barclays. Please go ahead. Thomas O'Malley: Hey, guys. Thanks for taking my question. Sanjay, you have been helpful in the past about kind of talking about Micron Technology, Inc.'s ramp in HBM and then also the ramp of the total market. You gave some new color on HBM with the $35 billion moving at a 40% CAGR. But Micron Technology, Inc. specifically, I was curious if you could give us any color on the percentage of the DRAM business today that is HBM from a dollars perspective? And then on share as you move into next year, obviously, there is a large competitor that is looking to become more competitive. Competitive at three. We have not heard anything on four yet. How do you feel about your competitive positioning into next year? And do you think that you are going to make any strategic decisions differently based on the public, you know, certification of their memory in the in the next couple of months? Thank you very much. Sanjay Mehrotra: We feel very good about our competitive position. We feel very, very good about our product and our HBM4 product that we have highlighted as industry-leading performance over 11 gigabits per second. The best specifications in the industry with our performance, and, of course, we feel very good about the power consumption in our product as well. You know, in the past, we have shared with you that how our HBM3E is 30% lower power than any of the competitors in the industry, and we are maintaining that momentum of low power, which, you know, is in data center applications is very important. Yeah. So we are maintaining our performance and power. And, of course, our strong capacity position with HBM4 roadmap as well. So we feel very good about our competitive position, about our roadmap, and our roadmap going beyond HBM4 for the future years beyond '26 as well. And we are very proud of our team's ability to execute successfully over the course of the last several quarters in terms of ramping up production capabilities of HBM3E. We shared with you that in CQ3, we reached our share of HBM to be in line with our, I mean, our HBM share to be in line with our DRAM share. And we have always highlighted that as we have reached that share, we will particularly in this tight supply environment, we will be managing the mix of our HBM as well as our non-HBM all of it is in high demand. And, you know, HBM as well as non-HBM has strong profitability. So looking at our strategic customer relationships as well as our overall profitability goals, and, you know, growth objectives, we will continue to manage that mix between HBM and non-HBM. But, of course, HBM, you know, is growing, and we have highlighted that how we expect the TAM to be $100 billion by 2028, a couple of years ahead of our prior projection. And, of course, we will grow our HBM as well. 2026 will see a strong year-over-year growth in our HBM. And you know, in this tight supply environment, as I mentioned, that the gap between the demand and supply for all of DRAM, including HBM, is really the highest that we have ever seen, and I quantified it earlier as well. So in this environment, of course, working closely with our customers, we are continuing to manage our mix of the product here. Thomas O'Malley: Thank you, Sanjay. And just as we focus on also continuing to increase supply to better address our customers' demand requirements. Thomas O'Malley: Perfect. And then just as a follow-up, you have said historically kind of the $8 billion run rate. If you look at November and February, you are taking up the total TAM, but any color specifically on HBM contribution the November quarter and what you are expecting in the guide? Sanjay Mehrotra: You know, we are not really providing those specifics here in terms of the breakout. Our HBM revenue was a record. We did highlight that. I mean, we highlighted that in FQ1. And beyond that, we are really not going to be providing the specifics in terms of revenue. And just would tell you again that year over year in '26, we will be seeing a strong growth in our HBM revenue. Mark Murphy: Thank you, sir. And our product is very well positioned. So, I mean, that is a very good place to be in in terms of managing the overall mix of the business. Thomas O'Malley: Thank you. Operator: And I show our next question comes from the line of Krish Sankar from TD Cowen. Please go ahead. Krish Sankar: Congrats on the phenomenal results and guidance. My first question is for Mark. I know you spoke about the sustainability for next year. I am kind of curious how to think about gross margins beyond the February, like into May, is it going to improve or sustain at these levels? How to think about the gross margins? I have a for Sanjay. Mark Murphy: Thanks, Krish. And for we are not guiding margins beyond Q2. We did guide a record Q2, as you know. Sixty-eight percent. Eleven points sequential improvement, seven points better than the previous record. We did indicate that we would our business would strengthen through the year. And so we do believe margins can be up. We do believe that they will be up for DRAM and NAND. Now keep in mind that at these high gross margin levels, you know, mathematically, you know, we get less in gross margin percent for the same increase in price. So, yeah, we would expect gross margins to expand beyond fiscal Q2. But we would expect that growth to be more gradual than what we have seen in the last couple of quarters. Or the first quarter and the second quarter guide. Krish Sankar: Got it. Thanks a lot, Mark. That is super helpful. And then for me just and, Chris, just one one one last thing. Mark Murphy: You know, we have indicated that, you know, strengthen through the year because we believe this constructive market environment will remain so through the year. These favorable market conditions. But we also, you know, we are executing very well on cost. And as Sanjay mentioned earlier, we are deploying the bits to, you know, the valuable part of the market. And where we can serve our customers best. Krish Sankar: Got it. Super helpful, Mark. Thanks for that. And Sanjay, just as a follow-up to the earlier question, I understand you want to, like, put some boundary conditions. But, you know, a year ago, you totally nailed it when you said you are going to get, like, HBM market share close to your DRAM market share, the DRAM market share. So when you talk about, like, 2028 40%, $100 billion TAM, how to think about Micron Technology, Inc.'s HBM market share in that realm? Should we as you know, it is going to be the 20%? So that spectrum, or it is going to be lower? Thank you. Sanjay Mehrotra: So, Krish, again, we are not really going to be specifying, you know, the share. As we have said, we will be managing the mix of the business between HBM as well as our non-HBM. It is like any other product in our portfolio that, you know, when you have a strong product roadmap across the portfolio, you know, then, of course, you know, we manage the mix across our portfolio with all the strategic and customer relationships in mind. So, Krish, we are not really going to break that break that down. And, you know, all I would say is that, you know, in this current industry environment, which we see as durable industry fundamentals, you know, in the foreseeable future. We are in a very good position with all the tailwinds of our product portfolio and, of course, the increasing value of memory across the board, you know, of course, HBM, but also a non-HBM in data center and other markets. We will just remain very focused on managing the mix of our business and, of course, managing for the best in the midterm as well as keeping in mind the longer term. Krish Sankar: Thanks a lot, Sanjay. Appreciate it. Operator: Thank you. One moment for our next question. And our next question comes from the line of Chris Danely from Citi. Please go ahead. Chris Danely: Hey. Thanks, guys. So I just wanted to dig in on these long-term customer contracts you guys are negotiating. Can you give us any more sense of when you think you will be able to sign these and then maybe just talk about what the holdup is. Is it just the unprecedented length? Or size? And given that the AI company asking for so much of your capacity, are you able to get them to, you know, more or less contribute to the building of a new fab? Sanjay Mehrotra: So we will not really get into the specifics around our contract discussions with our customers. But again, I will highlight a couple of important factors that, you know, customers are concerned about long-term access to adequate memory in the environment that we are heading into. And, you know, that is leading to constructive dialogues with, you know, several key customers in with them and across our multiple markets. You know, in terms of, you know, their supply as well as other important specific commitments related to these longer-term estimates. So not getting into the specifics, but as I highlighted, our contract structures that we are discussing are not like anything before. You know, they are far stronger contract structures with specific commitments, and, of course, different from prior contracts is that those used to be, money and contracts, and these are multiyear in nature as well. And as we look at addressing the customer discussions, of course, we have to look at our overall supply. And I have mentioned to you that in the midterm, medium term, we are only able to meet, you know, half to two-thirds of the demand from our several key customers. All of that, you know, as we are managing our customer relationships and, you know, keeping, you know, our strategic objectives in mind, all of that has to be taken into account as we manage our contract discussions. But really, not getting into the specifics here. Chris Danely: That is still very helpful, Sanjay. Thanks. And for my follow-up, just a question on HBM and the pricing there. So given that the demand is so strong, I think you said you are sold out for '26. Are you are you guys locked into a set price, or can you let that price, more or less float a little bit given how strong demand is like, you know, DDR5 does, for example? Sanjay Mehrotra: You know, we are really pleased with our product position and our, you know, ability to work with our customers as we highlighted. In our prepared remarks that our HBM for 2026 is sold out in terms of volume and our negotiations with customers have been completed for calendar year 2026 for volume as well as pricing. And as we have always highlighted that our HBM has strong profitability, you know, and of course, you know, very much focused on ROI. And our non-HBM business also clearly has healthy profitability as reflected in the results that we produce as well as in the guidance that we have provided here. Chris Danely: Great. Thanks, Sanjay, and congrats again on the results. Sanjay Mehrotra: Thank you. Operator: Thank you. And I show our next question comes from the line of Vivek Arya from Bank of America Securities. Please go ahead. Vivek Arya: Thanks for taking my questions. Sanjay, I am curious, at what point does increasing memory price impact, you know, demand for electronics? If you set aside the data center and the AI market, do you see some elasticity? Do you see any impact on demand as you look into 2026 for more consumer and kind of traditional enterprise products? How does that shape where memory pricing can go next year? Sanjay Mehrotra: You know, we have highlighted in our prepared remarks that, you know, in some of the consumer markets, yeah. I mean, some of the unit demand may get impacted, you know, given, you know, semiconductor prices here, given memory prices here. And, of course, some of the customers may have, you know, for example, in smartphone and PCs, they may have some mix adjustments in their portfolio as well to address available supply to them. But, you know, these are accounted for in our forecast that we have. And so it I mean, some of the possible impact on unit demand and some of the customer mix changes have been accounted for in our forecast. And we, of course, even then, we see a very, very tight supply environment here in the large gap between the demand and supply. However, I will highlight to you that AI experience across from data center to edge, including in these edge devices like smartphones and PCs and other devices, AI experience really more memory is essential. So without sufficient memory, you know, that AI experience, the functionality, the capability does get impacted in these edge devices as well. So, I mean, the punch line here is that AI across the board from data center to edge is driving an increase in content and increasing requirement for memory as the customers look ahead at their roadmaps. And, you know, that is why customers are, of course, you know, working with us with respect to access to supply for their long-term multiyear plans here as well. Operator: Thank you. This concludes our Q&A session and today's conference call. At this time, I would like to end today's conference call. Thank you all for participating. You may now all disconnect.
Operator: Welcome to Lennar's Fourth Quarter Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to David Collins for the reading of the forward-looking statement. David Collins: Thank you, and good morning, everyone. Today's conference call may include forward-looking statements, including statements regarding Lennar's business, financial condition, results of operations, cash flows, strategies and prospects. Forward-looking statements represent only Lennar's estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could affect future results and may cause Lennar's actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described in our earnings release and our SEC filings, including those under the caption Risk Factors contained in Lennar's annual report on Form 10-K most recently filed with the SEC. Please note that Lennar assumes no obligation to update any forward-looking statements. Operator: I would now like to introduce your host, Mr. Stuart Miller, Executive Chairman and Co-CEO. Sir, you may begin. Stuart Miller: Very good, and good morning, everybody, and thanks for joining today. I'm in Miami today, together with Jon Jaffe, our Co-CEO and President; Diane Bessette, our Chief Financial Officer; David Collins, who you just heard from, our Controller and Vice President; and Katherine Lee Martin, I don't want to forget the Lee, our new Chief Legal Officer, I guess, you're not new anymore, Katherine; and Bruce Gross, CEO of Lennar Financial Services, along with a few others as well. As usual, I'm going to give a macro and strategic overview of the company. After my introductory remarks, Jon is going to give an operational overview, updating construction cost, cycle time and some of our other metrics. As usual, Diane is going to give a detailed financial highlights along with some limited guidance for our first quarter of 2026 and for the year. And then, of course, we'll have a question-and-answer period. [Operator Instructions] Before we begin, however, let me note, as I'm sure you're all aware by now, that this will be Jon's last earnings call as he has decided to retire and will officially step down on January 1, which is now right around the corner. Jon has been a partner and a leader at our company for well over 40 years, we stopped counting years after 40 years, and his leadership will certainly be missed. Affectionately, Jon has been known as our company's plow horse and as such, Jon has driven Lennar's operations with relentless dedication and commitment. He joined the company just one year after I started full time and together, we've learned every facet of this business, continually adapting and evolving. Over the years, we have tried new things. Some have been successful, others not so much. And we've navigated both the best and the most challenging of times. Through it all, Jon's partnership has been a joy and a privilege. Jon, I hope you find plenty of time to improve that ugly golf game of yours, and perhaps you'll find some time to work on that singing voice as well. And with that, let's get started. So let me begin by saying that we are very pleased to present Lennar's fourth quarter and year-end 2025 results against the backdrop of what is still a stubbornly difficult housing market. While our margin is under pressure, as we focus on bringing affordable housing to an affordability constrained consumer base, we can see that underlying demand is still strong, while supply is short. During the past 3 years of difficult market conditions, we have maintained volume, we've grown market share, and we've reengineered our operating platform for a better and more efficient future when the market bottoms and normalizes. We're extremely well positioned with very strong market share in strategic markets, and our margin is leveraged to the upside. As you may recall, last quarter, I noted that declining interest rates could signal the start of a market recovery. Unfortunately, that turnaround has not yet materialized. As rates slowly moderated in September, eased more in October, and remained flat in November, the customer response remained fairly tepid suggesting that a combination of affordability and consumer confidence issues were continuing to limit demand. Of course, the coincident threat of government shutdown in September and the actual shutdown from October 1 through mid-November further eroded already weak consumer confidence. While traffic was consistent, customers were both hesitant and limited by what they could afford to purchase. With that said, our fourth quarter results reflect a continued softening of market conditions and affordability. Sales volume has been difficult to maintain and required additional incentives to achieve our expected pace and to avoid an unintended buildup of excess inventory. While we exceeded our delivery goal for the quarter and while we sold in line with the low end guidance during the quarter, these accomplishments came at the expense of further deterioration of margin which came down to 17%, even though we eased back the pressure on sales and pulled back our delivery goals for 2025. As we look ahead to next quarter, we know that margin will remain under pressure and sales and closings will be seasonally light. Nevertheless, we're very well positioned to provide the affordable supply that the market needs when demand is ultimately activated by either lower interest rates or government-sponsored programs to enable affordability. We are situated with a lower cost structure, efficient product offerings and strong market positions to accommodate pent-up demand as rates moderate and confidence ultimately returns. We believe that we have gotten ahead of current market realities, and we built what we believe is a stronger, long-term, margin-driving platform. We know the market has remained weaker for longer, but we also know our strategy has helped build a healthier housing market and has positioned Lennar for strong cash flow, higher returns on equity and capital, and stronger bottom line growth in the future. Accordingly, we will remain focused on volume and even flow production. We will maintain responsible volume to maintain an affordable cost structure, and we will find our floor and rebuild our margins as overall market -- as the overall housing market continues to remain short on supply. Let me turn to a quick macro view of the housing market. Consistent with our third quarter, the macro economy remained challenging through our fourth quarter. While mortgage rates drifted marginally lower in the fourth quarter, consumer confidence became even more challenged by economic uncertainties and of course, became even more challenged still by the government shutdown. Clearly, inflation-driven affordability concerns rose to the center of the national conversation shaping headlines and policy debates across the country. Cost inflation has clearly had a significant impact on the lifestyle of the average American family. At the same time, concerns about job security have become increasingly prominent as advancements in modern technology and artificial intelligence raise important questions about the future of employment for the American workforce. The current housing market is entrenched in an affordability crisis, leaving many average American families feeling excluded from the traditional promise of upward mobility and home ownership. Against this backdrop, some advocate for what many call sweeping and sometimes "socialist solutions" offering broad promises of free and readily accessible resources as an appealing answer to the affordability dilemma. This narrative gains traction, especially when there is a lack of clear actionable alternative that addresses the challenges facing American families today. The "capitalist framework" has yet to speak and present tangible, practical strategies that effectively confront these realities and restore affordability and access to homeownership for the broader population. As I've noted on prior calls, mayors and governors across the country, both Republican and Democrat, understand this and continue to list the housing shortage as a priority concern, and they point to affordability or attainability as a real crisis. But they also understand that this has been a difficult cycle, as low supply has fueled high prices and high prices, especially with higher for longer interest rates, have locked out many buyers. Inflation and short supply have kept home prices higher. Supply remains constrained in most markets, driven by years of underproduction. And additionally, new construction has slowed recently, exacerbating the chronic supply shortage as builders have pulled back on production due to slow sales and affordability concerns. But short supply can't be fixed by simply adding supply. It is important to recognize the downside of artificially lowering home prices, or boosting inventory solely to drive prices down. Such actions could negatively affect the 85 million Americans who already own homes by diminishing their property values, which in turn could further weaken overall consumer confidence. Moreover, if builders are unable to achieve sufficient returns, they may be forced to slow or halt construction, disrupting the production levels needed to address ongoing supply shortages in the housing market. On a positive note, the federal government has intensified its focus on the national housing prices with a strong likelihood of taking decisive actions to enhance affordability. In a constructive move, federal officials have initiated discussions with builders and industry associations, among others, to gain a comprehensive understanding of the challenges and work towards practical solutions. Although the specifics of potential programs remain to be seen, it is clear that significant attention is being paid to developing impactful initiatives, while thoughtfully considering possible unintended negative consequences. Despite the public scrutiny and debate surrounding various proposed programs, it is encouraging to see that many bold ideas are being carefully elevated with the goal of improving affordability. Increasing affordability has the potential to spark new demand in the housing market, which can, in turn, drive an increase in construction activity and help address ongoing supply shortages. Although the specific outcomes and programs remain uncertain at this time, it is significant that for the first time in decades, the federal government is actively recognizing the vital role that housing plays not only in the broader national economy, but also in the well-being of American families. I am confident that housing will emerge as a central element in addressing the affordability crisis and providing meaningful solutions for the future. So now let me turn to our results. As we noted in our press release, in our fourth quarter, we started 18,443 homes. We delivered 23,034 homes, and sold just over 20,000 homes. While we were just above the low end of sales expectations and exceeded our delivery expectations, we were able to grow our community count to 1,708 communities, or 18% over last year, positioning us for a better next year. As mortgage interest rates moderated and consumer confidence declined, we continued to drive volume with our starts so at a slower pace while we incentivized sales to enable affordability and limit undesired inventory buildup. As we approach the beginning of the year, we intentionally focused on building inventory above our 2 completed unsold homes per community level to almost 3 per community to provide ready supply for the new year. During the first quarter, sales incentives remained relatively flat at 14%, but reducing our gross margin to 17%, which was slightly lower than expected on an average sales price of $386,000. Our SG&A came in at 7.9%, which produced a net margin of 9.1%. As we look ahead to the first quarter of 2026, we expect our margins will be lower, as is expected in the first quarter, between 15% and 16%, of course, depending on market conditions. We expect to sell between 18,000 and 19,000 homes, and deliver between 17,000 and 18,000 homes. We expect our average sales price to be between $365,000 and $375,000. And as I noted earlier, we expect to deliver approximately 85,000 homes in 2026. We expect our overhead in the first quarter to be approximately 9.1% as we continue to invest in and evolve our various Lennar technology solutions that will define our future. These initiatives have been and will continue to add to SG&A as well as corporate G&A for some time as they represent a significant investment in our differentiated future. As I think about our results in the fourth quarter, 2 additional components really stand out. First, we have now rebuilt our entire company with an asset-lighter inventory structure. Currently, less than 5% of our land is on our balance sheet. Accordingly, our overall inventory has been reduced from just under $20 billion 1 year ago to just under $12 billion today. With our now greater focus as a manufacturing company, we have also consistently reduced our vertical construction costs -- cost to build over the past 2 years from 2023 to 2025 by approximately 10%. While costs generally have been going up, we have been bringing ours down. Additionally, we have reduced our cycle time from 138 days a year ago to 127 days today for detached single-family homes. This has enabled us to improve our inventory turn to 2.2x from 1.6x last year. These measures tell us that we are now built for materially improved efficiency in the way that we execute our business, and we have a lot of room for additional improvement in each of these areas as well. We have certainly positioned Lennar for the time when market conditions normalize and our margins improve, and they will improve dramatically. We always keep in mind that incentives in normalized market conditions run in the 4% to 6% range as opposed to the 14% incentives today. That gap defines our opportunity as market conditions change. The second item is that we have now officially completed the Millrose transaction. This quarter, Lennar launched and completed the split-off exchange offer to swap our remaining 20% stake in Millrose, approximately 33.3 million shares, for outstanding Lennar shares tendered by our stockholders. While this transaction resulted in a $156 million onetime paper loss, this paper result was simply a function of the book value of the shares on Lennar's book on the day of the trade versus the stock price of the trade. More consequentially, this transaction resulted in an approximately 8 million share cashless repurchase of Lennar's shares. Finally, and before I conclude, let me briefly talk about our operating team as Jon retires. As you all know, here at Lennar, we have a deep bench of experienced professionals who have been here at the company for many years. Of course, Jon has been an important part of the execution and culture at Lennar. But that means that many of our leaders have worked together, and together with Jon, and are very prepared to pick up where Jon leaves off. Specifically, Jim Parker and David Grove, both tenured Regional Presidents, will each oversee operations for about 1/2 of the country, and they have, and will continue, to work cooperatively. Additionally, Greg McGuff will move from his Regional President position to a new leadership role taking on strategic corporate functions. Greg will begin by working on our land banking program by refining the execution around that very strategic part of our business. All 3 of these leaders, Jim, David and Greg, are very enthusiastic about their new opportunities to perform and -- in their new positions, and they are anxious to get started. We will be hiring -- we will not be hiring a replacement for Jon because the experienced leadership from within the company is part of the Lennar culture and are both -- and are all 3 capable and qualified to carry the company forward without missing a step. So let me [indiscernible] to conclude and conclude by saying that while this has been another difficult quarter in the housing market, it's another very constructive quarter for Lennar. While the short-term road ahead might seem choppy still, we are very optimistic about our future. We are well aware that our numbers aren't where we'd like them to be, but neither are market conditions. We are very well positioned with a strong growing national footprint and growing community count and growing volumes. We have continued to drive production to meet the housing shortage that we all know persists across our markets. And as we have driven growth, production and volume, we have positioned our company to evolve and create efficiencies and technology that will make us a better company and build for the future. We have materially reduced our inventory, our construction costs and our cycle times, and we have and will continue to increase our inventory turn. We are determined to build more with less capital deployed so that as margin begins to grow, our returns on capital and equity will grow even faster. In that regard, we will focus on and refine our manufacturing model and continue to use our land partnerships to grow with a focus on cash flow and high returns on capital and equity. Additionally, our strong balance sheet and strong land banking relations afford us flexibility and advantaged opportunity to consider and execute on strategic growth for our future as well. Lennar is extremely well positioned for the future, and we look forward to keeping you up-to-date on our progress. And with that, let me turn it over to Jon. Jonathan Jaffe: Good morning, everyone, and thank you, Stuart, for a very special partnership, and to Lennar team for what's been an amazing journey. As Stuart described, we remain steadfast in executing our strategy. Every day, we work on driving homebuilding efficiencies in our operations. This execution is reflected in achieving our targeted sales pace, record low cycle times, overall cost reductions and increased inventory turns. Starting with our sales and marketing machine. In the fourth quarter, we achieved a sales pace of 4 homes per community per month, meeting our sales plan. This starts with attracting qualified leads to our digital funnel followed by rapid high-quality customer engagement. Our average response time for customers submitting RFIs, which we view as a critical metric, dropped to 42 seconds in the fourth quarter, a 12.5% improvement over the third quarter. This responsiveness now extends after hours with digital agents available to assist customers at any time, even at 2 a.m., if that's when a customer is online looking for their new home. We analyze customer interactions and our RFI responses to drive improvement in the quality of engagement, improving our speed in responding and the quality of those responses drove a 15% year-over-year increase in appointments in the fourth quarter. Our pricing strategy focuses on continuous evaluation of demand patterns, inventory levels and price discovery data, designed to set the price and incentives for each community to maintain the targeted sales pace. This maximizes sales efficiency and maintains our inventory at appropriate levels. As Stuart noted, we ended the quarter with an average of just under 3 unsold completed homes per community. This process and the easing of pressure on our sales targets resulted in new order incentives decreasing by 70 basis points quarter-over-quarter. Next, I'll discuss our volume-oriented production-first strategy to drive efficiencies resulting in reduced construction costs. In the quarter, we maintained a consistent start pace of 3.7 homes per community per month, in line with our expectations. We continue to work throughout our supply chain using this consistent volume to lower cost quarter after quarter. We continued our focus on plan and SKU optimization, along with a new national bidding software tool that streamlines management of thousands of SKUs in real time. This has enabled faster and more effective decision-making across the company, achieving further cost reductions. Direct construction costs in the fourth quarter decreased by approximately 2% from Q3 and over 5% year-over-year. This downward trend will continue as we move into the first quarter of 2026. The average cycle time for single-family detached homes was 127 calendar days, matching our record low from Q3. This represents an 8% year-over-year reduction. With improved quality control and communications with our trade partners, we have reduced cycle times, minimized travel for trade, lowered warranty spend and improved the customer experience. We saw tangible results with fewer work orders and a 45% year-over-year reduction in warranty spend. This was accomplished while maintaining consistent high-quality home deliveries for our customers resulting in a highly regarded NPS score of 79 for 2025. Turning to land and our asset-light strategy. In Q4, we continued to carefully structure land acquisitions for just-in-time land closing, leveraging land bank and land developer relationships to minimize carry cost and deliver just-in-time finished homesites. Our asset-light strategy delivered improved metrics. Supply of owned homesites decreased year-over-year to 0.1 years from 1.1 years, and controlled homesites increased to 98% from 82%. These operational improvements increased our inventory churn 38% from the prior year. In conclusion, our team is united and focused on executing strategies that drive improving customer acquisition results, reduced costs, enhanced operational efficiencies, all while improving the customer experience. These efforts are delivering measurable results and positioning us for future success. Now I'll turn it over to Diane. Diane Bessette: Thank you, Jon, and good morning, everyone. Stuart and Jon have provided a great deal of color regarding our homebuilding operations. So therefore, I'm going to provide a quick summary of our financial services operations, summarize our balance sheet highlights and then provide guidance for the first quarter of fiscal 2026. So starting with Financial Services. For the fourth quarter, our Financial Services team produced operating earnings of $133 million, within our guidance range of $130 million to $135 million, and for the year generated $610 million. Once again, our Financial Services team contributed great profitability, and most important, worked in partnership with our homebuilding teams to provide a great customer experience for each home buyer. So now let's turn to our balance sheet. This quarter, once again, we continued to generate cash by pricing homes to market conditions. The result of these actions was that we ended the quarter with $3.4 billion of cash and total liquidity of $6.5 billion. Our year's supply of owned homesites was 0.1 years, and our homesites controlled percentage was 98%. We ended the quarter owning just under 10,000 homesites and controlling 496,000 homesites for a total count of 506,000 homesites. We believe this portfolio of homesites provides us with a strong competitive position to continue to grow market share and scale in a capital-efficient way. During the quarter, we started about 18,400 homes and ended the quarter with approximately 38,000 homes in inventory. This includes just under 5,000 completed unsold homes which, as we've mentioned, is just under 3 per community. Our inventory turn increased to 2.2x, and our return on inventory was approximately 20%. And then as we turn to our debt position, we ended the quarter with $1.7 billion outstanding under our term loan facility and no outstanding borrowings under our revolving credit facility. And our homebuilding debt to total capital was 15.7%. We had no redemptions or repurchases of senior notes this quarter. Our next debt maturity of $400 million is in June 2026. As Stuart mentioned, we successfully completed the divestiture of our Millrose investment by exchanging Millrose shares for Lennar shares. The result was a non-cash repurchase of 8 million Lennar shares. Note that during the exchange period, we were subject to a tender [ offer rule ] which includes an exchange offer that prohibited us from using cash to purchase our shares. However, during the year, we did use $1.7 billion of cash to repurchase 14 million Lennar shares. Thus, in total for the year, we repurchased 22 million shares valued at $2.7 billion. Additionally, we paid total dividends this quarter of $170 million for a total of $521 million for the year. So in the aggregate, for fiscal 2025, we returned about $3.2 billion to our shareholders. Our stockholders' equity was just under $22 billion, and our book value per share was about $89. In summary, the strength of our balance sheet provides us with confidence and financial flexibility as we progress into fiscal 2026. And with that brief overview, I'd like to turn to Q1 2026 and provide some guidance estimates. Some of these that we've noted but to start at the top, starting with new orders, we expect Q1 new orders to be in the range of 18,000 to 19,000 homes as we match production with sales pace. We anticipate our Q1 deliveries to be in the range of 17,000 to 18,000 homes with a continued focus on turning inventory into cash. Our Q1 average sales price on those deliveries should be between $365,000 to $375,000. Gross margin should be in the range of 15% to 16%. As a reminder, we expense rather than capitalize field expenses. So the first quarter is historically the lightest -- since the first quarter is historically the lightest delivery quarter of the year and therefore, light on revenues, we lose field leverage. Typically, Q4 gross margins to Q1 gross margins in the following year decrease 100 basis points to 150 basis points because of this loss of leverage. As it stands now, we believe Q1 gross margins will be the low point of the year. Our SG&A percentage should be around 9.5%, but all of these metrics, of course, are dependent on market conditions. For the combined homebuilding, joint venture, and land sales and other categories, we expect a loss of approximately $10 million. We anticipate our Financial Services earnings to be approximately $105 million to $110 million. For our multifamily business, we expect earnings of about $20 million as we continue to strategically monetize assets to generate higher returns. Turning to Lennar Other, we expect a loss of about $20 million, excluding the impact of any potential mark-to-market adjustments to our technology investments. Our corporate G&A should be about 2.2% of total revenues, and our foundation contribution will be based on $1,000 per home delivery. We expect our Q1 tax rate to be approximately 25.25%, and the weighted average share count should be approximately 245 million shares. And so on a combined basis, these estimates should produce an EPS range of approximately $0.80 to $1.10 per share for the first quarter. With that, let me turn it over to the operator. Operator: [Operator Instructions] Our first question comes from Alan Ratner from Zelman & Associates. Alan Ratner: Thanks for all the details so far. I think gross margin is obviously on the top of everybody's minds, and you obviously walked through a lot of the moving pieces there. It's encouraging to hear that incentives actually ticked lower in the quarter. And I know you also gave some encouraging data on your cost reduction. So can you just walk through exactly what's contributing to the continued pressure on margin? I know there's some seasonality in Q1, but this quarter's results came in a bit below guidance, and I know in the past you've kind of talked about margins maybe stabilizing. So I'm just curious if you could walk through exactly what's contributing to the downside given the improvement or the reduction in incentives. And the follow-on to that, I guess, more broadly is if we don't see any material improvement in demand, given your growth expectations for '26 at 3%, a little bit below kind of your target range you'd given previously, is that an environment where you think you can potentially dial back those incentives further? Jonathan Jaffe: Alan, it's Jon. I'll begin. During the quarter, we faced some unexpected headwinds, particularly with the government shutdown that definitely had an impact on consumer confidence, which is primary to our customer. And so that definitely challenged our ability to, particularly in some markets, stabilize pricing. So we saw some impact in terms of what we accomplished versus what we expected because of what was happening in realtime in the marketplace. And it's not consistent, varies across the country. If you're asking like which markets are strongest or weakest, it really ebbs and flows across our markets with just sort of an overhang of what's going on in the economy, with the government and the general customer confidence erosion. Stuart Miller: I think as we started the quarter, the expectation was that with interest rates kind of moving down a little bit, even with consumer confidence somewhat negative, the thinking was, from our division, that the incentive structures would come down through the quarter. I think that it's our feeling that the government shutdown had a material effect on the consumer psychology coming -- going through the quarter and reacting kind of real time. Now does that come back? It is -- as we look through our numbers, as we go through next year, I think that there's a general view that incentives will be coming down. And then layer on top of that, it does seem that the federal government is very focused on coming up with programming that kind of activates affordability. What that's going to look like, I just don't know. But it does seem like there's a lot of activity around focusing on this very important part of the economy. So we think that incentives will come down through the year. But as we went through this quarter, we definitely hit a headwind across the country. It's pretty consistent that, that really brought down -- brought our incentive expectations to be lower than what we actually ended up with. Alan Ratner: Got it. I appreciate the detail there. And then, Stuart, you obviously spoke a lot about the administration efforts and recognizing maybe there's nothing ready to bring public at this point. I'm just curious, do you feel like this is something that will be announced in 2026 and something, whatever the government does have in mind, is there anything that can be implemented fairly quickly, obviously, the midterms are coming up? Or is this something that is more of a multiyear view in your mind? Stuart Miller: Look, I think the crystal ball around government activity is really complicated. But I can tell you that a number of homebuilders have gone in to see critical officials within the government. It is -- we have received a lot of attention. There's a lot of thought process going on. You've seen trial balloons put out around various types of programs. What's interesting is that the government has been very tuned in to the industry to make sure that they're not walking into unintended consequences. So whatever is done that it be constructed properly is important. And to your question, do I think that something will come out in 2026? I'd be surprised if something isn't done. I think affordability is very much on the table, it's a political issue right now. And I think across the country, you're hearing the drumbeat of that being a primary focal point. And politically, it's important that someone pick up the mantle and do something to address it rather than just throw money at it. So it will be interesting, and we'll all have to sit back and wait and see what comes out. Operator: Next, we'll go to John Lovallo from UBS. John Lovallo: I guess, the first one, Stuart, is given your strategy of maintaining volume and you're really focusing intently on cost and efficiency, I'm curious how you sort of envision the upside in your ability to recapture margin as the market improves. I mean particularly considering all the hard work and the changes that have been made over the past few years. Stuart Miller: Yes. Look, that's really at the heart of what we've been doing is if you buy into the notion that there is a supply shortage, and I think that's pretty well documented, we certainly believe that there is a significant supply shortage. If you believe that there is a pent-up demand that is not able to activate itself because of affordability, and we definitely believe that and see that in our traffic and in the field, then -- if we -- as we maintain volume over time, we're going to figure out and push our large enterprise to rerationalize its cost structure. And that's what we're doing. We've detailed this in prior earnings calls. We're focused on using modern technologies. We're focused on building efficiencies in everything that we do. You see this in every element of our business, how we're rerationalizing our overhead expense, our vertical construction cost, horizonal construction cost. And we think that embedded in our program at 82,500 homes, growing to 85,000 homes, we are going to be an efficient structure as market conditions rethink themselves. So at the end of the day, I lay out that there's a pretty clear path to margin improvement. There will be, at some point, a reconciliation of incentives that migrates from what it is today, or 14%, down to a traditional kind of 4% to 6%, and that's a lot of margin improvement. And we think there's still a lot of efficiency that we're going to bring to our operations as we go forward. It's just a time game and we're going to patiently keep pursuing the focus. The core reason that we're focused on building inventory is because the country has such a significant shortage. So we're going to continue to be that machine that keeps pushing forward, recognizing the shortage and believing that there's going to be a moment where we're able to activate the buying public to purchase at prices with lower incentives. Jonathan Jaffe: I'll just add one thought, and that is, you hear us talk about our operational efficiencies. We think about it as structural, not episodic. So as the market does stabilize, does recover, we have really retooled ourselves to maintaining these efficiencies, and that we've worked so hard on achieving. Stuart Miller: Yes. And Jon is a good example of that. I mean we have built efficiencies and effectiveness in our operating group. And as Jon retires, we're not going to replace him because we're going to lower the vertical nature of our hierarchy. We're going to take costs out, but we're using modern technologies and homegrown talent to be able to do that. And Fred retired a couple of months ago, same thing there. We have a talent base that can fill that gap and we don't have to build replacement. But a lot of that has to do with the technologies that we've incorporated that enable us to transmit information more efficiently and effectively to a shallower operational structure. John Lovallo: That's helpful color. And then embedded in the fiscal year '26 -- so embedded in the fiscal year '26 delivery outlook of 85,000, it's up about 3% year-over-year. How should we sort of think about community count growth versus absorption, and your performance versus the market? Stuart Miller: Well, we're continuing to focus on community count growth. You've seen our community count grow year-over-year at a higher rate than we're going to continue to grow it. But if you look at our volume growth, if we look at last year to this year, at 82,500-ish, it's about 3%. We're expecting about a 3% growth rate next year. A lot of that will come from additional community count in strategic markets across the platform. And I think that you're going to see a consistent model of execution if you look backwards projected forward. And that's very much the strategy. The strategy is, let's build the volume that the country and the consumers need, let's make it affordable at this time where affordability is so strained, and let's find ways to make ourselves more efficient, and let's expect that something is going to come through the governmental ranks to support that affordability and enable the market to enter the housing market. And the reduction in incentives is going to flow through to our margin. Operator: Next, we'll go to Stephen Kim from Evercore ISI. Stephen Kim: Yes, Stuart, taking the risk of paraphrasing what you're saying, because I know that it's obviously a bit complex. And I don't want to oversimplify, but am I hearing you right that you anticipate that there's the makings for government actions to improve the affordability in some way, shape or form? And if we assume that, which I don't necessarily disagree, Lennar has, over the last year or so, really emphasized volume, while others in -- your peers have sort of ratcheted back volume. Are you saying that in 2026, your expectation is that you've got the volume, you've got the -- therefore, the platform to be able to harness margin improvement from lower incentives without necessarily needing to increase your volume? And that you can do that even if others, in a somewhat better environment, do have to increase their volume so that you might actually give up a little bit in terms of share, if you will. But your margin will more than make up for that. Is that essentially what you're laying out for us in '26? Stuart Miller: A, that is what we're laying out. That's what we've been laying out. And the reality is we don't have to restart the machine. The machine is actually just running and running very efficiently. We don't have to run out and buy new community count, we're already doing that. We don't have to retool and increase the volumes. We just have to accept a lower incentive structure in order for margin to grow. And that's why I say in my comment that we're just levered to the upside in terms of margin growth. Stephen Kim: Yes. Okay. That's really helpful. Very interesting and important. I did also want to follow up on the machine. I think that when -- obviously, you've been at the vanguard of developing technology and AI-driven tools so that you can more dynamically respond to market conditions. Obviously, that's been something that's been a big focus. If I listen to the way you talk about the elevation of Jim, David and Greg into somewhat new roles, but not replacing Jon or Fred, is it right to think that these investments and developments of the, for lack of a better phrase, [indiscernible] machine have now reached a point where you can have those systems play a more direct role in managing the business? And that not replacing the Co-CEO and COO positions is a function of -- or an indication of just how far that machine has come in actually being able to have tangible effects on your business. Is that the right way to think about it, I guess, is essentially the question. Stuart Miller: Yes. So I'm going to tread in an area that I promised our friend, Rick Beckwitt, that I wouldn't tread into. And that is technology because I feel like you've all gotten more now with our discussion about technology. But we are massively enthusiastic about our technology initiatives in large part because of the things you've daylighted. I mean if you listen to Jon's comments in the middle of the night, we're at a point where we can engage a customer on their terms, at their time, when it's convenient to them, with digital technology that gives them an experience that is getting very close to an interpersonal experience. We're going to be able to be faster and better, higher quality in the way that we engage with our customers. And I think that we're making this progress. It's not fast because we don't have the engineering teams that some of these high-tech technology companies have. But we're building them, and we're going to get better, faster and stronger because of the technologies that we incorporate. And it's not just in the machine that is marketing and sales machine. It's in our overall customer experience all the way through to warranty. It is in our land acquisition component. It is in our financial reporting component. It is in our financial services group. Every part of our company has its own unique strategy relative to modern technology to not just modernize and be a better interface with our customers, but to be a better interface internally to breed efficiencies and effectiveness that we've not seen before. And I think that you're going to see -- over the next year, 2 years, you're going to see a lot of those advancements really reveal themselves. Stephen Kim: Wonderful. We'll be watching. Appreciate that color. Stuart Miller: Okay. Operator: Next, we'll go to Mike Rehaut from JPMorgan Chase. Michael Rehaut: So first, I wanted to kind of dive in a little bit towards your approach. Last quarter, your approach to the market, and I know you kind of stressed even on this call, prioritizing supply and making sure that you have the product out there when things turned. Last quarter, you maybe dialed back slightly around that approach and said you wanted to ease back on your delivery expectations to help establish a floor on margin. And I don't know if this is exactly the right way to interpret today's results or fourth quarter results, but your margin did come in a little less than expected despite maybe some of those efforts. There's been a lot of focus on prioritizing supply today. So where are you in that journey of perhaps trying to establish that floor on margin? And it seems like even without -- if you kind of exclude the seasonality, maybe you're still looking at a slight further erosion in gross margin in 1Q versus 4Q. So just trying to triangulate how committed are you to just pushing through that supply versus, if demand remains weak, maybe you would even further continue to ease back on some of your delivery aspirations. Stuart Miller: Mike, I think we're pretty committed to the volume and maintaining the volume. And I think your assessment is correct that we had an expectation of finding a little bit more of a floor. But I've said consistently in every one of our earnings calls that the numbers and expectations that we're giving to you are dependent on market conditions. And market conditions are fluid and they evolve day by day. Interest rates have been going up a little bit, down a little bit, down further a little bit and then back. It's not just the interest rates. It is the inflation impact from a spike of inflation that we had a few years ago that is still rippling through the consumer's wallet. It's built up in debt. It's a general consumer confidence. I don't want to overstate it because it seems like I'm blaming a hurricane or blaming weather conditions. But the government shutdown was relevant. There were a lot of people that were affected there. And so that comes about in the middle of a quarter where we made an expectation that lower interest rates would help bring consumer confidence up a little bit. Well, there was an offset to that. Hopefully, the government and its shutdown will then step up and find kind of a counterbalance and say, okay, we're going to do something to activate consumer confidence and affordability. So we're ebbing and flowing relative to a dynamic marketplace with an understanding that behind us, there is a supply shortage, there is a demand for the housing, there is a need for affordability and government action is going to matter here. So we'll see what happens. But we are focused on the volume because it's with the volume that we're able to build the efficiencies that are going to build us into a company for the future. Jonathan Jaffe: And Mike, I would just add, to state the obvious, we don't control the economy and its impact on our consumer. But we've been very laser-focused on becoming a manufacturer of homes. And with that, we can really leverage volume, technologies to be the most efficient manufacturer that one can be. That's what we remain laser-focused on. Michael Rehaut: Right. No, I appreciate that. I guess, secondly, you highlighted in your prepared remarks, obviously, the ongoing focus of returning cash to shareholders through a combination of repurchase and dividends. On the repurchase side, I think you've finished up the year around $2.7 billion. How should we think about 2026 now that your balance sheet is significantly repositioned than the much more aggressive move via Millrose to asset-light? Just trying to get any sort of boundaries on -- kind of numerically, should it be similar to '25 at this point? Should we be modeling something maybe a little higher than that? Just your thoughts, given the fact that you've already kind of outlined a closings number, and you're hoping that the gross margin number will, in the first quarter, be the low point of the year. Stuart Miller: Yes. So I'm pretty enthusiastic about looking and seeing what happens in 2026. If you think about the transition that we've made as a company to an asset-lighter model, if you think about the dynamic of all the changes that we've made as we have maintained volume, it's pretty extensive. And when I said in my comments that it is noteworthy that we have now completed the Millrose transaction, this has been a few years in the making, it's now behind us. And a number of other things are behind us, whether it's essential housing and the land banking program that we started with them. It extended to Millrose and we have a number of other land banks. Less than 5% of our land is on book today. That migration took time, energy, money, focus, and that's behind us. We are now focused on a much more pure manufacturing model with a lot less energy spent on other things that are the transitional things that got us to where we are. I'm enthusiastic to see how our operations evolve over this next year. We have very high expectations, and we're pretty enthusiastic about it. Of course, everything is going to happen in the context of what's happening to the economy, what's happening to consumer confidence, and what's happening to affordability. The government is going to play a role in that. I can't predict what's going to happen there. And so there's variability. But for us, as we think about the way that we run our business, it is an everyday hands-on approach to how do we be the best manufacturing model that we can be. And ingrained in some of the transitions and evolutions we've gone through, there are still wonderful efficiencies to be reaped from the focus and attention on the details that surround those programs. I laid out Greg McGuff's new role. He's starting off with our land banking programs. We've put these things together pretty quickly. There's a lot of efficiency and execution that we can bring to that. These are the kinds of things that 2026 is going to engender. And we'll see how it plays out. But it's all going to be modified, amplified or changed by the macro economy that we end up playing into. Operator: Next, we'll go to Susan Maklari from Goldman Sachs. Can you hear me? Stuart Miller: All right. Why don't we take this as the last one? Operator: Okay. Our last question comes from Susan Maklari from Goldman Sachs. Susan Maklari: My first question is thinking about the efficiencies that we've talked a lot about. How do you think of where you can get inventory turned over the next several quarters given the environment that we are in? Can you hit that 3x number in this kind of condition? And just generally speaking, how does the core products fit into that strategy? Stuart Miller: So it's a great question because I -- there's a part of me that almost pinches myself when I see our inventory turn at 2.2x. There was a time where we didn't think we'd be able to get there. But the interesting thing is, given the way that we've reconfigured the company, we think that there's a lot of improvement that can come on top of where we are. And a lot of it derives from, number one, cycle time. We are improving our cycle time and all of this drives back to our core product. Our core product offerings are getting more and more efficient, more and more effective in terms of the way that not only -- how do we -- how does the cost structure come in, but more importantly, how do we build and how efficiently do we build product that is very familiar out in the field? And so our focus on core has accelerated. And we're still fairly early stages in that regard. And I don't want to go through it, but I will tell you that a lot of the ways that we're getting to greater adoption and engagement with our core product is technology-based. It's the technology of how we're looking at land and how we're adapting to an environment where each piece of land is looked at through the lens of core product. And with the diffuse environment, getting that to happen in 50 different divisions, technology is a big part of the assistance. So all of this ties together, we think there's a lot of upside in bringing our inventory turn from where we are to where we think it can be, and a lot of it does surround our core product. Susan Maklari: Yes. Okay. And then maybe building on Mike's question on uses of cash, as you do you think about all the efficiencies that are coming through and that you will realize, how does that play into the cash that you think you need to hold on the balance sheet for the business? Does it change that at all? And what are you watching to determine what the appropriate levels are there in terms of the cash? Stuart Miller: Well, we think that our model becomes ever more cash flow efficient. And we know that over time, we're going to be using cash to buy back stock and to return to shareholders. And that's going to be a more programmatic part of our business. One of the things that we've all -- don't know how to say this, but that we've all heard from the government is the government certainly wants to see that we as homebuilders and as the machine for supplying the homes that are needed in the country, that we're focused on our growth model and focused on how we bring affordability to market. So we're going to knit all of this together. As we go forward, we're going to see how things evolve. So I'm not going to speak to use of cash right now, but that's going to be evolving picture as we go forward. And the bottom line of what I'd say is as you get to an inventory turn that is higher, as we're producing more volume and as our margin starts to come back, our cash flow is going to be very, very solid. Diane Bessette: And, Susan, I would just add relative to your question on how much do we hold on the balance sheet. It really depends on market conditions, right? You see us have a little bit more cash on our balance sheet when there's uncertainty and less cash when that uncertainty ebbs into a more positive direction. Additionally, we look at what are our upcoming maturities. So I would say generally, as conditions stabilize and uncertainty becomes less of a focus, you'll see us holding less on our balance sheet at each quarter end. Hard to determine amounts and don't want to make a -- give a goal of a specific amount, but it really does depend on market conditions and other things, because we have a lot of readily available liquidity. It's just what type of market conditions are we in. Stuart Miller: Congratulations, Jon, you made it through your last earnings call. Congratulations. And I want to say to everybody, thanks for joining us today. We're really pretty enthusiastic about our business and our business model. We're proud to be supplying homes to a difficult market. But we think that we are, as I said, levered to the upside in terms of margin improvement, and we'll see where the market takes us. Thanks, and we'll see you at the end of the first quarter. Operator: That concludes Lennar's fourth quarter earnings conference call. Thank you all for participating. You may disconnect your lines, and please enjoy the rest of your day.
Operator: Good morning, and welcome to the Worthington Enterprises Second Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] This conference is being recorded at the request of Worthington Enterprises. If anyone objects, you may disconnect at this time. I'd now like to introduce Marcus Rogier, Treasurer and Investor Relations Officer. Mr. Rogier, you may begin. Marcus Rogier: Thank you, Regina. Good morning, everyone, and thank you for joining us for Worthington Enterprises Second Quarter Fiscal 2026 Earnings Call. On the call today are Joe Hayek, our President and Chief Executive Officer; and Colin Souza, our Chief Financial Officer. Before we begin, I'd like to remind everyone that certain statements made during today's call are forward-looking in nature and subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For more information on these risks and uncertainties, please refer to our earnings release issued yesterday after the market closed. This is available on the Investor Relations section of our website. Additionally, our remarks today will include references to non-GAAP financial measures. Reconciliations of these measures to the most comparable GAAP measures can also be found in the earnings release. Today's call is being recorded, and a replay will be made available later on our website at www.WorthingtonEnterprises.com. With that, I'll turn the call over to Joe for opening remarks. Joseph Hayek: Thank you, Marcus, and good morning, everyone. Welcome to Worthington Enterprises Fiscal 2026 Second Quarter Earnings Call. We had a strong Q2, which is a credit to our teams who continue refining and executing our strategies. I want to thank all of my colleagues for their efforts, focus, growth mindset and for having an unwavering commitment to each other, our company, our customers and our shareholders. In the quarter, despite market conditions that continue to be mixed, we again delivered strong year-over-year growth in revenue, adjusted EBITDA and earnings per share. Our revenue in Q2 was up over 19% from last year. Excluding revenues from recently acquired Elgen, revenues increased by over 10% year-over-year. Our adjusted EBITDA grew by 8% year-over-year. And in the last 12 months, our adjusted EBITDA is now $284 million, up $49 million from where it was a year ago, despite a $15 million negative swing in our equity earnings from ClarkDietrich in that same period. In the last 12 months, our adjusted EBITDA margin is now almost 23% versus 20% a year ago. This strong performance gives us confidence that we are successfully navigating the current environment, gaining share and positioning ourselves for long-term outsized growth when end markets improve. Our strategy is to optimize our business by growing both organically and through strategic acquisitions while increasing our margins. We're making progress on each of these strategic pillars. We achieved 19% revenue growth in Q2, while our SG&A expenditures declined by 320 basis points as a percentage of sales. Excluding Elgen, we grew revenues by 10% and held SG&A flat. Our EBITDA grew by $4.3 million as we continue driving value for our customers through innovative products and solutions. We continue to focus on acquiring companies in niche markets with sustainable competitive advantages. Yesterday, we announced our planned acquisition of LSI, a market leader in metal roofing components. LSI is a great company with an outstanding culture that we believe will enhance our position in engineered building systems, add resilient and retrofit-driven revenue and create long-term value for shareholders. I'll share more details on LSI a bit later. As we optimize and grow Worthington, we will continue to leverage the Worthington Business System and its three growth drivers: innovation, transformation and M&A to maximize both our near- and long-term success. We've generated a lot of momentum with new product launches and our reputation with customers continues to provide us opportunities to grow. For example, our innovation around large ASME water tanks that help cool data centers has led to increasing opportunities and several new orders. We're excited about the growth prospects we have in this space going forward. We also recently expanded our capabilities to include the refurbishment of large-format propane tanks, an increasingly important service as our customers are utilizing a hybrid portfolio of new and refurbished tanks as part of their asset and cost management strategies. In addition, the innovation engine in our celebrations business continues to drive additional placement with retailers, and you'll soon be able to buy our Balloon Time products in Costco stores nationwide. Our teams continue to embrace AI in their work, and our transformation mindset provides a framework for how we consider, conceptualize and implement tools that help transform our business. The 80/20 initiative in our water business has had a positive impact on how we approach that business and our business globally, and we're making changes both commercially and operationally as a result. We've continued our integration of Elgen, which we acquired in June. Elgen's result in Q2 reflect our reset of those operations. Our focus on safety, the additions of new equipment and attracting and retaining the best workforce possible temporarily limited our ability to ship to demand, which impacted Elgen's revenues and margins in the quarter and ultimately impacted our consolidated gross margins. We now have the team in place that we think will take that business to new heights, and we believe that our efforts and investment for the long-term positioned Elgen exceptionally well to grow profitably moving forward. I mentioned how excited we are about our planned acquisition of LSI earlier, and we're happy to provide a few more details about what we think is a great business that will enhance our position in engineered building systems. LSI is a leading U.S. manufacturer of standing seam metal roofing clips, components and retrofit systems. It's a business we've known for some time, and it fully aligns with our strategy of adding leaders in niche markets with attractive margins, resilient demand profiles and core manufacturing competencies that reflect our own. LSI's products are engineered into OEM-certified roof systems, creating meaningful requalification requirements and high switching costs. The business also benefits from long-standing customer relationships, its reputation for quality and reliability and a domestic manufacturing footprint. We believe the LSI is a best-in-class operator in this category. The purchase price is approximately $205 million. LSI has a strong financial profile and in the last 12 months ended September 30, they reported adjusted EBITDA of approximately $22.4 million and net sales of $51.1 million. We expect LSI will be accretive to our adjusted EBITDA margins, adjusted EPS and free cash flows. The transaction is expected to close in January of 2026, and we look forward to welcoming the LSI team to Worthington when it does. Cautious consumers, muted construction activity and the sluggish housing market can create challenging market conditions. But our people, their talent, resilience and creativity are enabling us to navigate the current environment very well and gain share as we grow organically and leverage our strength to make strategic acquisitions. People are our most important asset, and we're pleased that our team continues to be recognized by others. For instance, this month, we were recognized by Computerworld as one of the Best Places to Work in IT for 2026. Newsweek again named us one of America's Most Responsible Companies. And entering our country's America 250 celebration, we are honored to receive VIQTORY Media's Military Friendly designation with a gold rating for the 11th consecutive year. We're very proud of our people and the work they continue to do, taking care of our customers and each other. We're executing well and entering 2026, we're positioned to continue growing Worthington and creating meaningful value for all of our stakeholders. I will now turn over to Colin, who will take you through some details related to our financial performance in the quarter. Colin Souza: Thank you, Joe, and good morning, everyone. We delivered solid financial results in Q2, reporting GAAP earnings of $0.55 per share compared to $0.56 per share in the prior year period. The current quarter included $0.10 per share of unique items, primarily losses related to a divestiture that occurred within our SES JV and the related revaluation of the marketable securities received as consideration, both of which are included in miscellaneous expense. The prior year quarter included $0.04 per share of restructuring and other expenses. Excluding these items in both periods, adjusted earnings were $0.65 per share, up from $0.60 per share in the prior year quarter. As a reminder, Q2 is typically our seasonally weakest quarter, and we are pleased to deliver year-over-year growth in adjusted earnings per share, adjusted EBITDA and free cash flow as our teams continue to execute well, leveraging the Worthington Business System to navigate the current environment. Consolidated net sales for the quarter were $327 million, up over 19% compared to $274 million in the prior year quarter. The increase was primarily driven by higher volumes in Building Products and the inclusion of Elgen following our acquisition of that business in June. Gross profit increased to $85 million, up from $74 million last year, with gross margin at 25.8% compared to 27% in the prior year quarter. Adjusted EBITDA was $60 million, up from $56 million in Q2 of last year, and adjusted EBITDA margin was 18.5%. On a trailing 12-month basis, adjusted EBITDA now stands at $284 million. This performance reflects the resilience of our differentiated portfolio and our continued focus on the things we can control, even in a softer macro environment characterized by mixed consumer sentiment and subdued commercial construction activity. Turning to our cash flow and capital allocation. We continue to invest in our operations while maintaining a disciplined and balanced approach. Capital expenditures totaled $12 million in the quarter, including $6 million for the last of our planned facility modernization projects. We also returned capital to shareholders through $10 million in dividends and the repurchase of 250,000 shares of our common stock for $14 million at an average price of $54.87 per share. Our joint ventures once again delivered, providing $34 million in dividends during the quarter, which equates to a 118% cash conversion rate on equity income. Operating cash flow for the quarter was $52 million and free cash flow was $39 million. On a trailing 12-month basis, free cash flow totaled $161 million, representing a 96% free cash flow conversion rate relative to adjusted net earnings. This trailing figure still reflects elevated capital expenditures from our facility modernization projects, which totaled roughly $30 million over the same period. We have approximately $30 million of modernization spend remaining with most of that expected to occur over the next 3 quarters. As this project is completed, we expect capital expenditures will return to more normalized levels, and we'll see further improvement in free cash flow conversion over time. Turning to our balance sheet and liquidity. We closed the quarter with $305 million in long-term funded debt and $180 million in cash. Our leverage remains extremely low with ample liquidity supported by a $500 million revolving credit facility that was fully undrawn and available at quarter end. Net debt was $125 million, resulting in a net debt to trailing adjusted EBITDA ratio of approximately 0.4x, providing significant financial flexibility. Regarding capital deployment, if completed as planned, the pending acquisition of LSI that Joe discussed earlier should close in January and will be funded primarily with cash on hand, supplemented by modest revolver borrowings. Following the transaction, we expect to maintain a conservative leverage profile and solid liquidity position, supported by healthy cash generation of our businesses. Yesterday, our Board of Directors declared a quarterly dividend of $0.19 per share payable in March 2026. We haven't talked about our SES joint venture performance in a while. They had $1.5 million in losses flow through equity income this quarter. We've completed a divestiture in the quarter of some of the loss-making assets and believe the business is better positioned moving forward and the financial impact on our results should be minimal. Let me now turn to our segment performance. In Consumer Products, net sales in Q2 were $120 million, up 3% compared to the prior year quarter as continued positive momentum in our celebrations category helped offset modestly lower volumes. Adjusted EBITDA was flat at $15 million with a 12.7% margin compared to 13.3% in Q2 last year, reflecting stable performance in a cautious consumer environment and the impact of higher conversion costs on lower volumes. As we move into the back half of our fiscal year, typically a seasonally stronger period for this business, we are well positioned with a portfolio of affordable and essential products that support improving everyday experiences and outdoor living, celebrations and home improvement. Our consumer team remains focused and disciplined as we navigate the current environment and as we continue to gain new placement and market share, we are positioned to outgrow the market as conditions improve. In Building Products, Q2 net sales grew 32% year-over-year to $208 million. Growth was driven by higher volumes and contributions from the Elgen acquisition, which closed in June and contributed $25 million in net sales. Excluding Elgen, net sales were up 16% year-over-year, reflecting broad-based strength across multiple categories, including heating and cooking, water and in particular, cooling and construction, where our market-leading product portfolio is enabling wider adoption of more environmentally friendly refrigerants. Adjusted EBITDA for the quarter was $53 million compared to $47 million in the prior year quarter with an adjusted EBITDA margin of 25.5%. The $6 million increase was primarily driven by volume growth in our wholly owned businesses, partially offset by lower combined equity earnings from the joint ventures. WAVE continued to perform well, contributing $26 million in equity earnings, while ClarkDietrich results were lower in a challenging market environment, contributing $4 million in equity earnings compared to $10 million last year. Overall, Building Products delivered another solid quarter, and the team continued to execute well. We expect LSI will be another great addition to the portfolio, adding more exposure in attractive end markets with a market leader where we can deploy the Worthington Business System to create and enhance value. In summary, this quarter marks the fifth consecutive quarter of year-over-year growth in adjusted earnings per share and adjusted EBITDA for Worthington Enterprises, demonstrating the consistency and resiliency of our businesses and positioning us for continued success as we head into our seasonally strongest quarters. At this point, we're happy to take any questions. Operator: [Operator Instructions] Our first question will come from the line of Kathryn Thompson with Thompson Research. Kathryn Thompson: First, I wanted to circle back on your acquisition of LSI, a similar strategy to Elgen. I wanted to just once again see if you can expand on the strategy for growth from here as you integrate both into the Worthington network. Also importantly, how this -- how you see growth over these from a complementary standpoint, but also not just cost opportunities, but top line opportunities as you expand into the system. Joseph Hayek: Sure, Kathryn, thank you. So a handful of things to unpack there, and we'll try and tag team it. Generally speaking, when we think about M&A, one of the unique aspects of the Worthington Business System is really the complementary nature of how those pillars work together. So specifically for us, M&A goes beyond identifying and acquiring market leaders in niche markets that have sustainable competitive advantages. As you know, for us, things that start with a coil of steel and then that steel is stamped or roll formed gives us real advantages from a manufacturing expertise perspective. So companies that we acquire whose supply chain and manufacturing capabilities mirror our own really create additional opportunities for us. And so we'll always look to leverage our transformation playbook for companies across our portfolio, no different with companies that we acquire. And so when you think about the actions that we took at Elgen, those are right out of that playbook in terms of safety, machine guarding, adding new equipment and tweaking the flow of some of those cells. That's really a force multiplier for us. And the third pillar of the Willington Business System is innovation. And at Elgen, and we're pretty convinced that LSI, obviously, there's -- that we're limited in what we can say there because the transaction hasn't actually closed, but we're convinced that innovation is a core part of who they are as well. So we're very excited about accelerating innovation at Elgen. And clearly, as we've learned more about LSI, we're excited about their innovation capabilities as well. Colin Souza: Yes. And Kathryn, I'll just touch on LSI a little more. I think the -- we've shared our acquisition criteria with you before, and Joe touched on a little bit, it's market-leading positions in niche markets. It's higher growth, higher-margin opportunities, lower capital intensity and companies that can demonstrate they have a sustainable competitive advantage. And LSI checked a lot of those boxes or all those boxes for us and makes us really excited about this opportunity. They are a leading player in the commercial metal roofing clip space. It's an attractive end market, a very niche market, but it's led by resilient demand in commercial and the reroofing cycle there for metal roofs, really strong margins and financial profile. Joe touched on it, with EBITDA of $22 million and revenue of $51 million. And the more we spent time on the company, the more we thought there's some meaningful value creation opportunities by plugging them into the Worthington Business System. And then lastly, we felt they were just a really strong cultural fit the more we got to know their people and look forward to working with them once the transaction closes. Kathryn Thompson: And then a follow-up question. I appreciated the color on water tanks and it's something that you have mentioned before on earnings calls and public commentary just as areas that you benefit from data center and broadly reindustrialization. What are other areas that -- or just maybe help us further understand the opportunities that you're involved in that are data center centric. Colin Souza: Sure. So Kathryn, it's Colin. I'll take a shot at that one. And I know Joe shared a little bit with our water tanks and how they solve or provide solutions for liquid cooling in data centers. And we're excited about that opportunity. That's one example across our portfolio. And it's probably not well understood where all we play and have exposure to data centers, like you suggested, WAVE and ClarkDietrich both provide products that end up in data centers, WAVE with its structural grid and then the DCR acquisition that they did previously, ClarkDietrich with some of their products end up in data centers as well. Elgen, the business we acquired in June, serves data centers with their HVAC components and struck products. And then the acquisition we announced the signing of yesterday, LSI also serves data centers as there's a number of data centers that have metal roofing and require clips and components there. So in data centers overall demand, it's not a significant portion of any of our businesses. But in the aggregate, across our portfolio, it is meaningful and is an opportunity of growth for us. Kathryn Thompson: And in terms of meaningful, is it percentage of sales that you can estimate that it may contribute? Colin Souza: It would probably be less than 10% of kind of the businesses that I mentioned, but it is one of the faster-growing areas within those businesses. Operator: Our next question will come from the line of Daniel Moore with CJS Securities. Dan Moore: I want to dovetail on Kathryn's question on LSI. Just looking at the margin profile, obviously, extremely healthy and over 40% adjusted EBITDA margin trailing 12 months. Just help us understand what drives that, how sustainable? And then maybe talk a little bit about kind of the -- what are the key drivers behind 3% to 5% growth in the market? And a follow-up there. Joseph Hayek: Sure. And Dan, again, it's Joe. Thank you. We're a little bit limited. Obviously, the transaction is expected to close in January. But as Colin mentioned, LSI is a terrific company. They are in a business that really is driven by kind of, I'll call it, resilient retrofit. They don't count on new construction for a lot of their growth. They're a market leader. They've been at it for a long time. They have a great reputation with their customers. They're very reliable. They're very creative. And they have really three kind of go-to-market buckets. The first is what Colin has been talking about, which is the standing steam metal roofing clips. They do some work around transportation, but then they also have a business that is really retrofit where you can actually put a new metal roof on top of an existing metal roof that has a lot of great attributes from a cost and value perspective and also from a structural integrity perspective. Metal roofs a long time ago, people figured out that drilling holes and using screws in the different kinds of fasteners was a pretty bad idea from a long-term leap perspective. And so LSI is a market leader. They have a great culture, and we're really excited about the prospects of them becoming part of Worthington in the next few weeks. Dan Moore: The switching gears, Building Products, really solid growth, mid-teens on an organic basis. Maybe just talk about how much of that is pricing versus volume? And then you mentioned some of the end markets that obviously are driving that growth maybe as we get into the seasonally stronger period, your confidence that those demand drivers will continue here in the near to midterm. Colin Souza: Yes, Dan, it's a good question. On the Building Products, on the wholly owned portfolio, really good volume contributions across the board, across the portfolio there within that business segment. A number of value streams were up year-over-year. I mentioned a few of them earlier, heating and cooking, water, cooling, construction. The one that was a little softer is just -- we've talked about it before on the European side, and that's just more challenging economy there. So we continue to be excited and optimistic on some of the demand and the drivers across that portfolio. And what we're seeing is that trickling through to the margins of that business as well. So EBITDA margins for the wholly owned business up almost 300 basis points year-over-year. And we believe, and we've shared this before, just in a -- the targets there are still intact for us, which we think this is a low teens EBITDA margin business over time. Joseph Hayek: Yes. And Dan, it's really a credit to our teams because it is more volume than anything else. And it's because we've been gaining share. We've done a really nice job with innovation, and we've done a really nice job commercially and from an operational manufacturing perspective. So it's a really great story that we continue to see that kind of momentum in really broad swaths across that business. Dan Moore: Very helpful. Maybe 1 or 2 more. ClarkDietrich. Obviously, contribution hit kind of a new post-pandemic low for the quarter. Talk about what you're seeing there? How much of it was just top line versus maybe costs? And what steps can be taken to kind of protect margins from here, so we don't see that dip further? Joseph Hayek: Sure. ClarkDietrich's a great business. They are a market leader and they're operating in a pretty tough environment, but it's an environment that will improve over time as market conditions allow. I mean, Colin, I think, has a bit more of the details. Colin Souza: Yes. In ClarkDietrich, Joe is right, led by a really great team there, they've seen some margin compression as a result of the challenging new construction environment, and that's led to some increased competition in their spaces, particularly from smaller players. So they continue to be a market leader in that space and continue to focus as well on cost savings initiatives. They've -- their mix has shifted over the last year, 1.5 years because of their breadth and scale of their offering, they can compete better on larger projects. If you think about stadiums, data centers, hospitals, where some of the smaller competitors can't do that. So the mix has shifted, but the profitability levels in those areas are less than their traditional drywall studs space. So they're doing the right things to take care of their customers. We do expect no worse than flat sequential performance moving forward there. And despite the tough environment, they're performing at pre-COVID levels. And as we see green shoots in construction in the future, they're very well positioned to benefit. Dan Moore: Maybe last, just in terms of capital allocation that bought back some stock in the quarter at levels a little higher than where the stock has indicated this morning, still only a turn of leverage on a pro forma basis following LSI. So from here, would you prefer to delever? Or are you comfortable continuing to opportunistically return cash to shareholders and continue to explore tuck-in M&A? Joseph Hayek: Yes, great question. And I would say yes, yes and yes, Dan. We'll continue to think about our capital structure. We'll continue to opportunistically look at strategic M&A and returns of capital to shareholders. But our formula is such that we talk about it on a regular basis. And so we'll continue to be balanced with a bias toward growth. Operator: Our next question comes from the line of Susan Maklari with Goldman Sachs. Susan Maklari: My first question is talking about the momentum that you are seeing on the consumer side of the business. You mentioned that Balloon Time is now going to be available in Costco. Can you just give us a bit more color on some of these new partnerships that you're getting into that you're having success with? How much more maybe there is to go there? And then how we should think about the upside from all of this as we do get into the busier spring and summer next year? Joseph Hayek: Susan, thank you. So yes, you're right. There is a lot of focus on health of the consumer generally right now. And there's certainly no doubt that consumers are cautious and they're being impacted by economic conditions and prices. I do a couple of things that are unique about our consumer business, for one, some of our Consumer Products end up being used by the pro or contractors. And so that user base is proving to be less impacted than by economic conditions than consumers overall. But relative to consumers generally, remember, our products that are geared toward consumers are pretty affordable. We do not traffic in consumer durables, for instance. And our products are used in a wide swath of activities and experiences. Sometimes those experiences are instead of or are replacing more expensive experiences. And so demand tends to be a bit more resilient than in other categories. But to your question specifically, our innovation engines are really opening new doors for us, and we think that we're gaining share. I think about the Costco win, additional placement for Sherwin-Williams and Home Depot. We've talked in previous quarters about CVS, Staples, Walgreens. Our store count is actually up overall 63%. And so that innovation is really what's driving that growth and the placement. And so it's helping us navigate the current environment really well. And we think it also positions us for additional growth as conditions improve and people have a bit more disposable income. And then maybe finally, if you look at the last couple of years in consumer, our revenues and EBITDA are relatively flat in what many would describe as a pretty down market and in the face of some modest tariff headwinds. And so that gives us confidence that we're doing a lot of the right things there. Susan Maklari: That's great color. Good to hear all that. And then maybe switching to the COGS side of the business, you've done a really nice job on SG&A in the last several quarters. Can you talk a bit about the further opportunities there, where we are just as it relates to the Worthington Business Systems and any other upside either in SG&A or actually even in the COGS side of the business as well? Joseph Hayek: Sure. So I'll probably -- I'll take maybe the gross margin side of the question, Susan. And -- but you're right, and thanks for noticing. Yes, we were down 320 basis points from an SG&A perspective from a percent of sales. But our gross margin was down 120 basis points from a year ago. Now the majority of that decline is attributable to Elgen and the dynamics that I mentioned earlier. That said, a little bit of the decline was actually related to investments that we're making in growth. So specifically, we've added roughly 40 heads in a few of our facilities to meet increased demand. And it just takes some time for those colleagues of ours to ramp up from a productivity perspective. But we're really pleased that we've been able to identify and onboard those resources that we think are going to be great colleagues of ours for a while to come. We had some volumes that were down slightly in a couple of our value streams from a seasonal perspective. Winter started a bit later this year than it did last year and so conversion costs in those business were a bit higher. But I think on the SG&A side, which is, as you said, a really good story for us, Colin? Colin Souza: Yes. So in -- as Joe said, SG&A down 320 basis points year-over-year. We've -- as we've talked about before, we continue to focus on cost controls, leveraging technology where we can. Transformation is a part of our business system. It's not just in the front of the house. It's also in the back office as well. So we're trying to maintain as best we can our cost and really create that operating leverage to grow from an SG&A standpoint. And our targets that we put out there from a gross margin standpoint, we've been running in the high 20s from a gross margin, and we think we can get to 30% gross margin over time consistently while driving our SG&A down to 20% as well over time. So we're still -- we feel good about those goals. There's some temporary cost impact in the quarter on the gross margin side, as Joe talked about, but we've been helping offset that from an SG&A standpoint and more of that to come. Susan Maklari: And then maybe I'm going to squeeze one more in, which is -- it's really nice to see how well WAVE continues to do in this environment. Can you talk a bit about what they're seeing in that business? And anything in terms of the outlook that we should be aware of there? Colin Souza: Yes, Susan. So WAVE up $2 million year-over-year from a contribution standpoint. Their end markets remain generally stable, though performance varies by sector within there. And as you know, they're driven a little more by repair and remodel activity as well. So education, healthcare, transportation and data centers have all been strong for them, while retail and office markets have been weaker, but steady. So they continue to find ways to really enhance margin by ultimately recognizing pain points of their end consumers, so contractors and ultimately delivering enhanced value to those contractors. And that's really valued by those contractors in the market. And looking ahead, as commercial construction volumes could benefit over time, either as rates decline or just as the market adjusts to current levels, the team at WAVE just continues to do a terrific job and are very well positioned moving forward. So we're not surprised. They're up another quarter from a contribution standpoint and are pleased with kind of where they're at and where they're going. Operator: Our next question comes from the line of Walt Liptak with Seaport Research. Walter Liptak: And looks like a good quarter with just a couple of things outside of your control. So Colin, I think you mentioned just at a high level, mix and construction being weaker. And I think on the construction side, you're referring more to ClarkDietrich, but what were you referring to on the mix side? Colin Souza: Yes. So on the construction side, Walt, ClarkDietrich specifically driven by new construction. They're on the very front end, and they're getting intense competition there just as the volumes declined a bit. So that's really what I was referring to, how it was subdued and trickling through to our earnings. Joseph Hayek: Yes. And Walt, that's actually a bit of a contrast to the other parts of our business within construction that are more geared on repair, remodel maintenance. Our cooling and construction business continued to have really strong results and really good growth prospects. And so it's a bit of a tale of two construction markets right now. New is still a little slow, but the repair and remodel is -- we would consider it's pretty healthy. Walter Liptak: I just wanted to make sure I wasn't missing something there. And then on the mix, too, I'm not totally sure I understand the pluses and minuses there because the mix sounds, especially in Building Products, like it was pretty good. Joseph Hayek: Yes. I think from a mix perspective, if you're talking specifically about ClarkDietrich, their mix has tended to be more towards the large, large projects, stadium infrastructure projects, which is good business, but maybe a bit lower margin profile than more of the traditional slightly smaller drywall stud business. That's, I think, what Colin was referring to around ClarkDietrich. Walter Liptak: And then just a follow-up on a previous question about ClarkDietrich. Are they getting into like a seasonally stronger period like these EBITDA levels? I think I heard you say is kind of stable. But then if it's seasonally stronger, do you get a lift going into the back half of the year for ClarkDietrich? Colin Souza: Yes. So I mentioned, Walt, just no worse than sequentially flat is the expectation there. Seasonality, it's not too pronounced in ClarkDietrich. Obviously, if it's colder out and they can't get to job sites, that has an impact. But the earnings contribution are impacted by some of the other factors that we've been talking about, whether it's steel pricing or mix of projects as well. Walter Liptak: And then third quarter last year, I remember that there was like some smaller gas containers that are used for heating that were strong. Is there a comp -- a tougher comp that we should be thinking about and the weather seems like it's been colder in the last month or so. Are those small containers enough to be a plus or minus in the third quarter? Joseph Hayek: Sure. So when we think about that, Walt, it's really around seasonality. Yes. And if you live in the Midwest or the Northeast, you know it's been a pretty cold December. But the strongest seasonal quarters for us are always Q3 and Q4, and that's -- dovetails with a handful of things: one, the winter and some of that temporary or backup heat that our products provide to people when it's exceptionally cold or when their pipes burst or when they need other things and ways of creating ways to cook or to produce heat. And then you also get into people thinking about the spring, the spring construction season and other things that are there. So seasonally speaking, Q3 last year was strong and I think we don't see a lot of differences in seasonality this year versus last year. Operator: [Operator Instructions] And our next question will come from the line of Brian McNamara with Canaccord Genuity. Brian McNamara: My first one on gross margin, you pretty much answered already, but I'm curious what the gross margin would have looked like ex Elgen. And then when you would expect to see the benefit from the recent headcount additions on the gross margin line? Joseph Hayek: So it was -- the impacts from Elgen, Brian, if you're talking about 120 basis points, that was the majority of that. There were a couple of other puts and takes. But we would expect for the investments that we made in headcount and certainly the investments that we made in the operations at Elgen to start to produce results in Q3 and certainly beyond. Brian McNamara: And then there's a lot of, obviously, noise in the gross margin lines, very seasonal, very lumpy. So how should investors think about that line item in the back half of the year? Joseph Hayek: Sure. I don't think it should be seasonally that different than it's been from a trend perspective in, call it, in our fiscal 2025. One of the things that's a little unique this year versus last year has been tariffs. And there's a lot that continues to be discussed around tariffs. But from our perspective, we still think that we're a net beneficiary of the tariffs that are announced and in place out there. So because the level playing field is a good thing for us. We believe we've gained share in multiple of our value streams. I mentioned the 40 or so heads that we've hired since the beginning of June to ramp up demand. But more when it comes to the tariff mitigation, what we've talked about this, but I think it's worth revisiting, there are three primary levers that we can pull to mitigate some of those negative impacts on us. The first is asking our suppliers to help us offset some of that additional cost. We've certainly done that. The second is taking cost out of our own supply chains everywhere that we can, and we've certainly done that. But the third is pricing actions. And so those mitigants can take time to implement and to finalize, but we are pleased that as of early December, we've gotten to a point where we feel like we are where we need to be in all three of those areas as we balance our own profitability goals with being a good long-term partner to our customers. But we do feel good about where we are now. Brian McNamara: You read my mind on the tariff front. That was my next question. Obviously, you're predominantly a domestic manufacturer. Theoretically, that should provide a cost advantage as it relates to tariffs relative to some of your peers that have significant kind of China sourcing. It doesn't appear overall that -- I know you mentioned share gains, but it doesn't appear that, that advantage has played out yet. And I'm curious what you're seeing in the market as it relates to competitive pricing and the relative value your products are providing. Joseph Hayek: Yes. I think so it depends on the markets that we're participating in. In some markets, it's a bit more evident that imported products are just simply more expensive. And in other markets, it's a bit more nuanced. There are people, I mean, look at Europe, for instance, the European economy is struggling more than maybe the domestic economy. I think it's in part because of the tariff situation here, a lot of those products are landing in Europe and so the European manufacturers are effectively facing more of that competition. But from us, from our perspective, we feel really good about where our value is. We focus really hard on innovation and on doing things that aren't just a price increase for a price increases' sake, but we're adding value and we're partnering with our customers, be they distributors, contractors or retailers understanding where they're at. I mean, it's been a tough row for these retailers since the spring to really understand all these things. And so we try really hard to add value and lead with data and lead with value. And as you can see in some of our increased placements and are gaining market share, that's paying off. It doesn't manifest itself over a 2-week period. But from our perspective, and keep in mind that we're a long-term focused company, we feel really good about our ability to continue doing what we need to while being a good partner in the long term for our customers. Operator: And that will conclude our question-and-answer session. I will now turn the call back over to Joe Hayek for any closing comments. Joseph Hayek: Regina, thank you, and thank you, everyone, for joining us this morning. Have a great week, and have a wonderful holiday season. Hope you're surrounded by friends and family and people that you love. We look forward to speaking to everybody soon. Operator: This concludes today's conference call. Thank you all for joining. You may now disconnect.
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