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Operator: Ladies and gentlemen, hello, and welcome to the Bnode Fourth Quarter 2025 Analyst Conference Call. On today's call, we have Mr. Chris Peeters, CEO; and Mr. Philippe Dartienne, CFO. Please note, this call is being recorded. [Operator Instructions] I will now hand over to your host, Mr. Chris Peeters, CEO, to begin today's conference. Please go ahead, sir. Chris Peeters: Thank you, and good morning, ladies and gentlemen. Welcome to all of you, and thank you for joining us. Today, I will be presenting our fourth quarter and full year 2025 results as CEO of Bnode. With me, I have Philippe Dartienne, our CFO; as well as Antoine Lebecq from Investor Relations. We posted the materials on our website this morning. We will walk you through the presentation, and we'll then take your questions. As always, two questions each, would ensure everyone gets the chance to be addressed in the upcoming hour. Let's get to the highlights of the full year results, and Philippe will then walk you through our fourth quarter '25 results. On Page 3, you can see that Bnode, as we are now called, and I will come back to this in a few minutes, delivered results at the upper end of the EUR 150 million to EUR 180 million EBIT, guidance range that we set at the same time last year and progressively derisked quarter-after-quarter. Despite pressure on top line development, we delivered an EBIT of EUR 179.7 million, while at the same time, remaining fully committed to the transformation of our business. At bpost as anticipated, top line decreased by around EUR 90 million. Mail and Press revenues declined by approximately EUR 100 million, reflecting both the accelerating structural volume erosion and the base effect as 2024 still included 6 months of the Press concession. On the Parcel side, revenue increased slightly by around EUR 10 million as our volume growth was limited to 2%, notably impacted by the strikes actions we faced during the year. In response to these challenges, we progressed on important cost measures, particularly through operational reorganizations and a reduction of around 4% in FTEs. The full impact of these actions were mainly visible in the last 2 quarters of the year. EBIT came in at EUR 67 million, down 50% year-on-year. The decline was primarily concentrated in the first half, reflecting the scope impact of the Press concession, while performance roughly stabilized in the second half of the year. At Paxon, top line growth was primarily driven by the continued expansion of our European activities and even more significantly by the consolidation of Staci. This positive momentum was, however, largely offset by a 21% revenue decline at North America. As announced last year, Radial faced the departure of several major clients. Since then, we have been actively addressing this through a progressive reshaping of the customer portfolio towards the midsized segment. At the same time, we maintained a strong focus on productivity with Radial, once again, delivering substantial cost savings. Supported by the contribution from Staci, EBIT increased slightly by EUR 7 million year-on-year, reaching just under EUR 59 million. At Landmark Global, our U.S. business was as expected, impacted by tariff measures. Nevertheless, top line posted slight growth overall. This was supported by sustained activity in Canada and most importantly strong momentum in Asian volumes across all key destinations, including, of course, Belgium, which is particularly accretive from an EBIT standpoint. Combined with continued productivity gains, notably true or Transport Center of Excellence, this enabled us to increase EBIT to EUR 85 million. Let me make one final remark on our financial highlights. As you can see, on a reported basis, the group recorded a net loss of EUR 39 million, in line with the dividend policy reaffirmed at our Capital Markets Day in June. And with no change to that framework, the Board of Directors will recommend to the general meeting in May, not to distribute a dividend this year. This reported net loss is primarily explained by one-off costs recognized at Radial North America, Philippe will elaborate on this in a moment. But before handing over, I would like to briefly reflect on our key strategic priorities in 2025 and how they continue to shape our transformation journey. In 2025, our transformation gathered significant momentum across Bnode, delivering tangible results and reaffirming the strength of our strategic direction. We restructured and strengthened the Bnode Executive Committee with a new CEO for Paxon North America and Paxon Europe as well as the people's management committee, including Group CEO and four members of the Group Executive Committee to accelerate strategy execution and better address emerging challenges. We simplified the group brand architecture, moving from 31 brands to a clear 4-brand structure, bringing consistency and focus fully aligned with the group strategic repositioning. At bpost, we made the operating model shift accelerated the transformation of our Belgian operating model across multiple tracks, including bulk rounds, now fully operational in all sorting centers, centralized preparation of Mail rounds and the reorganization of 138 distribution offices to adapt the cost base to new volumes, among others, due to lower Press volumes. We also developed Out-of-Home at scale, expanded the locker network at record pace, reaching 2,500 bbox installations driving a 50% growth in locker volume in 2025. We also successfully launched Night Bbox Delivery, enabling time-critical deliveries before 7:00 a.m. with early phase pilots underway in the omnichannel segment. At the retail network, we strengthened the strategic relevance and commercial contribution of our retail network by expanding multiple partnerships in among others, telco, utilities and banking, while reinforcing our societal inclusion role. For Paxon, we continue to transition to mid-market client portfolio driven by the successful launch of Fast Track offering rapid and seamless integration with existing systems with 22 Fast Track clients onboarded, representing EUR 38 million of in-year revenue. We also successfully integrated Staci into our new Paxon organization. We established an integrated country structure across Staci, Radial Europe and Active Ants, paving the way for accelerated commercial development and we exceeded the initial cost synergies target with the 2026 target already secured. And for Landmark Global, we achieved strong progress in leveraging group-wide capabilities, notably through the introduction of a Transport Center of Excellence, realizing EUR 50 million of group-wide savings in 2025. Staci transport synergies, Last Mile group contracts, et cetera, are included in this. And in terms of market resilience, we demonstrated the ability to navigate an increasingly complex trade environment including rapidly involving trade tariffs, while maintaining operational stability and commercial momentum. I will now hand over to Philippe for the quarterly results, and I will then take the floor to share with you our strategic priorities for 2026 and the financial outlook. Philippe Dartienne: Thank you, Chris, and good morning to all. As you can see on the highlights on Page 5, our group operating income for the fourth quarter came at EUR 1.242 billion, a decrease of EUR 93 million or 7% year-on-year. This performance reflects a combination of factors. As expected, we saw the impact of contract terminations at Radial U.S., which we already flagged earlier this year. This termination materialized through the quarter and drove a 20% revenue decline year-on-year on EUR 82 million, largely offsetting the 4% top line growth at Paxon Europe. In parallel, the 9.2% decline -- 9.2% decline in domestic Mail volume, excluding Press which was only partially compensated by close to 3% Parcel growth volume in Belgium. Note that Parcel volumes were impacted by several national strikes in October and November. In terms of cross-border activities, we also recorded higher Asian inbound volumes, which supported overall Parcel growth. Overall, while our top line remained under pressure, we continue to adapt our cost base effectively, sorry. As a result, group adjusted EBIT reached EUR 83 million, broadly in line with last year. This outcome reflects the positive effect of our reorganization measures and improve peak efficiency at bpost as well as margin actions at Paxon U.S. Before turning to the financial performance of our business units, let me highlight, as shown on Slide 6, that our group reported EBIT stands at EUR 10 million. Beyond the usual PPA adjustment, this mainly reflects the EUR 55 million one-off charges related to the real estate portfolio rationalization and technology stack simplification at Radial U.S., in line with maximize the core initiative presented to you at the Capital Market Day in June. Let's move now to the details of our three segments. I'm on Page 7. With the bpost segment previously Last Mile. We see that the revenue declined by EUR 70 million to EUR 574 million. Domestic Mail recorded around EUR 17 million decline in revenue, of which EUR 11 million stemmed from transactional and advertising mails and EUR 5 million from Press. Excluding Press, Mail volumes contracted by 9.2% in the quarter compared to 8.1% same quarter last year. The decline in Mail volumes had a negative revenue impact of around EUR 21 million and was partially offset only by half, through positive price and mix effect of plus 4.2% or roughly EUR 10 million. As a result, the Domestic Mail revenue were down 4.9% or EUR 11 million year-over-year. Note that on a full year basis, this Mail volume declined by 9.8% at the upper end of our guidance and was mitigated by a price/mix impact of plus 4.3%. Our Parcels revenue increased by EUR 3 million or plus 1.7% year-over-year, driven by volume growth of close to 3% and a slightly negative price/mix effect of 1.2% in the quarter. On the volume side, the reported 9.2% actually correspond to an average daily growth of plus 1.3% and include a shortfall of just under 1% due to national strike that took place in Belgium in October and November. Over the past months, and particularly during the peak, growth was mainly supported by strong performance of marketplaces, which also contribute to our negative price/mix impact of about 1.2%. For the full year, our average daily volume grew by 2.4% despite the negative impact of the fourth quarter strike and more importantly, the bpost strike in February during which a significant share of volume shifted temporarily to competitors. These disruptions resulted in our overall volume shortfall of a bit more than 1% for the year. Excluding this impact, our volume would have landed at the low end of our annual volume guidance. Revenue from our other activities, including Retail, Value Added Services and Personalize Logistics decreased by 3% year-over-year, notably with lower revenue from fine solutions partially offset by higher revenues at DynaGroup. Let's move to the P&L of bpost on Page 8. Including the higher intersegment revenue from inbound cross-border volumes handled in the domestic network, our total operating income was down by 2.3% or EUR 14 million. On the cost side, OpEx and D&A decreased by 2.7% or EUR 16 million, mainly driven by two effects: lower staffing with FTEs and interims down 5%, reflecting improved peak efficiency and lower volumes. The benefit from the ongoing reorganization of our distribution rounds and retail offices implemented over the previous quarters and which ultimately concluded in line with annual plan target despite delays accumulated until June due to strikes. And on the other hand, higher salary cost per FTE up plus 2% following March '25 salary indexation. In contrast with the first half of the year, when EBIT had contracted sharply by almost EUR 64 million year-on-year, mainly due to the end of the Press concession in June '24, we see now that despite the structural Mail decline, Parcel growth and the benefits of our organization are helping to mitigate EBIT erosion. EBIT decline was limited to EUR 3 million in the second half of the year and even showed a slight improvement in this fourth quarter. I would like to highlight that our peak efficiency improved not only versus last year, but for the first time ever also versus the full year run rate. Moving on to Paxon, previously, 3PL, on Page 9. In terms of Paxon revenues, two effects came into play. First one, at Paxon Europe, revenue remained broadly stable year-over-year, while we recorded around 4% growth this quarter across European businesses and geographies, with some activities even achieving high single-digit growth. We also felt the negative impact at Staci Americas, which is reported on the Paxon Europe, where a contract termination led to a significant revenue decline during the quarter. At Paxon North America, revenues decreased by EUR 82 million. At constant exchange rate, this represents a 20% decline, driven by revenue churn from contract termination announced in '24 and '25. Mid-single-digit negative same-store sale and partially offset by the in-year contribution of a bit less than EUR 30 million from new customers of which 60% relating to Radial, Fast-Track clients. As expected, despite seeing positive and encouraging seniors on that front, we continue to feel the impact of the churn announced in '24 and '25. We remain focused on executing our plans and we are confident that the ongoing stretch to core actions presented at the Capital Markets Day, expanding into, as Chris said it, new industries, client size and channel and strengthening our portfolio will deliver the intended benefits. Let's move to the P&L of Paxon on Slide 10. With this total operating income decreased by 14.4% or EUR 82 million, while operating expense and D&A decreased by 13.2% or EUR 69 million. The reduction was primarily in North America, driven by lower variable OpEx in line with revenue evolution at Radial U.S. and sustained variable contribution margin. As a result, adjusted EBIT decreased by EUR 13 million to EUR 33 million in the quarter. This was mainly due to the outgoing top line pressure at Radial U.S. and to some extent, at Staci Americas to temporary productivity issues and an IT incident. Note that Radial U.S. reached another record high margin during the peak season. And on a full year basis, Radial U.S. continued focus on productivity improvement delivered a 2% increase in variable contribution margin, equivalent to our cumulative benefits of EUR 16 million. Looking at our reported EBIT of minus EUR 35 million, this reflects the EUR 55 million one-off charge related to the real estate portfolio rationalization and the technology stack simplification, at Radial U.S. I've mentioned earlier in the call, this is being totally in line with "Maximize the Core" initiative presented at our Capital Markets Day in June. Moving on to Landmark Global, previously Cross-Border, on Page 11. Landmark Europe revenues increased by EUR 4 million or 4% year-over-year. This growth was driven by a solid volume increase from China across all major destinations, notably Belgium fueled by large Chinese platforms and U.S. Other European lanes continue to grow well with the exception of U.K. where adverse market conditions remain. At Landmark North America, we continue to face volume headwinds, while the broader tariff environment is weighing on existing business and delaying new opportunities. However, this was offset by strong domestic volume growth in Canada and a strong peak period resulting at North America level in a high single-digit percentage growth in revenue, equivalent to 0.5% increase or EUR 0.4 million increase in euro, when including the negative FX impact development. Overall, our Landmark Global operating income increased by roughly EUR 7 million or 3.9%. As shown on Page 12, OpEx and D&A increased at the same time by 3.1%, mainly reflecting higher transportation costs, driven by volume growth partially offset by lower rates on the new transport contracts. This links back to the Transport Center of Excellence that we presented at the Capital Markets Day. And from which we are now seeing tangible benefits across our various business units. Adjusted EBIT increased slightly to just under EUR 26 million. And the productivity gains across the board resulted in margin improvement compared to last year. Moving on to the Corporate segment on Page 13. Adjusted EBIT continued to improve as cost control measures on third-party and expand services as well as facility management initiatives helped offset higher payroll costs driven by additional FTEs in the March '25 salary indexation. This quarter also benefited from a one-off favorable impact from operational taxes. And as a result, our adjusted EBIT improved by EUR 7 million to minus EUR 2 million. Let's now move to the cash flow on Slide 14. The net cash inflow from the quarter amounted to EUR 35 million compared with EUR 118 million last year, mainly reflecting the variation in working capital and higher coupons on the bonds. Overall, the main items to highlight are the following: cash flow from operating activities before changing working capital stood at EUR 149 million, a decrease of EUR 11 million versus last year, mainly driven by lower EBITDA and lower corporate tax payment. Change in working capital and provisions amounted to EUR 57 million, the negative EUR 39 million variance year-on-year reflect the termination of the Press concession in June last year as well as some lower suppliers balances. The net cash outflow from investing activities totaled EUR 61 million, driven by CapEx for parcels, lockers and capacity expansion, our domestic fleet and international e-commerce logistics. Note that on a full year basis, CapEx amounted to EUR 147 million, below our initial guidance of EUR 180 million, reflecting disciplined spending behavior. This constitutes the main variation in our free cash flow and the net cash outflow from financing activities amounted to EUR 110 million, mainly reflecting higher lease liabilities payment and higher bond coupons linked to the EUR 1 billion bond issuance in November 2024. Chris, this brings us now to the strategic priorities of '26 and our financial outlook. Chris Peeters: Thank you, Philippe. As we move in 2026, the focus shifts from piloting to scaling. Accelerating what works, executing with discipline and embedding successes structurally. For bpost, that means that the operating model will further shift to accelerate the transition towards a 24/7 logistics company. This includes the structural embedding of efficiencies and flexibilization levers. For example, the dual density rounds or the delayed curve that we will do. At the Out-of-Home, we will further scale, expand the network coverage of 3,400 Bboxes installed and doubling the parcels delivered via lockers. We will continue to pilot and scale promising B2B services in omnichannels and for technicians. And also, we will negotiate an agreement for the Retail network with the Belgian state and entering into force as of January 2027. For Paxon in North America, we will leverage and scale the proven Fast Track solution to deepen our presence in the mid-market segment. And for Europe, we will capitalize on the integrated country structure to accelerate up and cross-selling, improving asset utilization and driving commercial growth. For Landmark Global, we will drive the full utilization of the Transport Center of Excellence, ensuring group-wide efficiencies and boosting profitable growth in a scale-driven market. And for the market, we will leverage our ability to navigate trade complexity to better support clients in managing cross-border complexity and evolving tariff dynamics. These strategic priorities lead me to our outlook for 2026. I'm on Page 16 now. We are engaged in a profound transformation of our group and the strategic shift we have initiated is a multi-year journey. 2026 will be another important step in that transition. At a high level, the continued acceleration of our international logistics activity is expected to be the main driver of EBIT growth at group level. At the same time, in our historical Belgian operation, we will remain focused on mitigating the structural mail decline, while further advancing our operational shift toward a more parcel-centric model. Overall, at group level, we are targeting an adjusted EBIT in the range of EUR 165 million to EUR 195 million for 2026. For Paxon, we expect total operating income to grow in the low to mid-single-digit range in 2026. While in Europe, we anticipate mid- to high single-digit growth, supported by continued commercial momentum and further leveraging of our integrated logistics capabilities. In North America, the ongoing portfolio shift towards the midsize segment, notably through our Fast Track initiatives should offset the impact of customer share. On profitability, we expect an EBIT margin increase from 3.5% in 2025 to between 6% and 8% in 2026. This uplift will be driven by the combined strength of our new regional setup, realization of cost synergies and continued real estate optimization. Then we turn to Landmark Global, where we are targeting a mid-single-digit top line growth for 2026. In Eurasia, momentum remained strong in our commercial activities, particularly driven by Asian volumes, while Postal volumes are expected to remain resilient. In North America, growth should be more moderate. Market overcapacity continues to intensify competition and the uncertainty surrounding tariff measures is creating limited visibility and implied pressures on flows to and from the U.S. across most lanes. In terms of profitability, the evolving business mix with a lower contribution from Postal and a higher share of commercial volumes is likely to weigh on margins leading to an expected EBIT margin in the range of 10% to 12%. Finally, regarding bpost, we anticipate a low single-digit decline in revenue in 2026. This mainly reflects three factors: first, Mail volumes are expected to decline in the mid-teens range, while this will be partly mitigated by a favorable price/mix effect of around 5%, 6%, structural volume erosion remained significant. As you observed in 2025, decline already accelerated, reaching around 10% at the upper end of our 8% to 10% guidance range. In 2026, we will also face the full impact of mandatory B2B e-invoicing in Belgium as well as the loss of certain advertising contracts. Second, on the Parcel side, volumes should grow in the mid- to high single-digit range, primarily driven by large customers. As a result, despite the usual price adjustments, the overall price/mix is expected to remain broadly stable. In addition, as discussed during our Capital Markets Day, we will see the full year revenue impact from the loss of the 679 banking contract which was retendered and transferred to BNP Paribas Fortis as of January 1. From a profitability perspective, this marks another year of revenue contraction, which will inevitably put pressure on margins. That said, we remain fully focused on aligning our cost base notably true, intensified distribution around reorganizations and further productivity gains. Altogether, this should translate into an EBIT margin of around 1% in 2026. We are now ready to take your questions. Again, two questions each, please, so that everyone gets the chance to be addressed during the session. Operator, please open the lines. Operator: [Operator Instructions] The next question comes from Michiel Declercq from KBC Securities. Michiel Declercq: I had some questions on the 3PL or the Paxon business. First on profitability, a bit lower than what you guided for, for the start of the year. I was just wondering, can you give a bit more color on the temporary productivity issues and the IT incident at Staci in the Americas? And maybe quantify this and maybe also looking at the margins of Staci, are we still in the 10% to 12% range there? That would be a bit my first question. Then secondly, would also be on the 3PL Europe, you guide for mid- to high single-digit growth in 2026. Looking at the fourth quarter, it was flat, you had, of course, a customer loss and some headwinds at Staci Americas. But I would expect this also to somewhat continue in 2027. So I'm just wondering where will this step up from a flat growth in the EU in Q4 to mid- to high single digits in '26 come from? Can you -- do you see some reassuring trends there? Or just a bit more color on that, please? Chris Peeters: Do you take the first? Philippe Dartienne: Yes. I'll take the first one. Thank you, Michiel, for the question. Very, very, very interesting question indeed. When it comes to Paxon profitability as a whole, we are impacted by -- mostly impacted by the loss of customers that we faced at -- from Radial, as we mentioned it. Despite the fact that they have been able to maintain the variable contribution margin, even a slight improvement year-over-year. Nevertheless, in absolute value, indeed, it weighed on the EBIT generation. When it comes to Paxon Europe, so the -- what I would say is that we have a profitability at the level of Paxon Europe so mostly from -- resulting from the acquisition of Staci. We always guided in the range of 10% to 12%. And in '25, we nearly reached the bottom end of the range. Why do I say nearly very close to, which is mainly explained by the fact that we had an IT incident in the U.S. that weighted on the profitability. Chris Peeters: And on the second question, so if you look at the Staci growth, you see indeed that there was a bit of a slowdown due to a combination of economic circumstances, mainly in France and the U.K. last year and also probably a focus, which was on the integration and the setup of the new structure. Now we have a team fully dedicated to developing the top line. And what we see there is that we have, especially around cross-sell and up-sell on these clients. And when we talk about cross-sell, it's both geographical, but also in other product ranges. And up-sell where we see that we expand our services within the same service line with those same clients, we see that we have an attractive pipeline on which we feel comfortable that, that growth is a feasible figure. Michiel Declercq: Okay. Clear. Maybe a quick follow-up, if I may. If I then plug in the guidance for the growth in the EU also for Paxon business, is it then fair to assume that growth in the U.S. or in North America, Radial North America will be flat? And if so, can you maybe give a bit more color on the phasing there? Chris Peeters: Yes. Indeed, growth in the U.S. will be flat. It's the effect of the historic client losses that we see to have a full impact. And obviously, if you see, although we see a ramp-up at the Fast Track side. These are substantially smaller clients, meaning that you need a lot of more onboarding to compensate for the loss of a large client. And so that effect of clients that were shared -- was already announced for the non-renewal of contracts that we will have the impact from gets compensated by new mid-market clients, but the one is balancing out the other. Philippe Dartienne: If you allow me to add one element, Chris, also what we are seeing in terms of evolution of same-store sales, so on existing customers, we are still believing that we will be in negative territories in '26 compared to '25. Chris Peeters: Which is again an effect of that historic portfolio of, let's say, older brands that are more in decline than the overall market. Operator: The next question comes from Frank Claassen from Degroof Petercam. Frank Claassen: Two questions, please. First of all, on the transfer of the 679 banking contract, could you help us how much revenue would that roughly be? That's my first question. And then second, on the corporate cost line, you indicate that it will go up some -- or will have the negative EUR 35 million delta in '26. That's quite a step-up. Could you elaborate what kind of investments or costs you're going to make on that corporate cost line? Chris Peeters: So on 679 -- thanks for the question, Frank. We'll -- we don't use to disclose individual contracts, neither the profitability. So we will not do it for the 679. But this being said, you know that the contribution of this contract was solid, very solid. So it's weighing on the profitability. When it comes to corporate, it's -- in fact, we are adding some resources very limited compared to the '25 situation. And those resources are geared towards supporting the transformation initiative. They are hosted at the level of corporate, but they benefit to the integrity of the group. So they are, in fact, also the natural evolution of the cost base, which -- because those corporate costs are mostly people-related costs. And we expect also to have, as we mentioned for BeNe Last Mile, we also expect to have a one step of inflation of 2% and that helps explaining the evolution of the corporate cost. Operator: The next question comes from Henk Slotboom from the IDEA! Henk Slotboom: Chris, Antoine and Philippe. A few questions about the bpost division. I'm a bit surprised about the Parcel growth you indicate for the current year. Last year, it was 2.9%. There was a 0.7% negative impact of the strikes you experienced. Now you're aiming for mid- to high single-digit growth. I assume you must have had a good start of the year. But at the same time, there are some things happening in the Middle East which could spur inflation again and weigh on consumer confidence. How do you look at that, Chris? Chris Peeters: So on the Parcel growth, I think the fact that you see in the terms of growth of last year, main mainly the effect of a little bit lower growth fix has to do with the strike impact of which we have two major events, one in the early part of the year with a quite significant impact. As you know, we had a couple of days of non-operation and a blocking of our sorting center that had quite an important impact in number of parcels. And while we could mitigate last minute to a large extent, the national strike against the government in the end period. Some of our clients took at that moment of time, whether it was late at already the batches to have some of those volumes deviated. And so there, you see two elements where you have some volume leakage as a result of the strike. That being said, if we look at the start of the year, well, as always, at the start of the year is a -- is not the most relevant period. But if we see in terms of client development and contract conversion, we are on a positive flow. And so we expect, in that perspective, a good year. If we look at the impact of what we see in Middle East. I think, there's very little, let's say, direct flow from us from that side with some Postal flows, but they're quite limited. 12 countries are blocked in terms of Postal flow, but that's a financially a very minor impact on our total volume. We don't see today a reduction on the Chinese flows. Obviously, I agree with you. If there is an impact on consumer behavior likely you will see some impact on the overall spend. Still, what we've seen in the last times when that was happening was that there was a further shift towards the products which are available within the e-commerce space. And so that is something where we don't expect that there will be a massive impact on the year. Henk Slotboom: Then on the Mail volume, Chris, we have a shock-wise decrease this year, partly because of the loss of some advertising clients and the introduction of e-invoicing in Belgium, especially the latter impact. Do you think that this will mitigate the decrease in Mail volumes as of 2027 when this has been absorbed? Chris Peeters: I don't understand the question, to be honest. Can you repeat the question? Henk Slotboom: Well, if this year was the introduction of e-invoicing, if I'm correct, in Belgium. So that means that you have a shock-wise decrease in volumes, paper invoices being replaced by electronic invoices. Normally, I assume that will lead to a lower contraction of transaction Mail volumes in the year thereafter, because there's less left. Chris Peeters: Yes. I mean, I can understand what you say. But overall, we don't count on that. I think that you've clearly seen that our strategy is now to move as fast as possible towards a parcel-centric operator, and so we want to become a logistical company. You see that, that Mail decline also if we look at comparable countries that were ahead of the curve have mostly had the Nordic countries are ahead of the curve. The Baltic states are also ahead of the curve in that perspective. You see that, that decline continues to be fairly steep also in the end phase of Mail. If you look at the Denmark case still until the last year, you saw a continued steep decline in the Mail business. We see the same happening in the other Nordic countries, which actually are already at a further progressed decline in Mail that we are. And so in our plans, we don't count on that difference anymore. We actually have -- are preparing ourselves for a continued accelerated decline in Mail. And obviously, what we will do as a consequence of that, start to prepare ourselves for the usual discussion, which will be -- we will have a new user as of the 1st of January '28. And so that preparation of discussion is happening now to ensure that our operating model can follow the reality of the volumes that we have to treat. Operator: [Operator Instructions] Ladies and gentlemen, there are no further questions. So I will hand it back to Chris to conclude today's conference. Thank you. Chris Peeters: We would like to thank everybody in the call for having taken the time to be with us and for your interesting questions. Please note that we will release our annual report 2025 on April 2nd. We look forward to staying in touch and Philippe will present you our first quarter results on May 6. Thank you very much and have a great day. Operator: Thanks for participating to the call. You may now disconnect.
Operator: Greetings, and welcome to the Bridger Aerospace Fourth Quarter 2025 Conference Call. As a reminder, today's call is being recorded. It is now my pleasure to introduce your host, Eric Gerratt, Chief Financial Officer. Thank you. Mr. Gerratt, you may begin. Eric Gerratt: Good afternoon, and thank you for joining us today. Joining me on the call this afternoon is Chief Executive Officer, Sam Davis; and incoming CFO, Anne Hayes. Before we begin, please note that certain statements contained in this conference call that do not describe historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Since forward-looking statements are based on various assumptions, risks and uncertainties, actual results may differ materially from those expressed or implied by such statements. Factors that could cause results to differ materially from those expressed include, but are not limited to, those disclosed in the company's filings with the U.S. Securities and Exchange Commission, including our expectations regarding financial results for 2026. Management cannot control or predict many factors that impact future results. Listeners should not place undue reliance on forward-looking statements, which reflect management's views only as of today. We anticipate that subsequent events and developments will cause our assessments to change. However, we undertake no obligation to revise or update any forward-looking statements or to make any other forward-looking statements. Throughout this afternoon's earnings release and call today, we refer to the non-GAAP financial measure adjusted EBITDA. The definition, calculation and reconciliation to the financial statements of adjusted EBITDA can be found in Exhibit A of our earnings release, which is available on our website. We believe adjusted EBITDA is useful in evaluating our reported results as a supplement to and not a substitute for results reported under GAAP. With that, I'd like to turn the call over to Sam. Sam Davis: Thank you, Eric. First, I wanted to say how proud I am of our team throughout this period of incredible growth. They have risen to the occasion and have been the champions of Bridger culture and focused on the mission and dedicated to safety. Their execution drove record operational and financial performance again in 2025. We generated positive net income and posted a second year of positive cash flow with revenue and adjusted EBITDA both growing by more than 20%. It's important to note that this record performance was achieved during what was statistically a below-average fire year. This financial resilience underscores the strength of our business model, the growing diversification of our revenue streams and the benefits of securing longer-term task orders for our aircraft. While the reported number of wildfires nationwide was noticeably higher in 2025 at nearly 78,000 fires compared to the 5- and 10-year averages of around 62,000, they burned far below the normal acreage nationwide of 5.1 million acres, more than 30% below the 5- and 10-year averages. This is likely the result of our federal and state customers' growing emphasis on early detection, initial and direct attack, and a more rapid response to wildfire. This proactive approach, combined with the impressive performance of our scoopers and enhanced Air Attack assets helped drive strategic prepositioning of our fleet and improved utilization in 2025. Utilization, which is measured in days on contract, was up almost 10% year-over-year. Our multi-mission aircraft almost doubled their flight hours year-over-year and remained deployed well into November. The increased utilization rates have paralleled an ideological shift in how the U.S. fights wildfires. Throughout 2025, we saw many federal and state customers place increased emphasis on initial and direct attack. Fortunately, for Bridger, we have the aircraft best suited for this aggressive wildfire management style. We are directing our efforts to maximize the use of aircraft we have while finding other opportunities to expand our capacity with additional aircraft. Looking at the 2025 wildfire statistic for Super Scoopers specifically, there continues to be unmet demand, as demonstrated by over 60 orders that were unable to be filled due to aircraft already deployed in fires. Of the total requests made, this represented a 48% unfilled rate. So far this year, we have deployed 2 Pilatus PC-12s and 2 Super Scoopers to fight fire. Of the PC-12s, 1 multi-mission aircraft mobilized to Oklahoma and 1 mobilized to Texas to provide aerial intelligence for early season wildfires. The call-up of our enhanced Air Attack platform demonstrates the aforementioned prioritization of early detection and the proven effectiveness of our advanced sensors and imaging systems. Demonstrating our ongoing commitment for year-round readiness, at least 3 of our Super Scoopers have remained ready throughout the winter months to be dispatched or to support training. Early in the year, we even prepositioned aircraft in Arizona as a proximity advantage as wildfire threats began to rise in the southern states. Let me now provide an update on our contracting as we look out to 2026. We continue to target multiyear and exclusive-use contracts to build resiliency in our revenue and drive utilization. Maximizing the number of these exclusive-use commitments helps to ensure our fleet remains dedicated to critical wildfire response efforts. We are in active discussions with numerous states to provide exclusive use of our firefighting assets and are optimistic that current budgeting and planning cycles will lead to future opportunities in the coming months. Just this week, we announced a 5-year multiple award, indefinite delivery, indefinite quantity, or IDIQ, contract for call-when-needed fixed-wing transportation services in Alaska. We will be supporting personnel and cargo movements for the U.S. Department of Interior and other federal agencies on an as-needed basis. Although this is not a guarantee, this contract is estimated at $18.6 million. This contract allows Bridger to create additional work for existing aircraft as well as answer demand as we grow our fleet with similar capabilities at the state and federal levels. Through our FMS subsidiary, we are dedicating resources for modification work on several internal aircraft to enhance our technology platforms. These modified aircraft are becoming a growing part of our contracting discussions. We're also in active firefighting contract discussions for our first 2 Spanish scoopers in Europe, having purchased them from our partnership with MAB Funding, LLC in the fourth quarter. The third and fourth Spanish scoopers continue to undergo the final stages of their return-to-service work by our Spanish subsidiary, Albacete Aero. As they become available later in 2026, we will look to enter discussions with MAB to potentially acquire these aircraft as well. Let me now provide a quick update on FMS and Ignis, our 2 acquisitions. FMS contributed $7.9 million in revenue for 2025. As I mentioned, much of their resources have been dedicated to internal aircraft modifications for Bridger aircraft to solidify our competitive edge. These technology-enhanced platforms are in high demand and have been instrumental in our ability to position Bridger for high-margin work. We also continue to see a number of contracting opportunities, primarily with the DOD in active bids with FMS' capabilities that put Bridger uniquely positioned to respond to. In addition to awarded work with our partner, positive aviation for the FF72 aircraft, our recent wins include a small award with the U.S. Air Force and Borsight. While revenue in FMS saw delays due to federal budgeting uncertainties through 2025, we do see momentum in federal funding with recent increases through the National Defense Authorization Act for 2025 for $895 billion. With our integrated services, we remain well positioned for a wide range of defense as well as commercial work. We're in the middle of repurposing our business development team to target this work. And much of the opportunities are fairly small and strategic with potential to scale into large volume, nonfire, nonseasonal, complementary to the services we already provide. Also, a quick update on the Ignis Technologies platform. Since launching the mobile platform to support firefighters in the field over a year ago, pilot programs utilizing the platform with counties, crews and incident management teams continue. We are now linking Bridger's real-time sensory image with the Ignis app, creating a seamless data flow from air to ground. Already this year, we have been live streaming wildfire progression, delivering perimeter mapping and even providing drop targets for aerial support as we deliver our imagery to ground firefighters, pilots and incident commanders to make effective real-time decision and enhance the safety of all operations in the fire stack. This capability is unlocking new levels of situational awareness and supporting multi-mission aviation contracts and enhances both operational effectiveness and safety. With the continued success of our sensor-enhanced aircraft in this field, the need for interactive live data streaming is stronger than ever, and we intend for this to be a critical part of our sensor-enhanced aviation contracts this year. As we look out to 2026, we are well positioned for another year of greater than 25% growth. This includes revenue from our 2 new Spanish scoopers as well as 2 new Air Attack aircraft, which we added in the fourth quarter. Our improved balance sheet provides the financial flexibility to acquire additional aircraft in response to contract expansion opportunities and further drive EBITDA growth and long-term shareholder value. This growth stands against the backdrop of recent federal initiatives to restructure our national wildland firefighting system. This includes the executive order in early 2025 that called for the establishment of a national wildland firefighting task force, the establishment of the wildland fire service and passage of the Fire Ready Nation Act and Aerial firefighting Enhancement Act of 2025, all of which are focused on improving wildfire response. With Bridger's significant Air Attack fleet, including modern fire imaging and surveillance aircraft and the world's largest private Super Scooper fleet, we believe we are uniquely positioned to protect lives, property critical infrastructure and the environment as the nation focuses on preparedness and aggressive wildfire suppression. We have exciting opportunities before us, and I remain grateful and humbled to lead this exceptional team. Let me now turn it back to Eric, who will talk about our strong financial performance in 2025. Eric Gerratt: Thanks, Sam. Looking at our results for the fourth quarter of 2025. Revenue was $8.5 million compared to $15.6 million in the fourth quarter of 2024. The decline year-over-year was partially related to the later deployment of our Super Scoopers in the fourth quarter of 2024 compared to the fourth quarter of 2025. Excluding revenue from -- for return-to-service work performed on the Spanish Super Scoopers as part of our partnership agreement with MAB Funding, LLC, which was $0.8 million in the fourth quarter of 2025 and $5.1 million in the fourth quarter of 2024, revenue from ongoing operations, including FMS, was approximately $7.7 million compared to approximately $10.5 million in the fourth quarter of 2024. Cost of revenues was $14.1 million in the fourth quarter of 2025 and was comprised of flight operations expenses of $5.7 million and maintenance expenses of $8.4 million. This compares to $15.4 million in the fourth quarter of 2024, which included $5.8 million of flight operation expenses and $9.6 million of maintenance expenses. Cost of revenues associated with the return-to-service work on the Spanish Super Scoopers declined $4.2 million in the fourth quarter of 2025 compared to the fourth quarter of 2024. Selling, general and administrative expenses were $13.4 million in the fourth quarter of 2025 compared to $7.7 million in the fourth quarter of 2024, primarily reflecting an increase in the fair value of our warrants and an increase in earn-out consideration compared to the fourth quarter of 2024. Interest expense for the fourth quarter was $6 million compared to $5.9 million in the fourth quarter last year. Other income was $10 million in the fourth quarter of 2025 compared to $0.3 million in the fourth quarter of 2024. The increase was primarily attributable to a gain of $16.9 million related to the sale-leaseback transaction, partially offset by a loss of $7.8 million on the extinguishment of debt in conjunction with our debt refinancing in the fourth quarter of 2025. For the fourth quarter of 2025, we reported a net loss of $15.1 million or $0.40 per diluted share compared to a net loss of $12.8 million or $0.36 per diluted share in the fourth quarter of 2024. Adjusted EBITDA was negative $9.5 million in the fourth quarter compared to negative $2.9 million in the fourth quarter of 2024. A reconciliation of adjusted EBITDA to net loss is included in Exhibit A of our earnings release distributed earlier today. Looking at our results for the full year 2025. Revenue was $122.8 million compared to $98.6 million in 2025 -- 2024, a 25% increase. Excluding return-to-service work on the Spanish Super Scoopers, revenue was $108.8 million compared to $88.5 million in 2024, which was up 23%. Cost of revenues was $71.1 million comprised of flight operation expenses of $31.9 million and maintenance expenses of $39.2 million. Cost of revenues for 2024 was $57.5 million comprised of $31 million of flight operations expenses and maintenance expenses of $26.5 million. Cost of revenues for 2025 included an increase of approximately $5.4 million of expenses associated with the return-to-service work on the Spanish Super Scoopers compared to 2024. SG&A expenses were $36.3 million compared to $35.8 million in 2024, with the increase primarily driven by an increase in the fair value of our warrants partially offset by a decrease in noncash stock-based compensation expense. Interest expense for 2025 was $23.3 million compared to $23.7 million in 2024. We also reported other income of $11.8 million for 2025, inclusive of the gain of $16.9 million on the sale leaseback transaction, partially offset by the loss of $7.8 million on the extinguishment of debt. Other income was $2.1 million for 2024. Net income was $4.1 million in 2025 compared to a net loss of $15.6 million in 2024. Adjusted EBITDA was $45.3 million in 2025 compared to $37.3 million in 2024. Turning to the balance sheet. We ended 2025 with total cash and cash equivalents of $31.4 million. During the fourth quarter, we completed our previously announced sale-leaseback transaction with SR Aviation infrastructure for our Bozeman Yellowstone International Airport campus facilities. We also entered into a new senior secured facility for up to $331.5 million led by Bain Capital's private credit group. Together, these transactions were used to refinance Bridger's $160 million municipal bond with Gallatin County and consolidate the majority of our other existing debt. Most importantly, our new credit facility provides significant capacity and financial flexibility through a delayed draw facility of up to $100 million designed to fund future fleet expansion to support the economic growth we are pushing. Let me now turn the call over to Anne Hayes, our incoming CFO, to go over our 2026 guidance. Anne Hayes: Thanks, Eric. We are starting 2026 with the addition of 6 new aircraft on balance sheet. This consists of 2 previously leased PC-12 with contracts through 2027, 2 King Air multi-mission aircraft and the 2 Spanish scoopers purchased in December. These new assets, coupled with increased utilization on the existing aircraft, will help us achieve growth of over 25% from last year when excluding the 2025 return-to-service work in Spain. We are initiating 2026 guidance ranges of $135 million to $145 million for total revenues and $55 million to $60 million for adjusted EBITDA. The company also expects continued improvement in cash provided by operating activities in 2026 and positive net income. Company is evaluating several different international operating contracts for the 2 scoopers that we closed in December, which are currently stationed in Spain. The contribution from the scoopers and the 2 new MMA aircraft is expected to be roughly 10% to 15% of 2026 revenue at a approximate 40% EBITDA margin. While we've had a good start to the year with 2 scoopers and 2 Air Attack flying in late February, we expect to report a net loss in the first quarter due to the winter maintenance activity. With that, I'll turn it back to Sam for final comments. Sam Davis: Thank you, Anne and Eric. As we announced in November, Eric is officially retiring at the end of the month, and Anne is taking over the CFO role officially on March 10. I want to again express our gratitude to Eric for his financial leadership over the last 3.5 years and his dedication to building Bridger into the resilient and profitable company that it is. I also want to take the opportunity to say how excited we all are to welcome Anne Hayes officially as our new CFO, having joined us after serving as Audit Chair of our Board of Directors. She is ideally suited to lead us through our next chapter of growth and is clearly bought into the mission, evidenced by her step from Audit Chair to join the Bridger team. I also want to welcome Bill Andrews, our new Chief Operating Officer, announced earlier this week. He joined us most recently from Lockheed Martin as Vice President and Executive Program Manager for C-130s, C-5s and P-3s from development to support. As a U.S. Air Force and Air National Guard veteran for over 25 years, he served as an aircraft commander and C-130 evaluator pilot. We're privileged to have him join us both for his stellar career and his exemplary military service, which are an incredible fit for the Bridger mission. He has the right skill set to help grow Bridger into a robust and scalable organization. Having led multibillion-dollar programs at Lockheed Martin across aircraft delivery, upgrade, support and readiness initiatives, he is exactly who we need to grow our organization in size and year-round operation. This includes his experience supporting the C-130 MAFFS aerial firefighting aircraft for the California Air National Guard. We also see his unique service and support in the defense space as instrumental as we pursue additional opportunities adjacent to our firefighting missions. To recap 2025, we flew in 21 states. We provided support for 380 fires and dropped 7.3 million gallons of water. We had the earliest deployment in customer history with scoopers dispatching to the Palisades fire in California in January. Across the fleet, we flew record hours greater than 10% above 2024 in a relatively slow fire year. And when we came home from the field in November, we had maintained 96% uptime on contracts, had driven 125,000 miles in our support vehicles, and most notably, every Bridger employee came home safe. As we sit here today, 3 of Bridger's scoopers have completed winter maintenance and 2 of those are already responding to early season wildfire activity in Texas. One MMA is on contract in Oklahoma and one Air Attack is in Texas. Air Attack aircraft are on standby here in Bozeman, preparing work for early 2026. The remaining 3 scoopers are finishing up winter maintenance and should be ready over the course of the second quarter. Our staged winter maintenance program ensures we can provide flexibility within our fleet, utilize the excess capacity of our scoopers and deliver year-round readiness. Legislation and greater appropriations to prioritize preparedness, early detection and suppression are making a difference to how we fight wildfire, and Bridger is uniquely positioned to support our federal and state customers. As Anne stated, we are on track for another record year, supported by a much improved balance sheet with significant capacity and financial flexibility to fund future fleet expansion, drive organic growth and build on our long-term vision to innovate and deploy the most advanced technology in our industry and deliver on our mission to protect lives, property, critical infrastructure and the environment. Together, our team is ready to answer the call to serve year-round. We're excited for and positioned to make 2026 another incredible year. With that, I'd like to open up the call to the operator for any questions. Operator: [Operator Instructions] Our first question comes from Austin Moeller with Canaccord. Austin Moeller: So just my first question, I was going to ask about the appointment of Bill Andrews. Is the intent there for him to help build out the FMS business? Or does this potentially signal that you might buy like C-130s or other government aircraft after the recent legislation that permits that? Sam Davis: Yes. So primarily, Bill's focus is -- good to talk to you again, Austin. Thanks for the question. Primarily, Bill's focus is going to be on making sure that our fleet is deployed and ready to go year-round across the country and really focus on our operational excellence and build upon that. But it's more aligned with your first comment where we're looking at all of the expertise and the years of experience he has of leading very large programs, obviously, at a much different scale that he can bring that context into the Bridger family. And we're uniquely positioned, I think, with our integrated services to do defense work adjacent to the mission we're doing in firefighting with all of the services we have in-house and really taking the opportunity with the funding going on in the defense space and the work that we have in the team and have Bill help identify and lead the team to capitalize on some of that. There's a lot of appropriately sized work for us to do, both on modification, flight test and design to go after defense work and other smaller jobs that maybe the larger primes can't quite capture. And we have the quick ability to do turnkey solutions, and FMS is a key part of that. Austin Moeller: Okay. And can you give us any update on the return-to-service work for the second 2 Super Scoopers being worked on under MAB Funding and when they might be returned to service and you could potentially purchase and take ownership of those aircraft? Sam Davis: Yes. Great question. So I think last we left off, the third aircraft is quite near certification of airworthiness. And so there's a clear opportunity if we're focused on the first 2 getting firefighting work in Europe this year and then exploring potentially moving them even back to North America for fighting fire in the future. So the third is near completion, and that obviously makes that a much closer target for us from an acquisition perspective. The fourth is a little bit further out. We're sourcing parts and working to get that underway. That would probably be a little bit later in the year, if not toward the end of the year, that we would get that complete. But again, focusing on folding in the first 2 to doing firefighting, and 3 and fourth are a nice dovetail in to work that we find for the first pair. Austin Moeller: Okay. And just one more here. Can you speak to the potential contract opportunities in Europe, which ones you -- which countries you think are perhaps the highest probability that you could get deployed in advance of the fire season in Q2? Sam Davis: Yes. And I'll be as direct as I can be without being too speculative or leading here because we're in communication and negotiations. But the 2 leading countries, I would say, that have shown great interest in committing to the scoopers stationed in Spain would be Portugal and Turkey. We're working with our partner overseas in Europe, Avincis, that has helped us both on the return-to-service work and flight operations to pursue those countries with the economics we have in mind together as well as the mentality of the first come first serve basis as they get set up for the fire season. In terms of timing, the appropriations are a little bit later than ideal in Europe, not as quite as early as a commitment as you get in the U.S. So we're hoping to have something in line and defined by March or maybe end of April. So that's kind of the time line we're managing to. There are other countries that would be interested. They just haven't gone as far down their appropriation cycle as the first 2. Operator: [Operator Instructions] At this time, there are no further questions in queue. I will now turn the meeting back to Sam Davis for any additional or closing remarks. And my apologies. We actually did get an additional question. We'll move to Mark Williams with EmergingGrowth.com. Mark Williams: Great. Congratulations on another strong quarter. Just real quick, with the 2026 guidance removing the return-to-service revenue and profitability from that, how should we think about normalized EBITDA margins across core missions? And what will be driving the expansion forecasted? Sam Davis: Yes. Thanks, Mark, and appreciate you asking the question. I'll answer kind of the first part, and then I'll let Anne jump in if she can. We're focused on the expansion with the expanded capacity in the current fleet we have and capitalizing more on the margins with the core fleet, not including the return to service as you mentioned. So improving both the utilization, including the days and hours we have on contract for our scoopers and Air Attack aircraft in hand as well as the addition of 2 scoopers in Spain, which we're factoring in as well as 2 additional sensor-enhanced planes we -- will add to contract here shortly. And as everybody should know on the call, those sensor-enhanced planes have quite attractive margin versus nonsensor enhanced, so continuing to drive those margins up overall, an improvement. Anne, I don't know if there's anything else you want to add there. Anne Hayes: Yes. No. So we had -- in 2025, we had about $14 million in revenue from the return to service, so we're increasing 29% when excluding that in 2026. And as far as the margins, as Sam mentioned, our scoopers are generally over 40% adjusted EBITDA margin, and our newer MMA aircraft can be as high as 40% to 50% or above. So any aircraft that we're adding at this point are increasing EBITDA margins compared to the more simple Air Attack that did not have the sensors could have a lower EBITDA margin. Mark Williams: Okay. Great. And then along those lines, maintenance expenses increased in 2025 as aircraft were added. And with the addition of the new aircraft, how should we think about how expenses, maintenance expenses should scale with those aircraft? Sam Davis: Okay. I'll take the first part of this, Mark, again and then let Anne put some numbers behind it. But excluding, again, the return to service, we see -- we saw less of an increase in our cost of revenue as opposed to the revenue that we saw year-over-year and continue to see that as we set guidance for this year because we're seeing more economies of scale as the fleet grows and we become more efficient with spend. There were some additional costs -- variable costs that are associated with being deployed more and having more activities such as travel, obviously, wear and tear on aircraft and more of the maintenance intervals that we have to perform. However, it grows at a less of a rate than the revenue grows. So we're -- we have that factored into a more profitable gross profit this year with our core fleet and the aircraft that we're adding. Anne Hayes: Yes. I would just add that, in 2025, the aircraft maintenance did include that Spain return-to-service work, so we will see that decrease in 2026. And we are seeing margins, as mentioned earlier, with that decrease; and the high-margin aircraft, we are seeing margins increase. Mark Williams: Okay. Great. And then last question, just real quick. With the refinancing and the liquidity available under the DDTL that occurred this past year, do you see any need for additional funding throughout the next year or 2? Or especially bringing on the 2 new scoopers, I don't know if they were funded under the DDTL or part of other parts of that funding that -- how should we think about that? Sam Davis: Yes. So good question. The DDTL that we have in hand, which at close was $100 million, we built that around what we see for the next couple of years in terms of opportunity of aircraft that we could go out and add to contract and contribute the same as the fleet we have, which does include aircraft 3 and 4 scoped into that amount. So we don't yet foresee any problem of outpacing -- of our growth outpacing that from an aircraft acquisition perspective. We could obviously revisit that if the demand necessitated that many aircraft. But right now, including the aircraft we added at the end of the year, that was factored into the model at the time we closed it. And so we're on pace for that. And that, again, is a good outlook for us for the next couple of years. Eric Gerratt: Yes and just... Anne Hayes: And just to provide -- sorry. Go ahead. Eric Gerratt: Well, just real quick, Mark, just the other thing to add. So the purchase for the first 2 Spanish scoopers was included in the overall term loan. So we didn't tap the deferred draw facility for those. And to Sam's point, the 2 surveillance aircraft we added at the end of the year did come out of the DDTL facility, but there's still about $90 million left in it. So the first 2 Spanish scoopers came out of the term loan that's already on the balance sheet, and we still have, like I said, about $90 million of capacity on that deferred draw facility. Operator: There are no further questions at this time. I'd now like to turn it back to Sam Davis for any additional or closing remarks. Sam Davis: Thank you. Thanks again for joining our conference call today. We look forward to updating you on our progress when we report our Q1 results in May. If anyone has any follow-up questions, please reach out to our Investor Relations. Thanks, and have a good day. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good morning, everyone. Welcome to Maple Leaf Foods Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Omar Javed, Vice President of Investor Relations at Maple Leaf Foods. Please go ahead, Mr. Javed. Omar Javed: Thank you, and good morning, everyone. Before we begin, I would like to remind you that statements made on today's call may constitute forward-looking information, and our future results may differ materially from what we discuss. Please refer to our fourth quarter and full year 2025 MD&A and financial statements and other information on our website for a broader description of operations and risk factors that could affect the company's performance. We've also uploaded our fourth quarter and full year 2025 investor presentation to our website. As always, the Investor Relations team will be available after the call for any follow-up questions you may have. With that, I'll turn the call over to our President and CEO, Curtis Frank. Curtis Frank: Okay. Thank you, Omar, and good morning, everyone. Thank you for being with us here on our call today. Joining me this morning is our Chief Financial Officer, David Smales. After my opening remarks, Dave will walk through our financial results in a bit more detail. And then I'll come back to close the call. And of course, we will open the line to your questions. Before we begin, I want to take a moment to express my gratitude to all of our stakeholders for their continued support throughout our transformational journey. I also want to thank and acknowledge the Maple Leaf team for their dedication to delivering on our strategic blueprint with nothing short of excellence. The headline for today is that we have reached a clear inflection point. The heavy investment phase is behind us. We are now firmly in a delivery and return phase where our team is executing with focus, with discipline, and with care. We delivered a strong fourth quarter that capped off a year of significant financial progress in 2025. We delivered on our commitments, and we have strengthened the business in meaningful and durable ways. Most importantly, we are now seeing the tangible benefits of our transformation into a purpose-driven, protein-centric, and brand-led CPG company following the Canada Packers spin-off. Strong execution, brand leadership and the returns from our strategic investments are driving sustained growth, margin expansion, improving consistency and are positioning us for long-term value creation. We entered 2026 with operational momentum, a strong and healthy balance sheet and a sharper strategic focus. Our identity and our priorities are clearer than ever. Now let's begin today with unpacking our fourth quarter performance, a quarter of continued momentum in top line growth and growing adjusted EBITDA. We are executing against our 5 core growth platforms, which have proven resilient through difficult market conditions, leveraging our leadership in Sustainable Meats, investing in our portfolio of leading brands to grow consumer demand and loyalty, accelerating the pace of impactful innovation, expanding our geographic reach into the U.S. markets, and embedding Maple Leaf's unique and differentiated capabilities into our customer strategies. As a result, sales were $991 million in Q4, up 8.1% year-over-year, outpacing North American CPG and our competitive peer set. Performance in Q4 showed strength across both of our operating units. Prepared Foods grew 6.1%, driven by pricing and improved mix. We increased our Canadian branded market share in the quarter and branded volumes grew a clear sign of competitive strength. Poultry sales grew 13.1% in the quarter, driven by improved channel mix and volume growth across both retail and foodservice. Value-added poultry remains a structural growth engine with London Poultry, enabling sustainable mix improvements, and our Sustainable Meats business performed strongly including double-digit growth in our Prime Raised Without Antibiotics brand, helping us to expand our branded market share in the fresh poultry category this past quarter. Turning to profitability. Adjusted EBITDA was $117.3 million, up 8.3% with a margin of 11.8%, in line with last year, and an improvement sequentially from 11.1% in Q3. Input cost inflation in Prepared Foods remained elevated as we had anticipated. And while pricing actions have not yet fully recovered the inflation experienced by year-end, the path forward is clear, and our team is focused on executing the actions within our control. We implemented an inflation-based pass-through price increase in mid- to late February, which we expect will support the delivery of our outlook for this year. Apart from our financial performance, we also successfully navigated a major transformation. The spin-off of our pork operations into Canada Packers at the start of Q4 was 1 of the most significant portfolio transformations in our company's history. With this separation now complete, Maple Leaf Foods now operates as a protein-focused CPG with a clear vision to be the most sustainable protein company on earth. Our ongoing relationship with Canada Packers including a 16% ownership stake and an evergreen supply agreement securing high-quality, sustainably raised pork is functioning as designed. The focus gained through this separation allows us to concentrate resources on what we do best, build love and trust, innovate with discipline and operate an efficient, resilient supply chain at scale. Turning to the full year. While 2025 was certainly not without its challenges, we are pleased with the meaningful progress we delivered against our commitments. First, we committed to and delivered strong revenue growth. Sales were $3.9 billion for the full year, up 7.7%, reflecting industry-leading performance driven by our proven growth platforms, leading in Sustainable Meats, brand investment, innovation, U.S. expansion, deeper customer integration and continued support from structural demand for protein. We launched more than 50 impactful innovations, including 2 new brands: Musafir and Mighty Protein, both of which are tracking to plan. Our brand presence extended beyond the shelf, including the Look for the Leaf campaign, our partnership with Schneiders and the Toronto Blue Jays and our latest Team Canada Olympic program, which I will return to shortly. Second, we had committed to and delivered adjusted EBITDA growth and expanded our structural margin. Here too, we showed significant progress in 2025. Adjusted EBITDA was $476 million, up 21% and adjusted EBITDA margins expanded 140 basis points to 12.2%. We delivered $83 million of EBITDA growth through improved mix, operating efficiency, capital project benefits and our Fuel for Growth initiatives. Third, we are committed to strengthening the balance sheet. We reduced leverage to 2.1x at year-end, firmly within our investment-grade range while maintaining discipline in capital expenditures. This balance sheet strength enabled enhanced shareholder returns. We increased the annual dividend by 9%, repurchased approximately 700,000 shares under the NCIB, and paid a $0.60 per share dividend, totaling approximately $75 million. That special dividend marked a clear transition from deleveraging to a balanced investor-friendly focused capital allocation strategy, supporting both growth investment and shareholder returns. To put a fine point on it, disciplined execution defined 2025 and that same discipline will guide us through 2026. Our priorities for 2026 are clear. First, to continue to scale the core business, driving sustainable volume and revenue growth through our proven growth platforms; second, to expand our structural margins, growing profit faster than sales through mix improvement, productivity and structural cost reduction as well as pricing to recover the inflationary impacts we felt in the back half of 2025; and third, to continue to demonstrate smart and disciplined capital allocation, acting as prudent stewards of capital and prioritizing long-term value creation. In January, we provided our 2026 outlook, reflecting confidence in sustaining our operational momentum and strategic focus. To recap, our 2026 outlook is as follows: We expect mid-single-digit revenue growth from 2025. We expect adjusted EBITDA of approximately $520 million to $540 million, driven by revenue growth and margin improvement. We expect to maintain leverage below 3x, supported by strong free cash flow and prudent capital allocation. We expect capital investments of approximately $160 million to $180 million, focused on maintenance and productivity. We expect annual dividend growth of approximately 10% based on an increase in the quarterly dividend from $0.19 to $0.21 per share marking the 11th consecutive year of an annual dividend increase, and we intend to file a notice of intention with the TSX to renew the NCIB in Q1 of 2026. All to say, we remain highly optimistic about our future and at our Investor Day next week on March 10, we will provide deeper insight into our strategic blueprint, our execution playbook and showcase the strength of our leadership team that will drive long-term value creation across our business. Before I conclude, I want to come back to the Team Canada Olympic partnership, which embodied our spirit of competition. As Team Canada's official protein partner, which started last month at Milano Cortina, for the 2026 Olympic Winter Games, and we'll continue through the Los Angeles 2028 Olympic Summer Games. We are aligning our protein brands with the foundation of everyday performance, whether the day starts at work, at school or in training. The program is showcasing Maple Leaf, Maple Leaf Prime, Maple Leaf Natural Selections and Maple Leaf Mighty Protein in partnerships with Team Canada athletes serving as yet another example of strengthening our consumer connection at scale, while connecting the Maple Leaf brand to moments where Canadians come together. With that, I will now turn the call over to Dave to walk you through some additional financial context. Dave? David Smales: Thank you, Curtis, and good morning, everyone. Today, I'll comment on results for the fourth quarter and the full year before turning to the balance sheet and outlook for 2026. Overall, the key financial takeaway from 2025 is that achieving another year of profitable growth and strong free cash flow led to a further reduction in balance sheet leverage to well within our targeted range, and in turn, gives us the flexibility to increase the return on capital to shareholders. Turning to our results. Sales in the fourth quarter were $991 million, an increase of 8.1% compared to last year. This exceptional level of growth was driven by both Poultry and Prepared Foods, which grew by 13.1% and 6.1%, respectively. In Poultry, sales increased compared to the same quarter a year ago due to improved channel mix with growth in both retail and foodservice volume as well as pricing impacts. Prepared Foods sales growth was driven by a combination of inflationary pricing taken earlier in the year, along with improved product mix in the quarter. For the full year, sales were $3.91 billion, an increase of 7.7% over 2024. Prepared Foods and Poultry both contributed to this increase, driven by similar factors to those that drove our fourth quarter sales performance. Adjusted EBITDA of $117 million in the quarter increased by 8% versus the fourth quarter of last year, with an adjusted EBITDA margin of 11.8%, which was in line with last year. Increased profitability was primarily driven by favorable Poultry mix tied to retail and foodservice volume growth as well as improved operating efficiencies. These improvements were partially offset by input cost inflation in Prepared Foods, which was a headwind to further margin expansion, although sequentially, adjusted EBITDA margin improved 70 basis points from the third quarter. We have implemented pass-through price increases in the first quarter of 2026 to recover the impacts of inflation. For the full year, adjusted EBITDA increased by 21% to $476 million, representing an adjusted EBITDA margin of 12.2%, an increase of 140 basis points over 2024. Full year profitability improved in both Poultry and Prepared Foods, driven by similar factors to the fourth quarter, but also included a full year of benefits from the investments in London Poultry and Bacon Centre of Excellence. SG&A increased by $3 million in the fourth quarter over the prior year, mainly driven by the impact of variable compensation. For the full year, SG&A was up by $6 million with the impact of higher variable compensation and advertising and promotional expenses, partially offset by a high level of consulting fees that were incurred in 2024. Earnings were $391.2 million for the quarter or $3.14 per basic share compared to earnings of $53.5 million or $0.43 per basic share last year. The increase in earnings for the quarter was driven by strong operating performance and also includes the impact of 3 significant onetime items; a gain from the spin-off of the company's pork operations, a noncash impairment charge related to plant protein intangible assets, and a noncash settlement gain on a pension annuity purchase. After removing the impact of the noncash fair value changes in derivative contracts, start-up and restructuring costs, items included in other expense that are not representative of ongoing operations, and the impact of the 3 onetime items just noted, adjusted earnings represented $0.32 per share for the quarter compared to $0.18 per share in the fourth quarter of 2024. Earnings for the full year were $541.6 million or $4.36 per basic share compared to earnings of $96.6 million or $0.79 per basic share in 2024. Full year adjusted earnings were $1.09 per share compared to $0.15 per share in 2024. Capital expenditures totaled $126 million for the year compared to $94 million in 2024. The increase was mainly due to increased spend on maintenance projects. Looking ahead to 2026, we expect capital investments in the range of $160 million to $180 million, with spend focused on maintenance and productivity enhancement initiatives. Free cash flow generation remains strong with $70 million of free cash flow generated in the quarter and $318 million generated in fiscal 2025. This strong free cash flow generation was reflected on the balance sheet, which along with the repayment of $389 million of debt upon closing of the Canada Packers spin-off on October 1, resulted in net debt ending the year down by $521 million versus a year ago to $995 million. This is down nearly 50% from a peak level of $1.8 billion during our large capital project investment phase. In line with our stated capital allocation priorities, our leverage ratio remains well within an investment-grade range with a net debt to trailing 12 months adjusted EBITDA ratio of 2.1x at the end of the quarter, in line with 2x at the end of the third quarter and down from 2.7x a year ago. With strong free cash flow generation and an investment-grade balance sheet, we now have the flexibility to take a more balanced approach to capital allocation with 2025 seeing an increasing return of capital to shareholders through payment of a fourth quarter special cash dividend of $75 million or $0.60 per share, executing on our NCIB to repurchase approximately 0.7 million shares, and increasing our annual dividend at the start of 2025 by approximately 9%, and a further 10% for 2026. Our 2026 guidance reflects confidence in the growth potential of the business, and we expect to deliver mid-single-digit revenue growth and adjusted EBITDA in the range of $520 million to $540 million. I'll now turn the call back to Curtis. Curtis Frank: Okay. Thanks, Dave. Let me step back for a moment. Over the past several years, we have made significant investments to transform Maple Leaf Foods, investing more than $2 billion in world-class assets, strengthening our brands, simplifying the portfolio and building a more resilient operating model. That heavy investment phase is complete. And today, we are harvesting the benefits. We are a more focused protein CPG company with structurally stronger margins, materially lower leverage and consistent free cash flow generation. In 2025, we expanded margins by 140 basis points, reduced net debt by over $500 million and transitioned from a period of balance sheet deleveraging to balanced capital return. That's not a cyclical improvement. That's a structural one. And as we look to 2026, the strategic blueprint is clear: scale the core, expand our margins, and allocate capital with discipline. We entered this year with momentum, financial flexibility and a sharper strategic focus more so than any point in recent memory. The team is executing, and we are confident in our ability to deliver sustained profitable growth and long-term shareholder value creation. Operator, with that, we can now open the line to questions, please. Operator: [Operator Instructions] Your first question comes from Luke Hannan with Canaccord Genuity. Luke Hannan: I wanted to unpack if we could, the Poultry performance during the quarter. So you put up very strong results there, top line growth there in Q3. That seems to have extended now into Q4 as well. So I'm just curious to find out what the key drivers were, if those have changed at all? And maybe a little bit more specifically, if the volume growth was felt a little bit more in retail versus foodservice? Curtis Frank: Okay. Great. Luke, thanks for your question. Yes, we had a very solid quarter again in the Poultry business. Revenues were up just over 13%. And really, that's quite in line with a very solid full year. I think we're up a little over 10% from a revenue perspective in the Poultry business over the course of the full year. I would describe that as the real value of London shining through. And practically, that allows us to take increased allocations from supply management and get them into more and more value-added sales -- convert them into more and more value-added sales. Within Q4, our retail volume, to your point, was up significantly on the volume side, a little over 10% actually. So that was positive. It was led by our Prime Raised Without Antibiotics brand and our Mina halal brand. So we had a very positive quarter from a retail perspective. And foodservice also grew volume in the double-digit range as well. So the ability to get more value-added poultry into more value-added channels was certainly a positive for our quarter on the Poultry side. We also grew our branded market share, I think, around 1.7 share points in the quarter, which was positive as well. So it was a good strong quarter, but also a great year in the Poultry business, and we expect to be able to sustain that and carry that forward into next year as well. Luke Hannan: That's great. And then for my follow-up here, you did touch on the pricing actions that you took in mid-February. Have you seen any volumetric response to those price increases that's outside of what you would have expected from the consumer? And then also at this point, are the price increases that you intended to pass through, have those fully been implemented at this point? Curtis Frank: Yes, we've passed through the pricing in and around mid-February. So we'll get a partial impact of that within the quarter here. A little early, Luke, to determine the volume response. We're only 3, 4 weeks into the execution mode here. So I think it would be a little bit early to draw any conclusions on the volume side. I haven't seen anything abnormal to be clear. But I just think it's a little bit soon from a consumer perspective in terms of getting a view of the response to the pricing that's in the market today. Operator: Your next question comes from Irene Nattel with RBC Capital Markets. Irene Nattel: Curtis, I was wondering if you could expand a little bit on what you're seeing, more broadly speaking, in terms of consumer behavior, seeing sort of the premium end of your product mix seeing volume gains. So what are you seeing across the portfolio? And where are you seeing sort of the most pressure points and the greatest upside? Curtis Frank: Yes. Thanks, Irene. I continue to describe -- I use this word frequently, the consumer environment is quite stable. That doesn't mean it's certainly not optimized and the consumer continues to be under pretty significant stress. I mean there's even events unfolding in real time in the world that I think have the potential to add even more stress or different stress from the consumer side. So I'm cautiously optimistic, but I think stability can also be a good thing. We are seeing more of a flight to value from a consumer perspective than we have seen in previous years. Again, that environment is stable. They're buying more certainly on promotion. So we have to be really sharp from a revenue management point of view in terms of optimizing our offer to the consumer. I think protein has proven to be pretty resilient inside of that, Irene. And I really like the combination of how our growth strategies, whether it be U.S. Sustainable Meats, the work we're doing in our brands, bringing new brands to market, aligning to our customer strategies. We don't necessarily -- and we're not perfect in any every one of those in any given quarter. But the way that our growth strategies are working in combination, I think, has proven to be pretty effective for us over the course of the last year. And if you look at our outlook for 2026, we do expect that to continue as well. So I think the headline consumer-wise would be stable, still under material stress, looking for value and a lot of shopping on promotion, and we're finding ways within protein to meet their needs today. Irene Nattel: That's great. And then you just mentioned the new brands. What has been the consumer response to the brands that you recently launched? Curtis Frank: Yes, it's been positive. I mean one of the things we're proud of inside of the company is the ability to incubate and build brands over the course of time. If you think about Greenfield Natural Meat Company is a great example. What we did in our halal business with our Mina brand is a great example. And now these 2 new brand launches in Musafir and Mighty Protein . And Mighty Protein in particular, is going really well, maybe a little bit running ahead of what we would have planned. So that's been really positive in terms of the response. Musafir probably on track to what we would have expected early on. But in brand building, Irene, as you know, this is very early innings. The products haven't been in market all that long, certainly not a full year yet. And they're helpful to our results, but we should be cautious on the materiality of that help. But they are one of the many reasons that we believe we can deliver the outlook we have for next year, which is somewhere in the mid-single-digit revenue growth arena. Operator: Your next question comes from John Zamparo. John Zamparo: I wanted to ask about promo spending, and it sounds like Maple Leaf is generating a healthy return on these investments. So I wonder how you expect that to evolve in '26? And are there any products or categories where this has seen outsized investments and anything worth noting in terms of seasonality for this year? Curtis Frank: I don't think anything abnormal in terms of seasonality outside of what you would have seen in historical years. So I think a more normalized environment there. If your question, John, is around more promotional intensity? From that perspective, I mean, we have seen early on, as we passed through inflation last year, Poultry and Sustainable Meats in particular was affected quite significantly. And we've seen a good recovery there, modest. Again, I don't think we're optimized. But the fact that we're growing our Prime Raised Without Antibiotics market share, which is the premium branded player in the Poultry category, I think, is a good sign of, again, stability in the category. So I like that that's materializing. I always say that we operate at the premium end of our category for sure, and we've built that premiumness into our business over the course of time. But we don't operate in premium categories necessarily. We offer good value to the consumer. And when you think about categories like poultry, which is a great example of consumer staple, I think that's given us a lot of resiliency. So similar comments to what I shared earlier, we're seeing lots of resiliency in our portfolio, and we're not yet optimized in terms of the consumer environment. And we're hopeful or optimistic that over the course of time, that will provide some level of help, but unclear exactly how and when that will unfold. John Zamparo: Okay. That's helpful. And then on the plant side of the business, has there been any evolution on the thinking behind this, particularly in light of the recent write-down? Does management feel it needs to be in this category still? And is there anything you could say about EBITDA generation or margins in that category? Curtis Frank: Yes. We're going to -- I'll let Dave offer a couple of comments if he's got anything extra to share, but we're going to unpack that a little bit more next week at our Investor Day. So I think hold tight on that answer to that question, because I do think there's a longer-term story to be shared around plant protein. But the punchline is, we continue to be of the view that there's a pathway to profitable growth. We should always keep in mind that it's less than 5% of the revenue in the enterprise today. And I, at this stage, view it more as an upside opportunity than anything else, because we have stability in the earnings profile of the business today. And we have upside potential in terms of reaching, call it, portfolio average margins in the Plant Protein business, which I'm very confident that we have a pathway to deliver, and we'll share some more details around that next week. Dave, anything you would add or anything I missed in that? David Smales: No, I don't think so other than we see it as a very relevant long-term category within the broader demand for healthy protein. And so nothing's changed in terms of our view of the relevance of the plant protein business to our overall portfolio. Operator: Your next question comes from Mark Petrie. Mark Petrie: Just a couple of follow-ups, I guess, on topics you've covered already. But clearly, mix is helping you guys. I know it's moved around and you've been able to leverage London Poultry specifically. But where would you say you are in the evolution of mix and the specific levers you have at your disposal to try and move that in your favor? And how should we think about mix as an impact in 2026? Curtis Frank: Well, the outcome in mix was a positive one inside of the core. It was kind of the core driver of our revenue growth. So it's been very positive. We still think we have room in 2026. And again, you see that in our outlook in terms of what we've provided in terms of the revenue growth and the EBITDA margin expansion for next year, and mix will play certainly a role in that as well. I talked earlier about the Poultry benefits, which we're quite pleased with. But I would also note, in Q4, I think an important part of our story is the fact that our branded volumes in Prepared Foods grew in the 4% to 5% range. So when you get a volume growth of 4% to 5% inside of a quarter in our core brands, that's very positive to our mix. And again, proof that our brands have proven to be resilient in the most difficult market conditions here. So I view mix as a positive driver in the near term, and I think there's more to play out looking forward as well, Mark, particularly as the consumer environment continues to normalize here to a certain extent. Mark Petrie: Yes. Fair enough. Okay. And then on the last call, you sort of went through some of the tools that you have available to you as you try to sort of manage volatility in pricing and costs following the spin-off. I'm not sure if you're able to, but is there an update on those? And I guess, specifically, your price mechanisms and your approach to hedging were 2 that were sort of in the works, I guess, so to speak. I'm curious if there's an update on those? Curtis Frank: Yes. Nothing material. Again, Dave can add any color to this, that might be helpful. Nothing material. I mean those instruments, physical hedges, financial hedges, pricing mechanisms, the utilization of inventory, meaning physical hedge are things we constantly review for optimization, I think, would probably be the right way to describe it. In our business, there's no silver bullet for managing risk, but the combination of those tools can be helpful in stabilizing earnings to the best of our ability. I mean we don't give quarterly guidance for a very specific reason, which is we expect some level of normal CPG food change quarter-to-quarter in our margin structure, and we try our best with those instruments to smooth the outcomes the best we can. But again, there's no silver bullet. We've been reviewing them from day 1 or before day 1 of the separation, and we'll continue to do that moving forward. But Dave, is there anything you'd add? David Smales: No, I think the key comment was there's no silver bullet or step change. It's just a question of ongoing optimization of our approach and things we can do to offset in the short term. But we'll still be operating in an environment where there's time lags in terms of passing on pricing. But everything we can do in and around that is what we're focused on. And it's something that won't change going forward in terms of our focus, but don't expect an ability for us to come and say we've taken all volatility out of the business and you'll never see any change in margin from quarter-to-quarter that isn't ultimately realistic, but we'll continue to work away at managing any variance in input costs, et cetera, as much as we can in the short term. Operator: Your next question comes from Vishal Shreedhar with National Bank. Vishal Shreedhar: Related to the margins, my understanding was that there could have been some sequential pressure on margins quarter-over-quarter [Audio Gap] quite resilient. I want your perspective on that. Is there some fuel from growth initiatives helping? Or is that just that quarter-to-quarter volatility that you referred to? Curtis Frank: Vishal, sorry, you cut out a little bit there in your question. Were you asking about from Q3 to Q4, the kind of change in margin and whether it was in line with what we would have expected? Vishal Shreedhar: Correct. It appeared to be a bit more resilient than I would have anticipated given the commodity pressure which I anticipated. Curtis Frank: Yes. Well, we saw -- I think the big thing is, you saw a seasonal decline in input costs, seasonal, Q3 to Q4. That's quite normal in our business. I wouldn't say it's perfect, but quite normal to see a seasonal decline, but still elevated year-over-year. So really important to put that in context. Seasonal decline in raw material input costs, meat costs predominantly, but still elevated year-over-year, which drives the need for the pricing change we've made. The big story, though, was the mix improvement year-over-year, and that's where the positive resiliency came from. What I commented on in the Poultry business earlier, more retail and foodservice sales and the 4% to 5% branded volume growth in the Prepared Meats side. Those were really a positive and mitigated some of those challenges. That, along with the work we put in place in our Fuel for Growth kind of cost playbook initiatives, those 2 things were positive. The inflationary environment was a headwind. And all in all, we made a decent sequential improvement quarter-over-quarter. Vishal Shreedhar: Okay. And looking at your 2026 outlook, you talked about some of your branded volumes growing in kind of mid-single digits, and you're expecting that kind of revenue growth, but you've also taken pricing. So is the takeaway that you expect the volume growth to slow through 2026 and pricing to be the majority driver of revenue? Curtis Frank: Well, pricing will play a role. I don't think I can break it out perfectly, but I expect a positive contribution next year from price for certain, because we'll be advancing our pricing early in the year from volume, maybe to a lesser -- 4% or 5% volumetric growth in a quarter is positive, but I don't know that, that's the sustainable long-term view that you should take. And I think that's running maybe a little bit hot from an overall portfolio perspective. And I also expect mix to be positive again next year. So I think we can think about it as a relatively balanced combination of mix of volume and a price-led growth for 2026. Vishal Shreedhar: Okay. And I just wanted to get your take on industry growth currently, not necessarily MFI growth, but industry growth in the categories that you participate in versus the longer term. This increased demand for protein from consumers, are you seeing that play out in the industry? And is that a factor that you'd anticipate as well to benefit your 2026? Can you give us some context around how strong that demand is? Curtis Frank: Yes. I can. Yes. Thanks, Vishal. On the revenue side, the consumer packaged goods revenues in North America are growing depending whether it's Canada or the U.S., but they're in the 2% to 3% range in North American consumer packaged goods broadly as an industry. If you narrow that down to poultry, and we track -- the best way I could describe that to you is in peer comps, there are 4 we track really closely. And that's probably running a little bit maybe around double that rate, 4%, 5%. So 2% to 3% CPG, 4% to 5% in our protein peers. And then our revenue in the last 12 months running at 7.7%, so ahead of that. So protein outgrowing CPG, Maple Leaf outgrowing protein, I think, would be the headline. Operator: Your next question comes from Etienne Ricard. Etienne Ricard: You've talked multiple times about expanding your reach in the U.S. market with, I believe, about a dozen products on the shelves currently. How have you been able to gain traction in this market? And would you say it will be easier to move from a dozen products to, let's say, 20? Curtis Frank: Well, that's what I always tell my commercial team. I always describe it as getting the first 12 in a new market is an incredible feat, very, very difficult. You need to have a meaningful point of difference to enter a new market. We have that in our Sustainable Meats business. I need to establish a trust and credibility with customers. That's everything from relationships to supply chain and so on. So those are foundational. But once you have the first 12, at least in theory, it's easier to scale from 12 to 20 than it is from 0 to 12. So we have those relationships in place. We have the platform in the U.S. We've got a great team of people on the ground in Chicago, an office and innovation center, a portfolio of great products in both meat and plant protein. So I'm confident in our ability over the next few years. And again, we'll be talking about this next week at our Investor Day in our ability to continue to scale up our U.S. platform at a reasonable pace that will contribute to long-term growth in the company. Etienne Ricard: Okay. Looking forward to it. And just to circle back on the new products that you've introduced recently, how long does it typically take for these to reach profitability levels that are similar to company average? Curtis Frank: It depends. There isn't a golden rule in that area. And it depends on things like -- some are accretive from day 1, some take a little longer. The marketing investment plays a role in that. The manufacturing footprint plays a role in that, internal, external scalability of volumes, all those factors. So I don't think there's a golden rule. But certainly, we would expect, within the first 12 months or so, for the innovations to be running at portfolio average or accretive margins to the balance of the portfolio. Operator: [Operator Instructions] Your next question comes from Michael Van Aelst. Michael Van Aelst: I might have missed it earlier, but I was impressed by the double-digit growth in RWA Prime on the poultry side. But it kind of conflicts with your comments on the stressed consumer. So can you kind of explain what you think is happening with the consumer when it comes to RWA Prime? Because we know that consumers traded down and away from that when the stress started to increase. What are you doing to get it to come back? Curtis Frank: Yes. We're seeing a real bifurcation in the market. I mean it started to show up first in the U.S. data, and it's finding its way in the Canadian market as well to a certain extent. But when we say the consumer is under stress, and I believe that's true, and we definitely see that in our business, Mike, there are places where we've shown more resiliency than others. Poultry is a great example of that. I mean it's the most consumed protein. It's the fastest-growing meat protein. It's a staple in the consumer diet. And I think largely consumers care about the offering that they're putting into their bodies. And what we offer in our Prime Raised Without Antibiotics portfolio is a strong proposition. Our market share in branded poultry is nearly -- it's 15x to 20x, Mike, our next branded competitor, 15x to 20x. So we have a market positioning that I think is admirable, and we've been able to capitalize on that. So it's not something we take for granted. We work hard to earn that right in the Poultry business. But at the same time, it is one pocket of really great news in a tough consumer environment. Michael Van Aelst: Yes, that's interesting. And then on your price increases, I know you said you implemented them mid-February roughly. I don't know if that was a little delayed from original expectations by a few weeks or not. But can you just talk about whether you were able to get the full price increase you were expecting given how much the retailers have been pushing back on suppliers in general? Curtis Frank: Yes. I mean I'm not going to comment on any specific customer relationship. I don't think that's appropriate. But at the end of the day, yes, we implemented our pricing in the quarter. And how much of that sticks, I think, will be more consumer. The stickiness of that pricing will be more about optimizing the offer to the consumer than anything else, and balancing price mix and volume here looking forward. And again, I said it earlier, 2 or 3 weeks later isn't the time to evaluate the consumer response. It's too soon, 2, 3, 4 weeks. But we'll see how that unfolds here in the coming months. It's normal, as you know, in our business, Mike, you've been around our story for a long time to see some consumer response in the near term following pricing to volume. That's a normative bit of a drop-off in volume following pricing. A little period of time goes, you get the volume and the market share back. I think we've had a pretty -- you continue to use the word resilient response in the last 24 months, but we're being mindful of and watching closely what the volumetric response is. And I do expect some period of adjustment like there normally is, but we'll see how that plays out here in the next little while. Michael Van Aelst: Does the volume growth that you talked about for brand volumes of 4% to 5%, poultry volumes strong, does that give you any maybe confidence that you might be a little bit more resilient to a volume reaction this time or at least a negative volume reaction to the price increase? Curtis Frank: It could be. I hope that's the case, but we'll watch it very closely. I think we'll watch it very closely. And I hope that's the case. Operator: Your next question comes from Mark Petrie. Mark Petrie: I want to follow up, and I understand there are constraints on your ability to buy back stock as a result of the spin-off and the shareholder agreement. But just in terms of setting expectations, how should investors think about the targeted pace of buybacks for 2026? Curtis Frank: David, do you want to do it? David Smales: Yes. So our intention is to renew the NCIB looking forward over the next 12 months, and to be active with the NCIB. We'll talk a little bit more next week about capital allocation priorities and where the NCIB fits into that. But we expect to be active in buying back shares over the next 12 months. Mark Petrie: Can we look at the activity in Q4 as an appropriate sort of run rate level? David Smales: Yes. I don't want to set expectations that this is going to be a consistent run rate based on any one particular quarter. As I said, we'll talk a little bit more about it next week, but we have been active. We still think the share price is fundamentally not reflecting the underlying value of the business. And that's why we'll continue to be active -- within the constraints you noted in your question, we'll continue to be active in buying back shares. Operator: Your next question comes from Irene Nattel. Irene Nattel: I just wanted to follow up on the comment you made earlier on in the call, Curtis. On the Poultry side, you said that the investments in London Poultry have allowed you to take increased allocations from supply management and convert them to more value-added sales. And I'm wondering how easy or not it is to do that, and what we should be expecting on that front as we move through '26 and beyond? Curtis Frank: Well, the big benefit or one of the big benefits, Irene, that London Poultry gave us, as you know, we consolidated 4 plants into one. And the previous network didn't have the capacity or the capabilities. In some cases, it was maybe wet chilled chicken versus air chilled chicken, different format, didn't have the capacity or the capabilities to convert all of our raw material into a premium air-chilled chicken. And London increased the capacity to process chicken into more tray pack, so retail tray pack out of industrial, out of the low-margin industrial channel and into the higher-margin tray pack retail channel, more value-added sales. So we see stronger consumer demand for poultry. Poultry demand is growing. Allocations for poultry that are set through supply management are growing in response to that higher demand. And our ability to take those higher allocations and get them into a value-added tray is secured by London Poultry. And that makes us, I think, distinctive and unique in the marketplace. From a competitive position, I think it's a structural competitive advantage to be able to do that. And it's one of the reasons, again, why we had such a strong year, and we think we'll have a solid year in 2026 as well. Irene Nattel: I appreciate that. But to clarify, and I apologize if I don't know this already, but if there's an increase in the allocation from the supply management, can you take larger than your pro rata share of that increase in allocation? Curtis Frank: No, no. No. So then it's just a question of whether or not every participant can take that higher allocation and process it into the highest value areas that they would prefer to, and we can. Irene Nattel: Okay. So you can do what you want with the increased allocation, but you can't take more than your pro rata share? Curtis Frank: Roughly correct. Yes. Operator: There are no further questions at this time. I will now turn the call over to Mr. Frank for closing remarks. Curtis Frank: Okay. Great. Thank you, everyone, for joining us today. We had certainly what we view as a strong Q4 that capped off a year of material progress in 2025. Our sales grew at 7.7%, our adjusted EBITDA at 21% and our margin by 140 basis points to 12.2%. So it was a year that I think our people and our stakeholders can be pleased with and proud of. That said, our work is not yet done, and our 2026 outlook certainly reflects that, another material step forward in executing our strategic blueprint. And of course, we have our Investor Day next week. So I put in a plug that I hope all of you will be joining us and where we aim to unpack our strategic blueprint of the future. So looking forward to the discussion next week, and thank you very much for joining us here today. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Cary Savas: Good afternoon, everyone. Welcome to Grid Dynamics Fourth Quarter 2025 Earnings Conference Call. I'm Cary Savas, Director of Branding and Communications. [Operator Instructions] Joining us on the call today are CEO, Leonard Livschitz; CFO, Anil Doradla; CTO, Eugene Steinberg, COO, Yury Gryzlov; and SVP, Head of Americas, Vasily Sizov. Following the prepared remarks, we will open the call to your questions. Please note that today's conference call is being recorded. Before we begin, I would like to remind everyone that today's discussion will contain forward-looking statements. This includes our business and financial outlook and the answers to some of your questions. Such statements are subject to the risks and uncertainty as described in the company's earnings release and other filings with the SEC. During this call, we will discuss certain non-GAAP measures of our performance. GAAP to non-GAAP financial reconciliations and supplemental financial information are provided in the earnings press release and the 8-K filed with the SEC. You can find all the information I just described in the Investor Relations section of our website. I'll now turn the call over to Leonard, our CEO. Leonard Livschitz: Thank you, Cary. Good afternoon, everyone, and thank you for joining us today. I'm delighted to share that Grid Dynamics closed 2025 with another landmark performance. In the fourth quarter, we beat Wall Street expectations on both revenue and EBITDA delivering record revenue of $106.2 million and a strong $13.7 million in non-GAAP EBITDA. Remarkably, we finished the full year with a record revenue of $411.8 million, which is 17.5% growth year-over-year. 2025 non-GAAP EBITDA was $53.8 million. In Q4, our top 3 customers included two global technology companies and the largest payment technology company. All of them are leaders in the AI space. Our performance is a result of our AI expertise, the strength of our accelerators and keen domain knowledge. In Q4, our AI revenue grew 9% over Q3 and now represents 25% of our overall revenue. For the full 2025, our AI revenue reached over $90 million, representing 30% year-over-year growth. In 2026, we anticipate continued AI revenue growth. There are three key factors driving our bullish outlook on AI. First, AI coding agents and automation, significant enterprises build versus buy calculus that were built at a lower cost. The shift aligns with Grid Dynamics core strengths in building solutions for Fortune 1000 companies, leveraging specialized talent and intellectual property. Second, our efforts with GAIN are resulting in a richer blend of outcome and output-based engagements. Crucially, these new engagements enable us to decouple pricing from effort. We have successfully deployed software platforms across multiple industry verticals. Our AI engagements now strategically combine the strength of our human capital with the value of our platform assets. The market reception for these software platforms has been strong, with customer demonstrating a clear willingness to pay. This positions us well to grow recurring revenue, deepen customer retention and extend the duration of our engagements. Grid Dynamics engagement structure will contribute to our 2026 margin expansion. Third, the speed of AI transformation is not uniform across industry verticals. While we continue to generate revenue from the retail and CPG verticals, we prioritize investments in the area of technology, financial services and manufacturing, where we see significant opportunities for customized auditable product-grade agentic AI platform. Let me talk about Grid Dynamics vertical strengths. Enterprise are learning that deploying AI at scale requires deep domain expertise. We cannot build an effective Agentic system for a production floor without understanding manufacturer. You cannot build one for a global permit network without understanding the compliance architecture. Such expertise is what we have been building vertical by vertical for nearly 2 decades. Now we're codifying it into platforms. Our Merchandising Experience Platform, MXP, brings our expertise to marketplaces and digital commerce. XTDB, our bitemporal Data Platform helps financial clients, specifically in capital markets with auditability and other compliance challenges. Platforms unlock IP-driven outcome-based engagements, and that's how Grid Dynamics moves from billing for effort to billing for value. Now let's talk about partnerships. Our partner influence revenue reached a significant milestone in 2025, exceeding 19% of our total revenue. So significant growth underscores our mission to keep Grid Dynamics at the forefront of modern enterprise infrastructure. We have strengthened our relationship with all hyperscalers through targeted investments in Agentic platform capabilities, earning specialized badges and building new joint solutions. Notably, in December, we signed a strategic collaboration agreement with AWS for data foundations in AI. Our premier partnership enables Grid Dynamics to receive funding from AWS to support AI enterprise initiatives. Our collaboration with NVIDIA on Omniverse based solutions is enabling us to deliver high fidelity industrial-grade digital twins that are essential for our physical AI expansion. In the fourth quarter, our vertical execution is best illustrated by several notable projects. Fintech transformation. We partner with a global financial leader to launch a proprietary generative AI agent supporting more than 10,000 financial advisers. This interactive experience replaces static policies with personalized guidance as is projected to increase productivity by about 20%. TMT Analytics. For a global technology enterprise, we modernized a legacy mobility application into a scalable analytics platform providing centralized visibility into global travel activity and spend. The platform has materially improved usability, increased feature velocity and reduced stakeholder coordination overhead. Dispute management. We developed a comprehensive dispute management solution for a leading financial services firm. By integrating Generative AI, the platform streamlines charge-back challenges, increasing win rate and reducing operational overhead. Financial governance. At a leading U.S.-based global bank, we're building a global agent runtime and AI orchestration platform, enabling business-focused agent to automate complex workforce starting with successful automation in internal compliance. We also deployed the AI-driven executive insight capabilities that provide leadership with consolidated global operational summaries. With that, let me turn the call over to Eugene Steinberg, our CTO, who will talk about our AI capabilities, how we are upskilling our engineering workforce and how we're using it to improve our internal operations. Eugene? Eugene Steinberg: Thank you, Leonard. Good afternoon, everyone. We are actively executing across three horizons. AI first engineering, Agentic Enterprise and Physical AI. In Q4, we shipped across all three, and these foundations position our AI business for 2026. Horizon 1, AI first engineering. Horizon 1 is the core of our current business. The engineering work that source the majority of our clients today. We are accelerating productivity across the organization through AI first native tooling and investing decisively in the continuous upskilling of our engineers. Enterprises are no longer debating the merits of adopting AI for software development. But rather how to do it without losing control of quality, security and institutional knowledge. It is in this context that we launched Rosetta, our AI native software development framework. Rosetta is part of our GAIN initiative and provides a governance layer for AI coding agents. Rosetta automates contract setup, enforces consistent workflows and manage his engineering knowledge at both the engineering and organization level. It operates within the client's own security perimeter and works across all major coding platforms. Developers get consistent project aware agent behavior from day 1. Engineering colleagues get centralized governance and visibility across the entire agent footprint. With Rosetta clients benefit from decades of institutional expertise seamlessly embedded in the way engineering workflows. We have several engagements underway and a scaling gain as the standard delivery backbone across all engagements in 2026. Grid Dynamics separations is client 0 for our AI solutions. Cerebra, our internally developed Agentic platform launched in Q3. It is built on Google AI stack, Gemini enterprise, ADK and A2A. Within Grid Dynamics, Cerebra is being used by our sales recruitment and knowledge management organizations, automating proposal development, technical prescreening and research at scale. Clients adopt faster than the platform has already been stress tested in production. As AI revenues ramp, we expect this model to drive both revenue growth and margin expansion. Horizon 2, Agentic Enterprise. Horizon 2 is where we are expanding and investing by leveraging our engineering debt to enterprise transformation at scale. The Agentic era is reshaping the economics of software delivery. AI native development tools are allowing the overall cost of building and deploying software, placing pressure on systems integration and configuration programs. At the same time, client expectations are rising. Programs previously too expensive or too slow to justify are becoming feasible. Enterprises are thinking bigger and moving faster taken on significantly larger mandates. That means moving away from SI-heavy engagements and toward a regional in-house engineering. That rotation plays directly to our strength. In the past decade, enterprises have increasingly became dependent on system integration, assembling Software-as-a-Service ecosystems, configuring cloud services, and stitching together vendors products. In the Agentic era, this changes fundamentally. Production deployments require bespoke engineering. Purpose-built agent workflows the main specific data and knowledge layers, distributed system and platform engineering. Grid Dynamics is well known for its engineering capabilities and proprietary IP at leading global enterprises. The agentic era rewards builders, and that is where we have invested. Our go-to-market runs two tracks. For Tier 1 enterprise clients, we architect and co-develop custom verticalized AI platforms built around the specific architecture, governance and compliance requirements. For Tier 2 mid-market clients, we integrate hyperscaler platforms with Grid Dynamics verticalized components on top, optimizing time to value and overall cost. Both tracks are expanding. We have also established a partnership with Temporal through the JumpStart program. This initiative positions us as a technology consultants for Temporal's customers. embedded in crucial architectural decisions from the outset. This partnership has generated multiple new engagements across financial services, enterprise software and industrial sectors. The proof points are concrete. A notable example is our work with one of the world's largest payment networks, where we are leading a broad Agentic AI program. We have developed a recurring service across 17 applications, a universal enterprise assistant with agent to agent communication and centralized governance and evaluation. Our efforts have led to an approximate 40% reduction in build time and 60% reduction in ongoing maintenance efforts. This platform deployed across 30,000 employees. The impact has been measurable. Specialized groups are seeing up to 15% productivity improvement, driven by faster information access and reduced manual research. As a leading global CPG company, we developed over 20 enterprise-ready AI agents through a unified agent factory platform. This delivered 15% productivity improvement across enterprise users. These deployments confirm a pattern we see consistently. Once AI capabilities move fully in production, clients realize approximately 15% productivity gains, tangible operating leverage at enterprise scale. We are leveraging our deep domain expertise to build vertical AI platforms, co-defining patterns in the structured productized offerings. Our initial solutions have real traction and are generating revenue with enterprise clients. MXP, our merchandising and product discovery platform illustrates its progression most clearly. It began as search engineering expertise, evolved into reusable accelerator. And in 2025, gross intel license revenue with a growing customer base across North America, Europe and Latin America. Its deployment for a leading European luxury retailer delivered a 7% total revenue uplift, and a 50% reduction in merchandising workload, while handling a 25% year-over-year surge in peak holiday traffic without disruption. XTDB is our platform designed for the financial industry, a bitemporal database built specifically for regulated financial environments. As financial institutions deploy AI agents, the regulators require full point and time reconstruction of any decision. Banks deploying agents for trade processing, compliance or investigations, need systems that can capture precise information related to trading activities. XTDB addresses that with full auditability across both business time and system time. The platform has been adopted in several global banks and in Q4, we shipped a significant new version extending its capabilities for multi-entity data mesh environments. It is this kind of deep infrastructure IP that differentiates our financial services practice from generic AI Consulting. Our engineers no longer arrive as individual contributors. The if backed by codified IP, Rosetta, MXP, XTDB and documented patterns from dozens of deployments. The client gets immediate expert deployment, not a learning curve. Horizon 3, Physical AI. Horizon 3 is our forward-looking investment in Physical AI, bringing the same AI engineering depth they apply in software to industrial and manufacturing environment. Our flagship platform here is Incarna, a software platform that supports the robotics industry. Incarna dramatically compresses with time required to program robots for complex manufacturing tasks, enabling robots to handle high variability physically demanding work that conventional automation cannot address. In partnership with Smart Ray, a leader in industrial 3D vision sensors we developed and deployed the Incarna AI model for robotic weld inspection. Weld inspection is demanding. Commodity requirements are stringent and variability in materials and geometry makes rule-based automation unreliable. The result, high inspection consistency, improved quality assurance and scalable automation in environments where precision is nonnegotiable. As a Fortune 10 manufacturer, we automated the conversion of CAD files to CNC machine instructions, a workflow that previously took 5 days now completes in hours, greater than 90% cycle time reduction, validated in production. We will have more to share as this program scale. As we look ahead, we will build on our foundations. We are rapidly and deliberately scaling towards a multi-industry AI-led business transformation. GAIN and Rosetta codify our engineering judgment, so its scales beyond individual engineers. MXP shows that our IP can generate revenue as software, not just as a service. XTDB gives us a technically differentiated entry into finance. Incarna, opens doors in manufacturing. And our Agentic practice is shifting from the bespoke delivery to structured vertical offerings where our accelerators compress time to value and our contracts increasingly capture outcomes. We are moving from labor scale growth to IP scale growth, and that transition defines our 2026 execution. With that, let me turn over to Anil. Anil Doradla: Thanks, Eugene. Good afternoon, everyone. We recorded fourth quarter revenues of $106.2 million, slightly above the midpoint of our guidance range of $105 million to $107 million. This represents a sequential growth rate of 1.9% and a year-over-year growth rate of 5.9%. There were 30 bps and 22 bps of FX headwinds on a sequential and year-over-year basis, respectively. Non-GAAP EBITDA was $13.7 million or 12.9% of revenue and was at the higher end of our $13 million to $14 million guidance range. In the fourth quarter, there was a negative impact from FX fluctuations on a year-over-year basis. We are exposed to a currency basket across Europe, Latin America and India. While we utilize both natural hedges and an active hedging program, the net year-over-year impact on our EBITDA was a headwind of approximately $1.5 million. On a sequential basis, there was a tailwind of approximately $160,000 to our EBITDA as the dollar strengthened relative to the British pound and euro. Looking at performance of our verticals. Retail remained our largest vertical, contributing 28.7% of total revenues in the fourth quarter of 2025. While revenues in this vertical increased by 5.3% on a sequential basis, there was a decline of 6.9% on a year-over-year basis. The sequential increase was broad-based across our retail customer base. TMT, our second largest vertical accounted for 28.3% of total revenues for the quarter. The vertical delivered strong results with growth of 5.3% on a sequential basis and a 27.5% increase on a year-over-year basis. The strong year-over-year growth was primarily driven by our top 2 technology customers. The finance vertical accounted for 22.9% of total revenues in the quarter, growing 5% on a year-over-year basis. This growth was primarily driven by increased demand from our large fintech customer and large banks. Turning to the remaining verticals. CPG and manufacturing represented 10.2% of our fourth quarter revenues. This vertical remains stable in absolute dollars sequentially but declined 4.3% on a year-over-year basis. The year-over-year decline was largely due to a decline at some of our automotive customers. And this was partially offset by our CPG customers. The other vertical contributed 7.3% of fourth quarter revenues. This remained flat on a dollar basis relative to the third quarter and grew by 8.4% on a year-over-year basis. The year-over-year growth was primarily from our meal kit client. And finally, health care and pharma contributed to 2.6% of our fourth quarter revenues. We ended the fourth quarter with a total headcount of 4,961 slightly down from 4,971 employees in the third quarter of 2025 and that from 4,730 in the fourth quarter of 2024. Although our total headcount was down on a sequential basis, our billable headcount increased meaningfully. We continue to rationalize our overall headcount as we align our skill sets and geographic mix. At the end of the fourth quarter of 2025, our total U.S. headcount was 357 or 7.2% of the company's total headcount versus 7.4% in the year ago quarter. Our non-U.S. headcount located in Europe, Americas and India was 4,604 or 92.8%. In the fourth quarter, revenues from our top 5 and top 10 customers were 39.7% and 58.5%, respectively, versus 35.6% and 55.8% in the same period a year ago, respectively. Moving to the income statement. Our GAAP gross profit during the quarter was $36.1 million or 34% compared to $34.7 million or 33.3% in the third quarter of 2025 and $37 million or 36.9% in the year ago quarter. On a non-GAAP basis, our gross profit was $36.6 million or 34.5% compared to $35.2 million or 33.8% in the third quarter of 2025 and $37.6 million or 37.5% in the year-ago quarter. On a year-over-year basis, the decline in gross margin was from a combination of FX headwinds and greater mix of U.K.-based headcount from our acquisition of JUXT. Non-GAAP EBITDA during the fourth quarter that excluded interest income expense, provision for income taxes, depreciation and amortization, stock-based compensation, restructuring, expenses related to geographic reorganization and transaction and other related costs was $13.7 million or 12.9% of revenues versus $12.7 million or 12.2% of revenues in the third quarter of 2025 and was down from $15.6 million or 15.6% in the year ago quarter. The sequential increase in EBITDA margin was from a combination of higher gross margins and FX tailwinds. On a year-over-year basis, the decline in EBITDA margins was largely due to a combination of lower gross margins and FX headwinds. Our GAAP net income in the fourth quarter was $0.3 million or breakeven per share based on a diluted share count of 86.4 million shares compared to the third quarter net income of $1.2 million or $0.01 per share based on a diluted share count of 85.8 million and net income of $4.5 million or $0.05 per share based on 83.8 million diluted shares in the year ago quarter. On a non-GAAP basis, in the fourth quarter, our non-GAAP net income was $8.7 million or $0.10 per share based on 86.4 million diluted shares compared to the third quarter non-GAAP net income of $8.2 million or $0.09 per share based on 85.8 million diluted shares and $10.3 million or $0.12 per share based on 83.8 million diluted shares in the year ago quarter. On December 31, 2025, our cash and cash equivalents totaled $341.1 million, up from $338.6 million on September 30, 2025. M&A continues to take priority in our capital allocation strategy. We're committed to augmenting our organic business with acquisitions that strategically enhanced our capabilities, geographic presence and industry verticals. Coming to the first quarter guidance, we expect revenues to be in the range of $103 million to $104 million. We expect our first quarter non-GAAP EBITDA to be in the range of $12 million to $13 million. For the first quarter of 2026, we expect our basic share count to be in the range of 85 million to 86 million and our diluted share count to be in the range of 87 million to 88 million. For the full year 2026, we are bullish in our outlook. We expect revenues to be in the range of $435 million to $465 million. That concludes my prepared remarks. We're now ready to take questions. Cary Savas: [Operator Instructions] The first question comes from Maggie Nolan of William Blair. Margaret Nolan: So you've had impressive growth in AI revenue and you're above $90 million for 2025. So I'm wondering if projects are moving into production at scale and then what is the nature of these projects? And how is the demand among customers? Leonard Livschitz: Thank you, Maggie. Thank you for kind words. Look, we extensively discussed in various forms what AI represents to Grid Dynamics and what is the opportunity for us going forward. Fundamentally, what makes a big difference for Grid Dynamics for 2026 on is that we're not only moving from the small development project to full scale implementation, but also we introduced our platforms, which has been noted during this particular time. And that kind of scales the confidence with the clients to give us more of the solutions where we represent our engineers combined with their own tools as a new way to building the solution faster and more affordable for the clients. Perhaps some words from Eugene. Eugene Steinberg: Yes. It's a great question. And there are two main zones, which are most exciting for me. One is AI-powered customer experience. The reason behind that is that this is the zone where the impact from source personalization, Agentic commerce is very obvious and memorable by our clients. And this is where clients see ROIs in weeks, not in months or years. And that allows us to expand those accounts very, very quickly based on this successes which we see in this domain. Second is enterprise AI platforms, not as visible as front end work or AI-powered customer experiences. But this is a foundational layer, which helps our companies to organize their data, build AI agent factories on top of this data and then go into developing business agents on top of those platforms. And what we see in our projects is as those platforms mature and go to production clients start to scale very, very quickly building AI agents, and we are helping them to develop the AI agents. And we are going from 1 to 10 to 20 of those specific customer facing, which will collect agents very, very quickly. So this expands our work and allows us to move very, very quickly. Margaret Nolan: Great. And then anything else you would comment on as you move into 2026, kind of how you expect the trend to evolve any way that you can maybe tie that back to the numbers or maybe some of your margin expansion goals you've mentioned. Leonard Livschitz: Yes. So we bombarded you, Maggie, with a bunch of names during this press release, right? So we were talking about merchandise experienced platform, we were talking about bitemporal database, we're talking about Incarna robotics AI platform, subsequent growth of the Rosetta, it's automation within GAIN model, the platform against Cerebra, which picks up our internal process, bringing Grid Dynamics as a client 0 for implementations. What is it all about? Those are not just buzzwords. It's just a way to understand for our clients that there may be a little bit more scarcity in the market of clarity what to do. But when you work with Grid Dynamics, we represent basically three key functions. First, we are domain consultants. So we understand what the customer problems are, and we are tailoring the solutions with that as a important contribution for Grid Dynamics as a mix between Grid Dynamics trained engineers, the standard tools and platform from the market and customized tools, which will bring based on our platform and development. The combination of three leads to a few things. First of all, it's a shorter time to implementation for our clients. And second, it moves away from our traditional talent material offering where we're putting together contribution based on the planned outcomes, which ultimately leads not only for them to gain momentum and have a better financial return but a high value add for the margin expansion for Grid Dynamics. Those are three elements. Cary Savas: The next question comes from Bryan Bergin of TD Cowen. Bryan Bergin: The first one I'll just get a high level. So just with everything that's going on in the market, services, software-based pressure, the whole kind of SaaS apocalypse fears that are out there. I want to kind of sanity check it with you first. Based on what you're seeing in your client conversations and what they're doing in contracting, what's your perspective as it relates to enterprises increasing their custom build preference versus buy the platform solutions. And if your clients are demonstrating a rising preference for custom builds, what are like the implications for your dynamics? Leonard Livschitz: Very good. So I will start, and then I'll have Vasily to give you a few examples because there's nothing better than to show what exactly happened. So from the high-level perspective, obviously, we recognize that there is a very strong expectation that the cost of implementation will go down. Then people start throwing some comments. There is a decline of SaaS software companies or offerings. There is a decline of IT services needs because everything is going to magically appear. Well, all these statements are not false. I mean there are more and more tools available in the market. But what's the custom part is, is that creation of the tools and solutions, having our internal platforms makes Grid Dynamics much more efficient to really customize solutions for the individual clients and tests. And the reason we're doing this because it's very nice from the high-level perspective to look at these all wonderful models, but it's experimentation going to production is quite pricy. And many of the clients are hesitant to throw a lot of money without a clear outcome. And that's where Grid Dynamics comes in with the combination of people, processes and tools. And that's how we believe that even though there is an overall look that overreaching look that there are potential some decline of the needs, the company will agree dynamic needs is actually growing, and I'll have Vasily to bring some examples. Vasily Sizov: Sure. Thank you for the question, Bryan. You are right on point, we definitely see increased demand of our custom-built software. And if in the past, the customers were looking into improvements or enhancing their core platforms, core applications right now, given the overall kind of cost of development is getting reduced by utilizing AI native environment and SDLC. Companies like Grid Dynamics definitely benefit from this trend by getting involved into implementations and rebuilding of the typically SaaS, I would say, applications as a custom built and more custom-tailored solutions for end customers, things like HR systems or travel dashboards and et cetera, which were traditionally outside the investment areas for the companies -- for the clients. Bryan Bergin: Okay. Okay. That's helpful. And then a follow-up. I'll kind of -- I want to dig in on the growth outlook for the year and unpack it a bit. Anil, you made a comment, you're bullish in your outlook. Just to clarify that comment, are you assuming anything meaningfully changes in the underlying demand backdrop to hit any of these targets? And help us just kind of bridge the 1Q performance here. Is there a billed day dynamics or anything seasonal in the first quarter as you think about that first quarter implied growth rate relative to what you're talking about for the year? Anil Doradla: Yes, Bryan. Q1 is a very simple story here. It's the seasonality and also in our time and materials business, T&M, there was fewer working days relative to Q4. So that's -- it's very simple. Now you're absolutely right. We are positive on how we're looking at the full year. There are two components of it. One is that some of the recent trends in our pipeline growth. Second thing is all the gentlemen that have spoken about on our AI trends, right? I'll let them build up on that. But where we are today, how we look at the year we feel more positive. And the final thing is that if you look at the range I provided, it's a little wider, right, relative to last year, we made it a little wider because we understand that during the course of the year, there's some positives, there's not so positive. So we kept it a healthy range. Leonard Livschitz: So let me be more specific, right? So I think Anil answered a very simple question about Q1, and it's a very substantial reduction of the working days. So it's not something like normally happens traditionally here. But there is a bullish outlook for very simple reason. The pace of adoption of AI solutions and AI applications by Grid Dynamics customers, clearly outpaces the decline of maybe a little bit more hedged retail business. It happens simultaneously and this is no secret because if you look at the rate of growth of our client verticals, you can see to notable changes. It's a tack and more important, the financial vertical, which goes specifically into the fintech and capital markets, which is quite new and growing for us. So when we look at the total equation, the rate of growth and AI-related businesses. The contribution from our partnerships. Our improved performance in terms of the new type of agreements, fixed bids, performance base, other elements. And on the back side, some of the depreciation of more of traditional paged business, we've been there for years, we came up with bullish but conservative approach. And what's the conservative part of that? I think it's very important to understand. We've learned a little bit our lesson from 2025, right? I mean we actually believe we're going to be better than midpoint. But what it means for us? It means for us that in addition to all the facts, we need to understand the revenue dollars which are coming with the customers. And as the business grows, as you know very well, we also deploy our engineering talent across the globe, follow-the-sun strategy. And different regions have different price points and different elements of the business. So as we continue to scale our business, we want to make sure that early on, especially when we're introducing this a little bit variability of Q1, we do not get you guys question, are we safe or not? We are very safe. Cary Savas: The next question comes from Puneet Jain of JPMorgan. Puneet Jain: So given like the recent news flow around Entropic Claude, are you seeing like any changes in your client behavior, increased urgency among your clients to embrace AI? And second, I know like you talked about the GAIN framework. I know it's built on proprietary as well as third-party tools. So to -- like all these developments like the evolution of AI ecosystem. Does that raise the bar on what GAIN can do for your clients in terms of productivity savings? Leonard Livschitz: Very good. Let's start with, again, Vasily as the last time to give a little bit more of the multilayer approach. And then from the technology perspective, I think Eugene can comment as well. So, Vasily, please. Vasily Sizov: Yes. Maybe let me start with GAIN framework. So as you know, we announced it in the middle of 2025. And during the 6 months of 2025, we were rapidly developing this framework and running pilot implementations with our customers. As you heard in the prepared remarks, we implemented a series of software assets, which became now the part of this platform, which we are offering to our customers. So I would say in 2026, we see this will be the year of rapid adoption of the GAIN platform across our customers. And in fact, it became the de facto standard approach, which we use for the outcome and output-based engagements. Essentially decoupling billable headcount from the revenue growth. So we definitely see performance improvements. We transfer some of that to our customers, and some of that contributes to our improved profitability. Leonard Livschitz: Eugene? Eugene Steinberg: Yes. And when it comes to the actual improvements which we are seeing from Agentic coding systems and Claude and of course Entropic kind of others, of course, many of our customers are embracing it, and we are bringing those capabilities with them together with Rosetta, which is a layer on top of if. They are not competing with those Agentic Assistance on the foundation layer, but we are making them better, stronger and embed our own institutional knowledge in those systems with every engagement. And of course, impact of that very much depends on the actual nature of the project. So if you are going into greenfield POC kind of solution, your gains are immense, like 10, 15x compared to traditional ways because you are creating in an unconstrained environment doing whatever you want. If you are working in a brownfield project with still well-defined goals, technology modernization and migration, you still have a very strong improvement because the agents are tools. They are doing things much faster for you. And you see maybe 2, 3x improvements in the performance of the teams. However, when you are coming to the engagement and environments where the majority of the complexity is in the communication or orchestration. This has been -- it's much more challenging to realize the improvements from pure coding and creation of artifact. So it all varies very much depending on the portfolio of your solutions. Yury Gryzlov: Just quickly to add to what Eugene and Vasily mentioned, I think it's very important. We mentioned several times in our prepared remarks as well. I think this transition from T&M based approach to outcome-based and output based. That's -- it's very important to emphasize because this is definitely real. We see that a lot. It happened during the 2025 in transition to 2026. And we see that this year, we will see much more of those -- many more of those engagements going forward. And that's why, as Vasily and Eugene mentioned, our GAIN framework together with verticalized solutions and the platforms that we are leveraging that will be very, very important this year. Puneet Jain: Okay. Got it. And let me ask like follow-up to Bryan's question on the rest of the year beyond Q1. So based on our math, like it seems like the full year guidance at its midpoint implies like 5%, 5.5% sequential growth beyond Q1. So can you disaggregate that? Like what drives that growth like in terms of like whether it's like you talked about like earlier like the pipeline, billing days and all that. Can you talk about like what drives that 5%, 5.5% sequential growth beyond Q1 to get to the midpoint of full year numbers? Leonard Livschitz: Puneet, make a few comments and, of course, we'll have Anil to back it up with the numbers. As I mentioned to Bryan, we do very seriously to make sure that we are reasonable but conservative in our forecasting. Okay. The pipeline is very robust. And the pipeline which we have right now, not only robust, but it shows a great opportunity with AI-related products and projects across multiple verticals and multiple clients. There is always a seasonality, right? So Q2 is better than Q1, and Q3 is better Q2 and then Q4 may have some additional flows like what happens in Q4 last year and all the stuff. But we kind of disaggregate the seasonality and behavior from adoption of AI. And we look at our pipeline as it stands today. So there is a very little assumption, Puneet, that there is going to be some enormous number of white swans or some Hail Mary or something extraordinarily great happens during the course of the year. Obviously, not everything on our books today, but majority is and we have a very nice number of our own tools, accelerators and platforms, which are going to continue to roll out during the year. So to summarize it, we are not hoping for the numbers. We have a strong pipeline to AI-related projects, particularly in the technology and fintech space. There is a growth in manufacturing, which is cutting quite robustly as well. And we see that adoption, as again, Bryan asked before, of the custom-developed solution on a combination of the deployed engineers and train program and our internal tooling brings us much higher acceleration. So the same people, the same trade capacity of the people can have several terms on the execution during the year. That's kind of the high level, but very clear understanding what does that pipeline mean? But maybe Anil will back it up with some numbers. Anil Doradla: Yes. Look, I think the key thing is what Leonard said, right, we look at the revenues from a bottoms-up and a top down. And what we have as we go from '25 to '26 transition is this AI factor. And when we looked at that AI revenue kind of bottoms up, top down and look at the trajectory, I wish I could give a number, but it's a very healthy number as we go into '26. That is our foundation for our modeling in '26. Now when you look at the variations we said, right, we have this wider variation this year. We understand in the course of the year, things can happen. So as you go from the high end to the low end, we bake in some level of conservativeness with some of our clients, especially on the larger side, depending upon how we look at the business today. But again, this is top-down, bottoms-up with some conservativeness, but in '26, the fundamental difference is that we've got this AI trajectory and look at -- as Leonard pointed out, look at the fastest-growing segments, TMT and financial verticals. That's the key. Leonard Livschitz: So just again, to put another number, Puneet, because I think it's important. I'll give you a little bit of a prequel, right? So mathematically, it does look a little bit aggressive. But realistically, it's a very unusual quarter to report, right? It's the year-end. So we are in March. So you can suspect that we're probably know numbers in Q1 a little bit better than typically when we present our earnings data a few -- 2, 3 weeks earlier. So what happened is we see a healthy March. And the impact of this seasonality and less of the working days kind of behind us. So the rate of growth, which you see is based on the lower performance of the first, let's say, 2 months of the quarter. As I was joking, would be lovely to have a Q2 4 months then you can throw all these stuff in the first 2 months of the year, but really, really healthy quarter. So the rate of growth from March on is more, I would say, traditional, which makes us more comfortable with providing the guidance like we are. Cary Savas: The next questions come from Mayank Tandon of Needham. Mayank Tandon: Great. Anil, you gave guidance on EBITDA for the first quarter, but not for the full year. So I just wanted to check with you, should we expect the same sort of pattern as you mentioned on revenue growth in terms of margin expansion? And do you have any sort of framework on how to think about what the levers are for margins going forward? Anil Doradla: Yes. Thanks for that question, Mayank. So as you know, last quarter, we talked about margin expansion in 2026, right? Q4 to Q4, we talked about 300 bps. Within the company, there's several efforts right from internal productivity, right from geographic optimization, where we're working very diligently on our margin expansion. And that's largely driven by the change of our workforce over the last 3, 4 years, which you all know about. Along with that, we have investments too. Eugene is talking -- Eugene is doing some amazing work in a number of platforms he's rolling out on AI. So it's the balance between the two. So if you look at our trajectory, margin expansion, margin continuation is what we are modeling. As the revenue picks up, obviously, you have a little bit more positive leverage there on the EBITDA margins. But the cadence at which these things will play out, you will see in the course of the year, I just don't want to give that level of specificity at this point. But the trajectory should be moving upwards and in line with what we had promised last quarter. Leonard Livschitz: And of course, it's not constant currency situation. So you may want to comment. Anil Doradla: So the other important thing everyone should understand is that in '25 versus '24, there was a big headwind on FX. So if I look at the cost and revenue on a net basis, that was close to $8 million overall for me, year-to-year. If I look at the last day of '24 and compare it with what happened on '25. So we're working through that. That's another thing that we're working through. Leonard Livschitz: So to summarize it, I gave you guidance, direction of 3% improvement plus. It still stays. I hope we can do better than that. There's a lot of activities happening. But we're not going to pull the plug and show artificially some numbers related to less investment into Agentic AI or the Physical Robotics AI. These elements are vital for our business, but operational efficiency, the contract efficiency, which we discussed with AI and also distributing workforce more efficiently around the globe. All the three elements. But the driver is fundamentally AI efficiency. That's really the #1 of 3. And I think, Yury wanted to... Yury Gryzlov: Yes, I just wanted to comment on the same -- pretty much along the same lines as I mentioned, right, about fixed-price engagements, right, and outcome-based engagements. That's obviously come typically, with a higher margin. So that's why it's also -- it's part of this program as well. And this year, again, it will be quite substantial. Mayank Tandon: Got it. And then just very quickly, I wanted to ask about your comments around M&A, Anil. You mentioned that obviously, you have a really good balance sheet and you have the work just to go out and do acquisitions. Are you finding that with the recent market volatility, multiples have come down? Are expectations a little bit more realistic on some of the potential targets that you might have had in mind? Anil Doradla: Yes. Somehow the private companies, they received the memo a little later than the public companies. So the memo they finally got, but it took a little time. We are having a good pipeline. Look, we've said that, but I think the number of exclusivities that we have today is as high as it's ever been. It's not done until it's done. When it comes to valuation, things have come in, they're better than what it was 6 months or 10 months ago. But it's still back and forth. Again, Mayank, the most important thing, strategic focus, strategic fit to what we're doing, especially in the AI world that we're entering. That's our bar standards are very high, and we're just not going to buy because we have to buy. We're going to do it if it's strategically fitting. Leonard Livschitz: Yes. I think what Anil didn't tell you it is very obvious we're not buying revenue. This is very, very clear. The relationship we got into the exclusivity with several of the targets, they are very specific in their fashion to address two things. One is the technology components, which we need to add. And the second one is the knowledge of the verticals we would like to be strong with that. So it's not about one size fits all. It's not about just going -- swallowing a big company and report a great number, because usually, it doesn't happen like this. But it's a very specific technology plus verticals. And it seems as the message you mentioned coming from somebody who tells them, okay, now has attained their expectations, I think we're going to be in a better shape because last year, it wasn't satisfactory. Cary Savas: The next question comes from Logan Schuh of Jefferies. Logan Schuh: My question revolves around your discussion of kind of moving from labor scaled IP to -- or labor scaled growth to IP scaled growth and kind of the shift from time and materials to outcome based. I'm just wondering what kind of implications that have on your plans for hiring in 2026 and beyond? And then also, where do you think the business model evolves to over the longer term? I mean we have some competitors going all in on kind of subscription-based Agentic delivery, some different competitors saying, no, we don't see it fundamentally changing. I was just wondering where you guys kind of landed on that spectrum? Leonard Livschitz: Okay. So Logan, I will just say a couple of words, but I think this is a good question for a round table. It's almost like I feel like as a fire chat, not the earnings call because there are a lot of elements, which is a very loaded question because you're right, we're kind of the last of the group to kind of present our earnings results and you have -- you're full from everyone telling you something. So it will not be very difficult to tell you what we think. So look, the model has changed already. There is no way back and people who will consistently say that, A, nothing changed, or we're going to continue to build the large size of team and more people you have as merrier, will probably face some challenges, especially on the large size. Now I've been saying that for a long time, and it actually works for Grid Dynamics benefit. We're not only a technology-driven company and an innovation-driven company, we're a nimble company. Our size is fairly optimized. Obviously, there is a place for growth. But we're not having any managed services. We're not having some very low-end contracts. And some contracts which were not as progressive or technology contribution, migration all this fashion, they are falling off. And that's why you see this kind of changing of the orders in both ways. But where we see our model, and I hope Vasily will give you again a few examples, is that it's going to be a combination. So it's not the perishable goods of quality engineering. It's a combination of capabilities, trained people and the solutions we have in advance of customer needs, understanding their marketability. We continue to play our role with the partnerships. We understand deeply several key areas, and it can be expert in everything. You try to be expert in everything then you have a very kind of a shallow knowledge and you're going to struggle because you have to fill them all. The bots need to be a bit concentrated even though diversified. So where I see it's kind of a -- it's a middle ground. One thing which I give you, again, as my input may be a little bit different from others, but it kind of resonates with our clients very well. The definition of the senior engineer has changed. So traditionally, the word senior engineer means the person with many years of experience, they do less here. But today, the definition of the senior engineer means relevancy of the technology competence and a foundational acumen around their own DNA being the moderate age of AI technology. So the age limit changes, but what really changes is the depth of the knowledge of people. So the focus of Grid Dynamics will continue to be supporting the intelligence of internship programs. Grid Dynamics University Training, Grid Labs Training, combination that these fellows also contribute to building our tools, so then they can become much more productive with the clients. So summarizing my part is that somewhere in the middle ground, we're bringing the new era of the senior engineering the talent, combined with a tooling and a modern world of solving customer problems faster, more efficient and combining three elements: people, industry tools and our own platforms. And with that, Vasily, maybe you'll add some comments. Vasily Sizov: Yes, just a few comments. Imagine if the customer has a project, let's say, which is provided as a bid for fixed price. And you come and bid for that, let's say, with the pricing 25% to 35% lower than otherwise it would be delivered with a traditional workforce in the T&M manner, let's say, we're like just regular fixed price for the regular engineers. But actually, you have the productivity of 35% to 45% higher. So that's the clear path for improvement of the profitability, but how do you do that? You implement certain SDLC new processes on how you develop the software. You deploy a special team, which is very well trained, you introduce certain artifacts and assets, which would understand or would fit their vertical we are working in, also understand the coding policies, all the existing code base, et cetera, which would help developers to work to deliver higher productivity. And that's essentially like on the high-level GAIN model and what the path Grid Dynamics is going with. Essentially verticalized solution, high-performance teams, very well-educated engineers on the modern technology and delivering outcome and output based engagement. Logan Schuh: Great. That was very clear. And then I wanted to ask about the partnerships. I know they're -- 19% of revenues were partner influenced. I just wanted to kind of get a sense of how those partnerships have evolved over time, maybe how you see them evolving in the future? Leonard Livschitz: Okay. So the person who is responsible for partnerships, we will bring him in next time, it's a Rahul Bindlish and he will say we're looking okay. Who is going to say on our partnerships, right? Thank you for asking this question last because it's actually a very wide part of our growth. When a few years ago, we started talking about one partnership. We're basically exploring what it means to read the next. And starting with Google, it was great. I mean we have a great experience. We have a great partnership. We have a great positioning of understanding of the modern tools, collaboration. We have matured significantly ever since. So when we talk about the influence revenue, we're talking about our positioning where we not only contribute to the value of the clients which utilize solutions from our clients and solutions talk about cloud solutions or their modern, large language models or other features. But the elements associated how we are adding our layers, our technology know-how, our technology platforms on the top of their offering, which helps them to penetrate customers faster and helps us to understand earlier what their growth is going to be. Saying that, we also started to contribute more efficiently to their own developments, on their own products, which is very critical because that's how it drives our business, not only having our partners our vehicle for growth within industry, but is the growing clients themselves. So from there, we pretty much cover all the hyperscalers. And that's great because it means the customer has a value with Grid Dynamics to get a bespoke solution for the best fit for everyone. And this is good because ultimately, not every offering fits all, and we are very comfortable to be really good friends with the clients and fair partners with our major hyperscalers. On the top of it, we're adding more meaningful partnerships and perhaps Eugene can make one of the notable ones because I think it usually gives us a little bit more advantage to fill the gaps on the fast-growing AI implementation where the big guys allow a bit more flexibility for some specialized programs to step in. And since it's going to be probably the last time I speak where Eugene will wrap it up for you, I just want to say one thing which is important, I think, for everyone. It's going to be a good year. We believe in Grid Dynamics. We are having a strong and growing team and I really count on you guys believe in us as we do it ourselves. So thank you with that, and Eugene, please wrap it up. Eugene Steinberg: Yes. Thank you, and this is a great question. And indeed, we -- as Leonard said, we are helping many of our partners to build the value-add components and penetrate new customers and new industries. One notable example is, for example, our partnership with Temporal, which is our workflow management system at its core, very robust, very scalable and very powerful. And we apply this system at scale while building enterprise agentic AI platforms, which opened quite a lot of interesting opportunities for Temporal to grow into this sector, and we help them to go into major accounts together. And now we enjoy -- it's a good partnership as well. Cary Savas: Thank you, Logan. Ladies and gentlemen, this concludes the Q&A session for today. I will now pass it over to Leonard for closing comments. Leonard Livschitz: This quarter, we demonstrated that AI first transformation is delivering real measurable value. We continue to upskill our talent and embed AI driven efficiencies through platforms. By running our AI first operational models, we are proving the same value proposition we advocate for our clients. We entered the next phase of our journey with a clear road map, a future approved workforce and a steadfast commitment to deliver long-term value for our shareholders. Thank you, and we look forward to updating you on our continuous progress.
Operator: Good day, and thank you for standing by. Welcome to the Atos Group FY 2025 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Philippe Salle, Group Chairman and CEO. Please go ahead. Philippe Salle: Hello. Good morning, everybody. Thank you for joining us for this call of the full year results of 2025. I'm here in the room with Jacques-Francois, the CFO; and Florin, our CTO, because we're going to talk also a lot about technology. And of course, we're going to talk about the future of the company. So the agenda of today is 4 topics. The first one is the 2025, let's say, business and strategic highlight that I will manage. Then Florin will take the floor to have a tech update. And today, we are announcing 2 things with the launch of Atos sify and launch of our agentic studios. Then I will come back on operational and financial results with Jacques-Francois. We're going to have together this section. And then I will finish by the outlook, and then we'll take Q&A. So let's start with the first part, and I'm going to go on Page 6. So 2025 was the year for me of the reset. Remember that I want to have 3 phases, I would say, in the turnaround of the company, reset, rebound, acceleration. So '25 is a reset and '26 is the rebound. In 2025, first, we have a very good financial improvement with clear signs of recovery, we'll see that. Second, a significant progress, of course, of our Genesis plan. And the third is that we have a positive business momentum and a commercial, I would say, traction. If we go on Page 7, the key numbers of the company, first in terms of top line, the revenues at EUR 8 billion, EUR 8,001 million to be really clear, so above the target that we have set during the Q3 the last call, in fact. Operating margin, EUR 351 million, it's 4.4%. Just for information, that's the best margin we have for the last 5 years. And I think I'm very pleased to say that we have doubled the margin versus last year with a decrease in top line of minus 14%. And remember that we have guided EUR 340 million at the beginning of '25. Net change in cash, it's minus EUR 326 million, although we have accelerated, I would say, Genesis, and we paid in fact, EUR [ 250 ] million roughly of exit cost and it's better, of course, than our guidance that we say that it will be EUR 350 million or below. And then the liquidity, and we published this already in Jan is EUR 1.7 billion. So it's far above, of course, I would say, the covenant that we have in our debt package that is EUR 650 million. So we have ample cash to finish the Genesis plan. And in fact, this year, we'll be already cash flow positive and the debt, in fact, will go down. Now if we go on Page 8, you can see the inflection point in terms of revenues. So the fourth quarter and that's the figures we have published, in fact, in Jan was around minus 9%. So you can see, I would say, quarter-by-quarter that we had, in fact, a deceleration or, let's say, less momentum, I would say, better momentum in terms of revenue decrease. And then you can see also the number between Atos and Eviden and the organic growth that we have, which is around minus 9% in Q4. In terms of the OEM for the EBIT, the pro forma of '24 for the information we hold are that -- we have sold in '24 and at a constant exchange rate is EUR 1.72. So you can see that we have more than doubled the margin and the margin was beyond 2% in '24 and in terms of '25 is at 4.4%. And in terms of cash flow, the net change in cash was roughly minus EUR 700 million in '24, and we have roughly minus EUR 300 million in '25. If we go to Page 9, you can see also that the backlog -- the book-to-bill has also improved in the course of '25 at 94% for H2. And the total book-to-bill, in fact, for '25 was 89% versus 82% in '24. Now if we go to Genesis on Page 10, remember exactly, I would say, the plan that we have sketched in May '25 with the 7 pillar. This is, I would say, exactly what we have shown, in fact, in May. And I will now -- if I go on Page 11, a little bit deep dive on what we have done. So on the first pillar, we have reviewed the top 100 accounts, and it has, I would say, produced EUR 1 billion plus of opportunities. Remember that during the CMD, I have said that the number of business line per account was around 1.4, and we want to push it, of course, to 2 or above, I would say, that level. And then we have also in terms of growth streamlined, I would say, the processes and also with, I would say, a better organization in terms of sales with salespeople in the different geo than in [indiscernible]. In terms of HR, so we have reviewed the bonus framework. We have launched our LTI plan with a share plan for the top 200, and we have started also to have a leadership culture. And this year, we're going to push very hard on the AI culture. In terms of country reviews, so we have roughly 10 countries that are exited or in inactive. Remember that we want to go probably above around, let's say, 40 countries. We have also sold 7 countries in Latin America and also in Nordics, which is Norway and Finland. And this year, we want to continue to probably, let's say, close or inactive around 20 countries. In terms of portfolio review, first, we have sketched, I would say, the different branding. So you have Atos Group, which is the holding. And under Atos Group, you have 3 brands. Atos, of course, service, let's say, company, Eviden product and software and Atos Amplify, the new name that we are launching today for the consulting arm. So we have 6 -- in Atos, 6 business lines and 6 geos. And with Eviden after the disposal of the high-computing, we have 3 product lines. In terms of PM and GM, so in terms of project margin and gross margin, so that's the way we look at our P&L internally, you have revenues, project margin, gross margin. And then EBIT margin. So we have, I would say, a plan, remember that we are looking at EUR 650 million of savings, and we have already achieved 88% of it, EUR 350 million roughly are in the P&L in fact of '25. And EUR 200 million more to come in the course of '26. We have increased the reliability ratio by 3x. We are now above 80%. We have also continue, I would say, to push the offshoring. And as you can see, we have also a different, I would say, actions on the reduction of the -- It's just switching, I would say, a bench people. We prefer, of course, to use I would utilize people on the bench and of course. Just for information, very important, the discipline also on the new contracts we have signed. Remember that we want to have a margin of 25% to 26% in the future. And in fact, if you look at without the black contracts, we are already at that level. And on average last year, we have signed roughly all the contracts on the book-to-bill and for the EUR 8 billion plus -- EUR 7 billion is around 24%, which is roughly 2.5% above what we have done in the course of '24. And it's very important to understand that we could have probably a better book-to-bill in the course of '25, but the idea was really to protect the margin, and I prefer to say no for some tender, then I would say, to have, let's say, more revenues and less margin in the future. Pillar 6 is the cost review, it's the G&A. So we have done a lot of things there for your information, we reduced the G&A by roughly 26%. Remember that the target we have in G&A is 5%, and we are close to 6%. So we still have 1 point to gain in the course of this year and next year. And then in terms of cash for the Pillar #7, the DSO is at target. We have reduced over by 13%, reduced all the, in fact, by roughly 27%. And we have managed quite very well, I would say the CapEx, and we felt good, we are roughly at EUR 100 million plus. Just on the bottom, you see also that we have completely reviewed the target operating model and also the government has been satisfied. Now if we go on Page 12, today, we are launching, as I said, 2 things. I'm going to talk on Amplify and then we're going to talk on the Agentic Studio with Florin. So Amplify, that's the consulting arm or body, I would say, of Atos, still the brand of Atos because it's very linked to the services that we provide with Atos. And the idea is that we're going to refocus Amplify on AI. The idea for us, it's a door opener, in fact, in artificial intelligence that will help us after that, of course, to push the studio that we are going to. In terms of workforce on Page 13, we are now at 63,000. So you can see the hiring, the levers and also the restructuring we have done. And if you want to see without Latin America and without view, we are close to 57,000 people. That's the number of staff that we're going to have after the divestment. Last, on Page 14, that's the order book. So we have roughly -- we have the key numbers. As you can see, the renewal rate, in fact, is 92%. It's not bad. I want to have a little bit more this year. And in fact, in this year for the large accounts, what we call the large bit over EUR 30 million per year, we estimate that we're going to win most of them or all of them, in fact, a number of strategic deals 19. It was 10 in fact in '24. And there is a good traction in fact, in cloud, cyber and data AI where the business line we are pushing more than the rest. You can see, I would say, different names on the, I would say, extension or win. And for Siemens, of course, we continue to work with them. We're going to do probably EUR 250 million, in fact, the course of '26. Last on Page 15, just to also recognize that we also continue, I would say, to be recognized as a sustainability in the IT sector, it's very important. So we have won or renewed, I would say, some award in terms of sustainability, you can see it on the left and then many business awards from the analysts that we continue to have in the course of '25. I go quite fast, in fact, because I think it's very important that we spend some time on the technology today because there have been a lot of buzz on AI and probably a completely crazy movement for me on the share price in a different company as -- and we estimate in fact that for us, we are very well placed in AI. And in fact, we don't do BPO that is probably, I would say, the business that is going to be attacked for me by Agentic. And definitely, I think that there is a big opportunity for us, in fact, with AI going forward. So with this, I'll give the floor to Florin, who is in the room with us, and he's going to talk about you about, I would say, the AI and the agentic we're going to launch this year, in fact, today. Florin Rotar: Thank you so much, Philippe. Good morning, everybody. Thank you for joining us. Delighted to be here. So what I suggest we do for the next few minutes is for me to walk you through the way that we see the market developing in general in the space of technology, and I will double-click on AI, of course. And I will share with you how we are planning on attacking and delivering this very exciting space. So I'm sure you're well familiar with the fact that global AI spending is booming, a lot of increase in AI infrastructure, AI services, AI software, AI cyber. And we genuinely and truly believe that Atos is very well placed to win in all of those areas. We do have some very strong moats. So the background and the history of Atos, as you all know, is to work and help our clients in highly regulated environments where security is a top concern, where sovereignty is increasingly becoming a priority, where the IT landscape is very complex and where a lot of the systems are truly life and death and are genuinely mission-critical. And what we see happening is that in all of those environments, there is a flywheel convergence happening between sovereignty, AI and cyber. And the fact that we have this decades-long managed services relationships with the clients, the fact that we have really deep know-how of their environment of their data has truly enabled us to progress very fast into packaging those into agentic AI as a service offerings, and I'll cover this in more detail. As you know, the technology space is quite complex right now. It's evolving super fast. There are daily announcements front and left, right and center. And our clients are really hungry for a level of clarity and assurance. And I think we play a very important role as if I'm allowed to use the word Switzerland of governance. The ones which are able to provide secure cross-platform neutral agentic AI. And we're doing this through a very exciting set of partnership with the big players, but also through a set of unique partnerships with AI native and sovereign start-ups. So let me double-click on all of this into more detail. So if we go on the next slide, what you'll see is the 3 big bets for Atos going forward. We believe these 3 pillars are going to be substantial drivers of growth for us in 2026 and beyond. The first one is mission-critical agentic AI. This type of agentic AI is fairly different to the type of AI that is most commonly mentioned in media. When you're doing agentic AI in really complex regulated environment with high level of governance, requirements around sovereignty, reliability, security and responsibility, the type of technology and the type of services is fairly different. We're also seeing digital sovereignty be super important for our clients. And actually, this is the case in North America, in Europe and international markets as well. And what we're doing is that we have embedded digital sovereignty as a core design principle across all of our portfolio. And last but not least, cybersecurity, of course, continues to be a high area of focus. Developments in AI are, of course, helping us to deliver cybersecurity services in a better, faster and more efficient way. But AI actually, of course, also opens up new attack surfaces and new potential vulnerabilities. So what we see happening is that there is this flywheel of self-reinforcement powers between AI, sovereignty and cyber. And we believe we have the right to be winners in all of these 3 areas. So sovereignty, of course, requires security controls to be able to be fully enabled. Sovereignty is, by definition, more complex than non-sovereign solutions, and therefore, AI can play a role to make them more affordable and more innovative. As I mentioned, AI has a huge impact on security. There is a quest to secure AI, but also to use AI to drive more security solutions. So you will hear us going forward really focusing and doubling down on these 3 areas. And what I would like to do is to double-click into each and every single one of those to give you a flavor of what we're doing, the success we've seen so far, what we see happening in the marketplace and to give you a glimpse into the future. So if we go to the next slide, Slide 19, we are very excited to have 4 Atos sovereign agentic studios come out of stealth mode in U.K., in U.S., France and Germany. This will serve the local markets based on their needs, the focus industries, their requirements, and they're all built for truly mission-critical production from day 1 with extraordinarily high focus on the topics which make AI adoption at scale more difficult in most organizations, which is governance, sovereignty, reliability, security and responsibility. So the reason we're launching the studios is that we see that our client spend is converging services and technology budgets into a unified value pool. This value pool and the size of those budgets are increasing, of course. But they're also a very high demand for measurable value generation at scale. Everybody is sick and tired of pilots and proof of concepts and prototypes. Organizations really want to make sure that they have AI, which is secure, which is reliable, which adds business value at scale. And the main challenges in this space is governance and orchestration. And this is where we believe that Atos is an absolute key power player. And then we're actually also seeing sovereignty emerge for AI as a very high priority. So our clients are very happy to use closed black box models for the typical back-office functions, which are important, but which are not differentiated. But they actually are increasingly becoming wary of developing their own brains, so to say, so they own their future, and they have full control of their data, the controls and the intelligence, which they're building. So we are very excited to announce a unique partnership with one of the absolute leaders in foundational models for agentic enterprise, which is [indiscernible]. And this will allow us to deploy and develop sovereign solutions in Europe, in North America, in international markets. And this will help and is helping already our clients to harness the full power of AI on their terms and without compromise. We're, of course, also working with the major market leaders here such as Google Cloud, SAP, IBM, AWS, Microsoft. As a little anecdote, we've just received Frontier partner status with Microsoft given the fact that we're one of the leading organizations leading the path around AI and innovation. But we're also working with this really interesting set of AI native start-ups, which allow us to add unique value across the entire value chain of AI. So we're using KYP, which stands for Know your Potential to help our clients mine and redesign processes and to really understand the business case and the value generated with AI on a very specific and data-driven manner. We are working with the likes of EMA and [ NAN ] as to create and orchestrate and manage the digital AI employees, the agents. We're working with AI to really be able to measure and value the highly, how should I put this, movable cost of AI consumption and to have the causality and the correlation to value. And we're working with clarity around helping our clients drive this continuous change. And we're using all of this technology for our own back office and front office transformation as well. So I know I've used a lot of words here, a lot of concepts, but let me move to the next stage and try to make this very real for you with a number of client examples. So to be honest, we have more demand than we can almost handle right now. We have incredible interest in this agentic AI studios and just sharing with you a couple of examples here. One is Scottish Water, where we're working together to really transform the way they are doing operational planning, risk assessment, decision-making across the entire national and wastewater networks. And this is really mission-critical environments where AI agents are used to continuously monitor the network, to analyze proposed changes to automatically generate contextual risk assessment. And as you can imagine, this is the type of AI, which really needs to work, which really needs to be secure, which really needs to be accurate and timely. Another example is Defra, the U.K. Department for Environment, Food and Rural Affairs. Their mission is to make the air purer, the water cleaner, the land greener and food more sustainable. So obviously, very important mission and vision. So what we're doing with Atos is that we're using a new set of highly differentiated agentic AI solutions we have developed to rapidly modernize and transform their entire application portfolio. We call those digital transformation engineers. They're AI agents which work in collaboration with our human experts to achieve things which frankly wouldn't have been possible to achieve just a few months ago. So we're seeing a close to 30% time-to-market efficiency gain around how to modernize those mission-critical applications. Another example is mBank. We are really working very closely with them to develop their entire advanced digital foundation. And again, this is not AI, which is an add-on. It is mission-critical AI, which is being used to improve operational resilience, to create real efficiency in their business, to manage risk and to really make a difference around their customer experience. And there are many, many, many more examples of this. So we're very proud about this sovereign agentic AI studios, much more to come in this space going forward. If I go to the next slide, I'd like to share with you a perspective around how we're approaching the sovereign space. So what we see is that clients, they have an increasing desire to retain control, authority and accountability over their data, their infrastructure, their applications and digital operations and to have this be in compliance with all the applicable regulations to minimize dependency, exposure and disruption risk. And I think it's important to note that this is not just a European development. We see sovereign requirements being very high in North America as well, both in United States and in Canada and also in our international markets. And in actual fact, there are data points which point to the fact that over 80% of requirements from clients going forward are going to include a critical demand for sovereignty. And this is a massive business opportunity. It's currently estimated to be in the EUR 40 billion to EUR 50 billion of total addressable market, and it is growing quite fast. And frankly, we believe that we are one of, if not the best player in this space. I'd like to draw your attention to the quote on the bottom right corner from one of the leading independent analysts, which is basically and I'm quoting, "Few players can claim the unique combination offered by the Atos Group, an umbrella of sovereignty, which provides the whole with an unprecedented coherence." So we are able to do this in a variety of models because sovereignty takes different shapes and forms in different countries. What U.K. means by sovereignty is slightly different than what France and Germany means by sovereignty, which is different than what U.S. means by sovereignty and so forth. So we're able to offer this full spectrum of solutions ranging from enhanced native clouds to controlled clouds to trusted clouds to disconnected clouds to fully sovereign AI, as I mentioned previously. So I would like to give you, again, a little example of this. One of them is Eurocontrol. Eurocontrol, you might be familiar with, they are the organization, which manage and control the European skies. They are providing a really mission-critical service to the entire continent. If their systems and operations wouldn't work, then flights would not fly, that would obviously have a very, very high impact on the entire economy. So what Atos is doing is that we're one of their leading partners to ensure the strict resiliency, safety, security compliance requirements around the entire IT value chain. And we do this in a way which is coherent, is aligned with the industry regulation and generally spans infrastructure, application, artificial intelligence and so forth. And this is a solution where we are partnering with Microsoft as well around the Azure cloud. If we move on to cyber, that is, of course, a very hot topic and it continues to be so. And what we're seeing is that AI security has really changed the game. So it's become the primary focus area for the way our clients spend. AI is truly redefining threats, defenses and vastly expands the attack surface. And cybersecurity is shifting to an always-on compliance model where our clients are requiring very much verifiable controls and sovereignty aware architectures. And again, this is a space which is moving super fast and really redefining the game. So to give you a little anecdote, it is estimated that there are 80x more machine identities in any organization today compared with human identities. And this is, of course, because of the advent of agentic AI. So that type of AI where you have agents which perhaps only need to have split second life cycles. They need to be controlled. They need to have verifiable access controls. They need to be spun up and potentially terminated in under a second really redefines the rules of the game. So we believe that we are super well positioned in this space. We have very much an end-to-end best-in-class set of cybersecurity services ranging from advisory which, Philippe just mentioned. We have very much embedded AI agents in our entire life cycle of threat intelligence, threat detection, investigation and response. We're also, we believe, one of the market leaders in post-quantum cryptography. And of course, with the Eviden Group, we have some fantastic EU, European sovereign cybersecurity products. So again, to make this real, I'd like to give you a sense of the work that we're doing with the European Commission. This is one of the most important cybersecurity services in Europe, full stop. And Atos is on point and has won a substantial framework agreement to provide operations, incident response, digital forensics, threat intelligence, threat monitoring, offensive security in the areas of vulnerability management, penetration testing and red teaming. And again, I draw your attention to a number of independent analysts, which continue to recognize us as a market leader in the cybersecurity space. So let's move on to the next slide and try to give you a big picture of where we're at and how we see AI impacting our businesses. So this might be a little bit of a busy slide, so please give me a chance to walk you through it. So at the bottom of the slide, you're seeing our different historical business lines with data and AI, cyber, Eviden and so forth. Then the Harvey balls are representing the way we see AI impacting those specific business areas. So on the top row, you're seeing how AI is impacting the addressable market expansion with the full Harvey ball, meaning it is very high expansion, i.e., more opportunities for us or a limited partial Harvey ball demonstrating or indicating a limited expansion. And then the AI top line pressure row is basically a way of indicating how we see AI impacting or having the potential to impact our top line revenue ranging from low to high. So all in all, all in all, we see AI being a strong driver for growth in Atos. We are very much on the offensive. We believe that AI is a game changer, and we are super well positioned in this space. But the important bit to mention here is that we have a leading position in a number of these building blocks in the colorful table below. But what we are doing very successfully is to combine and recombine them into this 3 big bets that I've been talking to you for the last few minutes. So again, please remember the growth engines of Atos are agentic AI digital sovereignty and cybersecurity. And we're seeing substantial opportunities and a lot of momentum in those areas. And we truly believe we have the right to win. So moving on to the last slide as a little bit of summary. We are still going through a massive transformation. We've turned the corner. We are reimagining and we have reimagined the entire technology function in Atos. We're attracting some absolute top-notch talent. We have done a full portfolio redesign, doubling down on agentic AI and AI in general, digital sovereignty and cyber. We have a very unique and differentiated approach to sovereignty and security. We're boldly and ambitiously embracing this new world of services software where increasingly, we are building very unique, very specialized AI solutions powered by software to augment and enhance our services. And the Agentic Sovereign Studios, which we have just launched are really a showcase of much more to come. We really look forward to sharing with you progress and a lot of success in this space. So having said that, handing over to my colleague, Jacques-Francois, to walk you through some interesting numbers. Philippe Salle: So thank you, Florin. I will take the lead before Jacques-Francois if that's okay. And in fact, Florin, you're right, we're going to have a special press release on the agentic next week on the other. We're going to much comment, let's say, much more in detail on what exactly we're going to do in the coming weeks and months, of course. So now going back on the number -- topic #3 on the presentation. So we go to Page 26. So you can see the revenues of '25 versus last year. We call also the pro forma without the foreign exchange and scope. Scope is world grade, of course, in '24. And as you see, minus 14% in terms of sales. If we go to Page 27, you have the EUR 8 billion between Eviden and also Atos in blue. And then in the different countries, Germany is #1, North America, France, U.K. and an international market and what we call BNN, which is Benelux, Netherlands and Nordics. And if you look on the right, this is the EUR 7.2 billion, that's the pro forma of '25 without Latin America and without BNN. And you can see that the base we're going to rebound for this year. And you see now, I would say, what is the split of revenues between Eviden, now, of course, much smaller on the EUR 300 million plus and I would say Atos with different yields. Now if we go to Page 28, I'm very proud to say that we have doubled the margin in terms of EBIT and in terms of percentage more than that. So pro forma in '24, we were at EUR 172 million of EBIT, and we -- last year, we touched the EUR 351 million. So it's more than doubling in fact, the profitability and also a margin at 4.4%. And as I said, that's the biggest margin we have since 2021. Now if you look at the operating margin by geography on Page 29, I will not go into detail but you can see on the left column, that's the results of '25. And on the right, that's the pro forma without -- and without Latin America. So that's the rebound. So the EUR 7.2 billion and EUR 314 million, that's the base impact of the rebound for '25 -- '26. Now I will go very quickly on the different business units. But you can in fact that in Atos for the 6 geos, we have done quite a very good job. Germany, we start first minus 10% on the top line. So tough year. We know also that some of the clients have decided to exit. For example -- of their platform. So it was nothing to do with Atos. Germany is for the first time probably of many years on a positive territory. And as I said to you, this year, we'll be probably close to EUR 100 million. I think the budget is EUR 90 million. So we have, I would say, with Genesis, more to come, of course, in the course of '26. Atos North America on Page 31, that's the area that has been touched more, I would say, in terms of top line. A lot of clients have been frightened in the course of '24 and we -- they stopped, of course, some of the contracts. But as you can see, of course, the EBIT in terms of quantum is less than '24. But in terms of margin, we are double digit, and I think it has been a very good job done by the U.S. team. Now if we go to France, the decrease is around minus 10%. And also, I would say, however, we have a decrease in terms of top line. We have been able, I would say, to stabilize the earnings a little bit more, in fact. And of course, with Genesis, there is more to come in the course of '26. U.K. and Ireland also is an area on Page 33, where we have had also a -- it's like in the U.S. In fact, it has been a tough year because of a lot of clients stopping to work with us and stopping contracts. But as you can see, we have been flat in terms of EBIT and roughly at EUR 83 million versus EUR 82 million. But in terms of margin, we have increased the margin by roughly 1.6%. International market is down also at minus 15%, but we have more than doubled the profitability. We have done a very good job, in fact, in the Genesis transformation in different countries in Middle East, in also South Europe and also in Asia. And last, Benelux, where I would say probably we have been the more resilient in terms of top line. And so we are on Page 35, minus 4% in terms of organic -- inorganic growth, so a decrease in terms of organic, let's say, and a very, very good job from the team on the bottom line. As you can see, we have multiplied by 10 the EBIT with a margin around 7%. So as you can see, in fact, despite, of course, the top line, I would say, pressure, we have been able, I would say, to manage very well the bottom line. Last slide on 36 is on Eviden. Of course, this is the part that is growing and mainly of the advanced computing activity. This activity was losing money, in fact, in '24, and we have done quite a good job to restore some profitability. It's still too low for me. But definitely, there is more to come in this business unit. With this, I hand over to Jacques-Francois to go more on the P&L and balance sheet. Jacques-François de Prest: Okay. Thank you, Philippe. Good morning, everybody. Now that Philippe has gone through the drivers of our business operational performance, let me walk you through the P&L items below operating as well as the cash flow statement and the balance sheet. So as Philippe indicated, our operating margin amounted to EUR 351 million in fiscal year '25. We incurred reorganization and rationalization charges for EUR 642 million in total, of which EUR 540 million reorganization costs as we made significant progress in the execution of our restructuring program and EUR 102 million provision related to leases and real estate asset impairment. We impaired EUR 166 million of goodwill this year as a result of the upcoming disposal of the Advanced Computing business. Other items reached a negative EUR 331 million. They included losses related to some onerous contracts for EUR 123 million and litigation provisions for EUR 145 million. The net cost of our debt reached EUR 333 million, up from EUR 178 million last year, reflecting our new debt structure post '24 refinancing and including PIK interest as well as the amortization of 2024 fair value adjustment. Other financial expenses were EUR 102 million in fiscal year '25 due to debt lease pensions and provisions on nonconsolidated investments. As a result, our net income group share amounted to minus EUR 1.4 billion. On the next page, we see the cash flow generation, which improved significantly year-on-year from minus EUR 735 million in '24 to minus EUR 326 million in fiscal year '25. We generated EUR 883 million OMDA in fiscal year '25, and we expensed EUR 170 million in CapEx and EUR 278 million in leases. Our change in working capital requirement, once we neutralize for the working capital actions, you recall that the unsolicited cash received in advance from some customers, this amounted to a positive EUR 33 million. It essentially reflected a lower activity level in 2025. Going forward, we expect further sustainable working capital improvement. Our cash restructuring expense was EUR 445 million. As expected, cash out accelerated in the second half of the year. Tax paid was EUR 31 million and cash cost of debt EUR 160 million. Onerous contracts and litigations amounted to EUR 157 million. As a result, our net change in cash was limited to EUR 326 million, better than anticipated despite higher restructuring costs, cash at EUR 445 million. Now the net debt as at December 31, '25. The net debt was EUR 1.8 billion compared to EUR 1.2 billion as at December 31, 2024. Beyond free cash flow, it reflected the impact of the change in working capital actions for EUR 43 million, negative ForEx impact for EUR 104 million and other elements such as the PIK component of the debt. Net debt consisted firstly, of cash and cash equivalents for EUR 1.265 billion. And secondly, borrowings for a nominal value of EUR 3.64 billion. As at December 31, '25, the group financial leverage ratio was very similar to the end of '24 level at 3.17x. I remind you that our target is to reduce leverage below 1.5x at the end of the year 2028. Thank you. And I now hand over back to Philippe. Philippe Salle: Thank you, Jacques-Francois. So let's go over to the section, which is the outlook. So on Page 42, first, we want to come back on what is Atos -- do that we will give the keys at the end of the month, in fact, the end of March without also Latin America that we have sold and the closing is expected in fact in April and also the small divestiture that we have done in the Nordics. So on the left side, you can see that the revenue is EUR 7.2 billion. Operating margin is EUR 314 million and that's the pro forma without, as I say, the new perimeter, roughly 57,000, 58,000 people without -- in Latin America and 54 countries of operation. And as I say, we want to be below the 40 threshold, so we continue to reduce the perimeter in this topic. On the right, you can see the different business lines, the different geography. #1 market is now Germany. North America, #2. France, #3. And U.K. and Ireland, #4. And as you can see, these 4 countries is roughly more than 70% of our total revenues. And then you can see also the industries. Now the financial ambition is on Page 43, and I know that a lot of people are waiting this moment. So the guidance for the 3 elements, which is top line, bottom line and cash. So on the top line, we are looking for a positive organic growth. That's the budget that we have internally. But we want to say that there is also a downside scenario possible that is limited to minus 5%. So it's very important that we are cautious. We don't want to over give, I would say, confidence. It's very important that we deliver the numbers that we announced. And that's why we say that, of course, the budget is and our target internally is to grow. It could, I would say, there are some less good news in terms of top line. The maximum we can see this year is minus 5%. And remember, it went over minus 14%. So of course, the first half year will be negative, and we estimate that we will be probably around minus 9%, minus 10% in Q1. And then it will, of course, stabilize in Q3 and a rebound in Q3 or in Q4. Operating margin around 7%. So it means that it's indeed, let's say, around EUR 500 million. So it's an increase by 60% versus '25, which is very important. And we are on, I would say, to the journey to touch this 10% margin by '28 and a positive net change in cash. So it's without, I would say, a divestiture of course, of -- So it means that with the cash that we're going to produce this year plus, of course, the cash we're going to have from the M&A, the debt will be reduced. The EBIT will increase. So the leverage for sure is going to decrease strongly, in fact, in the course of '26. And we are very, I would say, very confident that we're going to produce cash this year. And I think it's the result, of course, of this Genesis plan that we have accelerated in the course of '25. Now for '28, we continue to say that the 3 phase, as I say, reset in '25, rebound in '26, accelerate now in '27 and '28. We continue to see an acceleration of the top line between 5% and 7%. We track probably do better than that. Still looking at an operating margin around 10% and of course, deleveraging to be below the 1.5% net debt by the -- the way we calculate this in the course of '28. So to have, let's say, a profile of BB and BBB probably in the course of '29. That's the goal we have. Now if I have to sum up, I would say, what we have said today with Florin and Jacques-Francois. So on Page 44. First, we have a restore the foundation of Atos. We are very pleased to say that we have met or exceeded, I would say, the financial guidance that we have set. We have done a lot of job, in fact, in the commercial strategy, and I definitely think it's going to yield a lot of results. In fact, I would say the Genesis cost, it's a 1- to 2-year effect. We have done most of the plan in '25, we will finish in '26. And the rebound, it's a 2-, 3-year effort. We have done a lot of job in '25. We're going to see some of the results in the course of '26 and I definitely thing that we're going to accelerate in the course of '27. As I said, the Genesis plan, we have done roughly 88% in terms of savings. It's a pro forma. So we have, of course, part of it in the P&L of '25, and there is more to come, of course, in the P&L of '26. Second, I think we are very well placed for the AI journey, and I think Atos has as a unique position. We're going to reinforce, as I said, the 3 tech pillars that the Florin has said. So agentic AI with the launch of the studios, more to come next week, sovereignty and in cyber. And remember also that we have launched also the consulting we rebranded, I would say, the Atos Amplify. So today, we are announcing the launch of Amplify and also the launch of the Agentic Studio. And we have, in fact, a new website that you can see on the Atos group. And then we have quite a promising outlook on the right part of this page. So stabilization in '26 with a rebound in H2 and then acceleration of top line and of course, production of a lot of cash in the course of '27 and '28 when we can probably resume M&A, we'll see if there are targets that are interesting, but it's also possible that we do probably less because we estimate that with agentic, we have a lot of opportunities we're going to have we probably will try also to invest also in the company more in our studios. With this, I turn to the Q&A session that is open and then I will give the floor to Florin or Jacques-Francois depending on your questions. Operator: [Operator Instructions] The first question today is from Frederic Boulan from Bank of America. Frederic Boulan: Two questions for me. Interesting discussion on your AI offering. Would be keen to understand how you define your competitive edge versus your key global competitors and players. And more broadly looking at your midterm targets, 5% to the kind of growth ambition, what kind of upside have you -- do you anticipate and have you penciled in on that kind of segment versus potential pressure on traditional, I mean, digital transformation, as you mentioned on that slide? And maybe as a second question, is there any -- would be good to have an update on the kind of current pricing environment any kind of areas of your business where you do see kind of margins going down on new projects. I mean you mentioned some of competitive bids where you walked away. But where you do see already today Gen AI driving some price deflation? Philippe Salle: So in fact, Frederic, you have to understand, I think the slide of Florin, which I think is not the most important, but I would say in the Page 23. The way we look at it is very simple. In fact, AI is going to touch the company in 2 types of impact. There is an impact on the coding, so the digital applications where we definitely think we're going to go faster and cheaper. And that's why we said there is an equal to negative impact. But here, in fact, what we see is that we're going -- it's not going to impact the top line that much, but we're going to produce much more for the same price. And what we see from CIOs and the budget right now is that they are accelerating, in fact, their plan because there is a lot to do, in fact, in digitalization in many companies. And in fact, we can probably -- do probably twice as much that we were able, I would say, to provide in the past. We definitely think that, in fact, with AI, coding and testing is very simplified, and we can produce much more than we have done in the past with probably less people. And -- but for us, I think there is no impact on the top line. It's just the fact that we're going to accelerate the project and we're going to provide more. The second impact for the rest is the agentic studio, so the AI on our operations, for example, on CMI, et cetera. And there, we definitely think that it's a big opportunity because we definitely think that with AI, we're going to provide more services or accelerate, for example, some work that we ask, I would say, by the client. So we don't see for the moment, for example, for a big tender, we're going to announce one probably in the course of March, a very big one. We -- and it's a very long contract on CMI. In fact, the margin is up because also we apply also agentic on our own delivery. We pass, of course, some, I would say, the savings to the clients, but we protect the margin of Atos in fact in the future. So we -- that's why we say we are quite positive. Probably Florin, you want to answer on the strategic, I would say, advantage or competitive advantage we have versus the competition. Florin Rotar: Yes, sure. Thanks. So if we go to Slide 17, I'll give you a summary of it. So I think one of the key differentiators is the fact that we have this very long relationships and know-how with a number of really important clients. And what we've been able to do is to bottle up this decades-long insights and data from running hundreds, if not thousands of managed services and long-running engagement into a series of agents, which are sitting on unique Atos foundational models. So if you remember previously in the presentation, I mentioned our collaboration with Poolside. So we are creating a frontier level model, which is Atos native, which packages up this know-how developed the processes and the data built over decades, which we're providing on an Agentic-as-a service model. I think the other differentiation we would have is this experience of working in highly regulated, secure mission-critical environments. So you need to remember that most of the time when people talk about AI today and agents, it's around things like customer service or B2C or call centers. And AI is, frankly, fairly easy to implement in those environments. The accuracy just needs to be good enough. And to be very direct, if a customer who calls a call center does not get the right answer, the sky does not fall down. On the other hand, the type of agentic AI that we specialize in, like the super mission-critical one, it's a completely different ball game in terms of robustness and industrialization. So if our AI agents would not work properly when there is a flooding in Scotland, then we have a serious problem. If the AI solutions that we're creating together with Eurocontrol would not work properly. Well, then you have massive flight delays in Europe and the entire economy loses $1 billion a day. So I think this know-how we have based on our heritage of working in areas which some people consider non-sexy, if I'm allowed to use that word, it's turning into a competitive advantage for us. We really know how to make AI work in those environments. And you see some of the recognition we have in this space. So ISG has recognized us as an absolute leader in advanced analytics and services. We've just made a leader in all market segments with Nelson Hall around transforming business operations with Gen AI and so on and so forth. So to summarize, we are neutral. We're the Switzerland of governance. We know how to make AI work in this super difficult environment. And we have bottled and packaged this know-how into unique models and unique agents, which nobody else would be able to replicate. Philippe Salle: Thank you, Florin. Operator: We'll now take the next question. This is from Nicolas David from ODDO BHF. Nicolas David: I have 3 questions on my side. The first one is regarding the cash guidance. Can you help us reconcile how this net change in cash you expect for 2026 is comparable to what could be a free cash flow to equity definition? What could be the difference between the 2 in terms of cash collection or cash outflow? The second question is regarding the provisions you have passed in 2025, the EUR 123 million on onerous contract notably. Can you help us understand if it's just a cost overrun on this year -- on last year, and it was linked to cash out last year? Or is it a provision for multiyear upcoming losses on the contract you identified? And do you expect more in 2026 if you review more contracts? And also regarding the litigation, when do you expect the potential cash out? And the last question I have is what is -- what would be your strategy regarding the debt refinancing given that the debt market for tech companies is getting more tight right now? Philippe Salle: Okay. I will just answer the last question, and then I give the floor to Jacques-Francois for the first 2. As we say, the door is open for us to renegotiate the debt after 1 year, in fact, it was on December last year in '25. And as you -- what we have done is that we are prepared, I would say, to take any opportunity to refinance the debt. And as you said, right now, the door is closed just because the markets are not in a good shape. So we will wait until I would say there is an opportunity. So we will see. So it could be in March, could be, I would say, in different other period. I think the message is that we are ready to do part of the refinancing as soon as the door is -- I would say the window is opening again, we will probably decide an opportunity on this, okay? So we'll see what happens in the course of '26. I don't have a crystal ball. It's difficult also because, of course, you said for the tech, it has been shaky, I would say, in Feb. Now with Iran, I'm not sure it's going to be less shaky in the course of March. So let's wait and be patient. But if there is an opportunity, we're going to take it. Now for the two first questions, I'll let Jacques-Francois answer to answer. Jacques-François de Prest: Yes, Nicolas. So the net change in cash is the way we call internally this free cash flow, which you're referring to. There are no reasons for differences just in our guidance, we are excluding the repayment of debt. We keep in there the interest to serve the debt, but repayment of debt is excluded, so is FX impact, so is M&A. So that's the first question. Second question is regarding the provisions for onerous contracts and other items basically. So in terms of onerous contracts, Philippe has mentioned quite regularly in the calls that we had still a couple of significant black accounts on which we are losing some money. We have, can I say, the duty to assess these contracts regularly. Of course, management is trying to mitigate with action plans to reduce the losses. And to be clear, we're also trying to exit. But so far, we are bound. So in our reviews at the end of fiscal year '25, we have decided to provide more for future losses. So at this stage, you should not expect additional provisions to be added in '26 because the review we have done is quite prudent and should be comprehensive to cover all the future. And in terms of litigation, well, by definition, it's a bit uncertain and it doesn't depend on us. So I'm afraid I cannot give you really a timing for the cash out of these provisions. But you will recall that the bulk of the litigation provisions has already been booked in H1 '25. So there is not so much which has been added in the second half of '25. Philippe Salle: And in terms of black accounts, there are no new brand accounts, so don't worry. We are -- as I say, we have signed quite a very healthy project, and we are still managing the last 2 accounts in the U.K. Again, one account should finish mid-'27. So that's the goal that is to stop one. And the second one, we are in negotiation also to stop it, but the end of the contract is 2034. Operator: We'll now take our next question. This is from Sam Morton from Invesco. Sam Morton: So in the release, I think you talked about considering to repurchase bond debt. Can you talk a little bit about what that would look like? Is there a particular tranche that you're looking at? Or is that just sort of repurchasing across the board? And then I'd like to dig into the refinancing. Obviously, the window is challenging at the moment. But when you think about the refinancing, is this a piecemeal approach? Or will you -- are you looking to do all of the refinancing of the first lien and the 1.5 lien at the same time? Philippe Salle: So I would say on the refinancing, the goal is first to refinance the 1L because it's 13% and we definitely think that we can be much cheaper right now with B- and also with a positive outlook. And then after that, if we can do 1 and 1.5, of course, we will do both. I would say it will depend on the depth of the market. But I would say 1L is more important for us just because it's too expensive. The 1.5L in fact, is cheaper and it's around 8% plus in terms of yield. So 1L is the priority. But if we can do 1L and 1.5L so that we can stop also the, I would say, the procedure that was in place since '24 for Atos, we will try to do both. But I would say the priority is 1L. Jacques-Francois, probably you want to... Jacques-François de Prest: Yes, on the repurchase of bonds, so forgive me, I'm not going to give you a straight answer. However, I can tell you that what is guiding our actions is we are making a standard calculation of value and we are targeting the instruments where there is the better value. Sam Morton: Okay. Sorry, can I just dive into that? So would you look at the lowest cash price? Or would you -- I mean, I'm just -- I mean, like what's the philosophy. You're looking at the lowest cash price? Or you're trying to facilitate the refinancing? I'm just trying to understand how you think about it. Philippe Salle: Well, in the URD, which is going to be published next week, you will see that in '25, we have already bought a little bit of second lien bonds, a very tiny amount because it was not very liquid, but we have bought a little bit of 2L already in '25. Now we are looking at NPV, IRR. The first reason -- the first objective is to look at what's generating more money, what's -- because we are -- today, we consider we're a little bit in excess cash. We have some big proceeds coming on, namely with the proceeds for the closing of the advanced computing division in a few weeks. So we are trying to make the best use of our money. Operator: [Operator Instructions] The next question is from the line of Derric Marcon from Bernstein. Derric Marcon: I've got 4 questions, if you authorize me. The first one is on the range given for the guidance -- you gave for the guidance. So minus 50 plus or positive. Could you try to help us understand the difference between the low end of the range and the upper end of the range. At the bottom of the range, does it take into account significant revenue reduction with Siemens. And can you also explain us where you land with Siemens in 2025 versus 2024? And what do you expect in 2026? Just to understand if it's an important moving part in the construction of this range. My second question is on the -- your commercial momentum. If we look to the full qualified pipeline number at the end of 2025, it does not improve much compared to previous quarters despite FX. So I'm trying to understand here what KPI do you have to, let's say, assess a much better, as you said, not Q1, but maybe Q2 or Q3 or Q4? And do you see really this momentum improving quarter after quarter? Because, unfortunately, on our side, we can't see through that number. My third question is on CapEx. So as you said, really good performance in 2025 on that side. Do you expect CapEx to remain at the same level in 2026? Or will you be impacted by the massive price increase on memories? And what percentage of the CapEx of this EUR 150 million plus is linked to server plus memory, hardware, let's say. And that's it for me. Philippe Salle: Okay. So on your first question on Siemens, roughly revenues of '25 was EUR 300 million. And this year, we anticipate the EUR 250 million plus. So it's only EUR 50 million, so it's less than 1% in terms of impact on the top line. Remember that with Siemens, we work with 3 different entities, in the Healthcare segment, Energy and Siemens AG. And in fact, we do roughly EUR 150 million plus and EUR 50 million, EU 50 million with the 2 others. And in fact, I would say there are also different dynamics with different accounts. But as I said, this year, we'll be at EUR 250 million plus because some of the contracts will stop also in the course of '25. But there is no, I would say, a big impact on Siemens, as you can see. Now between minus 5 and 0 plus, as you, as you say, we want to be cautious this year. I don't want to say we're going to grow, I would say, and sign it today. The goal, of course, for us is to do it. But we want to be a little bit cautious and give you a range between minus 5% and 0% plus, let's say, between minus 5% and plus 1%. And then you will pick the number you want. But I think it's a cautious stance in the beginning of the year, and we will have probably more to give in the course of this year. For the qualified pipeline, you're right, it's stable, but I think it's much more quality, I would say, for me than it was 1 year ago. And in fact, what makes me, let's say, more optimistic is that the win ratio is increasing right now. So I would say that the qualified, it's a pipeline where we are quite confident we can make a lot of wins in this pipeline. And then your last point was what about CapEx number. Remember that is going away. After that, I would say for Eviden, the chips, it's not a big problem for us. And in fact, for some of our data centers, most of our contracts will pass, I would say, the increase that we see from our providers directly, I would say, to the client. So there is no much risk in fact in terms of CapEx. The CapEx we are looking for this year is at EUR 100 million plus without -- So that's the target that we have for this year. Derric Marcon: Can I add just a small follow-up because on your explanation on AI, very helpful and interesting. And I'm on the same line than you about compensating price deflation with volume on most activities you are doing. But I was wondering if this reasoning can apply or could apply to digital workplace and cloud and infrastructure and modern infrastructure because here, I struggle to understand you will get this price deflation for sure, but I don't see where the increased volume will come from. Philippe Salle: Florin, you can explain that. Florin Rotar: Yes. So it's a great question. So actually, if we go into the cloud and modern infrastructure, so we see a quite substantial uptick around the work that we're doing based on the sovereign movement. So there is -- it is a quite complicated area where clients need a lot of help, everything from advisory to try to understand which workloads they do sovereign and which version of sovereign and to move and redesign both the application and the infrastructure space from those areas. I would also say that we have substantially improved our partnership with a number of the hyperscalers. So we're driving a lot of additional new joint go-to-market campaigns and solutions in this space, which is acting as a net positive. And I would also say that on cloud and modern infrastructure, actually, AI is opening up new opportunities, which historically wouldn't have been possible to do for our clients. So as AI is making the modernization and the digitalization of legacy applications possible in a way which, frankly, again, wouldn't have been realistic or cost efficient in the past. That drives substantial requirements for infrastructure and cloud modernization. So AI is actually a tailwind for us in cloud and modern infrastructure. And when it comes to digital workplace, we are expanding the type of services we provide in digital workplace. So again, AI is, to some extent, a headwind because some of the services which we historically would have done with people are now done by agents, but we're able to improve our margins in that case. But we're also seeing AI act as a multiplier. So one of the key demands we see from clients is how to have their people truly be able to use AI constructively, usefully and in a meaningful way. So we're actually adding AI enablement and AI capabilities as part of our digital workplace services. We're also using AI to make the digital workplace experience a lot more enhanced to help with self-healing. So we're basically adding additional services, additional value-adding services in our digital workplace portfolio, which again are quite nicely balancing those tailwinds are nicely balancing the headwinds we would have had traditionally with digital labor replacing human labor. I hope that answers your question. Operator: We'll now take the last question today. And the question is from Laurent Daure from Kepler Cheuvreux. Laurent Daure: As for Derric, I have also 4 questions. First, I'd like to -- if you could come back on the way you have built your revenue plan for 2026. I mean, if you start the year with the first quarter close to minus 10, and you're not going to have much easier comps the following quarter. Does it mean that you're expecting to win sizable deals that will start during the year? Or what makes you so confident that you're going to end the year with strong growth in order to offset the first quarter? Then my second question is, first, thanks for the clarification on Siemens. But if you could share with us exactly your relationship with your clients as of today. And in particular, I understand that you have 2 more years of business. But do you already have a visibility on what's going to happen for that client as of 2028? And the last 2 questions, one is on the one-offs. At which timing do you expect the P&L to start to be quite clean with limited restructuring and provisions? Is it 2027? And the final question is on the nice improvement you're expecting on EBIT. Could you share a bit the building blocks to go from 4% plus to 7% the main savings, that would be helpful as well. Philippe Salle: So on your first one on Siemens, so we have what we call -- that was signed in 2020. It was a 5-year plus 2 year contract. So there is 2 more years. But after that, in fact, in the course of what we want is not to have any -- whatever with Siemens. It's to continue with Siemens exactly the way we continue with other clients. We just answer tenders and one project. So in fact, in '28, we will continue to answer the tender and win some of the projects. In fact, and when you look at the backlog in Siemens, we have already revenues for '28 and '29 for some of the projects that we have won in fact in the course of '25. So I would say it's a normal client. There is no need, I would say, to resign whatever, it doesn't make sense. Also because, in fact, in the time that we have signed in 2020, you should know that there was a signing bonus that makes, in fact, the margin of the contract not that good. And in fact, now the margin has been restored in the course of '26. So we are quite happy on it. And the idea for me is to continue with the Siemens, like all other clients. There is no specific agreements that we need, I would say, with Siemens. And remember also that, as I said, Siemens, it's 3 different entities with 3 different, I would say, clients. So in fact, we have also client partners addressing the different entities of Siemens. Now for your second question. Of course, if we start at minus 10 and we want to be positive, there is no magic. We need to be a strong growth in Q4. That's the anticipation that we have. I cannot go into details on which contracts we want to win or not. It's too difficult to do that. And I'm not sure it's very useful. But of course, that, I would say, the goal that we have in our budget is that to be roughly at 0 plus in Q3 and then have an acceleration of the growth in the last quarter. And I would say that it would if we are able to be at 0 plus, it's a very good result for us because it means that we are have, let's say, growth going forward in the course of '27. The bar is high, Laurent, I don't say it's an easy one. Please be careful on that. Don't estimate that everything is easy. But of course, we have an ambition, and we definitely think that we have the pipeline and the projects to rebound, I would say, in the course of Q3 and Q4. For your other question, I don't remember. Yes, go on, Jacques-Francois. Jacques-François de Prest: Well, I think, Laurent, you were asking when do we stop the one-offs and do we when do we have a P&L which is clean. Well, I think already '26. I mean, for me, the numbers we are publishing now are taking everything we know into account. So of course, in '26, we still have the continuation of the Genesis restructuring plan because we said that we booked a large chunk in '25. If you remember, the full envelope was EUR 700 million. So we're still a bit below. So there is still somehow -- a portion of that to come in '26. But beyond that, I would say that '26 already should be expected to be clean. That's the question on the one-offs. Your last question, I don't know if you want to take it, which is the further -- the building blocks of the path to the 9% to 10% margin. Philippe Salle: I think yes, well, first, we were at 6% in H2. Remember that we have roughly EUR 200 million of savings of Genesis in the P&L coming this year. So if you start with EUR 300 million plus, plus the EUR 200 million, we are already at EUR 500 million, then you need to get rid, of course, we're going to have an increase of salaries and it's an impact of EUR 70 million plus. So your building block is EUR 314 million, plus EUR 200 million, minus EUR 70 million and then plus the other actions that we are going to take in the course of this year. But that's why we are quite confident on the 7% margin. Laurent Daure: Philippe, if I could add on the new scope question on the seasonality of the margins because you improved nicely from first half to second half. But do you have part of that is coming from seasonality? Or going forward, do you expect when you will have stabilized the operations to have a similar margin level between the 2 halves? Philippe Salle: In fact, it's going to be always more marginal in H2 than H1, but with less Eviden -- is out. And that's most of the explanation why H1 and H2 are very different. It's not going to be the case in the course of '26. So you will see a more stable revenue and I would say, EBIT stream between H1 and H2. But usually and all the companies, and it's the case of, there is more margin in H2 than H1, but not, I would say, like it was, in fact, in the course of '25, to a smaller extent. And remember that I said already in the CMD last year that there will be close to 0, I would say, nonrecurring expense in terms of cash in '28. We cash out, I would say, Genesis. So this year, we estimate that it's going to be between EUR 150 million and EUR 200 million. We have done EUR 450 million last year and then the rest in the course of '27. No more, I would say, cash out in '28. Same thing for the litigations, we estimate that most of the litigation will be done. And then for the black account, as I said, there will be probably only one in '28. So it will be, I would say, a small impact in terms of cash. So EBIT will be clean this year, but I would say, in terms of cash also it will be clean in the course of '27 and '28. Operator: There are no further questions at this time. So I will hand the conference back to the speakers for any closing comments. Philippe Salle: Okay. So thank you, everyone, for this long call. We are very happy as you have seen, I think the focus was on technology today because there were a lot of questions on our industry and also on Atos. Have a good day. And of course, we will talk to you probably for Q1 and in the coming months, and we are, of course, focused to the rebound of the company. Have a good day. Bye-bye. Operator: Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect. Speakers, please stand by.
Reshmee Soni: Good morning, and welcome to Grindrod's 2025 Annual Financial Results Presentation. My name is Reshmee Soni from Investor Relations. I am delighted to welcome our analysts, shareholders and members of our management team this morning. Thank you for your interest in Grindrod. A special welcome to our nonexecutive directors who are also online. Today's session, we will cover the 2025 financial performance, having a look at our financial performance, our divisional performance, ending with our outlook. We will then proceed to a question-and-answer session. With us this morning are CEO, Kwazi Mabaso; and Fathima Ally, our CFO. Before we commence, please take note of the forward-looking slide on your screen. I will allow you to peruse this at your own time. And with that, I hand over to Kwazi. Kwazi Mabaso: Thank you, Reshmee. Good morning, everyone, and thank you for taking time to join us today. The year 2025 was marked by geopolitical tensions and trade policy uncertainty. Our success in executing our strategy and continued focus on operational excellence has assisted in limiting the impact of this volatility. We closed off on key strategic milestones in 2025. We concluded the ZAR 1.4 billion TCM acquisition, which is now under our full control. We successfully executed an exit from our shareholding in our nonstrategic Marine Fuels business, securing cash of ZAR 102 million. We exited our exposure to KwaZulu-Natal, North Coast property and secured ZAR 500 million in the process. Now let's take a closer look at the macroeconomic environment. As I have stated earlier, the period under review reflects a complex global operating environment, one that is characterized by elevated geopolitical risks and challenging environment. This has placed pressure on regional economic conditions resulting in shifting demand for commodities that we move for our customers. Looking at the key regions where we operate and where our customers export to, starting with China, China recorded an economic growth rate of 5% despite reduced iron ore demand resulting from a 4.6% decrease in steel production. This decline was attributable to a slow property sector and a weak infrastructure investment. India, the key importer of South Africa's thermal coal grew its economy by 7.3% in 2025, continuing its streak as the fastest-growing economy in the world. Although South Africa's economic growth at 1.3% is an improvement from the sub 1% growth, this still falls short of the required rate to mitigate the structural economic challenges such as high unemployment rate. Mozambique economy grew 1.1%, a substantial drop in the performance we have seen in the past, but LNG project activity is expected to underpin a recovery going forward. The rest of the SADC region's economic growth is expected to be supported by the strengthening of the mining sector. On the next slide, we'll take a closer look at the 2025 price performance of the commodities we handle for our customers. Overall prices outside copper continued to underperform. Chrome ore prices experienced notable fluctuations during the year. We saw an increase in chrome ore exports as South Africa's smelting capacity slowed due to energy challenges. On the other hand, iron ore prices started softer into 2025 and peaked in the second half of the year as China stimulated its steel sector. Coal prices fell in 2025 as India's output rose, which had an adverse effect on South African coal demand. Now I'll take you through our performance overview. Safety remains a priority at Grindrod. Our focus on driving a safe working environment for our employees through BASSOPA safety awareness campaign resulted in Grindrod achieving a year of 0 fatalities. We achieved a record lost time injury frequency rate of 0.16 across all our operations. This demonstrates the employees' dedication to maintaining safe practices. We delivered record volumes in Maputo and Matola terminals, delivering growth rates of 6% and 22%, respectively. I'll give more color to this performance in the next section. However, it's safe to say that our decision to buy up shareholding in Matola Terminal TCM was a strategic breakthrough. As a result of the record volumes, our EBITDA grew by 13% to ZAR 2.3 billion, translating into headlines growth of 17% to ZAR 1.2 billion. We generated ZAR 2 billion of cash from operations at decent EBITDA cash conversion rate of 1.3%, and we held ZAR 3.9 billion in cash at year-end. Consistent with our dividend policy, the group has declared an ordinary dividend of ZAR 0.252 per share for the 6-month period. This brings the total ordinary dividend for the year to ZAR 0.482 per share, marking a 21% increase. We have received more than ZAR 1 billion from noncore assets for the year. The Board has subsequently approved a further once-off special dividend of ZAR 0.43 per share for the 6-month period. As a result, 49% of noncore proceeds have been returned to shareholders. Between ordinary and special dividend, Grindrod has returned ZAR 476 million to shareholders for the 6-month period, bringing the total number returned to shareholders for the full year to ZAR 862 million. Now let us look at our Port and Terminals volume performance. Strong chrome market, partly buoyed by increased chrome ore export from South Africa and Zimbabwe contributed to yet another strong volume growth in Maputo port, culminating in a record performance of 15.2 million tonnes. Maputo has achieved a compounded annual growth rate of 14% since 2021. Moving to Matola. Conclusion of strategic buy-up of control of Matola Terminal was key in enabling Grindrod to unlock operational efficiencies. The reduction of vessel turnaround time by 30% and 11% for coal and magnetite, respectively, resulted in the terminal achieving a record of 9.9 million tonnes, marking the highest throughput in its history. This performance is at 83% of the committed capacity expansion to 12 million tonnes required in the sub-concession extension. Now let's move on to our Logistics segment. The Logistics segment remains a critical enabler to our Port and Terminals business. This segment gives Grindrod the ability to offer an integrated logistics solution to our customers, a solution that is cost effective and efficient. This ability remains Grindrod's market differentiator. Performance in ships agency and clearing and forwarding was soft. Our graphite operations slowed down last year, but recent market development points to a recovery in this business. We have substantially concluded our locomotives refurbishment program we announced previously, which we managed in line with our expected timing of rail open access in South Africa. Engagement with Transnet Rail Infrastructure Manager, TRIM, on Rail Open Access continues with expectation to close the negotiations after the revised network statement has been issued, which is expected in April. I'll now hand over to Fathima to share more insight on the financial performance. Fathima Ally: Thank you, Kwazi. Good morning, everybody, and a warm welcome from my side. It's certainly a pleasure this morning to deliver Grindrod's performance for financial year 2025. Before you, you'll see our income statement and the numbers that we're presenting today, both from an income statement and a balance sheet perspective, have been put together on a segmental basis, which means that the impact of our joint ventures are proportionately included based on our effective shareholding on a line-by-line basis. Our core business performed well for us in 2025. Core revenue up 1% and core EBITDA up 13%. This is largely attributable to the stellar performance coming out of the Matola terminal with volumes up 22%, as Kwazi mentioned earlier. This was offset somewhat by performance in our Logistics segment, which we'll delve into further once we look at the segmental performance in detail. Pleasingly, overall EBITDA margins for the group improved year-on-year by 11%, reflected at 30% for the financial year 2025. Significant corporate activity prevailed for us in 2025 and reflected, you will see nontrading items on screen at ZAR 927 million. The Matola buy-up contributes ZAR 937 million of that, comprising both a gain on disposal as required by the accounting standards as well as the release of foreign currency translation reserves. The Marine Fuels investment, as divested from in the first half of the year, attributing to the drop of revenue and EBITDA, also contributed to nontrading items in terms of a net gain of ZAR 34 million. Our share of associate earnings, which represents performance of the port in Maputo is up 3% year-on-year. Volumes were up 6% and record milestones were met. The performance was slightly offset by tax obligations that was recorded due to the change in tax regimes in the United Arab Emirates. Our overall effective tax rate for the group sat at 31%. Now if you take profit before share of associate earnings and ignore the effects of nontrading items as well as withholding tax effects, which were elevated in the current year following repatriation of dividends from Matola post the buy-up, that's how we arrive at the 31%. Overall, net profit attributable to our ordinary shareholders are reported at ZAR 2.1 billion, 559% up on the prior year, and our core headline earnings at ZAR 1.2 billion, 17% up on the prior year. Our core headline earnings in cents per share closed at ZAR 1.765. If we look at our segmental performance, Port and Terminals doing really well for us. Revenue and EBITDA margins up 20% and 44%, respectively. Again, big contributor being Matola. Matola has been transformational for Grindrod in terms of financial performance as well as financial position. The acquisition has played out exactly as we expected with it being and reflecting as a major earnings and cash contributor. We are excited in moving forward with this asset. Our overall normalized margins, reflecting the impacts of the Matola acquisition and the overall uptick in our Port and Terminals volumes, dry bulk specifically, are reported at 44%, firmly up from the 36% I had reported to you in H1 of this year. Our headline earnings for this segment closed at ZAR 1.1 billion with strong return on equity at 24%. Our Port and Terminals business remains a U.S. dollar-anchored business with 89% of our EBITDA earned offshore. Our Logistics segment faced headwinds in the current financial year. Commodity prices saw a downward shift in our transport brokering business, which put pressure on an already low-margin business. Our graphite contract was renegotiated in the current year, and we moved from a fixed fee model and now earning a variable fee. Revenue and earnings, respectively, moving forward will now be aligned to volumes that we report. Our rail deployment was low. However, we have significantly advanced on our refurbishment program. Ships agency and the container business performance was subdued, largely linked to market challenges. Overall, revenue and EBITDA down 10% and 18%, respectively. And normalized margins, once you ignore transport brokering as well as the COVID-19 business interruption reported in the first half, sat at 25%, whilst at the low end of management's target, still within the range that we target for our enabling business. And this is an important principle. The Logistics business, as Kwazi mentioned, is an enabler to Port and Terminals. It is imperative to how we bring our integrated, efficient and cost-effective solutions to our customers. Overall, this segment gave us ZAR 212 million of headline earnings. And this segment, again, strongly rooted as a rand-anchored business with 83% of our EBITDA earned onshore in South Africa. From a balance sheet perspective, due to the significant impacts of the Matola acquisition, we have represented the December 2024 balance sheet. This will allow better comparability by us notionally including 100% of Matola as it reflects in the December 2025 numbers. We spent ZAR 1.5 billion in terms of capital expenditure in the current year, 81% of that being expansionary. And of that, 75% largely underpinned by the Matola acquisition. The remaining ZAR 362 million was invested in property, plant and equipment, largely in all our facilities and to name a few, our upgrade and our development of our Matola buildings in the current year as well as our Salt River facility in Cape Town linked to our container business and new undercover warehousing facilities in Walvis Bay. Aside from this, other capital acquisitions this year related to steel business, yellow equipment, vehicles and Jersey barriers. Our PPE dropped 5% December '24 to December '25. Whilst additions were significant, we did see depreciation impacts as well as a strengthening of the rand by 12%, which impacted on the translation differences that we booked in the current year. Our intangible assets grew significantly. The Matola acquisition brought on book $86 million of intangibles, both recognized in the form of goodwill as well as customer relationships. In terms of our working capital, our current assets reduced in the current year by 22%. It was very pleasing to see improved collections robustly across our businesses, a testament to the hard work of our finance and commercial teams. This coupled with the down trading in logistics as well as the capitalization of prepayments for rolling stock investments in the prior year contributed to that difference. Our bank and cash balances are up together with our current liabilities. What we experienced this year was significant prefunding that came through from our fuel customers in both the ships agency as well as the clearing and forwarding businesses. What happens here is that the cash is collected and sits on our balance sheet until it is paid over to SARS based on deferment arrangements that we have in place in these businesses. From a liabilities perspective, we saw significant repayments of borrowings. What we also saw was lease liabilities coming to book on renegotiation of the GML concession as well as the Matola acquisition. Our other liabilities have also grown. This is largely in view of the fact that we agreed to certain deferred consideration payments under the COG transaction as well as the fact that we had to recognize deferred tax liabilities linked to the intangible assets that we brought on book and that I mentioned earlier. Overall, we closed this financial year with Grindrod's balance sheet healthy and stable. Our asset base is now rooted firmly to just our core business with all material noncore assets materialized. If we look at how our net debt progressed in this financial year, we closed last year with net debt reported at ZAR 1.5 billion. This was post us ring-fencing funds of ZAR 1.1 billion in anticipation of closing the Matola transaction. Together, this gives us a net restated opening net debt position of ZAR 413 million. We raised in excess of ZAR 2 billion in terms of cash generated from our operations in this financial year. This stemmed from both operational performance as well as the efficient working capital measures that I talked about earlier. Our cash conversion was at 1.3x EBITDA, certainly a record for us looking back into a 10-year history for Grindrod. 27% of this cash was spent towards our interest, tax and dividend obligations. On acquisition of Matola, we brought net cash on book of ZAR 316 million. This comprised of both cash on hand at the time, offset by lease liabilities that were on book. We put ZAR 1.4 billion away in terms of capital expenditure. Again, this largely linked to the Matola transaction where we spent ZAR 1.1 billion, as mentioned earlier. Proceeds on our disposal also amounting to ZAR 1.1 billion and proceeds from noncore taking up 93% of that amount. Our overall noncash movements amounted to ZAR 412 million, again, through the introduction of lease liabilities when the Maputo concession was signed in November this year. We closed the year in a net cash position of ZAR 699 million. If we look at what this comprises, our total debt moved from ZAR 2.9 billion to ZAR 3.2 billion, 10% up. Our borrowings reduced, as indicated earlier, from ZAR 2 billion to ZAR 1.4 billion. We saw net repayments in the year of ZAR 710 million. We saw a significant uptick in our lease liabilities. The Maputo acquisition as well as the signing of the GML concession brought concession-linked lease liabilities onto our book of ZAR 1.1 billion. Our overdraft movements are linked to timing of cash flows. From a cash perspective, we closed the year on ZAR 3.9 billion. Our ZAR 1.4 billion, including ring-fenced cash of last year, give us a net increase in cash of ZAR 1.4 billion in 2025. This resulting in ZAR 700 million arising from the Matola acquisition and ZAR 700 million stemming from the timing of cash flows linked to the prefunding in the ships agency and clearing and forwarding. We closed this year with Grindrod's balance sheet largely ungeared, and we sit with debt capacity that approximates ZAR 4.5 billion. We have plans in place on how to take up this capacity. And to tell you more about that, I'll hand you back to Kwazi. Thank you. Kwazi Mabaso: Thank you, Fathima. Our capital allocation framework directs how we deploy capital through the business cycle, enabling us to shift between stay in business CapEx, growth investments and shareholder distributions. Over the past 3 years at Grindrod, the management team has done well to have a business evolution that supported a balance sheet restructuring. This restructuring improves access to both optimized debt capacity and cash reserves. This work was undertaken to position Grindrod to act on growth opportunities as they emerge. Grindrod has completed its strategic reset. The foundation for growth has been laid. We are now moving into disciplined growth execution. We are focusing on strategic infrastructure initiatives for the short to medium term. Several projects are already underway and additional opportunities are being actively pursued. Starting with the Phase 1 of TCM expansion project, the Back-of-Terminal, this project will lift the terminal's capacity to 12 million tonnes. This project is making good progress. We are still on track for the hot commissioning at the beginning of 2027. The Richards Bay container handling facility, which will give Grindrod direct access to the quayside in South Africa remains on track and is expected to be commissioned in 2028. On the Rail Open Access, as I've alluded earlier, negotiations are ongoing, and we are in the process of procuring 50 wagons this year, specifically for rail slots. MPDC is planning to commence a dredging campaign. This is in line with its commitment to grow and develop the Port of Maputo as part of the concession extension to 2058. This will be project funded against the balance sheet of the port dredging company of MPDC. The capital dredging program, once completed, will allow the handling of ultra-large container vessels and the full handling of the Cape size vessels at Matola Terminal. This will increase the quayside capability of TCM to handle 170,000 tonne vessel size. This project should be completed by the end of 2027. During the month of February this year, Transnet released a request for qualification to identify and prequalify potential private sector partners for the Richards Bay dry bulk terminal, in short DBT. Transnet seeks to partner with the private sector to modernize and expand DBT, which is one of South Africa's largest dry bulk export terminals. DBT mainly handles chrome, magnetite and coal. The terminal currently handles around 17 million tonnes with the potential of expanding to 27 million tonnes, which is plus/minus 59%, 60% improvement that is expected. Now for nearly 2 decades, Grindrod has been a long-term partner in the Port of Maputo through our investment in MPDC and as a terminal operator in TCM Matola. Over that period, we have transformed a legacy dry bulk terminal, TCM, into a modern, high-performance export gateway that today plays a critical role in the regional trade. At Matola, we have invested in the upgrading of a berth, deepening key walls, modernizing handling equipment and deploying integrated terminal operating systems. The results speak for themselves. Matola has consistently delivered record volumes. For the last 11 years, we moved from moving 4 million tonnes at Matola to now moving 10 million tonnes, which is about 150% increase. This clearly illustrates Grindrod's capacity to invest and operate reliably on large scale. And we would like to demonstrate that in South Africa. Therefore, Grindrod will participate in this RFQ for Richards Bay. In closing, our strategy is clear. We provide our customers with integrated logistics solutions that are both cost effective and efficient. We are delivering strong operational and financial results. We will continue to deliver incremental volumes through operational excellence underpinned by our tenacious employees who are the heartbeat of Grindrod. Our commitment to generating value for both shareholders and stakeholders will continue to be a priority. Thank you. I'll now hand over to Reshmee for the Q&A. Reshmee Soni: Thank you, Kwazi, and thank you, Fathima. We will now open the floor for questions. [Operator Instructions] We have our first question online. Fathima, I think this one is for you. Thank you, Blessing Phakula from Vunani Securities. What hedging strategies are in place to manage U.S. dollar or foreign currency exposure? Fathima Ally: Thank you, Blessing. A really good question. We are fortunate at Grindrod. Our significant and material businesses that are anchored in Mozambique, all operate to functional currency of U.S. dollars. Customer collections are U.S. dollar denominated. And where we do see some foreign currency exposure is where we have our cost base that's denominated in local currencies. But again, these close out very quickly within the working capital cycle. So we do not face significant foreign currency fluctuation in the construct of how our businesses operate. We also ensure that when capital expansion happens, we secure funding in the functional currencies of the entity, which eliminates the need for any functional currency or the volatility that could come through from foreign exchange. Where we are exposed as Grindrod is when we translate into our reporting currencies, we use average exchange rates in the income statement and then, of course, closing rates for the balance sheet. Again, the upside here impacts on the earnings that you report, but you can't really apply hedging strategies for this. It's an accounting construct. In this year, we saw close to ZAR 1 billion worth of impacts from foreign currency on translation. These impacts were not absorbed into our earnings. They were absorbed on balance sheet when we translated those assets. So in closing, very simple construct. Grindrod is naturally hedged. And where we do have exposures, we seek forward covers when needed. Reshmee Soni: Thank you, Fathima. The next question, thank you, Rowan from Chronux Research. Is there any impact expected from the current Middle East conflict? Kwazi Mabaso: Yes. Let me take that one, Reshmee. I think that talks to the geopolitical risk that we have alluded on. And I think it's affecting everyone. And certainly, nowadays, you can't predict what's going to happen. And really, for us, as Grindrod, we tend to focus on what's within our control. We've got our strategy that we are executing. We've got short-term to medium-term infrastructure initiatives that we are highlighting. Safe to say that for us, we are looking at how the commodity prices are behaving as it has a direct impact on the commodities that we are handling. We've already seen at Navitrade, the coal coming to Navitrade increasing because of the slight uptick that we have seen on the coal price. We are already tracking at a run rate of about 2.5 million to 2.8 million tonnes at our Navitrade facility. And even when you look at the inbound volumes that is coming into our Navitrade has increased by over 50% on rail predominantly as well as on road. So that is what we are seeing. But our focus really is what is within our control currently. Reshmee Soni: Thank you, Kwazi. The next question from Toko, Oystercatcher Investments. Thank you, Toko. I'll perhaps split this for Fathima and Kwazi. The first section, Kwazi, perhaps from your perspective. Please provide an outlook on chrome volumes for the year given government support for the domestic ferrochrome sector. I think the second one, Fathima, perhaps on your side. What is the medium-term margin outlook in each segment over the next 3 to 5 years? Are there any choke points in the current value chain that may attract additional capital or I suspect CapEx? What is the net debt outlook given the strong balance sheet and growth ambitions? And lastly, what is the maximum net debt and EBITDA you can tolerate? Maybe I'll ask Kwazi to start. Kwazi Mabaso: Thanks. Obviously, with the discussions that are happening between the producers of chrome so that they can process and only ship ferrochrome, it can only be an uptick for us because ferrochrome also moves through our port of Maputo. However, we know that for every tonne of ferrochrome you produce, you need about 3x of chrome ore for you to process that. So maybe there can be a reduction on chrome ore, but there's sufficient demand in the market for chrome ore. We are currently handling chrome from South Africa and Zimbabwe. And right now, I think even the market share of Zimbabwe chrome ore in our port of Maputo has been hovering around 5% to 7%. And maybe we can see that also becoming strong if the chrome from South Africa subside. Fathima Ally: Thank you, Reshmee. Reshmee, you keep me honest here, but I think the first part of the question was around margin stability in our segments. So from a Port and Terminals perspective, we believe that our 44% margin is sticky. You must remember that in the current financial year, we actually consolidated Matola for 7 months in the year. So the first 5 months still came in at 35%. So we've got 5 months' worth of EBITDA uplift that can prevail. But as we've communicated before, our business is cyclical. And the thresholds that we hold for our Port and Terminals business are within a construct of between 35% and 40%, and we stick to those thresholds. From a Logistics perspective, with this business being an enabler to Port and Terminals and with us really moving forward on our integrated solutions strategy, as mentioned, our low end of the threshold is 25%. So it would need to be a really compelling customer opportunity that will allow us to work in breach of those thresholds. But we do have limits in place, and we do believe that those EBITDA margins based on our current business is sustainable. In terms of our net cash, the question was whether we expect the ZAR 699 million to prevail. With the dividend declarations that we have now, that will actually eat up -- both from an ordinary as well as preference dividends, it will eat up ZAR 510 million of that capacity. Overall, long term, depending on when those opportunities that Kwazi mentioned come into fruition, we expect that our net debt position will be depressed as Grindrod. But we are in a growth phase, and that's certainly not abnormal for business planning or in anticipation of growth. I think the last bit of the question was how much we can tolerate in terms of our net debt or EBITDA. We work to tolerating 2x our EBITDA. And again, if we're presented with a really good opportunity, we might work to 2.5x, but we hold ourselves accountable to 2x, again, because of the cyclicality of our business. Reshmee Soni: Thank you, Fathima. Maybe perhaps to move towards the Logistics segment, Kwazi. We have 2 questions in this regard. The first from Alistair Lea of Coronation. Your logistics businesses have not performed well for a while now. What is the short and medium-term outlook for these businesses. Thank you, Alistair. And the second one from Mike Lawrenson. Thank you, Mike. Congrats on an excellent set of results. What can be done in the short term to optimize resources in Logistics division and improve operating performance without impacting long-term aspirations? Kwazi Mabaso: Thanks for that, Reshmee, and thanks for those questions, Alistair and Mike. When you look at our Logistics business, our Logistics business, you've got rail there, you've got our graphite business, you've got container business and then you've also got road transport as well as our ship agency business. Our ships agency business, it's always solid. So there isn't much movement there. Road transport is directly linked with the coal commodity cycle. If coal is down, we'll see road transport also going down. Our graphite business, as also Fathima alluded earlier on, is that we are now moving into a variable contract with our customer after we were earning a fixed fee from the customer. But what is exciting is that the developments in the future is that we are now going to be getting consistent volumes from our graphite customer, the indication of roughly about 30,000 tonnes a quarter, and they are preferring to use our Pemba facility, the dry bulk instead of the Nacala Intermodal facility. So there is an uptick there. On the rail side, where we've seen really a decrease over the last year or so, it's because we deliberately went on an aggressive locomotive refurbishment program. I mean, last year, we refurbished 10 locomotives out of the 13 locomotives that we repatriated from Sierra Leone. And we did that so that we get ready for the Rail Open Access opportunities. But however, even this year, our focus on the rail will be to increase our deployment rate because currently, it's below 50%. And this year, we're going to up that, our local deployment rate, because we have now completed our aggressive locomotive refurbishment program. And then lastly, we've seen the container improving from last year, and we're hoping that it will continue to improve as we move forward. I think I've covered all the segments. Reshmee Soni: Thank you, Kwazi. The next one from Cobus, Value Capital Partners. Thank you, Cobus. Congrats on a good set of results. What is the expected time line for the PSP opportunity in the Richards Bay dry bulk terminals? Does the Richards Bay dry bulk terminal generate revenue in USD or ZAR, or does it depend on the commodity handled? Kwazi, maybe I'll take the second part on the U.S. dollar and ZAR. And on that Cobus, the terminal, as we understand it, does ZAR. Remember, we are at a request for qualification. So we are indeed in an early stage, and that level of detail has not been made available. Kwazi, if you can assist with the time lines? Kwazi Mabaso: Yes. The time line, the RFQ will close in August. And thereafter, then the RFP process will commence. Certainly, from our side, like I alluded earlier on, we are ready for this opportunity. We know that it's still at an early stage, but we've been waiting for this opportunity to come in the market, and we are ready. Reshmee Soni: Thank you, Kwazi. Perhaps, Fathima, we can go back a little to the debt. [ Jaco from Rena Investments ]. Thank you for your question. Are you perhaps contemplating reducing interest-bearing debt with the cash that you have? Fathima Ally: Thank you so much for the question. I think the question is an important one. In fact, it talks to a significant project that we have ongoing at the moment, whereas Grindrod, we're looking to restructure our debt and put it into what's commonly known as a common terms arrangement structure involving all of our main bankers. What this construct will do based on our indicative models that we've put together is reduce our interest burden over the period of our debt, which is lower than 5 years, up to ZAR 40 million over that period triggered by the refinancing. So we are constantly looking at measures on how it is we can be efficient from a cost perspective. But again, how it is we have a construct that would allow us to move forward in terms of our growth plans. Reshmee Soni: Thanks, Fathima. Kwazi, maybe perhaps this is back to you. Wallace Steyn from Steyn Capital Management. To what extent can you expect the dredging program and Matola upgrade to disrupt volumes in the short term? Kwazi Mabaso: That's a good question, Wallace. I think our approach in executing this program has been a modular approach. I mean if you remember, even our Matola expansion program, there was an option of going big, but we decided to do it -- split it into 2 Phase 1, Phase 2, so that we minimize disruption to our operation. So with the capital dredging program, the same approach will be adopted. We don't want to disrupt the ongoing operation in our operations. So we're going to continue taking a modular approach in executing our projects. Reshmee Soni: Thanks, Kwazi. Fathima, maybe back to you. There's a few questions on CapEx, and it may be worthwhile noting what's in the booklet versus the presentation. The first question is from Matthew, Blue Quadrant. Thank you, Matthew. What is the guidance for CapEx in 2026? And what is that split between H1 and H2? The second is from Alexa of Fairtree. Regarding the CapEx plans you've provided for the years ahead, how much of the CapEx is fixed? And how much wiggle room do you have to back out of certain capital commitments? Fathima Ally: Thank you. I think if we go back to the first question, in the booklet that we released on SENS this morning, a capital expenditure and commitment note is included as Note 9 in that booklet. If you look at that booklet, in terms of the future years, we've actually disclosed all of our authorized capital expenditure, which is reflected at approximately ZAR 1.2 billion. A big part of this is skewed toward Port and Terminals. We are currently a go on our Back-of-Terminal project, as Kwazi mentioned earlier, looking to do all the heavy lifting in 2026. Again, with respect to how it plays out between H1 and H2, it's difficult to say. A project is dependent on various eventualities, weather being one of them, engineering milestones, et cetera. But like I said, we are targeting to close this project and do all the heavy lifting in 2026 with commissioning early in 2027. I think the second question was around whether we see the CapEx fixed or is there wiggle room. In the booklet, we also disclosed how much of this authorized CapEx is contracted for. And you will see a significant portion of that is contracted for. Of course, the timing on our cash flows is what we can control depending on how projects advance. Reshmee Soni: Thanks, Fathima. The next one, Kwazi, I think perhaps from your perspective. Thank you, Bruce, for your question. Kwazi, can you please give us information on the top 2 to 3 destinations for coal exports and chrome exports? Kwazi Mabaso: Thank you, Reshmee, for that. When you look at the 16.7 million tonnes that we have moved as Grindrod, of that 16.7 million tonnes, 41% is magnetite and that entire magnetite is destined for China. And 34% has been coal, and that is destined for South Asia as well as some parts of Europe, but predominantly, it's in the Asia part of the world. Chrome is also following the same route, which is mostly China and South Asia. So that is where predominantly our destination of the commodities that we are exporting. Reshmee Soni: Thank you, Kwazi. The next question from Mike again. Thank you, Mike. I think, Fathima, this is perhaps for you. Working capital release of approximately ZAR 500 million in FY '25 appears to be largely due to ships agency prefunds of ZAR 700 million. Can you provide guidance as to whether this is a once-off or permanent benefit? Fathima Ally: Thank you for the question, Mike. As I mentioned earlier, these cash flows come from prefunding that customers give to our ships agency and clearing and forwarding business. And again, it's prefunding because we have deferment arrangements within which we need to pay those funds over to SARS in the form of VAT. That construct is here to stay. It is very critical to how our clearing and forwarding and our ships agency businesses operate. But what is volatile is the quantum of prefunding we can hold. That is entirely customer dependent. So in short, the ZAR 700 million timing and not permanent. Reshmee Soni: Thank you, Fathima. Having a look, there seems to be no further questions online. With that, I think that concludes our morning presentation. I thank everyone for their insightful questions. We appreciate your support, and we appreciate you joining us this morning. If you have any further questions, please do not hesitate to reach out to Investor Relations. My details are on the slide that is currently being presented. With that, thank you again for your support. Thank you, and have a good day.
Reshmee Soni: Good morning, and welcome to Grindrod's 2025 Annual Financial Results Presentation. My name is Reshmee Soni from Investor Relations. I am delighted to welcome our analysts, shareholders and members of our management team this morning. Thank you for your interest in Grindrod. A special welcome to our nonexecutive directors who are also online. Today's session, we will cover the 2025 financial performance, having a look at our financial performance, our divisional performance, ending with our outlook. We will then proceed to a question-and-answer session. With us this morning are CEO, Kwazi Mabaso; and Fathima Ally, our CFO. Before we commence, please take note of the forward-looking slide on your screen. I will allow you to peruse this at your own time. And with that, I hand over to Kwazi. Kwazi Mabaso: Thank you, Reshmee. Good morning, everyone, and thank you for taking time to join us today. The year 2025 was marked by geopolitical tensions and trade policy uncertainty. Our success in executing our strategy and continued focus on operational excellence has assisted in limiting the impact of this volatility. We closed off on key strategic milestones in 2025. We concluded the ZAR 1.4 billion TCM acquisition, which is now under our full control. We successfully executed an exit from our shareholding in our nonstrategic Marine Fuels business, securing cash of ZAR 102 million. We exited our exposure to KwaZulu-Natal, North Coast property and secured ZAR 500 million in the process. Now let's take a closer look at the macroeconomic environment. As I have stated earlier, the period under review reflects a complex global operating environment, one that is characterized by elevated geopolitical risks and challenging environment. This has placed pressure on regional economic conditions resulting in shifting demand for commodities that we move for our customers. Looking at the key regions where we operate and where our customers export to, starting with China, China recorded an economic growth rate of 5% despite reduced iron ore demand resulting from a 4.6% decrease in steel production. This decline was attributable to a slow property sector and a weak infrastructure investment. India, the key importer of South Africa's thermal coal grew its economy by 7.3% in 2025, continuing its streak as the fastest-growing economy in the world. Although South Africa's economic growth at 1.3% is an improvement from the sub 1% growth, this still falls short of the required rate to mitigate the structural economic challenges such as high unemployment rate. Mozambique economy grew 1.1%, a substantial drop in the performance we have seen in the past, but LNG project activity is expected to underpin a recovery going forward. The rest of the SADC region's economic growth is expected to be supported by the strengthening of the mining sector. On the next slide, we'll take a closer look at the 2025 price performance of the commodities we handle for our customers. Overall prices outside copper continued to underperform. Chrome ore prices experienced notable fluctuations during the year. We saw an increase in chrome ore exports as South Africa's smelting capacity slowed due to energy challenges. On the other hand, iron ore prices started softer into 2025 and peaked in the second half of the year as China stimulated its steel sector. Coal prices fell in 2025 as India's output rose, which had an adverse effect on South African coal demand. Now I'll take you through our performance overview. Safety remains a priority at Grindrod. Our focus on driving a safe working environment for our employees through BASSOPA safety awareness campaign resulted in Grindrod achieving a year of 0 fatalities. We achieved a record lost time injury frequency rate of 0.16 across all our operations. This demonstrates the employees' dedication to maintaining safe practices. We delivered record volumes in Maputo and Matola terminals, delivering growth rates of 6% and 22%, respectively. I'll give more color to this performance in the next section. However, it's safe to say that our decision to buy up shareholding in Matola Terminal TCM was a strategic breakthrough. As a result of the record volumes, our EBITDA grew by 13% to ZAR 2.3 billion, translating into headlines growth of 17% to ZAR 1.2 billion. We generated ZAR 2 billion of cash from operations at decent EBITDA cash conversion rate of 1.3%, and we held ZAR 3.9 billion in cash at year-end. Consistent with our dividend policy, the group has declared an ordinary dividend of ZAR 0.252 per share for the 6-month period. This brings the total ordinary dividend for the year to ZAR 0.482 per share, marking a 21% increase. We have received more than ZAR 1 billion from noncore assets for the year. The Board has subsequently approved a further once-off special dividend of ZAR 0.43 per share for the 6-month period. As a result, 49% of noncore proceeds have been returned to shareholders. Between ordinary and special dividend, Grindrod has returned ZAR 476 million to shareholders for the 6-month period, bringing the total number returned to shareholders for the full year to ZAR 862 million. Now let us look at our Port and Terminals volume performance. Strong chrome market, partly buoyed by increased chrome ore export from South Africa and Zimbabwe contributed to yet another strong volume growth in Maputo port, culminating in a record performance of 15.2 million tonnes. Maputo has achieved a compounded annual growth rate of 14% since 2021. Moving to Matola. Conclusion of strategic buy-up of control of Matola Terminal was key in enabling Grindrod to unlock operational efficiencies. The reduction of vessel turnaround time by 30% and 11% for coal and magnetite, respectively, resulted in the terminal achieving a record of 9.9 million tonnes, marking the highest throughput in its history. This performance is at 83% of the committed capacity expansion to 12 million tonnes required in the sub-concession extension. Now let's move on to our Logistics segment. The Logistics segment remains a critical enabler to our Port and Terminals business. This segment gives Grindrod the ability to offer an integrated logistics solution to our customers, a solution that is cost effective and efficient. This ability remains Grindrod's market differentiator. Performance in ships agency and clearing and forwarding was soft. Our graphite operations slowed down last year, but recent market development points to a recovery in this business. We have substantially concluded our locomotives refurbishment program we announced previously, which we managed in line with our expected timing of rail open access in South Africa. Engagement with Transnet Rail Infrastructure Manager, TRIM, on Rail Open Access continues with expectation to close the negotiations after the revised network statement has been issued, which is expected in April. I'll now hand over to Fathima to share more insight on the financial performance. Fathima Ally: Thank you, Kwazi. Good morning, everybody, and a warm welcome from my side. It's certainly a pleasure this morning to deliver Grindrod's performance for financial year 2025. Before you, you'll see our income statement and the numbers that we're presenting today, both from an income statement and a balance sheet perspective, have been put together on a segmental basis, which means that the impact of our joint ventures are proportionately included based on our effective shareholding on a line-by-line basis. Our core business performed well for us in 2025. Core revenue up 1% and core EBITDA up 13%. This is largely attributable to the stellar performance coming out of the Matola terminal with volumes up 22%, as Kwazi mentioned earlier. This was offset somewhat by performance in our Logistics segment, which we'll delve into further once we look at the segmental performance in detail. Pleasingly, overall EBITDA margins for the group improved year-on-year by 11%, reflected at 30% for the financial year 2025. Significant corporate activity prevailed for us in 2025 and reflected, you will see nontrading items on screen at ZAR 927 million. The Matola buy-up contributes ZAR 937 million of that, comprising both a gain on disposal as required by the accounting standards as well as the release of foreign currency translation reserves. The Marine Fuels investment, as divested from in the first half of the year, attributing to the drop of revenue and EBITDA, also contributed to nontrading items in terms of a net gain of ZAR 34 million. Our share of associate earnings, which represents performance of the port in Maputo is up 3% year-on-year. Volumes were up 6% and record milestones were met. The performance was slightly offset by tax obligations that was recorded due to the change in tax regimes in the United Arab Emirates. Our overall effective tax rate for the group sat at 31%. Now if you take profit before share of associate earnings and ignore the effects of nontrading items as well as withholding tax effects, which were elevated in the current year following repatriation of dividends from Matola post the buy-up, that's how we arrive at the 31%. Overall, net profit attributable to our ordinary shareholders are reported at ZAR 2.1 billion, 559% up on the prior year, and our core headline earnings at ZAR 1.2 billion, 17% up on the prior year. Our core headline earnings in cents per share closed at ZAR 1.765. If we look at our segmental performance, Port and Terminals doing really well for us. Revenue and EBITDA margins up 20% and 44%, respectively. Again, big contributor being Matola. Matola has been transformational for Grindrod in terms of financial performance as well as financial position. The acquisition has played out exactly as we expected with it being and reflecting as a major earnings and cash contributor. We are excited in moving forward with this asset. Our overall normalized margins, reflecting the impacts of the Matola acquisition and the overall uptick in our Port and Terminals volumes, dry bulk specifically, are reported at 44%, firmly up from the 36% I had reported to you in H1 of this year. Our headline earnings for this segment closed at ZAR 1.1 billion with strong return on equity at 24%. Our Port and Terminals business remains a U.S. dollar-anchored business with 89% of our EBITDA earned offshore. Our Logistics segment faced headwinds in the current financial year. Commodity prices saw a downward shift in our transport brokering business, which put pressure on an already low-margin business. Our graphite contract was renegotiated in the current year, and we moved from a fixed fee model and now earning a variable fee. Revenue and earnings, respectively, moving forward will now be aligned to volumes that we report. Our rail deployment was low. However, we have significantly advanced on our refurbishment program. Ships agency and the container business performance was subdued, largely linked to market challenges. Overall, revenue and EBITDA down 10% and 18%, respectively. And normalized margins, once you ignore transport brokering as well as the COVID-19 business interruption reported in the first half, sat at 25%, whilst at the low end of management's target, still within the range that we target for our enabling business. And this is an important principle. The Logistics business, as Kwazi mentioned, is an enabler to Port and Terminals. It is imperative to how we bring our integrated, efficient and cost-effective solutions to our customers. Overall, this segment gave us ZAR 212 million of headline earnings. And this segment, again, strongly rooted as a rand-anchored business with 83% of our EBITDA earned onshore in South Africa. From a balance sheet perspective, due to the significant impacts of the Matola acquisition, we have represented the December 2024 balance sheet. This will allow better comparability by us notionally including 100% of Matola as it reflects in the December 2025 numbers. We spent ZAR 1.5 billion in terms of capital expenditure in the current year, 81% of that being expansionary. And of that, 75% largely underpinned by the Matola acquisition. The remaining ZAR 362 million was invested in property, plant and equipment, largely in all our facilities and to name a few, our upgrade and our development of our Matola buildings in the current year as well as our Salt River facility in Cape Town linked to our container business and new undercover warehousing facilities in Walvis Bay. Aside from this, other capital acquisitions this year related to steel business, yellow equipment, vehicles and Jersey barriers. Our PPE dropped 5% December '24 to December '25. Whilst additions were significant, we did see depreciation impacts as well as a strengthening of the rand by 12%, which impacted on the translation differences that we booked in the current year. Our intangible assets grew significantly. The Matola acquisition brought on book $86 million of intangibles, both recognized in the form of goodwill as well as customer relationships. In terms of our working capital, our current assets reduced in the current year by 22%. It was very pleasing to see improved collections robustly across our businesses, a testament to the hard work of our finance and commercial teams. This coupled with the down trading in logistics as well as the capitalization of prepayments for rolling stock investments in the prior year contributed to that difference. Our bank and cash balances are up together with our current liabilities. What we experienced this year was significant prefunding that came through from our fuel customers in both the ships agency as well as the clearing and forwarding businesses. What happens here is that the cash is collected and sits on our balance sheet until it is paid over to SARS based on deferment arrangements that we have in place in these businesses. From a liabilities perspective, we saw significant repayments of borrowings. What we also saw was lease liabilities coming to book on renegotiation of the GML concession as well as the Matola acquisition. Our other liabilities have also grown. This is largely in view of the fact that we agreed to certain deferred consideration payments under the COG transaction as well as the fact that we had to recognize deferred tax liabilities linked to the intangible assets that we brought on book and that I mentioned earlier. Overall, we closed this financial year with Grindrod's balance sheet healthy and stable. Our asset base is now rooted firmly to just our core business with all material noncore assets materialized. If we look at how our net debt progressed in this financial year, we closed last year with net debt reported at ZAR 1.5 billion. This was post us ring-fencing funds of ZAR 1.1 billion in anticipation of closing the Matola transaction. Together, this gives us a net restated opening net debt position of ZAR 413 million. We raised in excess of ZAR 2 billion in terms of cash generated from our operations in this financial year. This stemmed from both operational performance as well as the efficient working capital measures that I talked about earlier. Our cash conversion was at 1.3x EBITDA, certainly a record for us looking back into a 10-year history for Grindrod. 27% of this cash was spent towards our interest, tax and dividend obligations. On acquisition of Matola, we brought net cash on book of ZAR 316 million. This comprised of both cash on hand at the time, offset by lease liabilities that were on book. We put ZAR 1.4 billion away in terms of capital expenditure. Again, this largely linked to the Matola transaction where we spent ZAR 1.1 billion, as mentioned earlier. Proceeds on our disposal also amounting to ZAR 1.1 billion and proceeds from noncore taking up 93% of that amount. Our overall noncash movements amounted to ZAR 412 million, again, through the introduction of lease liabilities when the Maputo concession was signed in November this year. We closed the year in a net cash position of ZAR 699 million. If we look at what this comprises, our total debt moved from ZAR 2.9 billion to ZAR 3.2 billion, 10% up. Our borrowings reduced, as indicated earlier, from ZAR 2 billion to ZAR 1.4 billion. We saw net repayments in the year of ZAR 710 million. We saw a significant uptick in our lease liabilities. The Maputo acquisition as well as the signing of the GML concession brought concession-linked lease liabilities onto our book of ZAR 1.1 billion. Our overdraft movements are linked to timing of cash flows. From a cash perspective, we closed the year on ZAR 3.9 billion. Our ZAR 1.4 billion, including ring-fenced cash of last year, give us a net increase in cash of ZAR 1.4 billion in 2025. This resulting in ZAR 700 million arising from the Matola acquisition and ZAR 700 million stemming from the timing of cash flows linked to the prefunding in the ships agency and clearing and forwarding. We closed this year with Grindrod's balance sheet largely ungeared, and we sit with debt capacity that approximates ZAR 4.5 billion. We have plans in place on how to take up this capacity. And to tell you more about that, I'll hand you back to Kwazi. Thank you. Kwazi Mabaso: Thank you, Fathima. Our capital allocation framework directs how we deploy capital through the business cycle, enabling us to shift between stay in business CapEx, growth investments and shareholder distributions. Over the past 3 years at Grindrod, the management team has done well to have a business evolution that supported a balance sheet restructuring. This restructuring improves access to both optimized debt capacity and cash reserves. This work was undertaken to position Grindrod to act on growth opportunities as they emerge. Grindrod has completed its strategic reset. The foundation for growth has been laid. We are now moving into disciplined growth execution. We are focusing on strategic infrastructure initiatives for the short to medium term. Several projects are already underway and additional opportunities are being actively pursued. Starting with the Phase 1 of TCM expansion project, the Back-of-Terminal, this project will lift the terminal's capacity to 12 million tonnes. This project is making good progress. We are still on track for the hot commissioning at the beginning of 2027. The Richards Bay container handling facility, which will give Grindrod direct access to the quayside in South Africa remains on track and is expected to be commissioned in 2028. On the Rail Open Access, as I've alluded earlier, negotiations are ongoing, and we are in the process of procuring 50 wagons this year, specifically for rail slots. MPDC is planning to commence a dredging campaign. This is in line with its commitment to grow and develop the Port of Maputo as part of the concession extension to 2058. This will be project funded against the balance sheet of the port dredging company of MPDC. The capital dredging program, once completed, will allow the handling of ultra-large container vessels and the full handling of the Cape size vessels at Matola Terminal. This will increase the quayside capability of TCM to handle 170,000 tonne vessel size. This project should be completed by the end of 2027. During the month of February this year, Transnet released a request for qualification to identify and prequalify potential private sector partners for the Richards Bay dry bulk terminal, in short DBT. Transnet seeks to partner with the private sector to modernize and expand DBT, which is one of South Africa's largest dry bulk export terminals. DBT mainly handles chrome, magnetite and coal. The terminal currently handles around 17 million tonnes with the potential of expanding to 27 million tonnes, which is plus/minus 59%, 60% improvement that is expected. Now for nearly 2 decades, Grindrod has been a long-term partner in the Port of Maputo through our investment in MPDC and as a terminal operator in TCM Matola. Over that period, we have transformed a legacy dry bulk terminal, TCM, into a modern, high-performance export gateway that today plays a critical role in the regional trade. At Matola, we have invested in the upgrading of a berth, deepening key walls, modernizing handling equipment and deploying integrated terminal operating systems. The results speak for themselves. Matola has consistently delivered record volumes. For the last 11 years, we moved from moving 4 million tonnes at Matola to now moving 10 million tonnes, which is about 150% increase. This clearly illustrates Grindrod's capacity to invest and operate reliably on large scale. And we would like to demonstrate that in South Africa. Therefore, Grindrod will participate in this RFQ for Richards Bay. In closing, our strategy is clear. We provide our customers with integrated logistics solutions that are both cost effective and efficient. We are delivering strong operational and financial results. We will continue to deliver incremental volumes through operational excellence underpinned by our tenacious employees who are the heartbeat of Grindrod. Our commitment to generating value for both shareholders and stakeholders will continue to be a priority. Thank you. I'll now hand over to Reshmee for the Q&A. Reshmee Soni: Thank you, Kwazi, and thank you, Fathima. We will now open the floor for questions. [Operator Instructions] We have our first question online. Fathima, I think this one is for you. Thank you, Blessing Phakula from Vunani Securities. What hedging strategies are in place to manage U.S. dollar or foreign currency exposure? Fathima Ally: Thank you, Blessing. A really good question. We are fortunate at Grindrod. Our significant and material businesses that are anchored in Mozambique, all operate to functional currency of U.S. dollars. Customer collections are U.S. dollar denominated. And where we do see some foreign currency exposure is where we have our cost base that's denominated in local currencies. But again, these close out very quickly within the working capital cycle. So we do not face significant foreign currency fluctuation in the construct of how our businesses operate. We also ensure that when capital expansion happens, we secure funding in the functional currencies of the entity, which eliminates the need for any functional currency or the volatility that could come through from foreign exchange. Where we are exposed as Grindrod is when we translate into our reporting currencies, we use average exchange rates in the income statement and then, of course, closing rates for the balance sheet. Again, the upside here impacts on the earnings that you report, but you can't really apply hedging strategies for this. It's an accounting construct. In this year, we saw close to ZAR 1 billion worth of impacts from foreign currency on translation. These impacts were not absorbed into our earnings. They were absorbed on balance sheet when we translated those assets. So in closing, very simple construct. Grindrod is naturally hedged. And where we do have exposures, we seek forward covers when needed. Reshmee Soni: Thank you, Fathima. The next question, thank you, Rowan from Chronux Research. Is there any impact expected from the current Middle East conflict? Kwazi Mabaso: Yes. Let me take that one, Reshmee. I think that talks to the geopolitical risk that we have alluded on. And I think it's affecting everyone. And certainly, nowadays, you can't predict what's going to happen. And really, for us, as Grindrod, we tend to focus on what's within our control. We've got our strategy that we are executing. We've got short-term to medium-term infrastructure initiatives that we are highlighting. Safe to say that for us, we are looking at how the commodity prices are behaving as it has a direct impact on the commodities that we are handling. We've already seen at Navitrade, the coal coming to Navitrade increasing because of the slight uptick that we have seen on the coal price. We are already tracking at a run rate of about 2.5 million to 2.8 million tonnes at our Navitrade facility. And even when you look at the inbound volumes that is coming into our Navitrade has increased by over 50% on rail predominantly as well as on road. So that is what we are seeing. But our focus really is what is within our control currently. Reshmee Soni: Thank you, Kwazi. The next question from Toko, Oystercatcher Investments. Thank you, Toko. I'll perhaps split this for Fathima and Kwazi. The first section, Kwazi, perhaps from your perspective. Please provide an outlook on chrome volumes for the year given government support for the domestic ferrochrome sector. I think the second one, Fathima, perhaps on your side. What is the medium-term margin outlook in each segment over the next 3 to 5 years? Are there any choke points in the current value chain that may attract additional capital or I suspect CapEx? What is the net debt outlook given the strong balance sheet and growth ambitions? And lastly, what is the maximum net debt and EBITDA you can tolerate? Maybe I'll ask Kwazi to start. Kwazi Mabaso: Thanks. Obviously, with the discussions that are happening between the producers of chrome so that they can process and only ship ferrochrome, it can only be an uptick for us because ferrochrome also moves through our port of Maputo. However, we know that for every tonne of ferrochrome you produce, you need about 3x of chrome ore for you to process that. So maybe there can be a reduction on chrome ore, but there's sufficient demand in the market for chrome ore. We are currently handling chrome from South Africa and Zimbabwe. And right now, I think even the market share of Zimbabwe chrome ore in our port of Maputo has been hovering around 5% to 7%. And maybe we can see that also becoming strong if the chrome from South Africa subside. Fathima Ally: Thank you, Reshmee. Reshmee, you keep me honest here, but I think the first part of the question was around margin stability in our segments. So from a Port and Terminals perspective, we believe that our 44% margin is sticky. You must remember that in the current financial year, we actually consolidated Matola for 7 months in the year. So the first 5 months still came in at 35%. So we've got 5 months' worth of EBITDA uplift that can prevail. But as we've communicated before, our business is cyclical. And the thresholds that we hold for our Port and Terminals business are within a construct of between 35% and 40%, and we stick to those thresholds. From a Logistics perspective, with this business being an enabler to Port and Terminals and with us really moving forward on our integrated solutions strategy, as mentioned, our low end of the threshold is 25%. So it would need to be a really compelling customer opportunity that will allow us to work in breach of those thresholds. But we do have limits in place, and we do believe that those EBITDA margins based on our current business is sustainable. In terms of our net cash, the question was whether we expect the ZAR 699 million to prevail. With the dividend declarations that we have now, that will actually eat up -- both from an ordinary as well as preference dividends, it will eat up ZAR 510 million of that capacity. Overall, long term, depending on when those opportunities that Kwazi mentioned come into fruition, we expect that our net debt position will be depressed as Grindrod. But we are in a growth phase, and that's certainly not abnormal for business planning or in anticipation of growth. I think the last bit of the question was how much we can tolerate in terms of our net debt or EBITDA. We work to tolerating 2x our EBITDA. And again, if we're presented with a really good opportunity, we might work to 2.5x, but we hold ourselves accountable to 2x, again, because of the cyclicality of our business. Reshmee Soni: Thank you, Fathima. Maybe perhaps to move towards the Logistics segment, Kwazi. We have 2 questions in this regard. The first from Alistair Lea of Coronation. Your logistics businesses have not performed well for a while now. What is the short and medium-term outlook for these businesses. Thank you, Alistair. And the second one from Mike Lawrenson. Thank you, Mike. Congrats on an excellent set of results. What can be done in the short term to optimize resources in Logistics division and improve operating performance without impacting long-term aspirations? Kwazi Mabaso: Thanks for that, Reshmee, and thanks for those questions, Alistair and Mike. When you look at our Logistics business, our Logistics business, you've got rail there, you've got our graphite business, you've got container business and then you've also got road transport as well as our ship agency business. Our ships agency business, it's always solid. So there isn't much movement there. Road transport is directly linked with the coal commodity cycle. If coal is down, we'll see road transport also going down. Our graphite business, as also Fathima alluded earlier on, is that we are now moving into a variable contract with our customer after we were earning a fixed fee from the customer. But what is exciting is that the developments in the future is that we are now going to be getting consistent volumes from our graphite customer, the indication of roughly about 30,000 tonnes a quarter, and they are preferring to use our Pemba facility, the dry bulk instead of the Nacala Intermodal facility. So there is an uptick there. On the rail side, where we've seen really a decrease over the last year or so, it's because we deliberately went on an aggressive locomotive refurbishment program. I mean, last year, we refurbished 10 locomotives out of the 13 locomotives that we repatriated from Sierra Leone. And we did that so that we get ready for the Rail Open Access opportunities. But however, even this year, our focus on the rail will be to increase our deployment rate because currently, it's below 50%. And this year, we're going to up that, our local deployment rate, because we have now completed our aggressive locomotive refurbishment program. And then lastly, we've seen the container improving from last year, and we're hoping that it will continue to improve as we move forward. I think I've covered all the segments. Reshmee Soni: Thank you, Kwazi. The next one from Cobus, Value Capital Partners. Thank you, Cobus. Congrats on a good set of results. What is the expected time line for the PSP opportunity in the Richards Bay dry bulk terminals? Does the Richards Bay dry bulk terminal generate revenue in USD or ZAR, or does it depend on the commodity handled? Kwazi, maybe I'll take the second part on the U.S. dollar and ZAR. And on that Cobus, the terminal, as we understand it, does ZAR. Remember, we are at a request for qualification. So we are indeed in an early stage, and that level of detail has not been made available. Kwazi, if you can assist with the time lines? Kwazi Mabaso: Yes. The time line, the RFQ will close in August. And thereafter, then the RFP process will commence. Certainly, from our side, like I alluded earlier on, we are ready for this opportunity. We know that it's still at an early stage, but we've been waiting for this opportunity to come in the market, and we are ready. Reshmee Soni: Thank you, Kwazi. Perhaps, Fathima, we can go back a little to the debt. [ Jaco from Rena Investments ]. Thank you for your question. Are you perhaps contemplating reducing interest-bearing debt with the cash that you have? Fathima Ally: Thank you so much for the question. I think the question is an important one. In fact, it talks to a significant project that we have ongoing at the moment, whereas Grindrod, we're looking to restructure our debt and put it into what's commonly known as a common terms arrangement structure involving all of our main bankers. What this construct will do based on our indicative models that we've put together is reduce our interest burden over the period of our debt, which is lower than 5 years, up to ZAR 40 million over that period triggered by the refinancing. So we are constantly looking at measures on how it is we can be efficient from a cost perspective. But again, how it is we have a construct that would allow us to move forward in terms of our growth plans. Reshmee Soni: Thanks, Fathima. Kwazi, maybe perhaps this is back to you. Wallace Steyn from Steyn Capital Management. To what extent can you expect the dredging program and Matola upgrade to disrupt volumes in the short term? Kwazi Mabaso: That's a good question, Wallace. I think our approach in executing this program has been a modular approach. I mean if you remember, even our Matola expansion program, there was an option of going big, but we decided to do it -- split it into 2 Phase 1, Phase 2, so that we minimize disruption to our operation. So with the capital dredging program, the same approach will be adopted. We don't want to disrupt the ongoing operation in our operations. So we're going to continue taking a modular approach in executing our projects. Reshmee Soni: Thanks, Kwazi. Fathima, maybe back to you. There's a few questions on CapEx, and it may be worthwhile noting what's in the booklet versus the presentation. The first question is from Matthew, Blue Quadrant. Thank you, Matthew. What is the guidance for CapEx in 2026? And what is that split between H1 and H2? The second is from Alexa of Fairtree. Regarding the CapEx plans you've provided for the years ahead, how much of the CapEx is fixed? And how much wiggle room do you have to back out of certain capital commitments? Fathima Ally: Thank you. I think if we go back to the first question, in the booklet that we released on SENS this morning, a capital expenditure and commitment note is included as Note 9 in that booklet. If you look at that booklet, in terms of the future years, we've actually disclosed all of our authorized capital expenditure, which is reflected at approximately ZAR 1.2 billion. A big part of this is skewed toward Port and Terminals. We are currently a go on our Back-of-Terminal project, as Kwazi mentioned earlier, looking to do all the heavy lifting in 2026. Again, with respect to how it plays out between H1 and H2, it's difficult to say. A project is dependent on various eventualities, weather being one of them, engineering milestones, et cetera. But like I said, we are targeting to close this project and do all the heavy lifting in 2026 with commissioning early in 2027. I think the second question was around whether we see the CapEx fixed or is there wiggle room. In the booklet, we also disclosed how much of this authorized CapEx is contracted for. And you will see a significant portion of that is contracted for. Of course, the timing on our cash flows is what we can control depending on how projects advance. Reshmee Soni: Thanks, Fathima. The next one, Kwazi, I think perhaps from your perspective. Thank you, Bruce, for your question. Kwazi, can you please give us information on the top 2 to 3 destinations for coal exports and chrome exports? Kwazi Mabaso: Thank you, Reshmee, for that. When you look at the 16.7 million tonnes that we have moved as Grindrod, of that 16.7 million tonnes, 41% is magnetite and that entire magnetite is destined for China. And 34% has been coal, and that is destined for South Asia as well as some parts of Europe, but predominantly, it's in the Asia part of the world. Chrome is also following the same route, which is mostly China and South Asia. So that is where predominantly our destination of the commodities that we are exporting. Reshmee Soni: Thank you, Kwazi. The next question from Mike again. Thank you, Mike. I think, Fathima, this is perhaps for you. Working capital release of approximately ZAR 500 million in FY '25 appears to be largely due to ships agency prefunds of ZAR 700 million. Can you provide guidance as to whether this is a once-off or permanent benefit? Fathima Ally: Thank you for the question, Mike. As I mentioned earlier, these cash flows come from prefunding that customers give to our ships agency and clearing and forwarding business. And again, it's prefunding because we have deferment arrangements within which we need to pay those funds over to SARS in the form of VAT. That construct is here to stay. It is very critical to how our clearing and forwarding and our ships agency businesses operate. But what is volatile is the quantum of prefunding we can hold. That is entirely customer dependent. So in short, the ZAR 700 million timing and not permanent. Reshmee Soni: Thank you, Fathima. Having a look, there seems to be no further questions online. With that, I think that concludes our morning presentation. I thank everyone for their insightful questions. We appreciate your support, and we appreciate you joining us this morning. If you have any further questions, please do not hesitate to reach out to Investor Relations. My details are on the slide that is currently being presented. With that, thank you again for your support. Thank you, and have a good day.
Operator: Good day, and thank you for standing by. Welcome to the Atos Group FY 2025 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Philippe Salle, Group Chairman and CEO. Please go ahead. Philippe Salle: Hello. Good morning, everybody. Thank you for joining us for this call of the full year results of 2025. I'm here in the room with Jacques-Francois, the CFO; and Florin, our CTO, because we're going to talk also a lot about technology. And of course, we're going to talk about the future of the company. So the agenda of today is 4 topics. The first one is the 2025, let's say, business and strategic highlight that I will manage. Then Florin will take the floor to have a tech update. And today, we are announcing 2 things with the launch of Atos sify and launch of our agentic studios. Then I will come back on operational and financial results with Jacques-Francois. We're going to have together this section. And then I will finish by the outlook, and then we'll take Q&A. So let's start with the first part, and I'm going to go on Page 6. So 2025 was the year for me of the reset. Remember that I want to have 3 phases, I would say, in the turnaround of the company, reset, rebound, acceleration. So '25 is a reset and '26 is the rebound. In 2025, first, we have a very good financial improvement with clear signs of recovery, we'll see that. Second, a significant progress, of course, of our Genesis plan. And the third is that we have a positive business momentum and a commercial, I would say, traction. If we go on Page 7, the key numbers of the company, first in terms of top line, the revenues at EUR 8 billion, EUR 8,001 million to be really clear, so above the target that we have set during the Q3 the last call, in fact. Operating margin, EUR 351 million, it's 4.4%. Just for information, that's the best margin we have for the last 5 years. And I think I'm very pleased to say that we have doubled the margin versus last year with a decrease in top line of minus 14%. And remember that we have guided EUR 340 million at the beginning of '25. Net change in cash, it's minus EUR 326 million, although we have accelerated, I would say, Genesis, and we paid in fact, EUR [ 250 ] million roughly of exit cost and it's better, of course, than our guidance that we say that it will be EUR 350 million or below. And then the liquidity, and we published this already in Jan is EUR 1.7 billion. So it's far above, of course, I would say, the covenant that we have in our debt package that is EUR 650 million. So we have ample cash to finish the Genesis plan. And in fact, this year, we'll be already cash flow positive and the debt, in fact, will go down. Now if we go on Page 8, you can see the inflection point in terms of revenues. So the fourth quarter and that's the figures we have published, in fact, in Jan was around minus 9%. So you can see, I would say, quarter-by-quarter that we had, in fact, a deceleration or, let's say, less momentum, I would say, better momentum in terms of revenue decrease. And then you can see also the number between Atos and Eviden and the organic growth that we have, which is around minus 9% in Q4. In terms of the OEM for the EBIT, the pro forma of '24 for the information we hold are that -- we have sold in '24 and at a constant exchange rate is EUR 1.72. So you can see that we have more than doubled the margin and the margin was beyond 2% in '24 and in terms of '25 is at 4.4%. And in terms of cash flow, the net change in cash was roughly minus EUR 700 million in '24, and we have roughly minus EUR 300 million in '25. If we go to Page 9, you can see also that the backlog -- the book-to-bill has also improved in the course of '25 at 94% for H2. And the total book-to-bill, in fact, for '25 was 89% versus 82% in '24. Now if we go to Genesis on Page 10, remember exactly, I would say, the plan that we have sketched in May '25 with the 7 pillar. This is, I would say, exactly what we have shown, in fact, in May. And I will now -- if I go on Page 11, a little bit deep dive on what we have done. So on the first pillar, we have reviewed the top 100 accounts, and it has, I would say, produced EUR 1 billion plus of opportunities. Remember that during the CMD, I have said that the number of business line per account was around 1.4, and we want to push it, of course, to 2 or above, I would say, that level. And then we have also in terms of growth streamlined, I would say, the processes and also with, I would say, a better organization in terms of sales with salespeople in the different geo than in [indiscernible]. In terms of HR, so we have reviewed the bonus framework. We have launched our LTI plan with a share plan for the top 200, and we have started also to have a leadership culture. And this year, we're going to push very hard on the AI culture. In terms of country reviews, so we have roughly 10 countries that are exited or in inactive. Remember that we want to go probably above around, let's say, 40 countries. We have also sold 7 countries in Latin America and also in Nordics, which is Norway and Finland. And this year, we want to continue to probably, let's say, close or inactive around 20 countries. In terms of portfolio review, first, we have sketched, I would say, the different branding. So you have Atos Group, which is the holding. And under Atos Group, you have 3 brands. Atos, of course, service, let's say, company, Eviden product and software and Atos Amplify, the new name that we are launching today for the consulting arm. So we have 6 -- in Atos, 6 business lines and 6 geos. And with Eviden after the disposal of the high-computing, we have 3 product lines. In terms of PM and GM, so in terms of project margin and gross margin, so that's the way we look at our P&L internally, you have revenues, project margin, gross margin. And then EBIT margin. So we have, I would say, a plan, remember that we are looking at EUR 650 million of savings, and we have already achieved 88% of it, EUR 350 million roughly are in the P&L in fact of '25. And EUR 200 million more to come in the course of '26. We have increased the reliability ratio by 3x. We are now above 80%. We have also continue, I would say, to push the offshoring. And as you can see, we have also a different, I would say, actions on the reduction of the -- It's just switching, I would say, a bench people. We prefer, of course, to use I would utilize people on the bench and of course. Just for information, very important, the discipline also on the new contracts we have signed. Remember that we want to have a margin of 25% to 26% in the future. And in fact, if you look at without the black contracts, we are already at that level. And on average last year, we have signed roughly all the contracts on the book-to-bill and for the EUR 8 billion plus -- EUR 7 billion is around 24%, which is roughly 2.5% above what we have done in the course of '24. And it's very important to understand that we could have probably a better book-to-bill in the course of '25, but the idea was really to protect the margin, and I prefer to say no for some tender, then I would say, to have, let's say, more revenues and less margin in the future. Pillar 6 is the cost review, it's the G&A. So we have done a lot of things there for your information, we reduced the G&A by roughly 26%. Remember that the target we have in G&A is 5%, and we are close to 6%. So we still have 1 point to gain in the course of this year and next year. And then in terms of cash for the Pillar #7, the DSO is at target. We have reduced over by 13%, reduced all the, in fact, by roughly 27%. And we have managed quite very well, I would say the CapEx, and we felt good, we are roughly at EUR 100 million plus. Just on the bottom, you see also that we have completely reviewed the target operating model and also the government has been satisfied. Now if we go on Page 12, today, we are launching, as I said, 2 things. I'm going to talk on Amplify and then we're going to talk on the Agentic Studio with Florin. So Amplify, that's the consulting arm or body, I would say, of Atos, still the brand of Atos because it's very linked to the services that we provide with Atos. And the idea is that we're going to refocus Amplify on AI. The idea for us, it's a door opener, in fact, in artificial intelligence that will help us after that, of course, to push the studio that we are going to. In terms of workforce on Page 13, we are now at 63,000. So you can see the hiring, the levers and also the restructuring we have done. And if you want to see without Latin America and without view, we are close to 57,000 people. That's the number of staff that we're going to have after the divestment. Last, on Page 14, that's the order book. So we have roughly -- we have the key numbers. As you can see, the renewal rate, in fact, is 92%. It's not bad. I want to have a little bit more this year. And in fact, in this year for the large accounts, what we call the large bit over EUR 30 million per year, we estimate that we're going to win most of them or all of them, in fact, a number of strategic deals 19. It was 10 in fact in '24. And there is a good traction in fact, in cloud, cyber and data AI where the business line we are pushing more than the rest. You can see, I would say, different names on the, I would say, extension or win. And for Siemens, of course, we continue to work with them. We're going to do probably EUR 250 million, in fact, the course of '26. Last on Page 15, just to also recognize that we also continue, I would say, to be recognized as a sustainability in the IT sector, it's very important. So we have won or renewed, I would say, some award in terms of sustainability, you can see it on the left and then many business awards from the analysts that we continue to have in the course of '25. I go quite fast, in fact, because I think it's very important that we spend some time on the technology today because there have been a lot of buzz on AI and probably a completely crazy movement for me on the share price in a different company as -- and we estimate in fact that for us, we are very well placed in AI. And in fact, we don't do BPO that is probably, I would say, the business that is going to be attacked for me by Agentic. And definitely, I think that there is a big opportunity for us, in fact, with AI going forward. So with this, I'll give the floor to Florin, who is in the room with us, and he's going to talk about you about, I would say, the AI and the agentic we're going to launch this year, in fact, today. Florin Rotar: Thank you so much, Philippe. Good morning, everybody. Thank you for joining us. Delighted to be here. So what I suggest we do for the next few minutes is for me to walk you through the way that we see the market developing in general in the space of technology, and I will double-click on AI, of course. And I will share with you how we are planning on attacking and delivering this very exciting space. So I'm sure you're well familiar with the fact that global AI spending is booming, a lot of increase in AI infrastructure, AI services, AI software, AI cyber. And we genuinely and truly believe that Atos is very well placed to win in all of those areas. We do have some very strong moats. So the background and the history of Atos, as you all know, is to work and help our clients in highly regulated environments where security is a top concern, where sovereignty is increasingly becoming a priority, where the IT landscape is very complex and where a lot of the systems are truly life and death and are genuinely mission-critical. And what we see happening is that in all of those environments, there is a flywheel convergence happening between sovereignty, AI and cyber. And the fact that we have this decades-long managed services relationships with the clients, the fact that we have really deep know-how of their environment of their data has truly enabled us to progress very fast into packaging those into agentic AI as a service offerings, and I'll cover this in more detail. As you know, the technology space is quite complex right now. It's evolving super fast. There are daily announcements front and left, right and center. And our clients are really hungry for a level of clarity and assurance. And I think we play a very important role as if I'm allowed to use the word Switzerland of governance. The ones which are able to provide secure cross-platform neutral agentic AI. And we're doing this through a very exciting set of partnership with the big players, but also through a set of unique partnerships with AI native and sovereign start-ups. So let me double-click on all of this into more detail. So if we go on the next slide, what you'll see is the 3 big bets for Atos going forward. We believe these 3 pillars are going to be substantial drivers of growth for us in 2026 and beyond. The first one is mission-critical agentic AI. This type of agentic AI is fairly different to the type of AI that is most commonly mentioned in media. When you're doing agentic AI in really complex regulated environment with high level of governance, requirements around sovereignty, reliability, security and responsibility, the type of technology and the type of services is fairly different. We're also seeing digital sovereignty be super important for our clients. And actually, this is the case in North America, in Europe and international markets as well. And what we're doing is that we have embedded digital sovereignty as a core design principle across all of our portfolio. And last but not least, cybersecurity, of course, continues to be a high area of focus. Developments in AI are, of course, helping us to deliver cybersecurity services in a better, faster and more efficient way. But AI actually, of course, also opens up new attack surfaces and new potential vulnerabilities. So what we see happening is that there is this flywheel of self-reinforcement powers between AI, sovereignty and cyber. And we believe we have the right to be winners in all of these 3 areas. So sovereignty, of course, requires security controls to be able to be fully enabled. Sovereignty is, by definition, more complex than non-sovereign solutions, and therefore, AI can play a role to make them more affordable and more innovative. As I mentioned, AI has a huge impact on security. There is a quest to secure AI, but also to use AI to drive more security solutions. So you will hear us going forward really focusing and doubling down on these 3 areas. And what I would like to do is to double-click into each and every single one of those to give you a flavor of what we're doing, the success we've seen so far, what we see happening in the marketplace and to give you a glimpse into the future. So if we go to the next slide, Slide 19, we are very excited to have 4 Atos sovereign agentic studios come out of stealth mode in U.K., in U.S., France and Germany. This will serve the local markets based on their needs, the focus industries, their requirements, and they're all built for truly mission-critical production from day 1 with extraordinarily high focus on the topics which make AI adoption at scale more difficult in most organizations, which is governance, sovereignty, reliability, security and responsibility. So the reason we're launching the studios is that we see that our client spend is converging services and technology budgets into a unified value pool. This value pool and the size of those budgets are increasing, of course. But they're also a very high demand for measurable value generation at scale. Everybody is sick and tired of pilots and proof of concepts and prototypes. Organizations really want to make sure that they have AI, which is secure, which is reliable, which adds business value at scale. And the main challenges in this space is governance and orchestration. And this is where we believe that Atos is an absolute key power player. And then we're actually also seeing sovereignty emerge for AI as a very high priority. So our clients are very happy to use closed black box models for the typical back-office functions, which are important, but which are not differentiated. But they actually are increasingly becoming wary of developing their own brains, so to say, so they own their future, and they have full control of their data, the controls and the intelligence, which they're building. So we are very excited to announce a unique partnership with one of the absolute leaders in foundational models for agentic enterprise, which is [indiscernible]. And this will allow us to deploy and develop sovereign solutions in Europe, in North America, in international markets. And this will help and is helping already our clients to harness the full power of AI on their terms and without compromise. We're, of course, also working with the major market leaders here such as Google Cloud, SAP, IBM, AWS, Microsoft. As a little anecdote, we've just received Frontier partner status with Microsoft given the fact that we're one of the leading organizations leading the path around AI and innovation. But we're also working with this really interesting set of AI native start-ups, which allow us to add unique value across the entire value chain of AI. So we're using KYP, which stands for Know your Potential to help our clients mine and redesign processes and to really understand the business case and the value generated with AI on a very specific and data-driven manner. We are working with the likes of EMA and [ NAN ] as to create and orchestrate and manage the digital AI employees, the agents. We're working with AI to really be able to measure and value the highly, how should I put this, movable cost of AI consumption and to have the causality and the correlation to value. And we're working with clarity around helping our clients drive this continuous change. And we're using all of this technology for our own back office and front office transformation as well. So I know I've used a lot of words here, a lot of concepts, but let me move to the next stage and try to make this very real for you with a number of client examples. So to be honest, we have more demand than we can almost handle right now. We have incredible interest in this agentic AI studios and just sharing with you a couple of examples here. One is Scottish Water, where we're working together to really transform the way they are doing operational planning, risk assessment, decision-making across the entire national and wastewater networks. And this is really mission-critical environments where AI agents are used to continuously monitor the network, to analyze proposed changes to automatically generate contextual risk assessment. And as you can imagine, this is the type of AI, which really needs to work, which really needs to be secure, which really needs to be accurate and timely. Another example is Defra, the U.K. Department for Environment, Food and Rural Affairs. Their mission is to make the air purer, the water cleaner, the land greener and food more sustainable. So obviously, very important mission and vision. So what we're doing with Atos is that we're using a new set of highly differentiated agentic AI solutions we have developed to rapidly modernize and transform their entire application portfolio. We call those digital transformation engineers. They're AI agents which work in collaboration with our human experts to achieve things which frankly wouldn't have been possible to achieve just a few months ago. So we're seeing a close to 30% time-to-market efficiency gain around how to modernize those mission-critical applications. Another example is mBank. We are really working very closely with them to develop their entire advanced digital foundation. And again, this is not AI, which is an add-on. It is mission-critical AI, which is being used to improve operational resilience, to create real efficiency in their business, to manage risk and to really make a difference around their customer experience. And there are many, many, many more examples of this. So we're very proud about this sovereign agentic AI studios, much more to come in this space going forward. If I go to the next slide, I'd like to share with you a perspective around how we're approaching the sovereign space. So what we see is that clients, they have an increasing desire to retain control, authority and accountability over their data, their infrastructure, their applications and digital operations and to have this be in compliance with all the applicable regulations to minimize dependency, exposure and disruption risk. And I think it's important to note that this is not just a European development. We see sovereign requirements being very high in North America as well, both in United States and in Canada and also in our international markets. And in actual fact, there are data points which point to the fact that over 80% of requirements from clients going forward are going to include a critical demand for sovereignty. And this is a massive business opportunity. It's currently estimated to be in the EUR 40 billion to EUR 50 billion of total addressable market, and it is growing quite fast. And frankly, we believe that we are one of, if not the best player in this space. I'd like to draw your attention to the quote on the bottom right corner from one of the leading independent analysts, which is basically and I'm quoting, "Few players can claim the unique combination offered by the Atos Group, an umbrella of sovereignty, which provides the whole with an unprecedented coherence." So we are able to do this in a variety of models because sovereignty takes different shapes and forms in different countries. What U.K. means by sovereignty is slightly different than what France and Germany means by sovereignty, which is different than what U.S. means by sovereignty and so forth. So we're able to offer this full spectrum of solutions ranging from enhanced native clouds to controlled clouds to trusted clouds to disconnected clouds to fully sovereign AI, as I mentioned previously. So I would like to give you, again, a little example of this. One of them is Eurocontrol. Eurocontrol, you might be familiar with, they are the organization, which manage and control the European skies. They are providing a really mission-critical service to the entire continent. If their systems and operations wouldn't work, then flights would not fly, that would obviously have a very, very high impact on the entire economy. So what Atos is doing is that we're one of their leading partners to ensure the strict resiliency, safety, security compliance requirements around the entire IT value chain. And we do this in a way which is coherent, is aligned with the industry regulation and generally spans infrastructure, application, artificial intelligence and so forth. And this is a solution where we are partnering with Microsoft as well around the Azure cloud. If we move on to cyber, that is, of course, a very hot topic and it continues to be so. And what we're seeing is that AI security has really changed the game. So it's become the primary focus area for the way our clients spend. AI is truly redefining threats, defenses and vastly expands the attack surface. And cybersecurity is shifting to an always-on compliance model where our clients are requiring very much verifiable controls and sovereignty aware architectures. And again, this is a space which is moving super fast and really redefining the game. So to give you a little anecdote, it is estimated that there are 80x more machine identities in any organization today compared with human identities. And this is, of course, because of the advent of agentic AI. So that type of AI where you have agents which perhaps only need to have split second life cycles. They need to be controlled. They need to have verifiable access controls. They need to be spun up and potentially terminated in under a second really redefines the rules of the game. So we believe that we are super well positioned in this space. We have very much an end-to-end best-in-class set of cybersecurity services ranging from advisory which, Philippe just mentioned. We have very much embedded AI agents in our entire life cycle of threat intelligence, threat detection, investigation and response. We're also, we believe, one of the market leaders in post-quantum cryptography. And of course, with the Eviden Group, we have some fantastic EU, European sovereign cybersecurity products. So again, to make this real, I'd like to give you a sense of the work that we're doing with the European Commission. This is one of the most important cybersecurity services in Europe, full stop. And Atos is on point and has won a substantial framework agreement to provide operations, incident response, digital forensics, threat intelligence, threat monitoring, offensive security in the areas of vulnerability management, penetration testing and red teaming. And again, I draw your attention to a number of independent analysts, which continue to recognize us as a market leader in the cybersecurity space. So let's move on to the next slide and try to give you a big picture of where we're at and how we see AI impacting our businesses. So this might be a little bit of a busy slide, so please give me a chance to walk you through it. So at the bottom of the slide, you're seeing our different historical business lines with data and AI, cyber, Eviden and so forth. Then the Harvey balls are representing the way we see AI impacting those specific business areas. So on the top row, you're seeing how AI is impacting the addressable market expansion with the full Harvey ball, meaning it is very high expansion, i.e., more opportunities for us or a limited partial Harvey ball demonstrating or indicating a limited expansion. And then the AI top line pressure row is basically a way of indicating how we see AI impacting or having the potential to impact our top line revenue ranging from low to high. So all in all, all in all, we see AI being a strong driver for growth in Atos. We are very much on the offensive. We believe that AI is a game changer, and we are super well positioned in this space. But the important bit to mention here is that we have a leading position in a number of these building blocks in the colorful table below. But what we are doing very successfully is to combine and recombine them into this 3 big bets that I've been talking to you for the last few minutes. So again, please remember the growth engines of Atos are agentic AI digital sovereignty and cybersecurity. And we're seeing substantial opportunities and a lot of momentum in those areas. And we truly believe we have the right to win. So moving on to the last slide as a little bit of summary. We are still going through a massive transformation. We've turned the corner. We are reimagining and we have reimagined the entire technology function in Atos. We're attracting some absolute top-notch talent. We have done a full portfolio redesign, doubling down on agentic AI and AI in general, digital sovereignty and cyber. We have a very unique and differentiated approach to sovereignty and security. We're boldly and ambitiously embracing this new world of services software where increasingly, we are building very unique, very specialized AI solutions powered by software to augment and enhance our services. And the Agentic Sovereign Studios, which we have just launched are really a showcase of much more to come. We really look forward to sharing with you progress and a lot of success in this space. So having said that, handing over to my colleague, Jacques-Francois, to walk you through some interesting numbers. Philippe Salle: So thank you, Florin. I will take the lead before Jacques-Francois if that's okay. And in fact, Florin, you're right, we're going to have a special press release on the agentic next week on the other. We're going to much comment, let's say, much more in detail on what exactly we're going to do in the coming weeks and months, of course. So now going back on the number -- topic #3 on the presentation. So we go to Page 26. So you can see the revenues of '25 versus last year. We call also the pro forma without the foreign exchange and scope. Scope is world grade, of course, in '24. And as you see, minus 14% in terms of sales. If we go to Page 27, you have the EUR 8 billion between Eviden and also Atos in blue. And then in the different countries, Germany is #1, North America, France, U.K. and an international market and what we call BNN, which is Benelux, Netherlands and Nordics. And if you look on the right, this is the EUR 7.2 billion, that's the pro forma of '25 without Latin America and without BNN. And you can see that the base we're going to rebound for this year. And you see now, I would say, what is the split of revenues between Eviden, now, of course, much smaller on the EUR 300 million plus and I would say Atos with different yields. Now if we go to Page 28, I'm very proud to say that we have doubled the margin in terms of EBIT and in terms of percentage more than that. So pro forma in '24, we were at EUR 172 million of EBIT, and we -- last year, we touched the EUR 351 million. So it's more than doubling in fact, the profitability and also a margin at 4.4%. And as I said, that's the biggest margin we have since 2021. Now if you look at the operating margin by geography on Page 29, I will not go into detail but you can see on the left column, that's the results of '25. And on the right, that's the pro forma without -- and without Latin America. So that's the rebound. So the EUR 7.2 billion and EUR 314 million, that's the base impact of the rebound for '25 -- '26. Now I will go very quickly on the different business units. But you can in fact that in Atos for the 6 geos, we have done quite a very good job. Germany, we start first minus 10% on the top line. So tough year. We know also that some of the clients have decided to exit. For example -- of their platform. So it was nothing to do with Atos. Germany is for the first time probably of many years on a positive territory. And as I said to you, this year, we'll be probably close to EUR 100 million. I think the budget is EUR 90 million. So we have, I would say, with Genesis, more to come, of course, in the course of '26. Atos North America on Page 31, that's the area that has been touched more, I would say, in terms of top line. A lot of clients have been frightened in the course of '24 and we -- they stopped, of course, some of the contracts. But as you can see, of course, the EBIT in terms of quantum is less than '24. But in terms of margin, we are double digit, and I think it has been a very good job done by the U.S. team. Now if we go to France, the decrease is around minus 10%. And also, I would say, however, we have a decrease in terms of top line. We have been able, I would say, to stabilize the earnings a little bit more, in fact. And of course, with Genesis, there is more to come in the course of '26. U.K. and Ireland also is an area on Page 33, where we have had also a -- it's like in the U.S. In fact, it has been a tough year because of a lot of clients stopping to work with us and stopping contracts. But as you can see, we have been flat in terms of EBIT and roughly at EUR 83 million versus EUR 82 million. But in terms of margin, we have increased the margin by roughly 1.6%. International market is down also at minus 15%, but we have more than doubled the profitability. We have done a very good job, in fact, in the Genesis transformation in different countries in Middle East, in also South Europe and also in Asia. And last, Benelux, where I would say probably we have been the more resilient in terms of top line. And so we are on Page 35, minus 4% in terms of organic -- inorganic growth, so a decrease in terms of organic, let's say, and a very, very good job from the team on the bottom line. As you can see, we have multiplied by 10 the EBIT with a margin around 7%. So as you can see, in fact, despite, of course, the top line, I would say, pressure, we have been able, I would say, to manage very well the bottom line. Last slide on 36 is on Eviden. Of course, this is the part that is growing and mainly of the advanced computing activity. This activity was losing money, in fact, in '24, and we have done quite a good job to restore some profitability. It's still too low for me. But definitely, there is more to come in this business unit. With this, I hand over to Jacques-Francois to go more on the P&L and balance sheet. Jacques-François de Prest: Okay. Thank you, Philippe. Good morning, everybody. Now that Philippe has gone through the drivers of our business operational performance, let me walk you through the P&L items below operating as well as the cash flow statement and the balance sheet. So as Philippe indicated, our operating margin amounted to EUR 351 million in fiscal year '25. We incurred reorganization and rationalization charges for EUR 642 million in total, of which EUR 540 million reorganization costs as we made significant progress in the execution of our restructuring program and EUR 102 million provision related to leases and real estate asset impairment. We impaired EUR 166 million of goodwill this year as a result of the upcoming disposal of the Advanced Computing business. Other items reached a negative EUR 331 million. They included losses related to some onerous contracts for EUR 123 million and litigation provisions for EUR 145 million. The net cost of our debt reached EUR 333 million, up from EUR 178 million last year, reflecting our new debt structure post '24 refinancing and including PIK interest as well as the amortization of 2024 fair value adjustment. Other financial expenses were EUR 102 million in fiscal year '25 due to debt lease pensions and provisions on nonconsolidated investments. As a result, our net income group share amounted to minus EUR 1.4 billion. On the next page, we see the cash flow generation, which improved significantly year-on-year from minus EUR 735 million in '24 to minus EUR 326 million in fiscal year '25. We generated EUR 883 million OMDA in fiscal year '25, and we expensed EUR 170 million in CapEx and EUR 278 million in leases. Our change in working capital requirement, once we neutralize for the working capital actions, you recall that the unsolicited cash received in advance from some customers, this amounted to a positive EUR 33 million. It essentially reflected a lower activity level in 2025. Going forward, we expect further sustainable working capital improvement. Our cash restructuring expense was EUR 445 million. As expected, cash out accelerated in the second half of the year. Tax paid was EUR 31 million and cash cost of debt EUR 160 million. Onerous contracts and litigations amounted to EUR 157 million. As a result, our net change in cash was limited to EUR 326 million, better than anticipated despite higher restructuring costs, cash at EUR 445 million. Now the net debt as at December 31, '25. The net debt was EUR 1.8 billion compared to EUR 1.2 billion as at December 31, 2024. Beyond free cash flow, it reflected the impact of the change in working capital actions for EUR 43 million, negative ForEx impact for EUR 104 million and other elements such as the PIK component of the debt. Net debt consisted firstly, of cash and cash equivalents for EUR 1.265 billion. And secondly, borrowings for a nominal value of EUR 3.64 billion. As at December 31, '25, the group financial leverage ratio was very similar to the end of '24 level at 3.17x. I remind you that our target is to reduce leverage below 1.5x at the end of the year 2028. Thank you. And I now hand over back to Philippe. Philippe Salle: Thank you, Jacques-Francois. So let's go over to the section, which is the outlook. So on Page 42, first, we want to come back on what is Atos -- do that we will give the keys at the end of the month, in fact, the end of March without also Latin America that we have sold and the closing is expected in fact in April and also the small divestiture that we have done in the Nordics. So on the left side, you can see that the revenue is EUR 7.2 billion. Operating margin is EUR 314 million and that's the pro forma without, as I say, the new perimeter, roughly 57,000, 58,000 people without -- in Latin America and 54 countries of operation. And as I say, we want to be below the 40 threshold, so we continue to reduce the perimeter in this topic. On the right, you can see the different business lines, the different geography. #1 market is now Germany. North America, #2. France, #3. And U.K. and Ireland, #4. And as you can see, these 4 countries is roughly more than 70% of our total revenues. And then you can see also the industries. Now the financial ambition is on Page 43, and I know that a lot of people are waiting this moment. So the guidance for the 3 elements, which is top line, bottom line and cash. So on the top line, we are looking for a positive organic growth. That's the budget that we have internally. But we want to say that there is also a downside scenario possible that is limited to minus 5%. So it's very important that we are cautious. We don't want to over give, I would say, confidence. It's very important that we deliver the numbers that we announced. And that's why we say that, of course, the budget is and our target internally is to grow. It could, I would say, there are some less good news in terms of top line. The maximum we can see this year is minus 5%. And remember, it went over minus 14%. So of course, the first half year will be negative, and we estimate that we will be probably around minus 9%, minus 10% in Q1. And then it will, of course, stabilize in Q3 and a rebound in Q3 or in Q4. Operating margin around 7%. So it means that it's indeed, let's say, around EUR 500 million. So it's an increase by 60% versus '25, which is very important. And we are on, I would say, to the journey to touch this 10% margin by '28 and a positive net change in cash. So it's without, I would say, a divestiture of course, of -- So it means that with the cash that we're going to produce this year plus, of course, the cash we're going to have from the M&A, the debt will be reduced. The EBIT will increase. So the leverage for sure is going to decrease strongly, in fact, in the course of '26. And we are very, I would say, very confident that we're going to produce cash this year. And I think it's the result, of course, of this Genesis plan that we have accelerated in the course of '25. Now for '28, we continue to say that the 3 phase, as I say, reset in '25, rebound in '26, accelerate now in '27 and '28. We continue to see an acceleration of the top line between 5% and 7%. We track probably do better than that. Still looking at an operating margin around 10% and of course, deleveraging to be below the 1.5% net debt by the -- the way we calculate this in the course of '28. So to have, let's say, a profile of BB and BBB probably in the course of '29. That's the goal we have. Now if I have to sum up, I would say, what we have said today with Florin and Jacques-Francois. So on Page 44. First, we have a restore the foundation of Atos. We are very pleased to say that we have met or exceeded, I would say, the financial guidance that we have set. We have done a lot of job, in fact, in the commercial strategy, and I definitely think it's going to yield a lot of results. In fact, I would say the Genesis cost, it's a 1- to 2-year effect. We have done most of the plan in '25, we will finish in '26. And the rebound, it's a 2-, 3-year effort. We have done a lot of job in '25. We're going to see some of the results in the course of '26 and I definitely thing that we're going to accelerate in the course of '27. As I said, the Genesis plan, we have done roughly 88% in terms of savings. It's a pro forma. So we have, of course, part of it in the P&L of '25, and there is more to come, of course, in the P&L of '26. Second, I think we are very well placed for the AI journey, and I think Atos has as a unique position. We're going to reinforce, as I said, the 3 tech pillars that the Florin has said. So agentic AI with the launch of the studios, more to come next week, sovereignty and in cyber. And remember also that we have launched also the consulting we rebranded, I would say, the Atos Amplify. So today, we are announcing the launch of Amplify and also the launch of the Agentic Studio. And we have, in fact, a new website that you can see on the Atos group. And then we have quite a promising outlook on the right part of this page. So stabilization in '26 with a rebound in H2 and then acceleration of top line and of course, production of a lot of cash in the course of '27 and '28 when we can probably resume M&A, we'll see if there are targets that are interesting, but it's also possible that we do probably less because we estimate that with agentic, we have a lot of opportunities we're going to have we probably will try also to invest also in the company more in our studios. With this, I turn to the Q&A session that is open and then I will give the floor to Florin or Jacques-Francois depending on your questions. Operator: [Operator Instructions] The first question today is from Frederic Boulan from Bank of America. Frederic Boulan: Two questions for me. Interesting discussion on your AI offering. Would be keen to understand how you define your competitive edge versus your key global competitors and players. And more broadly looking at your midterm targets, 5% to the kind of growth ambition, what kind of upside have you -- do you anticipate and have you penciled in on that kind of segment versus potential pressure on traditional, I mean, digital transformation, as you mentioned on that slide? And maybe as a second question, is there any -- would be good to have an update on the kind of current pricing environment any kind of areas of your business where you do see kind of margins going down on new projects. I mean you mentioned some of competitive bids where you walked away. But where you do see already today Gen AI driving some price deflation? Philippe Salle: So in fact, Frederic, you have to understand, I think the slide of Florin, which I think is not the most important, but I would say in the Page 23. The way we look at it is very simple. In fact, AI is going to touch the company in 2 types of impact. There is an impact on the coding, so the digital applications where we definitely think we're going to go faster and cheaper. And that's why we said there is an equal to negative impact. But here, in fact, what we see is that we're going -- it's not going to impact the top line that much, but we're going to produce much more for the same price. And what we see from CIOs and the budget right now is that they are accelerating, in fact, their plan because there is a lot to do, in fact, in digitalization in many companies. And in fact, we can probably -- do probably twice as much that we were able, I would say, to provide in the past. We definitely think that, in fact, with AI, coding and testing is very simplified, and we can produce much more than we have done in the past with probably less people. And -- but for us, I think there is no impact on the top line. It's just the fact that we're going to accelerate the project and we're going to provide more. The second impact for the rest is the agentic studio, so the AI on our operations, for example, on CMI, et cetera. And there, we definitely think that it's a big opportunity because we definitely think that with AI, we're going to provide more services or accelerate, for example, some work that we ask, I would say, by the client. So we don't see for the moment, for example, for a big tender, we're going to announce one probably in the course of March, a very big one. We -- and it's a very long contract on CMI. In fact, the margin is up because also we apply also agentic on our own delivery. We pass, of course, some, I would say, the savings to the clients, but we protect the margin of Atos in fact in the future. So we -- that's why we say we are quite positive. Probably Florin, you want to answer on the strategic, I would say, advantage or competitive advantage we have versus the competition. Florin Rotar: Yes, sure. Thanks. So if we go to Slide 17, I'll give you a summary of it. So I think one of the key differentiators is the fact that we have this very long relationships and know-how with a number of really important clients. And what we've been able to do is to bottle up this decades-long insights and data from running hundreds, if not thousands of managed services and long-running engagement into a series of agents, which are sitting on unique Atos foundational models. So if you remember previously in the presentation, I mentioned our collaboration with Poolside. So we are creating a frontier level model, which is Atos native, which packages up this know-how developed the processes and the data built over decades, which we're providing on an Agentic-as-a service model. I think the other differentiation we would have is this experience of working in highly regulated, secure mission-critical environments. So you need to remember that most of the time when people talk about AI today and agents, it's around things like customer service or B2C or call centers. And AI is, frankly, fairly easy to implement in those environments. The accuracy just needs to be good enough. And to be very direct, if a customer who calls a call center does not get the right answer, the sky does not fall down. On the other hand, the type of agentic AI that we specialize in, like the super mission-critical one, it's a completely different ball game in terms of robustness and industrialization. So if our AI agents would not work properly when there is a flooding in Scotland, then we have a serious problem. If the AI solutions that we're creating together with Eurocontrol would not work properly. Well, then you have massive flight delays in Europe and the entire economy loses $1 billion a day. So I think this know-how we have based on our heritage of working in areas which some people consider non-sexy, if I'm allowed to use that word, it's turning into a competitive advantage for us. We really know how to make AI work in those environments. And you see some of the recognition we have in this space. So ISG has recognized us as an absolute leader in advanced analytics and services. We've just made a leader in all market segments with Nelson Hall around transforming business operations with Gen AI and so on and so forth. So to summarize, we are neutral. We're the Switzerland of governance. We know how to make AI work in this super difficult environment. And we have bottled and packaged this know-how into unique models and unique agents, which nobody else would be able to replicate. Philippe Salle: Thank you, Florin. Operator: We'll now take the next question. This is from Nicolas David from ODDO BHF. Nicolas David: I have 3 questions on my side. The first one is regarding the cash guidance. Can you help us reconcile how this net change in cash you expect for 2026 is comparable to what could be a free cash flow to equity definition? What could be the difference between the 2 in terms of cash collection or cash outflow? The second question is regarding the provisions you have passed in 2025, the EUR 123 million on onerous contract notably. Can you help us understand if it's just a cost overrun on this year -- on last year, and it was linked to cash out last year? Or is it a provision for multiyear upcoming losses on the contract you identified? And do you expect more in 2026 if you review more contracts? And also regarding the litigation, when do you expect the potential cash out? And the last question I have is what is -- what would be your strategy regarding the debt refinancing given that the debt market for tech companies is getting more tight right now? Philippe Salle: Okay. I will just answer the last question, and then I give the floor to Jacques-Francois for the first 2. As we say, the door is open for us to renegotiate the debt after 1 year, in fact, it was on December last year in '25. And as you -- what we have done is that we are prepared, I would say, to take any opportunity to refinance the debt. And as you said, right now, the door is closed just because the markets are not in a good shape. So we will wait until I would say there is an opportunity. So we will see. So it could be in March, could be, I would say, in different other period. I think the message is that we are ready to do part of the refinancing as soon as the door is -- I would say the window is opening again, we will probably decide an opportunity on this, okay? So we'll see what happens in the course of '26. I don't have a crystal ball. It's difficult also because, of course, you said for the tech, it has been shaky, I would say, in Feb. Now with Iran, I'm not sure it's going to be less shaky in the course of March. So let's wait and be patient. But if there is an opportunity, we're going to take it. Now for the two first questions, I'll let Jacques-Francois answer to answer. Jacques-François de Prest: Yes, Nicolas. So the net change in cash is the way we call internally this free cash flow, which you're referring to. There are no reasons for differences just in our guidance, we are excluding the repayment of debt. We keep in there the interest to serve the debt, but repayment of debt is excluded, so is FX impact, so is M&A. So that's the first question. Second question is regarding the provisions for onerous contracts and other items basically. So in terms of onerous contracts, Philippe has mentioned quite regularly in the calls that we had still a couple of significant black accounts on which we are losing some money. We have, can I say, the duty to assess these contracts regularly. Of course, management is trying to mitigate with action plans to reduce the losses. And to be clear, we're also trying to exit. But so far, we are bound. So in our reviews at the end of fiscal year '25, we have decided to provide more for future losses. So at this stage, you should not expect additional provisions to be added in '26 because the review we have done is quite prudent and should be comprehensive to cover all the future. And in terms of litigation, well, by definition, it's a bit uncertain and it doesn't depend on us. So I'm afraid I cannot give you really a timing for the cash out of these provisions. But you will recall that the bulk of the litigation provisions has already been booked in H1 '25. So there is not so much which has been added in the second half of '25. Philippe Salle: And in terms of black accounts, there are no new brand accounts, so don't worry. We are -- as I say, we have signed quite a very healthy project, and we are still managing the last 2 accounts in the U.K. Again, one account should finish mid-'27. So that's the goal that is to stop one. And the second one, we are in negotiation also to stop it, but the end of the contract is 2034. Operator: We'll now take our next question. This is from Sam Morton from Invesco. Sam Morton: So in the release, I think you talked about considering to repurchase bond debt. Can you talk a little bit about what that would look like? Is there a particular tranche that you're looking at? Or is that just sort of repurchasing across the board? And then I'd like to dig into the refinancing. Obviously, the window is challenging at the moment. But when you think about the refinancing, is this a piecemeal approach? Or will you -- are you looking to do all of the refinancing of the first lien and the 1.5 lien at the same time? Philippe Salle: So I would say on the refinancing, the goal is first to refinance the 1L because it's 13% and we definitely think that we can be much cheaper right now with B- and also with a positive outlook. And then after that, if we can do 1 and 1.5, of course, we will do both. I would say it will depend on the depth of the market. But I would say 1L is more important for us just because it's too expensive. The 1.5L in fact, is cheaper and it's around 8% plus in terms of yield. So 1L is the priority. But if we can do 1L and 1.5L so that we can stop also the, I would say, the procedure that was in place since '24 for Atos, we will try to do both. But I would say the priority is 1L. Jacques-Francois, probably you want to... Jacques-François de Prest: Yes, on the repurchase of bonds, so forgive me, I'm not going to give you a straight answer. However, I can tell you that what is guiding our actions is we are making a standard calculation of value and we are targeting the instruments where there is the better value. Sam Morton: Okay. Sorry, can I just dive into that? So would you look at the lowest cash price? Or would you -- I mean, I'm just -- I mean, like what's the philosophy. You're looking at the lowest cash price? Or you're trying to facilitate the refinancing? I'm just trying to understand how you think about it. Philippe Salle: Well, in the URD, which is going to be published next week, you will see that in '25, we have already bought a little bit of second lien bonds, a very tiny amount because it was not very liquid, but we have bought a little bit of 2L already in '25. Now we are looking at NPV, IRR. The first reason -- the first objective is to look at what's generating more money, what's -- because we are -- today, we consider we're a little bit in excess cash. We have some big proceeds coming on, namely with the proceeds for the closing of the advanced computing division in a few weeks. So we are trying to make the best use of our money. Operator: [Operator Instructions] The next question is from the line of Derric Marcon from Bernstein. Derric Marcon: I've got 4 questions, if you authorize me. The first one is on the range given for the guidance -- you gave for the guidance. So minus 50 plus or positive. Could you try to help us understand the difference between the low end of the range and the upper end of the range. At the bottom of the range, does it take into account significant revenue reduction with Siemens. And can you also explain us where you land with Siemens in 2025 versus 2024? And what do you expect in 2026? Just to understand if it's an important moving part in the construction of this range. My second question is on the -- your commercial momentum. If we look to the full qualified pipeline number at the end of 2025, it does not improve much compared to previous quarters despite FX. So I'm trying to understand here what KPI do you have to, let's say, assess a much better, as you said, not Q1, but maybe Q2 or Q3 or Q4? And do you see really this momentum improving quarter after quarter? Because, unfortunately, on our side, we can't see through that number. My third question is on CapEx. So as you said, really good performance in 2025 on that side. Do you expect CapEx to remain at the same level in 2026? Or will you be impacted by the massive price increase on memories? And what percentage of the CapEx of this EUR 150 million plus is linked to server plus memory, hardware, let's say. And that's it for me. Philippe Salle: Okay. So on your first question on Siemens, roughly revenues of '25 was EUR 300 million. And this year, we anticipate the EUR 250 million plus. So it's only EUR 50 million, so it's less than 1% in terms of impact on the top line. Remember that with Siemens, we work with 3 different entities, in the Healthcare segment, Energy and Siemens AG. And in fact, we do roughly EUR 150 million plus and EUR 50 million, EU 50 million with the 2 others. And in fact, I would say there are also different dynamics with different accounts. But as I said, this year, we'll be at EUR 250 million plus because some of the contracts will stop also in the course of '25. But there is no, I would say, a big impact on Siemens, as you can see. Now between minus 5 and 0 plus, as you, as you say, we want to be cautious this year. I don't want to say we're going to grow, I would say, and sign it today. The goal, of course, for us is to do it. But we want to be a little bit cautious and give you a range between minus 5% and 0% plus, let's say, between minus 5% and plus 1%. And then you will pick the number you want. But I think it's a cautious stance in the beginning of the year, and we will have probably more to give in the course of this year. For the qualified pipeline, you're right, it's stable, but I think it's much more quality, I would say, for me than it was 1 year ago. And in fact, what makes me, let's say, more optimistic is that the win ratio is increasing right now. So I would say that the qualified, it's a pipeline where we are quite confident we can make a lot of wins in this pipeline. And then your last point was what about CapEx number. Remember that is going away. After that, I would say for Eviden, the chips, it's not a big problem for us. And in fact, for some of our data centers, most of our contracts will pass, I would say, the increase that we see from our providers directly, I would say, to the client. So there is no much risk in fact in terms of CapEx. The CapEx we are looking for this year is at EUR 100 million plus without -- So that's the target that we have for this year. Derric Marcon: Can I add just a small follow-up because on your explanation on AI, very helpful and interesting. And I'm on the same line than you about compensating price deflation with volume on most activities you are doing. But I was wondering if this reasoning can apply or could apply to digital workplace and cloud and infrastructure and modern infrastructure because here, I struggle to understand you will get this price deflation for sure, but I don't see where the increased volume will come from. Philippe Salle: Florin, you can explain that. Florin Rotar: Yes. So it's a great question. So actually, if we go into the cloud and modern infrastructure, so we see a quite substantial uptick around the work that we're doing based on the sovereign movement. So there is -- it is a quite complicated area where clients need a lot of help, everything from advisory to try to understand which workloads they do sovereign and which version of sovereign and to move and redesign both the application and the infrastructure space from those areas. I would also say that we have substantially improved our partnership with a number of the hyperscalers. So we're driving a lot of additional new joint go-to-market campaigns and solutions in this space, which is acting as a net positive. And I would also say that on cloud and modern infrastructure, actually, AI is opening up new opportunities, which historically wouldn't have been possible to do for our clients. So as AI is making the modernization and the digitalization of legacy applications possible in a way which, frankly, again, wouldn't have been realistic or cost efficient in the past. That drives substantial requirements for infrastructure and cloud modernization. So AI is actually a tailwind for us in cloud and modern infrastructure. And when it comes to digital workplace, we are expanding the type of services we provide in digital workplace. So again, AI is, to some extent, a headwind because some of the services which we historically would have done with people are now done by agents, but we're able to improve our margins in that case. But we're also seeing AI act as a multiplier. So one of the key demands we see from clients is how to have their people truly be able to use AI constructively, usefully and in a meaningful way. So we're actually adding AI enablement and AI capabilities as part of our digital workplace services. We're also using AI to make the digital workplace experience a lot more enhanced to help with self-healing. So we're basically adding additional services, additional value-adding services in our digital workplace portfolio, which again are quite nicely balancing those tailwinds are nicely balancing the headwinds we would have had traditionally with digital labor replacing human labor. I hope that answers your question. Operator: We'll now take the last question today. And the question is from Laurent Daure from Kepler Cheuvreux. Laurent Daure: As for Derric, I have also 4 questions. First, I'd like to -- if you could come back on the way you have built your revenue plan for 2026. I mean, if you start the year with the first quarter close to minus 10, and you're not going to have much easier comps the following quarter. Does it mean that you're expecting to win sizable deals that will start during the year? Or what makes you so confident that you're going to end the year with strong growth in order to offset the first quarter? Then my second question is, first, thanks for the clarification on Siemens. But if you could share with us exactly your relationship with your clients as of today. And in particular, I understand that you have 2 more years of business. But do you already have a visibility on what's going to happen for that client as of 2028? And the last 2 questions, one is on the one-offs. At which timing do you expect the P&L to start to be quite clean with limited restructuring and provisions? Is it 2027? And the final question is on the nice improvement you're expecting on EBIT. Could you share a bit the building blocks to go from 4% plus to 7% the main savings, that would be helpful as well. Philippe Salle: So on your first one on Siemens, so we have what we call -- that was signed in 2020. It was a 5-year plus 2 year contract. So there is 2 more years. But after that, in fact, in the course of what we want is not to have any -- whatever with Siemens. It's to continue with Siemens exactly the way we continue with other clients. We just answer tenders and one project. So in fact, in '28, we will continue to answer the tender and win some of the projects. In fact, and when you look at the backlog in Siemens, we have already revenues for '28 and '29 for some of the projects that we have won in fact in the course of '25. So I would say it's a normal client. There is no need, I would say, to resign whatever, it doesn't make sense. Also because, in fact, in the time that we have signed in 2020, you should know that there was a signing bonus that makes, in fact, the margin of the contract not that good. And in fact, now the margin has been restored in the course of '26. So we are quite happy on it. And the idea for me is to continue with the Siemens, like all other clients. There is no specific agreements that we need, I would say, with Siemens. And remember also that, as I said, Siemens, it's 3 different entities with 3 different, I would say, clients. So in fact, we have also client partners addressing the different entities of Siemens. Now for your second question. Of course, if we start at minus 10 and we want to be positive, there is no magic. We need to be a strong growth in Q4. That's the anticipation that we have. I cannot go into details on which contracts we want to win or not. It's too difficult to do that. And I'm not sure it's very useful. But of course, that, I would say, the goal that we have in our budget is that to be roughly at 0 plus in Q3 and then have an acceleration of the growth in the last quarter. And I would say that it would if we are able to be at 0 plus, it's a very good result for us because it means that we are have, let's say, growth going forward in the course of '27. The bar is high, Laurent, I don't say it's an easy one. Please be careful on that. Don't estimate that everything is easy. But of course, we have an ambition, and we definitely think that we have the pipeline and the projects to rebound, I would say, in the course of Q3 and Q4. For your other question, I don't remember. Yes, go on, Jacques-Francois. Jacques-François de Prest: Well, I think, Laurent, you were asking when do we stop the one-offs and do we when do we have a P&L which is clean. Well, I think already '26. I mean, for me, the numbers we are publishing now are taking everything we know into account. So of course, in '26, we still have the continuation of the Genesis restructuring plan because we said that we booked a large chunk in '25. If you remember, the full envelope was EUR 700 million. So we're still a bit below. So there is still somehow -- a portion of that to come in '26. But beyond that, I would say that '26 already should be expected to be clean. That's the question on the one-offs. Your last question, I don't know if you want to take it, which is the further -- the building blocks of the path to the 9% to 10% margin. Philippe Salle: I think yes, well, first, we were at 6% in H2. Remember that we have roughly EUR 200 million of savings of Genesis in the P&L coming this year. So if you start with EUR 300 million plus, plus the EUR 200 million, we are already at EUR 500 million, then you need to get rid, of course, we're going to have an increase of salaries and it's an impact of EUR 70 million plus. So your building block is EUR 314 million, plus EUR 200 million, minus EUR 70 million and then plus the other actions that we are going to take in the course of this year. But that's why we are quite confident on the 7% margin. Laurent Daure: Philippe, if I could add on the new scope question on the seasonality of the margins because you improved nicely from first half to second half. But do you have part of that is coming from seasonality? Or going forward, do you expect when you will have stabilized the operations to have a similar margin level between the 2 halves? Philippe Salle: In fact, it's going to be always more marginal in H2 than H1, but with less Eviden -- is out. And that's most of the explanation why H1 and H2 are very different. It's not going to be the case in the course of '26. So you will see a more stable revenue and I would say, EBIT stream between H1 and H2. But usually and all the companies, and it's the case of, there is more margin in H2 than H1, but not, I would say, like it was, in fact, in the course of '25, to a smaller extent. And remember that I said already in the CMD last year that there will be close to 0, I would say, nonrecurring expense in terms of cash in '28. We cash out, I would say, Genesis. So this year, we estimate that it's going to be between EUR 150 million and EUR 200 million. We have done EUR 450 million last year and then the rest in the course of '27. No more, I would say, cash out in '28. Same thing for the litigations, we estimate that most of the litigation will be done. And then for the black account, as I said, there will be probably only one in '28. So it will be, I would say, a small impact in terms of cash. So EBIT will be clean this year, but I would say, in terms of cash also it will be clean in the course of '27 and '28. Operator: There are no further questions at this time. So I will hand the conference back to the speakers for any closing comments. Philippe Salle: Okay. So thank you, everyone, for this long call. We are very happy as you have seen, I think the focus was on technology today because there were a lot of questions on our industry and also on Atos. Have a good day. And of course, we will talk to you probably for Q1 and in the coming months, and we are, of course, focused to the rebound of the company. Have a good day. Bye-bye. Operator: Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect. Speakers, please stand by.
Operator: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2026 Cooper Companies Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Kim Duncan, Vice President of Investor Relations and Risk Management. Please go ahead. Kim Duncan: Good afternoon, and welcome to Cooper Companies' First Quarter 2026 Earnings Conference Call. During today's call, we will discuss the results and guidance included in the earnings release and then use the remaining time for questions. Our presenters on today's call are Al White, President and Chief Executive Officer; and Brian Andrews, Chief Financial Officer and Treasurer. Before we begin, I'd like to remind you that this conference call will contain forward-looking statements, including statements relating to revenues, EPS, cash flows, interest, FX and tax rates, tariffs and other financial guidance and expectations, strategic and operational initiatives, market conditions and trends, and product launches and demand. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise and are subject to risks and uncertainties. Events that could cause our actual results and future actions of the company to differ materially from those described in forward-looking statements are set forth under the caption Forward-Looking Statements in today's earnings release and are described in our SEC filings, including Cooper's Form 10-K and Form 10-Q filings, all of which are available on our website at coopercos.com. Also, as a reminder, the non-GAAP financial information we will provide on this call is provided as a supplement to our GAAP information. We encourage you to consider our results under GAAP as well as non-GAAP and refer to the reconciliations provided in our earnings release, which is available on the Investor Relations section of our website under quarterly materials. Should you have any additional questions following the call, please e-mail ir@cooperco.com. And now I'll turn the call over to Al for his opening remarks. Albert White: Thank you, Kim, and welcome, everyone. We're pleased to report a strong start to the fiscal year, highlighted by product launches, outstanding profitability and robust cash flow. These results reflect our disciplined execution combined with the significant synergies we're realizing from last year's reorganization. For today's call, I'll begin with an update on the 3 key strategic priorities we outlined in December and then move to Q1 results and guidance. First, we remain focused on delivering consistent market share gains for CooperVision. In calendar 2025, we gained share for an 18th consecutive year, and we enter 2026 with the intention of doing so once again. In our first fiscal quarter, we made meaningful progress with the global rollout of our premium MyDay daily silicone hydrogel portfolio, growing branded sales and executing on private label contracts. Regionally, the Americas and EMEA strengthened and have excellent commercial momentum. Japan weighed on our Asia Pac results, but we're executing on product launches and investing to restore growth in the region. We're also incredibly excited about the early adoption of our MyDay MiSight launches in EMEA and MiSight in Japan. At CooperSurgical, we're encouraged by improving trends in our fertility business and look forward to positive momentum continuing. Second, our commitment to delivering strong earnings and free cash flow through operational excellence was clearly evident this quarter. The organizational changes and IT implementations we completed last year are generating meaningful synergies, providing us with the opportunity to invest in sales and marketing initiatives while still delivering outstanding financial performance. Q1 earnings exceeded the top end of our guidance range, and those earnings translated into a healthy $159 million in free cash flow. Given our strong start to the year, we're raising guidance for both earnings and free cash flow. Third, we continue to maintain a disciplined approach to capital allocation. We've entered a multiyear period of consistent earnings and free cash flow growth, and we're deploying capital to high-return opportunities. This starts with prioritizing internal investments that drive revenue growth, which we did this past quarter by increasing sales and marketing spend at CooperVision and CooperSurgical in support of product launches and key strategic initiatives across both businesses. We also repurchased $92 million in stock during the quarter, reinforcing our commitment to consistent share repurchases as a core part of our long-term strategy to drive shareholder value. And the remainder of our cash was used to reduce debt. Before reviewing the quarterly details, I want to address the strategic review we announced in December. We understand there is strong investor interest in this process. While we're not in a position to provide an update today given where we are in the process, the review is progressing as planned with active engagement from our Board and advisers. We will communicate outcomes if we have something definitive to share or when the process is complete. In the meantime, our Board and management remain highly focused on maximizing long-term shareholder value. This includes driving organic growth by winning new contracts and strengthening customer relationships, delivering strong earnings and cash flow by leveraging our infrastructure and deploying a consistent capital allocation strategy that includes share buybacks and debt paydown. With that, let's move to the Q1 results. Consolidated revenues were $1.024 billion, up 6.2% or up 2.9% organically. CooperVision reported revenue of $695 million, up 7.6% or up 3.3% organically. And CooperSurgical delivered revenue of $329 million, up 3.3% or up 2.2% organically. Operating margins improved meaningfully, and non-GAAP earnings grew 20% to $1.10. For CooperVision, on an organic basis, torics and multifocals grew 6% and spheres grew 1%. Daily silicone hydrogel lenses grew 7%, led by double-digit growth in MyDay, while clariti was up slightly. Biofinity and Avaira grew a combined 3%, and MiSight continued its strong growth, up 23%. Regionally, the Americas grew 6%, led by strength in daily silicone hydrogel lenses; and EMEA grew 4%, strengthening our #1 market position in that region. Asia Pac declined 4% as execution on new product launches was more than offset by softness in Japan, primarily tied to lower-margin older hydrogel products. To accelerate APAC performance, we've upgraded several leadership roles, increased marketing investments and are ramping up our new regional distribution center, which is already enhancing customer service with faster fulfillment. We've also recently launched MyDay toric in Taiwan, MiSight in Japan, MyDay MiSight in Australia and New Zealand, and we're increasing regional availability of MyDay multifocal and MyDay toric expanded range. We also have private label launches underway in multiple markets; and in Japan, we'll be launching the full clariti family later this year with the addition of both the toric and multifocal providing a competitively priced full family silicone hydrogel upgrade path for the large base of hydrogel wearers in that market. While we expect Asia Pac to remain down in Q2 due to declining legacy hydrogel sales, we are confident the region will return to growth in fiscal Q3 given all of our launch activity. Turning to products. Our daily silicone hydrogel portfolio continues to perform well, with MyDay leading the way through expanding customer partnerships, broader availability and ongoing launches. Our premium priced offerings delivered its strongest performance led by MyDay multifocal, Energys and torics all growing over 15%. Particular strength was seen with MyDay multifocal as its rollout continues to gain momentum. Our premium MyDay Energys also posted strong growth driven by its innovative digital boost technology designed to provide maximum comfort in today's heavy digital world. This product will be launched shortly in Europe, and we look forward to the boost that will provide in that region. MyDay toric, which offers the broadest SKU range in the category and is powered by the same leading toric design in our Biofinity toric, continued delivering exceptional growth. We also closed additional MyDay key customer contracts and private label partnerships this past quarter across all 3 regions. For the clariti product family, it grew modestly, led by the ongoing launch of our new multifocal in the Americas. This multifocal has the same next-generation optical design as MyDay, meaning an easy-fit lens with consistent performance across different lighting conditions, distances and patient profiles. So we expect strong performance as we launch across EMEA and APAC later this year. Turning to myopia control. MiSight grew 23% to $28 million. Momentum is building with our latest innovation, MyDay MiSight, launching in EMEA in January to an extremely positive reception, thanks to the combination of proven myopia control efficacy and the all-day comfort of a premium silicone hydrogel lens. We also launched MiSight in Japan in February and are seeing a similar enthusiastic response. Japan is one of the world's most significant vision care market; and with an estimated 77% of elementary school children being myopic, it represents a substantial opportunity for MiSight. We're supporting these launches with our most comprehensive professional engagement programs to date, highlighted by major conference engagement, high-impact regional launch events, extensive KOL education and media initiatives reaching tens of thousands of eye care professionals. These efforts are driving very strong clinician activation rates, reinforcing our confidence that our early momentum will continue as MyDay MiSight expands in EMEA across Asia Pac and into Canada. MiSight remains the only FDA-approved contact lens for myopia control and the first and only lens approved for myopia control in both Japan and China. We're also continuing to invest heavy in myopia control R&D and have several exciting breakthrough innovations underway, which further supports our confidence in MiSight's ability to deliver consistent long-term robust growth. To conclude our CooperVision, let me highlight our performance relative to the market. This is calendar quarter data, so apples-to-apples with our competitors. In calendar Q4, we grew 10% and the market grew 6%. For the full calendar year 2025, this translated into 6% CooperVision growth versus the market at 5%, marking our 18th consecutive year of market share gains. Turning to CooperSurgical. We delivered quarterly revenue of $329 million, up 3% or up 2.2% organically. Fertility revenues were $127 million, up 3% organically. Growth was driven by strong global genomics performance, supported by continued commercial and operational execution across product launches, new clinical wins and expansions within existing accounts. We also saw solid results in consumables led by media, ZyMot, our sperm separation device that helps optimize fertility procedures; and Witness, our automated lab tracking system. These gains were partially offset by softness in the Middle East and lower equipment installations. Importantly, we are now seeing early but clear signs of recovery in the fertility market. As we move through the first quarter, results steadily improved, supported by solid execution on contract wins and new product launches as well as strengthening underlying market trends. This momentum positions us well for continued improvement through the remainder of the year, though developments in the Middle East, where we hold a leading market position, remain a source of uncertainty. For the fertility market overall, the product and services segments that we operate in had delivered strong growth for many years before slowing in late 2024. While several factors contributed to the deceleration, the industry is now recovering, driven by renewed clinic interest in adopting new technologies along with improving cycles in the U.S. and several European countries. Although a rapid rebound is unlikely, we anticipate steady improvement as we annualize last year's pressures and underlying activity normalizes. Moving to office and surgical. Sales were $202 million, up 2% organically. Medical devices grew 6%, driven by strong performance in our surgical OB/GYN portfolio led by our uterine manipulators and related products, and continued momentum in our specialty surgical products, including our innovative single-use lighted, cordless surgical retractors. This was partially offset by softness in some legacy medical devices and Paragard declining 7%, which was expected against a difficult comp tied primarily to last year's launch of the new single-hand inserter. To conclude, I want to recognize and thank our Cooper team for their dedication to operational excellence. Investing in sales and marketing to drive organic growth while maintaining disciplined cost control and continuing to build a streamlined and technologically efficient company is no easy task, so thank you to the entire team. And with that, I'll turn the call over to Brian. Brian Andrews: Thank you, Al, and good afternoon, everyone. Most of my commentary will be on a non-GAAP basis, so please refer to today's earnings release for a reconciliation of GAAP to non-GAAP results. For our first fiscal quarter, consolidated revenue was $1.024 billion, up 6.2% year-over-year and up 2.9% organically. Gross margin was 68.1%, exceeding expectations driven primarily by a lighter mix of low-margin Asia Pac revenue at CooperVision. Excluding the impact of tariffs, gross margin would have been essentially flat. Operating expenses rose only modestly and improved as a percentage of sales, declining from 43.6% to 41.2% year-over-year, reflecting the benefits of the reorganization executed in fiscal Q4 of last year. These efficiencies stem from the structural changes we've made as we transition to a smaller, more efficient organization that leverages technology including AI to automate work and optimize shared services. The impact of these efforts was particularly evident at CooperSurgical, where expenses decreased year-over-year. Operating income increased a healthy 13.9%, resulting in a 26.9% margin. Interest expense was $22.4 million, and the effective tax rate was 15.1%. Non-GAAP EPS grew 20% to $1.10 with roughly 197 million average shares outstanding. Free cash flow was very strong at $159 million with CapEx of $102 million. We deployed this cash by repurchasing 1.1 million shares of stock for $92 million, making the final $50 million payment related to our 2023 Cook acquisition and applying the remaining balance towards reducing net debt to $2.4 billion. Lastly, in February, we addressed our $1.5 billion term loan maturing in December 2026 by amending and extending $950 million for another 5 years to February 2031. The remaining $550 million will be repaid in December 2026 when it matures using our strong free cash flow and ample revolver capacity. Moving to full year fiscal 2026 guidance. Our revenue expectations are essentially unchanged with consolidated revenues of roughly $4.3 billion to $4.35 billion, reflecting organic growth of roughly 4.5% to 5.5%. CooperVision revenue is expected to be in the range of $2.9 billion to $2.93 billion, up 4.5% to 5.5% organically. And CooperSurgical is expected to be in the range of $1.4 billion to $1.41 billion, up 4% to 5% organically. For earnings, we're raising guidance to $4.58 to $4.66, reflecting our Q1 beat and stronger expected operational performance. Regarding tariffs, our estimate of approximately $24 million remains the same for the year. Our expectations on interest expense and tax remain unchanged with interest expense around $85 million and the effective tax rate between 15% and 16%. Turning to cash flow. Our cash conversion rate continues to improve, and we're increasing our fiscal 2026 free cash flow outlook to $600 million to $625 million. For fiscal '26 through 2028, we continue to expect to generate more than $2.2 billion of free cash flow, driven by higher operating profits, improving working capital performance and lower CapEx. From a capital deployment standpoint, our priorities remain unchanged. We're investing in growth and innovation, repurchasing shares and reducing debt. To conclude, I'm proud of the operational excellence we're seeing across the organization. We're optimizing and leveraging prior investments in numerous areas, including IT, distribution, HR and finance; and we're increasingly applying AI-enabled tools to streamline areas such as marketing, planning, forecasting and support functions. Our reorganization efforts are delivering meaningful synergies, and the results are evident. Looking ahead, we have additional opportunities to further optimize the way we work. With our multiyear CapEx cycle winding down, our manufacturing teams are now evaluating ways to capitalize on the next-generation production improvements developed over the past several years. Early planning is underway, and while this work will take time, the results have the potential to be material. In the meantime, we'll continue driving efficiencies by leveraging technology while consistently investing in initiatives to support sustainable organic growth. And with that, I will turn the call over to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Jeff Johnson with Baird. Jeffrey Johnson: I guess the first question, let me just kind of back out and go more higher level. Al, I mean, you reported a 10% calendar 4Q number. I think over the last 3 quarters, you've been about 3%, 3.5% for CVI. So one, can you reconcile that 10% number versus the last few quarters at 3%? What's different in the number you're citing there versus what we see in your CVI organic growth results? And then one follow-up question. Albert White: Sure. I knew we were going to get that one. It's literally just a matter of months and shipment of products. So we had, had a weak November and December of 2024, and we had a really strong January of 2025. So just when you comped against that, the way that the shipments worked, it resulted in a really strong calendar Q4 for us. Jeffrey Johnson: Fair enough. And I guess, again, maybe I'll go even further out, and apologies for the feedback. But you've been talking about kind of getting back to market growth, above market growth at least as you report CVI. How is that plan going so far? Maybe update us on the MyDay -- clariti to MyDay transition. Just in general, it still feels like your results are maybe lagging the market here a little bit relative to some of your peers. So how do you feel like you're doing in kind of getting back up and into above market over the next couple of quarters? Albert White: Great question, Jeff. I'll break that up a couple of different ways. I mean if I look at the Americas, we're doing well. The U.S. had a good quarter. We're gaining a lot of traction. We've got product launches and a lot of activity. The team is doing a fantastic job. So I would say we're in good shape with the Americas. When I look at EMEA, again, in good shape there. We took a step forward this quarter against last one, but we've won a number of contracts there. We have a number of product launches going on. I would say our -- we have better visibility for that market right now to improving sales. So I feel pretty good about the momentum that we have in the Americas and the momentum that we have in EMEA right now associated with MyDay and clariti, frankly. And then I go to Asia Pac as kind of the third one. And the results there, right, have been a little tough for us. And that's the area that we need to get figured out and get back to kind of our old traditional growth rates, and we'll be in fantastic shape. As I mentioned, we're doing a lot of stuff to drive growth in Asia Pac. We did see success kind of in a number of areas where we've had problems. We stabilized when it comes to a lot of the e-commerce stuff that we talked about. We stabilized the China business. We had a changeover of some personnel, a number of leadership positions. So we're in good shape in a number of countries. The one that we kind of have left right now is Japan, and I can target that down to like Japan, older hydrogel products where some of our competitors are taking some share. We have not caved on price or anything along those lines. So I think we're going to continue to have a little bit of pressure in Japan with traditional hydrogels, again, in the next quarter because I think that the region will probably be down because of it. But then all of that success, the stuff that I'm talking about, all those product launches in Asia Pac, the success of executing on those private label contracts, all of that kind of stuff, the transition point on that happens in Q3, and you're going to have Asia Pac growing again. So another one where, I would say, we had a number of points over the last year and just a lot better, a lot clearer visibility right now on where those challenges are and where the successes are going to come from. So I think fiscal Q2 ends up being a step-up certainly from this quarter. And then as I've said all along, we'll be back to rolling in Q3 and Q4. Operator: And from Wells Fargo, our next question comes from the line of Larry Biegelsen. Larry Biegelsen: That was a new pronunciation. Al, we heard your comments about the Middle East and IVF. Maybe you could just level set us on what your exposure is there? And how you're thinking the war might impact your business? And I have one follow-up. Albert White: Sure. Yes, to put some numbers around that, kind of, for us, on a consolidated basis, the Middle East is about 2% of our sales. A lot of it is distributor. And obviously, the Middle East is a very large region, so it won't have that much of an impact on us other than it could impact fertility because there's a decent amount of fertility business. We're #1 in that region. We've good strength there. So it's just a matter of us being able to get products there. I mean women are obviously still going through fertility treatment and so forth there. We have to be able to get product in. So if that situation extends for a period of time, it will be more challenging for us. Even with that, we're still -- we have a lot of good momentum in fertility, and I think we'll still improve quarter-over-quarter. But that's kind of the one question mark. Otherwise, I'd even be more bullish on fertility. Larry Biegelsen: And Brian, the margins were really strong in Q1. Just remind us how we should think about the phasing for the year, how you're thinking about -- I guess the tariffs, you said no change. But in light of the recent Supreme Court ruling, if that stood, would there be upside on tariffs? Brian Andrews: Sure, Larry. I'll start with the second part of your question, at least as it relates to tariffs. We've assumed $24 million in the year. That's what we assumed as of the last guidance. We're going to sit tight. Obviously, we capitalize and release the impact of tariffs 4 months later, so any change to tariff rules or guidelines or whatever takes effect won't impact us until later in the year. But a 10% tariff makes very little impact. It's pretty similar to the $24 million, so I'd assume that. If it goes up to 15%, that could be somewhere upwards of like $4 million. But for now, we're just -- the 10% is what it is, and that's what we factored in the guidance. As it relates to operating margins, yes, I mean, it's the same story that we've been talking about from exiting last quarter. We're getting really durable savings from the synergies and the elimination of fixed costs from the reorganization that we talked about in Q4. We're leveraging prior investment activity, and we're being really disciplined. We're scrutinizing all nonrevenue-generating expenses, particularly the back office, and we're investing in sales and marketing. So the drop-through in operating margins was good in Q1, and I would expect you're going to continue to see stronger operating performance, which is why, frankly, we raised our guidance $0.13 at the bottom end and $0.10 at the midpoint based on stronger operating performance. But I'm not going to get into gating at this moment. Operator: And from Piper Sandler, our next question comes from the line of Jason Bednar. Jason Bednar: Actually want to pick up on the line of question that Jeff had, but as far as the competitive landscape as it stands today and your share position, maybe talk about, Al, new fit activity across the quarter. Just what are you seeing in the data when you look at your performance versus peers, if you can break it down dailies versus monthlies? Albert White: Sure. If I look at new fit activities, it probably hasn't really changed that much. At the end of the day, we're taking wearers, so the fit activity continues to put us in a good position. Now you have a whole lot of other variables that go into it, I would say. But if I narrowed down to just new fit activity, whether it's dailies or FRPs, we are taking wearers in both of those as we did this past quarter. So I feel good about that as kind of continuing to be a good indicator of the future. Jason Bednar: All right. And then as a follow-up, it really seems like industry pricing dynamics have calmed down, at least relative to where we were last year. It sounds like the latest round of increases here the last few months are sticking, it should be good for all the players out there. How are you thinking about future list price increases and managing these discussions with wholesalers and docs? Especially if I think back, we went through multiple increases in the past few years, usually like 2 increases a year, do you think the market can absorb more than 1 price increase a year without negatively affecting demand here going forward? Albert White: Yes, well, I do because of the technology that's coming out. I mean, as an industry, we're launching new products, really innovative products. We have some great ones ourselves. I mean there's nothing more innovative in the contact lens industry today than MyDay MiSight that's launching out there. But the multifocals that we're launching are great products. Energys is a great product. I know some of our competitors have some products out there that they're launching at good price points. So consumers are willing to pay for that high quality, and contact lenses are not particularly expensive at the end of the day. So the positive pricing that you're picking up on, on your comment is true. I'm happy about or I feel positive about pricing in the marketplace right now. The only region I put a little caveat on that is still in Asia Pac. There's definitely markets in Asia Pac where there's some pretty competitive pricing out there. But yes, generally speaking, I'd say pricing is positive right now, and it's appropriate given the technologies that are rolling into the marketplace. Operator: And from Stifel, our next question comes from the line of Jon Block. Jonathan Block: Al, the CVI number, I think I heard you at 3.3% precisely. It was a bit below expectations, even the bottom end of the midpoint. Like you gave that guidance, call it, first or second week in December. So maybe just talk to us -- again, it was slightly below. But what deviated from expectations relative to when you gave it? And it would seem to suggest that maybe January was a little bit weaker than you expect. So can you give us any color on how things trended into February? And yes, sorry for the awful feedback. Albert White: Yes. No, you're right, Jon, because we were looking at Asia Pac being essentially flat for the quarter, kind of similar to what we did in Q4, and that would have meant CooperVision consolidated growth would have been like 4.3%, something like that. And you're right, it was 3.3%. So that delta was very specific and very targeted, if you will, to what happened in Japan on those legacy products. I mean we started seeing it some in December, and then we definitely saw that activity in January. So that's what happened. That's where it picked up. I thought that, frankly, the momentum we have with all the product launches and activity and everything would overcome that. But yes, that was a decent hit for us as we rolled through December and January. You're right. And that's why I said I think Asia Pac will probably be down one more quarter before all the positive energy that we have kind of overwhelms that, if you will. Jonathan Block: Okay. Fair enough. And second one, and I apologize in advance for sort of the boring question. But Brian, when I look at the add backs in the quarter, almost half of the add backs were from -- like a hit from natural causes in litigation, which is just a little uncommon. It didn't seem to be the case in the prior quarter. So any color on what you can give around the add backs if you can elaborate a bit? Brian Andrews: Jon, I think you're talking about just in the other category where we break out -- I think it was $6.7 million was related to other legal-related matters. I mean our stance is not typically to talk about what legal matters are going on. We obviously have insurance for a number of things, but there are some things that we don't have insurance on, where we're defending ourselves or -- we've got some legal-related matters that show up. So it was a little bit higher this quarter, but not too atypical from years past. Operator: From Jefferies, our next question is from Young Li. Young Li: Great. I guess to start, I was wondering if you could talk a little bit about there's an update on sort of how the supply dynamics have impacted your ability to win new contracts in the quarter. Albert White: Supply dynamics? Kim Duncan: Impacted your ability to win. Albert White: For supply, you're probably referencing some of the MyDay capacity. We don't have those issues anymore. So I would say that when it comes to supply constraints, manufacturing or supply constraints or logistic challenges, I am very happy to say those are in the rearview window now. We don't have those challenges anymore, so that's not impacting us. Young Li: Apologies for the sound quality. I don't think you heard the question fully. But I was just wondering if you were able to win more new contracts this quarter just given the improvement in supply. Albert White: I got you. The answer to that is yes. Yes, we did win a number of new contracts. As a matter of fact, we won them in all 3 regions, and they were definitely MyDay related. So we won a bunch kind of last year and as we were exiting last year, but we've continued to expand relationships and partnerships and win additional MyDay business. So yes, we have. Young Li: Okay. Great. Very helpful. And then I guess to follow up, I wanted to get a little bit of color and update on Paragard. It's a high-margin business, although we know about the volume, pricing dynamics. Are there any incremental updates on the competitive front just given the potential for impact on the profitability side? Albert White: I would say no updates. As far as I'm aware of, that licensing agreement that you referenced on the competitive side has not closed, so I don't have any updates or any details on any of that. I think for us, Paragard was minus 7% for the quarter. We're still expecting that to be flat to up a little bit for this fiscal year. And then we'll see how that plays. If that deal actually does happen, and then we'll give some color on their launch plans and so forth. But right now, I don't want to speculate on any of that. Operator: And from Barclays, our next question is coming from the line of Matt Miksic. Matthew Miksic: I hope this is coming through okay. But one question just following up on the market. There was some kind of unusual trajectory during last year in terms of the market dynamics. Based on your best guess and what you saw, I guess, during and exiting Q4 on a calendar basis, do you think that's improving now? Do you think we're stable? Any further color on what the ups and downs were from last year? And then I have one follow-up. Albert White: I think I would say we're at least stable, if not improving a little bit. We did have, as a contact lens industry, a softer year last year, but it's at least stable. The reason I say improving, as I sit here thinking about it on the top of my head, right, is because of pricing that somebody asked about earlier. I'm trying to look at the market and say, hey about 1% is going to come from price, about 1% will come from wearers, and then you'll have all the other stuff, the shift to dailies and so forth that's happening that will drive it. That 1% that's coming from price, I would certainly stand by that, and it could be potentially a little bit better than that. So I do think the market is well positioned for a decent year. That would be like a rebound of what it was years ago, but it's going to be a better year, I think, in 2025 than it was in 2024. Matthew Miksic: Got it. And then just a follow-up on some of the dynamics that are driving growth rate next quarter and the quarter after. You mentioned Japan is down in this quarter, improving by the third fiscal quarter, I think. How should we think about the impact of some of these private label engagements that you announced and mentioned that you were able to close some more? When do those -- or did you notice those coming in this year? Do they just kind of filter in and support sustainable growth? I mean how to think about it because it just seemed like there was quite a number of them that you signed, and I'm just wondering if that's something we're going to notice as we get into the middle and back half of this year. Albert White: Good question. And yes, we are executing on those private label contracts and a number of branded contracts that we won. And you will see those as we progress through the year. They got masked this quarter because of what happened in Japan as I was saying. Otherwise, we would have been kind of 4.3% somewhere, 4.4% somewhere around there. But we are executing and doing well on those contracts. So the way I see it playing out is we continue to execute on those contracts, and we have good visibility on that. That's going to result in a better Q2. But as I've said all along, it's going to be Q3 and Q4 is when all those contracts and those launches really start coming together for us. So I just think that we kind of have 1 more quarter behind us of some of the challenges that we were dealing with, and we have 1 more quarter here in the quarter that we're in, where we have some residual challenges in Asia Pac still putting up a step in the right direction in Q4. But then we get back to kind of the CooperVision of old and the more consistent solid revenue growth rates in Q3 moving forward. Operator: Our next question comes from Bank of America from the line of Travis Steed. Travis Steed: I guess the first question I have is on kind of Q2 revenue, kind of where you want the Street to shake out and kind of the cadence for revenue growth for total company and CooperVision and CooperSurgical. We heard the comments on Japan. I don't know if there's any other dynamics that you'd point to that we should model for Q2. Albert White: Well, I think if I look at it that way, I'd say we'll probably have another good quarter I would expect in the Americas. I would expect EMEA to be a little bit better. than it was this quarter. And Asia Pac is the question mark to me. It will be down a little bit in total. So I would assume that the Q2 results are a little bit better than what we did here. I would look at surgical pretty similar. Fertility should be a little bit better even with some Middle East risk out there. And the rest of that business is coming along fairly well. So I would think CooperSurgical will post a little bit better sequential quarter than what they did in Q1. Travis Steed: On the second question, I wanted to ask on the strategic review. When do you expect that to be complete? What's the goal for the outcome? Anything else you could kind of say on the strategic review would be helpful. Albert White: Sure. There's really not much else I can add on that. I mean we announced that we were doing that kind of formally, if you will, beginning of December, went through the holidays and so forth. And we're very active on it right now with our advisers and the Board and so forth. So I don't want to comment or say anything right now. It probably wouldn't be appropriate to go into any details until we get some concrete information. So I'll hold off on that one but certainly provide updates when we can. Operator: Our next question comes from Mizuho Group from the line of Anthony Petrone. Anthony Petrone: Maybe one on private label and then one on MyDay MiSight. So on private label, I don't know if you can share this, Al and/or Brian, but what was the percent of private label exiting last fiscal year? And with the addition of these new private label contracts, where can that increase to? And is that margin neutral? Is it a margin drag? Or can it be accretive to margins? I have a one quick follow-up on MiSight. Albert White: So our private label was running for quite a while about 1/3 of our revenues. It's a little bit higher than that. We don't break out specific numbers. It's a little bit higher than that, and it's still kind of trending along there. We actually had a pretty good quarter with branded sales, and we're seeing a little bit more success now winning some contracts and business around branded sales. So I wouldn't highlight too much with respect to that one. Margin-wise, we have a tendency to look at things at an operating margin level, and I know the operating margin on those are fairly similar. So from that perspective, it doesn't make too big of a difference. It could make a little difference on gross margins. Those contracts come through. They'll put a little pressure on gross margins probably as we move to the back half of the year. Anthony Petrone: And then on MyDay MiSight Japan, maybe can you size that in terms of the number of target practices you're going after? Like how many sites are you looking to penetrate? And what is the market size and dollar for MiSight in Japan? Albert White: So just to be clear on that one, like the product that got launched in Japan was just MiSight, the regular MiSight because it took us like 3 years to get regulatory approval on that. So MyDay MiSight is in multiple European countries right now. We just launched it in like Australia, New Zealand, South Africa I think, but Japan is the kind of the traditional, if you will, MiSight. As I mentioned on the call, it's like 77% of kids are myopic, so there's still a big opportunity there. It's really hard to gauge the size of that market and to put numbers out associated with it. But I will say we are super aggressive there right now, and I'm crazy happy to say that the product is being received really well. That's an ophthalmology market rather than an optometrist. So you have a marketplace of doctors who look at clinical data and they understand clinical data. And when you have that kind of combination of a lot of myopic kids and professionals who understand clinical data, a product like MiSight is going to do really well there. So I think that -- I talked about 20% to 25% growth from MiSight this year. We did 23%. And I would certainly be comfortable saying 20% to 25% again or higher based on the success that we're seeing early indications on MyDay MiSight and MiSight in Japan. Operator: Our next question comes from the line of BNP Paribas from the line of Navann Ty. Navann Ty Dietschi: One on CooperVision, if you could discuss MiSight, again, solid performance in light of the Stellest entering the market. And my second question is on the CooperSurgical. Your fertility pure-play peer had supportive market comments. So what are you seeing in IVF cycles across the U.S., EMEA and APAC? Albert White: Sure. I'll touch on the first one, which was the Stellest activity here in the U.S. That is going to turn out to be a positive for us. There is a lot more interest in myopia control, pediatric myopia issues, and the education that's coming because of Stellest, and the attention that the optical community is now putting on myopia control is quite a bit more than it was when it was just us pushing it. So there's going to be some push and pull from that because obviously younger kids are going to move into glasses much quicker. But when you look at, especially 11 and 12 year olds who are in sports or any activities or anything else concerned about their looks or whatever, like we're seeing an increasing amount of fit activity when it comes to kids in that 10 to 12 age in the U.S. market. So I think at the end of the day, that's going to be a positive for us long term. And I even think, this year, it's not going to be detrimental to us where I thought that it might be at one point. So I'm happy that product's in the market. I'm happy with what they're doing, and I'm happy with the promotional activity that's out there educating the marketplace. On the fertility side of things, yes, as I mentioned, I think the risk of the downside that was there and kind of that market continuing to trend down, I would take that off the table because we are seeing positives in the fertility industry now. We're seeing improving IVF cycles in the U.S. We're seeing improving IVF cycles in some of the European countries. We're seeing fertility clinics starting to look at upgrades and so forth as new technology comes out, new equipment comes out. So I would say that we're going to continue to see the fertility industry get a little bit better. I don't see like a fast, huge ramp-up or something like that. But I would say the downside has kind of taken off the table, and I would say, stabilization to improvement is what we're seeing right now. Operator: From William Blair, our next question comes from the line of Steven Lichtman. Steven Lichtman: Al, you mentioned reinvestment in myopia control and it sounds like on the R&D side. Can you talk about the opportunities you see to build on the MiSight platform from an innovation perspective? And then I have a quick follow-up on free cash flow. Albert White: Sure. There's some really exciting stuff there. I mean, one is that we need to get a MyDay MiSight toric out into the marketplace. That is one of the products that the optical community really wants. So we're doing a lot of work on that right now. That's a positive. We have kind of like a MiSight 2, if you will, that we're working on to even get better efficacy. We've also got some really cool exciting stuff when you look at like combinations with atropine and so forth that are -- that have the potential to really, really help kids that are not reacting to kind of regular or traditional treatment. So yes, you're right. We're spending a decent amount of money in R&D on MiSight or myopia control in general, and we're going to continue to spend that because this is a great market. I mean we have opportunity to have that product continuing to grow a solid 20% plus for like years and years and years and years. So yes, we're investing in that pretty decently. Steven Lichtman: Great. And Brian, the upside you're seeing on free cash flow this year and the raised guidance, is that coming from higher operating margin, better working capital management, maybe all the above? What's exceeding your initial expectations heading into the fiscal year? Brian Andrews: Yes, thanks for the question. Really, all of the above, we're seeing stronger operating performance, and I touched on that earlier. But we're collecting better. We're building inventory more smartly. I guess, smartly, that's a word. But we're building inventory in a more efficient manner. And FX is helping a little bit, but it's really just a combination of the operating performance and better working capital. Obviously, the lower CapEx helps, too. Operator: Our next question comes from the line of Joanne Wuensch from Citibank. Joanne Wuensch: I was fascinated to hear how my last name was going to get pronounced. A fundamental one and a bigger picture one, please. Foreign exchange, what are you dialing in with all of the shifting U.S. dollar given the macro environment? And then my second question, I'll just put it on right up front. How are you thinking about CSI revenue improving throughout the year? What are the drivers or levers that we can pull on that one or we can see you pull? Albert White: I'll answer the second one, and I'll let Brian answer the first one. So on the CSI side of things, we'll have like Paragard, which is down 7%, will finish the year kind of flat to up a little bit. So I think Q2 will be another year because -- or another quarter because of the comp where it will probably be down a little bit, but then we'll have a good like back half of the year with that product. When I think about like the medical devices, boy, our specialty surgical team is killer. Those guys are -- just do a fantastic job. So I think we'll continue to have strength there. And then as I was mentioning on fertility, just better visibility, more comfort in that, that market is at least stabilized and arguably trending up, is going to put some improving growth rates on that. So I think Q2 is better. I think, frankly, Q3 is better than Q2 for CooperSurgical, so just kind of progressing along with improvement, probably somewhat similar to Vision, where the best quarter will be the Q3, Q4. Brian Andrews: So I'll take the FX question. As we were exiting last week, we were sitting to more favorable relative to last guidance on FX, but obviously, with the Middle East conflict, the dollar strengthened. And so as we thought about and as we set the guidance ranges for this earnings call, we took out the revenue ranges by $6 million of Vision and $1 million of Surgical, reflecting FX. But really, we kept the rates pretty similar to the rates from last earnings call. It's a little bit conservative. So really, we're looking at a headwind -- sorry, a tailwind to revenues of roughly 1% and also a tailwind to EPS of roughly 1%, so very, very similar to the last call. Operator: Our next question comes from JPMorgan from the line of Robbie Marcus. Robert Marcus: Two for me. First, Al, wanted to get your thoughts. First quarter organic growth missed on CVI guide and overall, and it sounds like second quarter will still be maybe a little weaker than original expectations due to Asia Pac. You talked about third and fourth quarter and a lot of the private label driving fourth quarter, and you didn't flow that all through in the original guidance. How are you thinking about sort of the conservatism of the guide now with the slower start to the year? And does the slower start maybe take some of the upside off the table as you left the guidance the same? Albert White: I would characterize that, honestly, the exact same because where we had that softness in Japan that I talked about, I mean, I can pinpoint that softness and talk about what happened there. And we have good, good visibility around what happened and how we're correcting that, but we have more strength in the Americas and more strength in EMEA than I would have said back in December. So I mean, I'd net that out and say, yes, we came in below our range and where we wanted to come in, in fiscal Q1. But I would say that Americas, stronger than when we gave that guidance in December. EMEA's stronger than when we gave that guidance in December. Asia Pac, probably pretty similar to where we gave that guidance because of a net positive of contract execution and product launches and wins offset by kind of the negative of the stuff I talked about. So net-net, I would put the odds of us being able to post a good year and so forth and success in the back half pretty similar to what we had in December. Robert Marcus: Great. I wanted to go back to the question on the Paragard competitor. I realize deal hasn't closed yet and you're not ready to talk about the competitiveness here. But I'm guessing that wasn't included in the guidance. So did you include any competitive threats like that in the guidance for the year? I guess that's the question as we think about it. Albert White: So when we gave initial guidance, I can't remember. I thought I mentioned it on the December call. But when we gave the initial guidance, we assumed a negative impact because of the competitive launch and that it would happen at the end of this year. It's probably more likely that we will not have a negative impact, meaning that was a little conservative. But we'll see. I don't know. I mean, that thing hasn't closed, and we're in March already of our year. So we're working obviously well into our year at this point in time. So we'll see. But to confirm, yes, we had included that in the initial guidance of assuming kind of flat to up just a little bit. Operator: From KeyBanc Capital Markets, our next question is from Brett Fishbin. Brett Fishbin: Hopefully, there's not too much feedback. Just wanted to circle back on the 1Q operating margin performance, which I think you noted in the press release was better than expected and obviously is a top priority this year. I was just hoping you could unpack a little bit in terms of what went better than you thought and why you were able to call the operating margins as exceeding expectations this quarter. Albert White: All the financial details of course. A big part of that was just good solid execution. I mean we did all that work in Q4, and we knew the team was going to do a good job with it and they have. Like organizationally, we've just done a really nice job. I would kind of highlight AI, and I hate to sound like one more person talking about it. But the reality is that our organization has embraced it. And this isn't our organization like all of a sudden right now getting on and training and everyone's going to train on it and so forth. Our organization embraced it last summer. And we started implementing that stuff as we were going through the year, and we're seeing positives come out of that type of work. The technology advancements at Cooper are fantastic. I'm super happy. And we have a lot more to do. This isn't a 1-quarter thing. So we saw some of it certainly in Q4. We're seeing those improvements in Q1, and we're going to continue to see the use of technology and AI advancements be a positive to us on our operating margins as we move through this year. Brian Andrews: I guess not much to add to what Al just said. I mean we talked about, in Q4, we grew OpEx. It was basically flat year-over-year. And then here again in Q1, OpEx was roughly flat year-over-year. So there's a lot that we're doing to drive synergies and efficiencies, leveraging prior investment activity, and we're just really being very disciplined about fixed costs in the back office. And so we want to leverage IT. We're doing that much, much more than ever before, as Al talked about. And this is just great operational execution. Al talked about it and I talked about it in our prepared remarks, and I expect that to continue through the year. Brett Fishbin: Great. And then most of my questions were asked. Maybe I'll just ask one more on some of the new product launches. You mentioned several incremental launches that are really phased throughout this year, including MiSight in Japan, MyDay MiSight in Europe and in Asia, Energys, the toric multifocal. Are there 1 or 2 of these that you would call out as maybe the most exciting to you in terms of like just what they can do for company growth over the next year or 2 as they ramp? Albert White: You could kind of hear my excitement on MyDay in Japan and MyDay MiSight. I mean I still believe that there is a fantastic market out there in pediatric optometry in treating kids' myopia progression. And we've had that product. We got to a little slower start than I would have liked on that, and China has turned out to be pretty small in the grand scheme of things. But the rest of the world is gaining traction and doing well. And MiSight is back, and it is doing well. And with MyDay MiSight and the products that we have and the stuff in R&D and so forth, it's going to continue to do well for a number of years. So I'm really excited about that. On the MyDay side, it's execution. I mean that's what it is. Like I said, we got full product availability last summer. We finally got out there. We're executing a contract win, branded, private label. We're getting product launches done. All that stuff probably takes a little bit longer than you wanted to take, but it's execution, and that's what we're doing right now. Operator: Next question comes from Nephron Research of Chris Pasquale. Christopher Pasquale: And that was excellent pronunciation on that one. You nailed it. I had a couple of questions. One on fertility. You talked about improving cycles in the U.S. and Europe. You didn't mention China, which I think was a big piece of the weakness last year. So what are you seeing in that market? And are you still confident that it can bounce back to where it was historically? Albert White: I highlighted kind of the Americas and Europe, but Asia Pac and China, in particular, is still continuing to be not the greatest market in the world. It's not. I wouldn't say it's getting worse, but it's not. We're not seeing the improvements that we are in other markets around the world. Christopher Pasquale: Okay. And then just on the capital allocation front, your debt leverage ratio is lower now than it's been in a few years. It's going to go down even further when you repay that portion of the term loan. As you think about your priorities and the pace of buybacks, is there a target leverage ratio that you think is appropriate for the business that would dictate kind of how quickly you go? You've still got, I think, close to $1 billion in authorization available. Albert White: Well, share buybacks are a high priority of ours right now given where our stock is trading. So I would envision us to continue to do share buybacks. And depending upon what happens with the stock price over -- after this and the next quarter and so forth, especially with our belief and our visibility in the back half of the year, I think you could see us get quite a bit more aggressive on stock buybacks. Operator: From Redburn, our next question comes from the line of Issie Kirby. Issie Kirby: You made an interesting comment at the end around looking at sort of next-generation manufacturing and production. Obviously appreciate it's early, but would love any more color around that. Do you think this puts you really ahead of your peers in terms of manufacturing capabilities? And then is this factored in, I guess, to the CapEx and free cash flow guidance over the next few years? Albert White: Are just world class. I mean, are best in class. They've been spending a lot of time and energy, especially in CooperVision over the last number of years, expanding facilities, starting new lines up and so forth. To be able to now take a breather and work with our great R&D team to look at next-generation work in deploying that and optimizing our infrastructure and so forth, like there's a lot of exciting stuff that we can do there. It takes time, but there's a lot of exciting stuff that we can do there as our CapEx comes down. And I think I'll turn it to Brian because I think that's all factored in on how he looked at free cash flow. Brian Andrews: Yes, certainly. I mean we have a 3-year, 5-year, 10-year view on things. And so when we gave the free cash flow commentary and we reiterated again today over $2.2 billion, that factors that in. But we've talked about, over the years, as we're building, building, building to support more supply and capacity, it's hard for us to work on continuous improvement in these optimization things. And now we've got a breather, and we can do that. But there's lots of great ideas and lots of opportunities to drive success into the future. Issie Kirby: Right. And then just really quickly, if I may, on SightGlass and the FDA approval. Any updates there? I know it seems to be performing well with Essilor in Asia. So I would just love to hear thoughts on SightGlass. Albert White: Yes. It's performing well in Asia. You're exactly right. We still love that product, and it's doing really well in Asia and a number of other markets around the world. So we love it, and we think it's going to do fantastic long term. No update though on an FDA approval. Operator: Our final question comes from Goldman Sachs from the line of David Roman. David Roman: I'll keep it to one here given where we are in the time of the call. I think in your prepared remarks, you talked about some of the specifics you were seeing on OpEx efficiency, and I think you called out operating expense declines in CSI, which I know we'll see when the Q comes out here. But can you maybe just help us think through how you are reflecting on some of the G&A savings that you're realizing here from the restructuring you announced last year, to what extent you're contemplating reinvesting that and whether that is showing up in the P&L now? And then in a scenario you did go down a path of reinvestment, where would you be looking to deploy those resources? Albert White: I mean we are doing that. We're doing that already. I was talking about how aggressively we're doing that certainly on the MiSight side of things, and we certainly saw that in Q1. That's just putting dollars back into sales and marketing. That's where it's going, so leverage G&A, put dollars into sales and marketing, and we're getting enough savings through all of our work that we're able to do those reinvestments and still put up stronger than -- earnings than people were expecting. So that combination has kind of come together very, very nicely for us. Operator: With no further questions in queue, I will turn the call back over to Al White for closing remarks. Albert White: Great. Thank you, operator, and thank you, everyone, for taking the time on today's call. We look forward to talking to everybody in 3 months and continuing to make progress and having a good call then. So thank you, and have a good night. Operator: Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.
Operator: Ladies and gentlemen, hello, and welcome to the Bnode Fourth Quarter 2025 Analyst Conference Call. On today's call, we have Mr. Chris Peeters, CEO; and Mr. Philippe Dartienne, CFO. Please note, this call is being recorded. [Operator Instructions] I will now hand over to your host, Mr. Chris Peeters, CEO, to begin today's conference. Please go ahead, sir. Chris Peeters: Thank you, and good morning, ladies and gentlemen. Welcome to all of you, and thank you for joining us. Today, I will be presenting our fourth quarter and full year 2025 results as CEO of Bnode. With me, I have Philippe Dartienne, our CFO; as well as Antoine Lebecq from Investor Relations. We posted the materials on our website this morning. We will walk you through the presentation, and we'll then take your questions. As always, two questions each, would ensure everyone gets the chance to be addressed in the upcoming hour. Let's get to the highlights of the full year results, and Philippe will then walk you through our fourth quarter '25 results. On Page 3, you can see that Bnode, as we are now called, and I will come back to this in a few minutes, delivered results at the upper end of the EUR 150 million to EUR 180 million EBIT, guidance range that we set at the same time last year and progressively derisked quarter-after-quarter. Despite pressure on top line development, we delivered an EBIT of EUR 179.7 million, while at the same time, remaining fully committed to the transformation of our business. At bpost as anticipated, top line decreased by around EUR 90 million. Mail and Press revenues declined by approximately EUR 100 million, reflecting both the accelerating structural volume erosion and the base effect as 2024 still included 6 months of the Press concession. On the Parcel side, revenue increased slightly by around EUR 10 million as our volume growth was limited to 2%, notably impacted by the strikes actions we faced during the year. In response to these challenges, we progressed on important cost measures, particularly through operational reorganizations and a reduction of around 4% in FTEs. The full impact of these actions were mainly visible in the last 2 quarters of the year. EBIT came in at EUR 67 million, down 50% year-on-year. The decline was primarily concentrated in the first half, reflecting the scope impact of the Press concession, while performance roughly stabilized in the second half of the year. At Paxon, top line growth was primarily driven by the continued expansion of our European activities and even more significantly by the consolidation of Staci. This positive momentum was, however, largely offset by a 21% revenue decline at North America. As announced last year, Radial faced the departure of several major clients. Since then, we have been actively addressing this through a progressive reshaping of the customer portfolio towards the midsized segment. At the same time, we maintained a strong focus on productivity with Radial, once again, delivering substantial cost savings. Supported by the contribution from Staci, EBIT increased slightly by EUR 7 million year-on-year, reaching just under EUR 59 million. At Landmark Global, our U.S. business was as expected, impacted by tariff measures. Nevertheless, top line posted slight growth overall. This was supported by sustained activity in Canada and most importantly strong momentum in Asian volumes across all key destinations, including, of course, Belgium, which is particularly accretive from an EBIT standpoint. Combined with continued productivity gains, notably true or Transport Center of Excellence, this enabled us to increase EBIT to EUR 85 million. Let me make one final remark on our financial highlights. As you can see, on a reported basis, the group recorded a net loss of EUR 39 million, in line with the dividend policy reaffirmed at our Capital Markets Day in June. And with no change to that framework, the Board of Directors will recommend to the general meeting in May, not to distribute a dividend this year. This reported net loss is primarily explained by one-off costs recognized at Radial North America, Philippe will elaborate on this in a moment. But before handing over, I would like to briefly reflect on our key strategic priorities in 2025 and how they continue to shape our transformation journey. In 2025, our transformation gathered significant momentum across Bnode, delivering tangible results and reaffirming the strength of our strategic direction. We restructured and strengthened the Bnode Executive Committee with a new CEO for Paxon North America and Paxon Europe as well as the people's management committee, including Group CEO and four members of the Group Executive Committee to accelerate strategy execution and better address emerging challenges. We simplified the group brand architecture, moving from 31 brands to a clear 4-brand structure, bringing consistency and focus fully aligned with the group strategic repositioning. At bpost, we made the operating model shift accelerated the transformation of our Belgian operating model across multiple tracks, including bulk rounds, now fully operational in all sorting centers, centralized preparation of Mail rounds and the reorganization of 138 distribution offices to adapt the cost base to new volumes, among others, due to lower Press volumes. We also developed Out-of-Home at scale, expanded the locker network at record pace, reaching 2,500 bbox installations driving a 50% growth in locker volume in 2025. We also successfully launched Night Bbox Delivery, enabling time-critical deliveries before 7:00 a.m. with early phase pilots underway in the omnichannel segment. At the retail network, we strengthened the strategic relevance and commercial contribution of our retail network by expanding multiple partnerships in among others, telco, utilities and banking, while reinforcing our societal inclusion role. For Paxon, we continue to transition to mid-market client portfolio driven by the successful launch of Fast Track offering rapid and seamless integration with existing systems with 22 Fast Track clients onboarded, representing EUR 38 million of in-year revenue. We also successfully integrated Staci into our new Paxon organization. We established an integrated country structure across Staci, Radial Europe and Active Ants, paving the way for accelerated commercial development and we exceeded the initial cost synergies target with the 2026 target already secured. And for Landmark Global, we achieved strong progress in leveraging group-wide capabilities, notably through the introduction of a Transport Center of Excellence, realizing EUR 50 million of group-wide savings in 2025. Staci transport synergies, Last Mile group contracts, et cetera, are included in this. And in terms of market resilience, we demonstrated the ability to navigate an increasingly complex trade environment including rapidly involving trade tariffs, while maintaining operational stability and commercial momentum. I will now hand over to Philippe for the quarterly results, and I will then take the floor to share with you our strategic priorities for 2026 and the financial outlook. Philippe Dartienne: Thank you, Chris, and good morning to all. As you can see on the highlights on Page 5, our group operating income for the fourth quarter came at EUR 1.242 billion, a decrease of EUR 93 million or 7% year-on-year. This performance reflects a combination of factors. As expected, we saw the impact of contract terminations at Radial U.S., which we already flagged earlier this year. This termination materialized through the quarter and drove a 20% revenue decline year-on-year on EUR 82 million, largely offsetting the 4% top line growth at Paxon Europe. In parallel, the 9.2% decline -- 9.2% decline in domestic Mail volume, excluding Press which was only partially compensated by close to 3% Parcel growth volume in Belgium. Note that Parcel volumes were impacted by several national strikes in October and November. In terms of cross-border activities, we also recorded higher Asian inbound volumes, which supported overall Parcel growth. Overall, while our top line remained under pressure, we continue to adapt our cost base effectively, sorry. As a result, group adjusted EBIT reached EUR 83 million, broadly in line with last year. This outcome reflects the positive effect of our reorganization measures and improve peak efficiency at bpost as well as margin actions at Paxon U.S. Before turning to the financial performance of our business units, let me highlight, as shown on Slide 6, that our group reported EBIT stands at EUR 10 million. Beyond the usual PPA adjustment, this mainly reflects the EUR 55 million one-off charges related to the real estate portfolio rationalization and technology stack simplification at Radial U.S., in line with maximize the core initiative presented to you at the Capital Market Day in June. Let's move now to the details of our three segments. I'm on Page 7. With the bpost segment previously Last Mile. We see that the revenue declined by EUR 70 million to EUR 574 million. Domestic Mail recorded around EUR 17 million decline in revenue, of which EUR 11 million stemmed from transactional and advertising mails and EUR 5 million from Press. Excluding Press, Mail volumes contracted by 9.2% in the quarter compared to 8.1% same quarter last year. The decline in Mail volumes had a negative revenue impact of around EUR 21 million and was partially offset only by half, through positive price and mix effect of plus 4.2% or roughly EUR 10 million. As a result, the Domestic Mail revenue were down 4.9% or EUR 11 million year-over-year. Note that on a full year basis, this Mail volume declined by 9.8% at the upper end of our guidance and was mitigated by a price/mix impact of plus 4.3%. Our Parcels revenue increased by EUR 3 million or plus 1.7% year-over-year, driven by volume growth of close to 3% and a slightly negative price/mix effect of 1.2% in the quarter. On the volume side, the reported 9.2% actually correspond to an average daily growth of plus 1.3% and include a shortfall of just under 1% due to national strike that took place in Belgium in October and November. Over the past months, and particularly during the peak, growth was mainly supported by strong performance of marketplaces, which also contribute to our negative price/mix impact of about 1.2%. For the full year, our average daily volume grew by 2.4% despite the negative impact of the fourth quarter strike and more importantly, the bpost strike in February during which a significant share of volume shifted temporarily to competitors. These disruptions resulted in our overall volume shortfall of a bit more than 1% for the year. Excluding this impact, our volume would have landed at the low end of our annual volume guidance. Revenue from our other activities, including Retail, Value Added Services and Personalize Logistics decreased by 3% year-over-year, notably with lower revenue from fine solutions partially offset by higher revenues at DynaGroup. Let's move to the P&L of bpost on Page 8. Including the higher intersegment revenue from inbound cross-border volumes handled in the domestic network, our total operating income was down by 2.3% or EUR 14 million. On the cost side, OpEx and D&A decreased by 2.7% or EUR 16 million, mainly driven by two effects: lower staffing with FTEs and interims down 5%, reflecting improved peak efficiency and lower volumes. The benefit from the ongoing reorganization of our distribution rounds and retail offices implemented over the previous quarters and which ultimately concluded in line with annual plan target despite delays accumulated until June due to strikes. And on the other hand, higher salary cost per FTE up plus 2% following March '25 salary indexation. In contrast with the first half of the year, when EBIT had contracted sharply by almost EUR 64 million year-on-year, mainly due to the end of the Press concession in June '24, we see now that despite the structural Mail decline, Parcel growth and the benefits of our organization are helping to mitigate EBIT erosion. EBIT decline was limited to EUR 3 million in the second half of the year and even showed a slight improvement in this fourth quarter. I would like to highlight that our peak efficiency improved not only versus last year, but for the first time ever also versus the full year run rate. Moving on to Paxon, previously, 3PL, on Page 9. In terms of Paxon revenues, two effects came into play. First one, at Paxon Europe, revenue remained broadly stable year-over-year, while we recorded around 4% growth this quarter across European businesses and geographies, with some activities even achieving high single-digit growth. We also felt the negative impact at Staci Americas, which is reported on the Paxon Europe, where a contract termination led to a significant revenue decline during the quarter. At Paxon North America, revenues decreased by EUR 82 million. At constant exchange rate, this represents a 20% decline, driven by revenue churn from contract termination announced in '24 and '25. Mid-single-digit negative same-store sale and partially offset by the in-year contribution of a bit less than EUR 30 million from new customers of which 60% relating to Radial, Fast-Track clients. As expected, despite seeing positive and encouraging seniors on that front, we continue to feel the impact of the churn announced in '24 and '25. We remain focused on executing our plans and we are confident that the ongoing stretch to core actions presented at the Capital Markets Day, expanding into, as Chris said it, new industries, client size and channel and strengthening our portfolio will deliver the intended benefits. Let's move to the P&L of Paxon on Slide 10. With this total operating income decreased by 14.4% or EUR 82 million, while operating expense and D&A decreased by 13.2% or EUR 69 million. The reduction was primarily in North America, driven by lower variable OpEx in line with revenue evolution at Radial U.S. and sustained variable contribution margin. As a result, adjusted EBIT decreased by EUR 13 million to EUR 33 million in the quarter. This was mainly due to the outgoing top line pressure at Radial U.S. and to some extent, at Staci Americas to temporary productivity issues and an IT incident. Note that Radial U.S. reached another record high margin during the peak season. And on a full year basis, Radial U.S. continued focus on productivity improvement delivered a 2% increase in variable contribution margin, equivalent to our cumulative benefits of EUR 16 million. Looking at our reported EBIT of minus EUR 35 million, this reflects the EUR 55 million one-off charge related to the real estate portfolio rationalization and the technology stack simplification, at Radial U.S. I've mentioned earlier in the call, this is being totally in line with "Maximize the Core" initiative presented at our Capital Markets Day in June. Moving on to Landmark Global, previously Cross-Border, on Page 11. Landmark Europe revenues increased by EUR 4 million or 4% year-over-year. This growth was driven by a solid volume increase from China across all major destinations, notably Belgium fueled by large Chinese platforms and U.S. Other European lanes continue to grow well with the exception of U.K. where adverse market conditions remain. At Landmark North America, we continue to face volume headwinds, while the broader tariff environment is weighing on existing business and delaying new opportunities. However, this was offset by strong domestic volume growth in Canada and a strong peak period resulting at North America level in a high single-digit percentage growth in revenue, equivalent to 0.5% increase or EUR 0.4 million increase in euro, when including the negative FX impact development. Overall, our Landmark Global operating income increased by roughly EUR 7 million or 3.9%. As shown on Page 12, OpEx and D&A increased at the same time by 3.1%, mainly reflecting higher transportation costs, driven by volume growth partially offset by lower rates on the new transport contracts. This links back to the Transport Center of Excellence that we presented at the Capital Markets Day. And from which we are now seeing tangible benefits across our various business units. Adjusted EBIT increased slightly to just under EUR 26 million. And the productivity gains across the board resulted in margin improvement compared to last year. Moving on to the Corporate segment on Page 13. Adjusted EBIT continued to improve as cost control measures on third-party and expand services as well as facility management initiatives helped offset higher payroll costs driven by additional FTEs in the March '25 salary indexation. This quarter also benefited from a one-off favorable impact from operational taxes. And as a result, our adjusted EBIT improved by EUR 7 million to minus EUR 2 million. Let's now move to the cash flow on Slide 14. The net cash inflow from the quarter amounted to EUR 35 million compared with EUR 118 million last year, mainly reflecting the variation in working capital and higher coupons on the bonds. Overall, the main items to highlight are the following: cash flow from operating activities before changing working capital stood at EUR 149 million, a decrease of EUR 11 million versus last year, mainly driven by lower EBITDA and lower corporate tax payment. Change in working capital and provisions amounted to EUR 57 million, the negative EUR 39 million variance year-on-year reflect the termination of the Press concession in June last year as well as some lower suppliers balances. The net cash outflow from investing activities totaled EUR 61 million, driven by CapEx for parcels, lockers and capacity expansion, our domestic fleet and international e-commerce logistics. Note that on a full year basis, CapEx amounted to EUR 147 million, below our initial guidance of EUR 180 million, reflecting disciplined spending behavior. This constitutes the main variation in our free cash flow and the net cash outflow from financing activities amounted to EUR 110 million, mainly reflecting higher lease liabilities payment and higher bond coupons linked to the EUR 1 billion bond issuance in November 2024. Chris, this brings us now to the strategic priorities of '26 and our financial outlook. Chris Peeters: Thank you, Philippe. As we move in 2026, the focus shifts from piloting to scaling. Accelerating what works, executing with discipline and embedding successes structurally. For bpost, that means that the operating model will further shift to accelerate the transition towards a 24/7 logistics company. This includes the structural embedding of efficiencies and flexibilization levers. For example, the dual density rounds or the delayed curve that we will do. At the Out-of-Home, we will further scale, expand the network coverage of 3,400 Bboxes installed and doubling the parcels delivered via lockers. We will continue to pilot and scale promising B2B services in omnichannels and for technicians. And also, we will negotiate an agreement for the Retail network with the Belgian state and entering into force as of January 2027. For Paxon in North America, we will leverage and scale the proven Fast Track solution to deepen our presence in the mid-market segment. And for Europe, we will capitalize on the integrated country structure to accelerate up and cross-selling, improving asset utilization and driving commercial growth. For Landmark Global, we will drive the full utilization of the Transport Center of Excellence, ensuring group-wide efficiencies and boosting profitable growth in a scale-driven market. And for the market, we will leverage our ability to navigate trade complexity to better support clients in managing cross-border complexity and evolving tariff dynamics. These strategic priorities lead me to our outlook for 2026. I'm on Page 16 now. We are engaged in a profound transformation of our group and the strategic shift we have initiated is a multi-year journey. 2026 will be another important step in that transition. At a high level, the continued acceleration of our international logistics activity is expected to be the main driver of EBIT growth at group level. At the same time, in our historical Belgian operation, we will remain focused on mitigating the structural mail decline, while further advancing our operational shift toward a more parcel-centric model. Overall, at group level, we are targeting an adjusted EBIT in the range of EUR 165 million to EUR 195 million for 2026. For Paxon, we expect total operating income to grow in the low to mid-single-digit range in 2026. While in Europe, we anticipate mid- to high single-digit growth, supported by continued commercial momentum and further leveraging of our integrated logistics capabilities. In North America, the ongoing portfolio shift towards the midsize segment, notably through our Fast Track initiatives should offset the impact of customer share. On profitability, we expect an EBIT margin increase from 3.5% in 2025 to between 6% and 8% in 2026. This uplift will be driven by the combined strength of our new regional setup, realization of cost synergies and continued real estate optimization. Then we turn to Landmark Global, where we are targeting a mid-single-digit top line growth for 2026. In Eurasia, momentum remained strong in our commercial activities, particularly driven by Asian volumes, while Postal volumes are expected to remain resilient. In North America, growth should be more moderate. Market overcapacity continues to intensify competition and the uncertainty surrounding tariff measures is creating limited visibility and implied pressures on flows to and from the U.S. across most lanes. In terms of profitability, the evolving business mix with a lower contribution from Postal and a higher share of commercial volumes is likely to weigh on margins leading to an expected EBIT margin in the range of 10% to 12%. Finally, regarding bpost, we anticipate a low single-digit decline in revenue in 2026. This mainly reflects three factors: first, Mail volumes are expected to decline in the mid-teens range, while this will be partly mitigated by a favorable price/mix effect of around 5%, 6%, structural volume erosion remained significant. As you observed in 2025, decline already accelerated, reaching around 10% at the upper end of our 8% to 10% guidance range. In 2026, we will also face the full impact of mandatory B2B e-invoicing in Belgium as well as the loss of certain advertising contracts. Second, on the Parcel side, volumes should grow in the mid- to high single-digit range, primarily driven by large customers. As a result, despite the usual price adjustments, the overall price/mix is expected to remain broadly stable. In addition, as discussed during our Capital Markets Day, we will see the full year revenue impact from the loss of the 679 banking contract which was retendered and transferred to BNP Paribas Fortis as of January 1. From a profitability perspective, this marks another year of revenue contraction, which will inevitably put pressure on margins. That said, we remain fully focused on aligning our cost base notably true, intensified distribution around reorganizations and further productivity gains. Altogether, this should translate into an EBIT margin of around 1% in 2026. We are now ready to take your questions. Again, two questions each, please, so that everyone gets the chance to be addressed during the session. Operator, please open the lines. Operator: [Operator Instructions] The next question comes from Michiel Declercq from KBC Securities. Michiel Declercq: I had some questions on the 3PL or the Paxon business. First on profitability, a bit lower than what you guided for, for the start of the year. I was just wondering, can you give a bit more color on the temporary productivity issues and the IT incident at Staci in the Americas? And maybe quantify this and maybe also looking at the margins of Staci, are we still in the 10% to 12% range there? That would be a bit my first question. Then secondly, would also be on the 3PL Europe, you guide for mid- to high single-digit growth in 2026. Looking at the fourth quarter, it was flat, you had, of course, a customer loss and some headwinds at Staci Americas. But I would expect this also to somewhat continue in 2027. So I'm just wondering where will this step up from a flat growth in the EU in Q4 to mid- to high single digits in '26 come from? Can you -- do you see some reassuring trends there? Or just a bit more color on that, please? Chris Peeters: Do you take the first? Philippe Dartienne: Yes. I'll take the first one. Thank you, Michiel, for the question. Very, very, very interesting question indeed. When it comes to Paxon profitability as a whole, we are impacted by -- mostly impacted by the loss of customers that we faced at -- from Radial, as we mentioned it. Despite the fact that they have been able to maintain the variable contribution margin, even a slight improvement year-over-year. Nevertheless, in absolute value, indeed, it weighed on the EBIT generation. When it comes to Paxon Europe, so the -- what I would say is that we have a profitability at the level of Paxon Europe so mostly from -- resulting from the acquisition of Staci. We always guided in the range of 10% to 12%. And in '25, we nearly reached the bottom end of the range. Why do I say nearly very close to, which is mainly explained by the fact that we had an IT incident in the U.S. that weighted on the profitability. Chris Peeters: And on the second question, so if you look at the Staci growth, you see indeed that there was a bit of a slowdown due to a combination of economic circumstances, mainly in France and the U.K. last year and also probably a focus, which was on the integration and the setup of the new structure. Now we have a team fully dedicated to developing the top line. And what we see there is that we have, especially around cross-sell and up-sell on these clients. And when we talk about cross-sell, it's both geographical, but also in other product ranges. And up-sell where we see that we expand our services within the same service line with those same clients, we see that we have an attractive pipeline on which we feel comfortable that, that growth is a feasible figure. Michiel Declercq: Okay. Clear. Maybe a quick follow-up, if I may. If I then plug in the guidance for the growth in the EU also for Paxon business, is it then fair to assume that growth in the U.S. or in North America, Radial North America will be flat? And if so, can you maybe give a bit more color on the phasing there? Chris Peeters: Yes. Indeed, growth in the U.S. will be flat. It's the effect of the historic client losses that we see to have a full impact. And obviously, if you see, although we see a ramp-up at the Fast Track side. These are substantially smaller clients, meaning that you need a lot of more onboarding to compensate for the loss of a large client. And so that effect of clients that were shared -- was already announced for the non-renewal of contracts that we will have the impact from gets compensated by new mid-market clients, but the one is balancing out the other. Philippe Dartienne: If you allow me to add one element, Chris, also what we are seeing in terms of evolution of same-store sales, so on existing customers, we are still believing that we will be in negative territories in '26 compared to '25. Chris Peeters: Which is again an effect of that historic portfolio of, let's say, older brands that are more in decline than the overall market. Operator: The next question comes from Frank Claassen from Degroof Petercam. Frank Claassen: Two questions, please. First of all, on the transfer of the 679 banking contract, could you help us how much revenue would that roughly be? That's my first question. And then second, on the corporate cost line, you indicate that it will go up some -- or will have the negative EUR 35 million delta in '26. That's quite a step-up. Could you elaborate what kind of investments or costs you're going to make on that corporate cost line? Chris Peeters: So on 679 -- thanks for the question, Frank. We'll -- we don't use to disclose individual contracts, neither the profitability. So we will not do it for the 679. But this being said, you know that the contribution of this contract was solid, very solid. So it's weighing on the profitability. When it comes to corporate, it's -- in fact, we are adding some resources very limited compared to the '25 situation. And those resources are geared towards supporting the transformation initiative. They are hosted at the level of corporate, but they benefit to the integrity of the group. So they are, in fact, also the natural evolution of the cost base, which -- because those corporate costs are mostly people-related costs. And we expect also to have, as we mentioned for BeNe Last Mile, we also expect to have a one step of inflation of 2% and that helps explaining the evolution of the corporate cost. Operator: The next question comes from Henk Slotboom from the IDEA! Henk Slotboom: Chris, Antoine and Philippe. A few questions about the bpost division. I'm a bit surprised about the Parcel growth you indicate for the current year. Last year, it was 2.9%. There was a 0.7% negative impact of the strikes you experienced. Now you're aiming for mid- to high single-digit growth. I assume you must have had a good start of the year. But at the same time, there are some things happening in the Middle East which could spur inflation again and weigh on consumer confidence. How do you look at that, Chris? Chris Peeters: So on the Parcel growth, I think the fact that you see in the terms of growth of last year, main mainly the effect of a little bit lower growth fix has to do with the strike impact of which we have two major events, one in the early part of the year with a quite significant impact. As you know, we had a couple of days of non-operation and a blocking of our sorting center that had quite an important impact in number of parcels. And while we could mitigate last minute to a large extent, the national strike against the government in the end period. Some of our clients took at that moment of time, whether it was late at already the batches to have some of those volumes deviated. And so there, you see two elements where you have some volume leakage as a result of the strike. That being said, if we look at the start of the year, well, as always, at the start of the year is a -- is not the most relevant period. But if we see in terms of client development and contract conversion, we are on a positive flow. And so we expect, in that perspective, a good year. If we look at the impact of what we see in Middle East. I think, there's very little, let's say, direct flow from us from that side with some Postal flows, but they're quite limited. 12 countries are blocked in terms of Postal flow, but that's a financially a very minor impact on our total volume. We don't see today a reduction on the Chinese flows. Obviously, I agree with you. If there is an impact on consumer behavior likely you will see some impact on the overall spend. Still, what we've seen in the last times when that was happening was that there was a further shift towards the products which are available within the e-commerce space. And so that is something where we don't expect that there will be a massive impact on the year. Henk Slotboom: Then on the Mail volume, Chris, we have a shock-wise decrease this year, partly because of the loss of some advertising clients and the introduction of e-invoicing in Belgium, especially the latter impact. Do you think that this will mitigate the decrease in Mail volumes as of 2027 when this has been absorbed? Chris Peeters: I don't understand the question, to be honest. Can you repeat the question? Henk Slotboom: Well, if this year was the introduction of e-invoicing, if I'm correct, in Belgium. So that means that you have a shock-wise decrease in volumes, paper invoices being replaced by electronic invoices. Normally, I assume that will lead to a lower contraction of transaction Mail volumes in the year thereafter, because there's less left. Chris Peeters: Yes. I mean, I can understand what you say. But overall, we don't count on that. I think that you've clearly seen that our strategy is now to move as fast as possible towards a parcel-centric operator, and so we want to become a logistical company. You see that, that Mail decline also if we look at comparable countries that were ahead of the curve have mostly had the Nordic countries are ahead of the curve. The Baltic states are also ahead of the curve in that perspective. You see that, that decline continues to be fairly steep also in the end phase of Mail. If you look at the Denmark case still until the last year, you saw a continued steep decline in the Mail business. We see the same happening in the other Nordic countries, which actually are already at a further progressed decline in Mail that we are. And so in our plans, we don't count on that difference anymore. We actually have -- are preparing ourselves for a continued accelerated decline in Mail. And obviously, what we will do as a consequence of that, start to prepare ourselves for the usual discussion, which will be -- we will have a new user as of the 1st of January '28. And so that preparation of discussion is happening now to ensure that our operating model can follow the reality of the volumes that we have to treat. Operator: [Operator Instructions] Ladies and gentlemen, there are no further questions. So I will hand it back to Chris to conclude today's conference. Thank you. Chris Peeters: We would like to thank everybody in the call for having taken the time to be with us and for your interesting questions. Please note that we will release our annual report 2025 on April 2nd. We look forward to staying in touch and Philippe will present you our first quarter results on May 6. Thank you very much and have a great day. Operator: Thanks for participating to the call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Bank Hapoalim Fourth Quarter and Full Year 2025 Results Conference Call webinar. For your convenience, this call will be accompanied by a PowerPoint presentation. May we suggest, if you have not yet done so, that you access the presentation on the bank's website, www.bankhapoalim.com, by clicking on financial information on the homepage and then click on the annual report presentation. [Operator Instructions] As a reminder, this conference is being recorded March 5, 2026. With us on the line today are Mr. Yadin Antebi, CEO of Bank Hapoalim; Mr. Ram Gev, CFO; Mr. Victor Bahar, Chief Economist; and Ms. Tamar Koblenz, Head of Investor Relations. I would like to remind everyone that forward-looking statements for the respective company's business, financial condition and results of its operations are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated. Such forward-looking statements include, but are not limited to, product demand, pricing, market acceptance, changing economic conditions, risks in product and technology development, and the effect of the company's accounting policies as well as certain other risk factors, which are detailed from time to time in the company's filings with the various securities authorities. In the event of the siren in Israel, we will pause briefly and resume the call as soon as possible. Mr. Antebi, would you like to begin? Yadin Antebi: Thank you. Good afternoon, and thank you for joining us for our review of the bank's 2025 results. We are publishing our financial statements and holding this call at a time when the geopolitical environment in the Middle East and around the world is undergoing material change. We continue to witness Israel's unique resilience and its ability to adapt rapidly. Throughout its history, Israel has consistently emerged stronger from periods of adversity. And we believe that after the current conflict, the economy is positioned to regain strength and to continue to grow. With this environment, Bank Hapoalim will continue to play a meaningful role in supporting the recovery and growth of the economy. Let us now turn to the results. We ended 2025 with very strong results. Net profit of ILS 9.8 billion, return on equity of 15.9%, loan growth of 13.4%. These results reflect the disciplined execution of our strategy, which I will touch on shortly. Alongside these strong financial results, this was a year of significant activity across the bank. We addressed a number of innovative and impactful initiatives, including growth across all business segments. The introduction of 2-year financial targets, the distribution of bank shares to our customers under the Bank of Israel outlined, the launch of an AI bot that supported the share distribution process, a new marketing strategy of proactive banking and a major step forward in the development of Bit, our payment app. All these efforts led us to deliver results that exceeded the targets we published a year ago. Net profit of ILS 9.4 billion excluding income of insurance versus a target of ILS 8.5 billion to ILS 9.5 billion. Return on equity of 15.3% excluding net income versus a target of 14% to 15%. Credit growth of 13.4% compared with a target of 7%, dividend payout of 50% for the year, or 53% for the moment the Bank of Israel permitted to distribute more versus a target of at least 50%. Looking ahead, it is clear that the macroeconomic environment has changed compared with a year ago, when we published our targets for '25 and '26. GDP growth assumptions have improved, but market implied interest rate and inflation are lower for the next 2 years than they were a year ago. Nevertheless, most of the updated 2-year targets we are publishing today are higher than the previous ones. For '26 to '27, we expect net profit of ILS 9 billion to ILS 10 billion, return on equity of 14% to 15%, accelerated loan growth of 8% to 9% and a higher payout ratio of 50% to 60%. It is important to note that towards the end of the year, we will begin the relocation to the new Poalim Center building. As part of this transition, we intend -- initiated steps to realize and enhance our own real estate assets. Accordingly, starting in 2027, we expect to recognize pretax gains of between ILS 800 million to ILS 900 million, which we have reflected in the updated targets. Regarding special tax on banks, our assumptions reflect an impact similar to that of the past 2 years. I would like to briefly review the progress we have made in executing the strategic focus areas we approved about a year ago. As a reminder, our strategic focus are -- areas are sales growth, leadership in service and fairness, Bit as an innovation engine, operational and efficiency, GenAI and data. In our retail activity, the focus is on strengthening sales capabilities across all channels, branches, call centers and digital. To support this, the division underwent an organizational restructuring designed to enhance sales effectiveness and customer service. We adopt a proactive service model and introduce new service standpoints. Naturally, many of these processes intersect with technology and here, too, we made a substantial leap forward with the implementation of an AI bot as a foundation for future automation. In mortgages, we made a major improvement in SLA, which also helped us improve pricing. Here as well, we are already seeing results, including an increase in our marginal market share. In corporate banking, our goal is to accelerate growth with maintaining excess portfolio quality and healthy margins. One of our key achievements this year was a significant reduction in the end-to-end credit approval process, benefiting both our customers and our growth objectives. We also enhanced our digital offering for corporate clients, and today we provide fully digital end-to-end services. In our capital markets activity, we are the #1 player in Israel, both the country's largest brokerage and as leading trading. Poalim Equity, our real asset investments arm, continued to grow at an average pace of about ILS 1 billion per year. This year, it also recorded substantial realizations resulting in strong profitability. Bit is a success story I am extremely proud of. With 3.5 million active customers and an annual P2P transaction volume of ILS 30 billion, notably, 2/3 of our Bit customers conduct their primary banking activity with other banks, representing a major growth opportunity for us. Over the past year, Bit reached an important milestone with the launch of new products and services that generate revenue and/or reduce costs. We intend to continue expanding our offering to provide Bit users with solutions that simplify and enhance their financial management. We are already a highly efficient bank with a cost-income ratio of below 35%, but we still see room for further improvement. We have a retirement program under which about 10% of our workforce will retire by 2028. In addition, we are making significant efforts to reduce other operating expenses. These are not. There are no shortcuts here, just virtuous management. We are already seeing solid results with a nearly 8% reduction in other expenses this year. Alongside this potential I described, I would like to highlight several strengths as we enter 2026. We have accumulated the largest credit loss reserves in the sector, which I believe will decline in a more stable geopolitical and economic environment. We have the highest financial margin in the industry, reflecting profitability-oriented growth, and disciplined balance sheet management. We hold significant gains in the available for sale portfolio, while competitors carry losses. And as noted, we intend to sell our real estate assets, similar to steps already taken by peers, and recognized pretax gains of ILS 800 million to ILS 900 million starting 2027. Today, nearly every bank or company speaks about GenAI and data. We're not only talking, we have made substantial progress in this area. Our goal is to expand the use of capabilities to support operational and business processes, reduce SLA and more. One of our successful use cases is Danit, our AI bot, which handled thousands of customer calls during the share distribution campaign we conducted. The bot handled the most calls and completed the process end-to-end. Before I hand over to Ram to review the quarterly and annual results, I would like to reiterate our targets for '26 and '27. Net profit of ILS 9 billion to ILS 10 billion, return on equity of 14% to 15%, accelerated loan growth of 8% to 9% and higher payout ratio of 50% to 60%. Thank you, and Ram, please go ahead. Ram Gev: Thank you, Yadin, and good afternoon to everyone on the call. I'm happy to walk through the bank's fourth quarter and full year 2025 results in the next few minutes, and discuss the key drivers behind what we consider an exceptional year for the bank. A year marked by a high return on equity, nearly ILS 10 billion in net profit, strong business momentum and all supported by excellent capital strength and high-quality credit metrics. Let's dive into the numbers and start with Slide 20, where we are showing the continuous growth in profitability. This morning, we reported a 15.9% return on equity for the full year with net profit of ILS 9.8 billion and an EPS of ILS 7.43. Adjusted for the ILS 380 million income we recorded from insurance reimbursement in the third quarter, ROE is 15.3% and the net profit is ILS 9.4 billion, both comfortably above our financial targets. The fourth quarter profitability was impacted by a negative CPI and a onetime ILS 200 million provision made in respect of the labor dispute. As a result, the reported ROE of 13% for the quarter does not fully reflect the bank's underlying profitability. Next, let's talk about our credit book. We continued to deliver strong and high-quality growth throughout the year. In 2025, total credit increased by 13.4%, of which 4.9% in the last quarter, to a balance of more than ILS 500 billion. Another important key quality of our portfolio is its diversification across segments. This is a key parameter not only from a growth and risk balancing perspective, but also because it gives a greater flexibility to be selective in how we grow, and to allocate growth to areas where we see stronger profitability profile. And indeed, growth was recorded across all segments in 2025 and in various economic sectors. This is a reflection of our ability as a leading bank to translate the strength of the remarkable Israeli economy into growth in our activity. Corporate credit grew 25.8%. Commercial credit, essentially middle market businesses, grew 11.3%, and retail activity, consumer mortgages and small businesses grew roughly 7% to 12%. The next slide, Slide 23, presents our financing income. The consistent growth trend in our financing income and margins reflects 2 key factors. Increased business activity combined with government bond portfolio repositioning. As a reminder, as part of this process, we realized losses on legacy securities, mostly in 2024, and we invested in higher-yield and longer-duration assets. This resulted in 9.6% growth in total financing income and a slight increase in the financial margin. This was achieved despite the lower contribution from the CPI and ongoing competitive pressure on margins and unlike all our peers. On the right-hand side, we show the income from regular financing activity excluding the CPI, which is consistently growing, and further highlights the aforementioned key strengths. In this slide, we take a quarterly view of financing income. The volatility of the CPI resulted in a gap of over ILS 650 million between the fourth and third quarters. This is the reason for the decrease in income from regular financing activity and margins. Here as well, we show the income from regular financing activity excluding the CPI which due to the growth in activity continued to grow nicely. On fees, the positive trend continues across various types of fees. So our business activity continues to expand. Total fees grew 11.3% in 2025 driven by most fee types such as securities conversion differences and account management fees. The increase in credit card fees is mainly attributed to one-off revenues received from the international card organizations. Let's move to present our disciplined cost management. The takeaway here is that even alongside the impressive growth in our activity, total expenses are down, or if we adjust for one-off, total expenses remained flat year-on-year. Looking at the cost-income ratio in both presented years, there were one-offs. In 2024, we provisioned for an early retirement plan of almost ILS 600 million. And on the other hand, 2025 income included the insurance reimbursement. So if we look at the adjusted figures, the cost-income ratio is down to the mid- to low 30s. This is among the lowest efficiency ratios globally. In the fourth quarter, expenses increased due to several nonrecurring items, primarily the provision related to labor dispute at the bank. Just to give you some color, we are currently working on structural changes to the bank's employment framework, changes that will yield benefits for many years to come. While no agreements have been finalized yet, we have recognized a provision in anticipation for future settlement. On Slide 27, our productivity ratios, which have been improving over time, both income per employee and credit per employee support the positive jaws effect. Moving on to discuss provision for credit losses and the quality of our book on Slides 28 and 29. Provision for credit losses amounted to ILS 421 million or 0.31% of our credit book, driven completely by collective allowance and net automatic charge-offs. The increase in the collective allowance reflects our prudent approach and is due to the growth of the credit portfolio and the continued uncertainty in the economic environment. Individual provision, however, saw income due to recoveries. It's important to highlight that this prudent approach places us in the strongest position entering 2026 relative to peers with high reserve levels and the highest reserve ratio across a range of scenarios. On credit quality metrics, on the left-hand side, we see the NPLs continue to drop, now at 0.48%, while the NPL coverage ratio continued to rise to more than triple the NPLs as we continue to increase the collective allowance. On the right-hand side, the allowance to loans ratio remained high at 1.72% and over 95% of the total allowance is collective. In the next slide, the bank has the largest retail deposit base in the sector, which provides a significant competitive advantage. Our deposit base continued to grow in 2025, 3.2% in the last 12 months. Retail deposits decreased this year but still represent 54% of total deposits. Liquidity ratios, LCR and NSFR, continue to be well above the minimum requirement. Now let's move to present our capital position, which continues to benefit from strong organic generation capabilities, leading to 11.2% growth in the last year. The CET1 capital measure was 11.98%. And you can see in the waterfall graph, the contribution of our strong profitability, and to a lesser extent, the positive OCI allowing for substantial growth in activity as well as substantial profit distribution to our shareholders. On dividends, our strong capital position allowed us to increase our profit distribution where in addition to the 50% payout, we declared a distribution of additional ILS 200 million. This sums up to 60% distribution for the fourth quarter, 48% by cash dividend, ILS 0.79 per share, and the rest through share buybacks. So for 2025, total shareholder distribution amounted to 50% of net profit, consistent with our financial target, driven by a ILS 4.1 billion cash dividend, reflecting a 4.6% yield and ILS 4.9 billion total distribution. Before we move to briefly discuss macroeconomics, I'm moving to Slide 33 for a quick update on our expected real estate asset sale. As you know, and as some of you have noticed when passing by, we are currently constructing the bank's next headquarters building in Tel Aviv called Poalim Center. Beyond the financial significance of this move, which will allow us to further align our organizational culture with our future plans, including by bringing all headquarters employees together under one roof, rather than being scattered across several buildings as we are today. The planned relocation will start at the end of this year, and we expect to sell existing properties from 2027 onwards. As this event is approaching, and we are already progressing with the betterment of assets and sale processes, we have provided disclosure in the financial statements regarding initial estimates for the expected profit from the sale of our main properties, estimated at ILS 800 million to ILS 900 million before tax. Let's now talk briefly about macro situation in Israel. While each military conflict is unique, past episodes offer a useful framework for assessing the current operations economic impact. We expect a temporary slowdown in activity broadly similar to the second quarter of 2025 contraction and dependent mainly on the operations duration followed by a partial rebound. The economy entered the year with solid momentum and assuming the operation remains short, GDP growth is still expected to exceed 4% this year. As shown on right-hand chart, the shekel has strengthened as markets view geopolitical risk as moderating, supported by another strong year in high tech, including several large acquisitions. Headline inflation has eased to 1.8% year-on-year, partly due to currency operation. Our base case assumes low persistent inflationary impacts from the current operation, keeping near-term inflation contained. The policy rate has been cut to 4% with inflation expectations well anchored, and market pricing implies roughly three additional cuts by year end. So to summarize, 2025 saw very strong performance across all metrics, well above our financial targets. Return on equity was 15.9% or 15.3% adjusted for the income from insurance. Financing income and margins continue to be strong, driven by the growth in activity and asset rollover. The strong growth in credit of 13.4% during 2025 was broad-based across all segments and economic sectors. This was achieved with no compromise on the quality of the book as reflected in the NPL ratio of only 0.48%, and allowance to NPL ratio of 310%. In the fourth quarter, we declared on a 50% distribution plus ILS 200 million from existing capital services. So the overall payout ratio in 2025 was 50%. And then lastly, we introduced updated financial targets for 2026 and 2027. ILS 9 billion to ILS 10 billion net profit, ROE target remains 14% to 15%, credit growth target base increased to 8% to 9%, and profit distribution of 50% to 60%. To conclude, we are proud of the strong performance this year and of the clear, ambitious targets we have set for the next 2 years. We are well positioned to continue delivering substantial plan. We will now be happy to take your questions. So back to you, operator. Operator: [Operator Instructions] The first question is from David Kaplan. David Kaplan: I have first couple of questions on the bank's sensitivity to interest rates. You have those tables that you gave at the beginning of the report. And I'd like you to help us understand a little bit why is it that the 1% change in the interest rate has a greater impact on the equity of the bank than it does on the P&L. Start with that. Yadin Antebi: I'm not sure I understood the question, David. I can repeat. We give -- we, of course, disclosed our interest rate sensitivity. It's around ILS 800 million. As you refer to the equity side? David Kaplan: I'm talking about the table that's on Page 90 of the report where you talk about an increase or a decrease in the interest rate by 1%, and the impact it would have on the equity of the bank after tax, right? And it's about ILS 1 billion, whether it's up or down. But on the table that's just above that on the same page, you -- where you go through the income statement, the impact is much smaller or much different. And so how does that work through the P&L of the bank? And why do we see a greater impact on the income than we do on the -- sorry, on the equity that we do on the income of the bank. Yadin Antebi: The important figure here is the ILS 800 million, David. That's the full influence the bank's top line and the income. We probably have disclosure on the capital as well, but it's not -- I don't think it's a material disclosure. David Kaplan: Okay. I guess maybe the second question I have is on -- you mentioned in your presentation and in fact, it's true that you managed to maintain first of all a higher NIM in 2025 than in 2024, which given the interest rate environment was already surprising given the -- what we see the trends we've seen in other banks in the market here. What is it about your mix of business that allows you to do that? Yadin Antebi: It's not -- I think it's not the mix of the business, but it's the discipline of the organization and the emphasis that we put on spreads. There are areas that spreads are going down, of course, but we put a lot of value not only growing the business, but also pricing both the deposit side and the credit side was the right measures. Of course, we have a lot of competition around. And we have to deal with that as well. But pricing is very important from our point of view, both deposit and credit side. Ram Gev: Maybe if I add to what Yadin said. Well, the main factors on the NIM, globally and here in Israel as well are the interest rate environment, inflation environment and the margins. So what is important to us is to be with the highest NIM in the industry. And you can see that we are well positioned entering 2026 relative to our peers in our NIM. And we want to keep -- to be in that situation to hold the highest NIM in the industry. Obviously, the impact of changes in the interest rate is -- will affect everyone. But like Yadin mentioned, discipline on pricing and what we did when we repositioned our -- part of our securities portfolio when we sold it in 2025 and extended duration enable us to maintain relatively stable NIM during this year compared to 2025, and that's positioned us more favorably looking at the future. David Kaplan: Okay. And then just one last question on the financial targets that you gave for '26 and '27. Presumably, you're taking into account there the market expectations for inflation and for interest rates. At any point, do you look at it from your internal projections for those things? Or do you always look at it from a market perspective? That's the first question. And second of all, if something were to change drastically and expectations were to see rates or inflation, the expectations for rates or inflation change significantly, would you update your targets? Yadin Antebi: Yes. Thank you, David, for that. We spent a lot of time last time on March before we published our '25 and '26 results. And we have different ideas and discussions internally, what will be the right figures to publish. What we decided last time and we were consistent with last year's decision is we don't want to play around any goals or projections of interest rates or inflation because that will make your life much harder in analyzing our profitability. So what we decided was just to take market pricing for both inflation and Bank of Israel interest rate because we're very sensitive to that, as you, of course, know. So moving those numbers and taking other figures will make our projections and our targets seem like not eligible enough. Regarding the second part of your question, we don't intend to update on every move of the interest rate. And you can see that we just discussed the sensitivity. There are many metrics that move around, not only interest rates, we feel comfortable with the guidance and the targets that we have published for these 2 years. David Kaplan: Okay. Great. Sorry. I actually do have just one more question. I was looking at the tables towards the back of the report, the volumes versus pricing. And in this current year, volume had a much greater impact on the change in net interest income than did pricing. And I guess that partly had to do with the lower-than-expected inflation, I guess, over the course of the year. But in comparing it to the change in volume and pricing in the previous year, where there was a much greater split, can you talk a little bit about how you managed to generate so much income simply off of the volume growth? Yadin Antebi: The book is growing and the balance sheet is growing. So we're making, of course, more profit on a larger balance sheet. And we're balancing it or we're mitigating or we're trying to mitigate where we have pressure from the market in terms of pricing. So that will be like our normal course of handing the bank, the business. David Kaplan: Okay. And what was the impact here though, from inflation? Or was it a minimal? Yadin Antebi: Can you ask that again, please? David Kaplan: What was the impact of inflation on the change in pricing here when I look at that table? Or is it not really an effect. Yadin Antebi: The change in pricing? David Kaplan: How do -- how did the CPI affect the change in income within pricing? Yadin Antebi: No. Inflation more or less doesn't change pricing. Okay. You're talking about pricing of the credit spreads? David Kaplan: We can take this offline and discuss it later. Operator: The next question is from [ Jan ] Benning. Canberk Benning: Just one on the cost-to-income ratio. So both the adjusted and the stated cost-to-income ratio came down quite -- I think, quite significantly from last year. I'm just wondering if, going forward, you have a specific cost-to-income ratio in mind. I know you haven't published anything, but I'm just trying to think -- obviously, cost efficiency is an important objective for you. And I'm just trying to, one, think about how far you think that cost-to-income ratio can come down. And whether -- sort of a secondary question to that is whether any artificial intelligence initiatives you are implementing across the bank can support both the revenue line and also bring costs down. Yadin Antebi: Thank you, Jan, for that. Yes, of course, we have an internal cost-to-income target or ratio that we follow both for '26 and '27. We follow and we have a lot of work. I talked about it in my part, and Ram also talked about it. Operational efficiency is a major issue internally. We put a lot of effort to make sure that we're continuing on the right path of making the bank more efficient than it is today. You know we discussed in previous meetings the efficiency program that we have and the reduction of the number of employees. We believe AI, and I talked about that as well, will have a major impact on the bank, okay, in terms of the call centers, in terms of the people that write code here. We have a very large technology division, hundreds of people that write code. So this is something that will dramatically affect AI the way we write code here. We do have different AI initiatives internally also within writing code, for example. But I'm very open at this stage. None at this stage has gone down to the bottom line of the P&L in terms of reducing expenses up to 2025. Looking forward, I'm sure that we will have dramatic changes that will implement -- will be implemented both in the call centers, both in writing software, changing the way we operate in terms of SLA regarding how fast we reach our clients. So these will all go down to our cost base. Last part of your question, you asked about the technology expenses. Yes, they are high. We're taking the best engineers in Israel. I think we discussed at the time that we got in the guy that ran the tech division of Playtika. He is running today since I think March 2025, the IT division within the bank, building internally new people, new ways of writing software, going faster to market, using AI better, different metrics and know-how that he knew and grew up actually from the gaming industry, which is a very, very sensitive industry in terms of AI and technology. So going back to your question, yes, these will all be impacted on the P&L of the bank looking forward. Canberk Benning: That makes a lot of sense. And then my second question is just looking at the credit growth target that you've got. So you've got 8% to 9% across '26 and '27. I'm just wondering is there any specific areas of the credit book that you're looking to grow? And any areas that you're looking to gain market share and whether that's greater market share in the retail segment or in corporate? Just some color on that would be useful. Yadin Antebi: Just like 2025, we're a very large bank in Israel, more or less 25%, 30% market share depending on the different areas that we bank with. So we will sell credit all around, whether it be retail or small businesses or middle market companies or large corporates, it will be on different sectors. It will be on infrastructure in Israel. It will be on real estate, it will be with hotels. So we're all around. There's no specific sector that I think we will say this is where we want to grow because we're very strong on all sectors. Operator: The next question is from David Taranto. David Taranto: This is David Taranto with Bank of America. The first question is a follow-up to my colleague's question on efficiency. Could you please elaborate a bit on your existing efficiency plan? Is the program tracking in line with your initial expectations in terms of pace, headcount reduction and cost savings? Or should we expect any change to the timing, or magnitude of the planned savings? Yadin Antebi: David, congratulations for your first call with us, and thank you again for covering the banks in Israel. Cost program, as we said in our December '24 financial statements, it's a 770 employee reduction done through 4 years, starting 2025. We started to implement it. Our full savings will be realized 2028. We disclosed that figure of ILS 300 million. There is -- there are conflicts internally in terms of our internal union. They didn't like the plan too much. So we do have discussions. Discussions have started. They are not concluded yet. We will -- I believe we will meet our 770 program on time. David Taranto: Okay. And the second question is on the asset quality. Your coverage ratios are extremely high and most of the provisioning remains collective. And can you break down how much of the collective allowance reflects managed macro overlay versus what comes purely from credit models? And what would trigger you to release any excess overlays this year? Yadin Antebi: Yes. Thank you, David, for this question as well. This is something we were very different in 2025 compared with our peers. We thought that 2025 is a year that we should be very conservative in terms of provisions. Even though you will not see within our books any material specific losses, we thought it would be right to be conservative and to continue to accumulate more credit provisions. We did that through the year and also Q4 2025. Looking forward, we think -- and I mentioned that when I talked about entering '26 and '27, we think that this is one of our key strengths looking forward because if we were right -- if we are right and Israel is going on the right track in terms of the geopolitical situation, in terms of the growth of the economy, in terms of things going back to normal in Israel, we have high reserves that we hope we will be able to release. But this is looking forward, and will be managed, of course, during '26 and '27. Ram Gev: David, if I can add to what Yadin said and elaborate. So we implement the CECL methodology on provisioning on credit losses. And overall, we run, let's say, 3 scenarios. So -- and we weigh those 3 scenarios into a combination. We have a baseline scenario of pessimistic and optimistic. By the way, the reality is better than the optimistic scenario actually. So it's hard to separate the elements that you mentioned because the actual figures are a combination of these 3 scenarios. Adding to that, some qualitative elements that we put to reflect uncertainty. But I think you can get a figure to -- what you asked, if you look at our coverage ratio standing at 1.72% and compare it, let's say, to our peers, you'll see that we have, let's say, roughly 30 basis points up to the average. So that reflects -- roughly reflects our conservative approach, hopefully, to meet the positive and optimistic scenario. David Taranto: That's clear. And 2 more, please. The first one on the expected pretax real estate gains, should we assume standard corporate income tax on these proceeds? And will the regulator allow you -- allow this profit to flow into the regular payout calculation? Or should we expect it to be treated separately in terms of payout? Ram Gev: Yes. Usually, it's the regular, but we may have from time to time some losses to offset from that. We don't know exactly what will be the final outcome for that. That's the reason why we disclosed the -- let's say, the before tax estimates. Obviously, if we will have some losses to deduct from that, then it doesn't matter whether it's included in the tax, let's say, the super tax or no. But if there won't be any, let's say, deductible losses, then generally speaking, it's included in the super tax as well. David Taranto: Okay. And the last one is on the AFS book. You have a strong unrealized gain position in your AFS book. And if the rates continue to come down, this position should build up further. Can you give us more color on the portfolio structure, in particular, what share of the AFS book is in fixed rate securities and how sensitive the unrealized gains are to, let's say, 50 bps lower yields? Ram Gev: We have a disclosure on our book we can direct you later on, on the sensitivity for 1% change on our fair value and equity. The overall effect, but part of it is from the AFS is the overall effect is about ILS 1 billion, but the available for sale is only part of it. So I can direct you to our disclosure on that on Page 19 in our statements. Operator: The next question is from Chris Reimer. What is driving your confidence around the increased loan growth target? And given potential for further leveraging of technology, do you see a case for further year-on-year decline in expenses? Yadin Antebi: Thank you for that. We feel strength of the market, and that's why we thought it would be right to increase our credit target -- credit growth target. We saw the strength of the market '24 and then in '25. We see the pipeline of the different projects that we're handling both infrastructure and others. We -- even before the Iran war now, the growth in Israel and the projections were very high. And after the war once it ends, we're sure that Israel is going to be in a new era in terms of the geopolitical environment. So that gives us a lot of comfort regarding the credit growth. The second part of the question in terms of the technology, I think I answered this before. Yes, we're spending a lot of money on IT and technology. But we also see that in different areas, the IT costs may go down because of different infrastructure that will be used here through AI, for example. This is not for the -- as I said, not right for '25. But looking forward, this might be material. We're trying to manage both costs or actually 3 different costs, the employees' cost, the technology cost and all our other costs. Operator: The next question is from Valentina Stoykova of Barclays. Given ongoing lion's war, I was wondering whether you could briefly outline the best and worst-case stress scenarios for Hapoalim and the key macro assumptions used. Where do you see your COR in a worst-case scenario? And also, should we think about the upcoming Tier 2 callable option? And as a follow-up, could you outline the main risks you see to delivering on the ROE target? Yadin Antebi: Great. Thank you for that. Good question. Actually, I believe that whatever happens, Israel is going to get out of this war dramatically stronger than what -- from the position we were 10 days ago. And that is mainly because the whole geopolitical here may change -- environment may change. It goes back to the fact that a very aggressive country is already in a different position. It goes down to different agreements with our Arab neighbors that we've been talking for years about extending, for example, the Abraham Accords. So this might happen as well. So whatever happens, I think Israel is going to be a much stronger country and a much stronger economy looking forward. And that, of course, reflects on the bank. The 2 -- you asked about the 2, the best-case scenario and the worst-case scenario and maybe I'll think out loud. The best-case scenario will be a very short war, just like the 12 days war, ending with a new regime in Iran and having Abraham Accords with all the Arab countries around, including Iran. That's like the best-case scenario. The worst-case scenario is a long war that is taking a long time. I don't think that will happen, but it might happen. And that will, of course, influence government and businesses in Israel and deficit. I don't think this option is really relevant. But if you're looking for something which is extreme, that may happen. Reflecting on the ROE can change on the different scenarios. But personally, I'm very optimistic because I think that like the essence of the Mediterranean is really changing day by day over the last week. Ram Gev: Yes. And to add to what Yadin said, Valentina, you asked about the cost of risk and the effect. So we have a disclosure in Page 81 of the financial report. Like I mentioned before, while calculating the collective allowance, we are using different scenarios, pessimistic base scenario and optimistic, and we are creating some combination of that. So we have disclosure there if we work only by the pessimistic scenario, what will be the additional effect on the provision. And if we work only according to the optimistic scenario, what will be the decrease in the provision. So you have full disclosure there. And like I mentioned before, what we saw after 2025 in the first campaign with Iran is actually that the reality was better even than the optimistic scenarios that we ran. Operator: There are no further questions at this time. This concludes the Bank Hapoalim Fourth Quarter and Full Year 2025 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Profound Medical Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stephen Kilmer, Investor Relations. Sir, please go ahead. Stephen Kilmer: Thank you, and good afternoon, everyone. Let me start by pointing out that this conference call will include forward-looking statements within the meaning of applicable securities laws in the United States and Canada. All forward-looking statements are based on Profound's current beliefs, assumptions and expectations and relate to, among other things, any expressed or implied statements or guidance regarding current or future financial performance and position, and expectations regarding the efficacy of Profound technology. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from those implied by such statements. No forward-looking statement can be guaranteed. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this conference call. Profound undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise, other than as required by law. Representing the company today are Dr. Arun Menawat, Profound's Chief Executive Officer; Rashed Dewan, the company's Chief Financial Officer; Dr. Mathieu Burtnyk, Profound's President; and Tom Tamberrino, our Chief Commercial Officer. Please note that our prepared remarks today will be a little longer than normal as we present to you the dynamics of the market and our strategies to create a profitable growth company. With that said, I'll now turn the call over to Rashed. Rashed Dewan: Good afternoon, everyone, and welcome to our Fourth Quarter and Full Year 2025 Conference Call. On behalf of the management team and everyone at Profound, I would like to thank you for your ongoing interest in our company. For those of you who are shareholders, we appreciate your continued interest and support. I will turn the call over to Mathieu in a moment to provide commercial updates. However, before I do, I would like to provide a brief summary of our fourth quarter 2025 financial results. To streamline things, all of the numbers I will refer to have been rounded. So they are approximate. For the 3 months period ended, December 31, 2025, the company recorded revenue of $6 million, with $2.3 million from recurring revenue and $3.7 million from onetime sales of capital equipment. Fourth quarter 2025 revenue was up 43% from $4.2 million for the same 3-month period a year ago. Gross margin in Q4 2025 was 67% compared to 71% in Q4 2024. The lower than usual fourth quarter 2025 gross margin was primarily due to product mix and new market introductory prices with international distributors in Saudi Arabia and Australia. Total operating expenses in the 2025 fourth quarter, which consists of R&D and SG&A expenses were $11.4 million compared with $11.3 million in the fourth quarter of 2024. Overall, the company recorded fourth quarter 2025 net loss of $8.2 million or $0.27 per common share, compared to a net loss of approximately $4.9 million or $0.20 per common share in the 3 months ended December 31, 2024. As of December 31, 2025, Profound had cash of $59.7 million. As Arun will discuss later in the call, we believe that we are now on a path to profitable growth. In keeping with that, we expect our cash burn to decline and eventually turn cash flow positive as our revenues continue to grow and our margin remains high. With that, I will now turn the call over to Mathieu for an update on clinical and development activities. [Technical Difficulty] Arun Menawat: Again, I'm sorry, let me cover Mathieu's part here. So again, Mersa, thank you. Last year, we completed recruitment in CAPTAIN, the first multicenter, randomized, controlled trial directly comparing a new technology to robotic radical prostatectomy for men with localized prostate cancer. CAPTAIN completes the foundational pillars of clinical evidence, validating TULSA as the new platform for prostate disease management. From gold-standard treatment, treat and resect data through track durable 5-year outcomes, CAPTAIN now positions us to demonstrate with statistical rigor, TULSA's superior quality of life profile while delivering whole-gland treatment efficacy. CAPTAIN was designed for world-leading -- I'm sorry, CAPTAIN was designed by world-leading experts in prostate cancer clinical trials. They built a practical study that ensured successful enrollment and more importantly, a scientifically robust protocol with endpoints that matter to patients, clinicians and payers. Let me repeat that point. CAPTAIN's endpoints are those that matter to the patients, the clinicians and the payers. Patients were randomized 2:1 using an intelligent stratification algorithm, resulting in highly balanced arms, a cornerstone of credible randomized trials, balanced arms allow us to make definitive comparative conclusions about safety and efficacy. And critically, CAPTAIN measures efficacy in a meaningful way, determining whether clinical significant cancer remains after treatment. Patients and their oncologists want to know whether cancer has been killed and eliminated not merely whether it had progressed. As discussed last quarter, completing treatments in CAPTAIN locks in the timeline for data readouts, including the imminent release of preliminary -- imminent release of primary safety and quality of life endpoints. Last year, we shared initial perioperative outcomes showing faster recoveries after TULSA than robotic prostatectomy with 0 blood loss or overnight hospitalization, reduced pain, and earlier return to daily function and overall health. These advantages echo the same drivers that fueled early adoption of robotic surgery. Mathieu Burtnyk: Thank you, for taking over. I can jump back in if you want? Arun Menawat: Okay. Go ahead. Mathieu Burtnyk: I'll go ahead. So ahead of schedule, we will present the first clinical outcomes from CAPTAIN next week at the meeting of the European Association of Urology in London, U.K. EAU is the premier academic urology meeting, and we were pleased that our data has been selected for inclusion in the late-breaking and the high-impact session. The presentation will be delivered by Dr. Laurence Klotz on Friday, March 13, between 1:00 and 3:00 p.m. Greenwich Mean Time, which is 8:00 to 10:00 a.m. Eastern time. These data include complete 90-day perioperative results and the 6-month primary safety and quality of life endpoints. Six-month quality of life outcomes are an increasingly important and modern endpoint. They reflect meaningful patient recovery and provide a more relevant early indicator of functional preservation. At EAU, we will report 6-month urinary incontinence rates, the single most important quality of life outcome for patients, along with 90-day hospital readmissions and time to return to work. At EAU, we will also report positive surgical margin rates in the prostatectomy arm, which we will later compare against TULSA biopsy outcomes in late Q4. CAPTAIN provides the first true apples-to-apples comparison of safety, quality of life and efficacy, the information required to support a new treatment paradigm. CAPTAIN is the most comprehensive truly Level 1 trial. But let me also take the time to outline the fundamental differences between CAPTAIN and other ongoing studies, namely WATER IV, FARP and HIFU. First, WATER IV. WATER IV is a multicenter randomized trial comparing Aquablation to radical prostatectomy in men with low- and intermediate-risk localized prostate cancer. The inclusion of low-risk patients is a critical distinction because these men harbor minimal disease and are unlikely to progress within the study's follow-up period, limiting any meaningful assessment of cancer control. Equally important is what the trial measures. WATER IV's primary endpoints are quality-of-life only. That means that the study is not designed or powered to demonstrate comparative oncologic efficacy. This is particularly notable considering there are no other peer-reviewed data using the Aquablation procedure to eliminate cancer in prostate cancer patients. The trial includes a single cancer-related secondary endpoint assessed only in the Aquablation arm, which is the stable or improved grade group at 1 year versus baseline. In practice, that means a patient who entered the study with grade Group 3, an unfavorable intermediate risk clinically significant cancer will be counted as a success even if the same grade Group 3 disease remains after treatment. That is not the same as a limiting cancer or even improving the cancer grade, and is not a randomized head-to-head efficacy readout. Frankly, this is not a Level 1 cancer trial. Next FARP. The focal ablation versus radical prostatectomy study. FARP is a single center European trial, which inherently limits generalizability to broad clinical practice, particularly to high-volume U.S. surgeons. Its population like WATER IV includes low and intermediate risk patients with disease localized to one side of the prostate. While FARP does include a comparative efficacy measure, the bar is not oncologic eradication. The focal therapy arm is deemed effective if patients avoid upgrading to grade Group 4. In other words, men who start with grade Group 1, 2 or 3 are considered successfully treated as long as they do not progress to grade Group 4. This is a very different endpoint than [ curing ] and eliminating clinically significant cancer. Even though TULSA was part of the study and to the best of our knowledge, the TULSA arm did better than any other arm, including HIFU, the reason we think is that not the most credible study is the endpoint itself. Avoiding upgrade is not the same as proving cancer has been cleared. Patients want to know plainly whether they still have cancer or not. Lastly, HIFU, a large multisite French comparison of HIFU versus prostatectomy did not randomize patients and therefore, is not considered a Level 1 trial. The result is significant selection bias and unbalanced arms. For example, HIFU patients were on average roughly a decade older than surgery patients. Age differences directly confound the study's primary endpoint of salvage treatment-free survival and erectile function. Older patients are less likely to undergo salvage treatment. Older patients have lower baseline erectile function, which means they have less function to lose after treatment. Without balanced randomization, you cannot make definitive comparative conclusions. Let me conclude. TULSA is solving the debate between focal and whole-gland treatment for prostate cancer. CAPTAIN measures efficacy to the same standard as robotic surgery, an essential requirement to establish a new standard of care. TULSA is the only technology capable of whole-gland, focal and customized treatment. Patients often choose focal therapy to preserve quality of life. With TULSA, patients achieve the benefit of focal side effects with the efficacy of whole-gland treatment. I will now turn the call over to Tom. Thomas Tamberrino: Thank you, Mathieu. As Rashed mentioned, we achieved a year-over-year revenue increase of 43%. We had 78 TULSA-PRO sites as of December 31, 2025. The company's TULSA-PRO qualified sales pipeline is also growing and currently stands at 110 new systems being classified within one of the verify, negotiate and contracting stages, which are the final 3 phases of our sales process. Q3 2025 was a true commercial inflection point, and we saw the momentum continue in Q4. We're continuing to see broader adoption of TULSA-PRO across both academic and community hospitals. That's largely due to increased awareness of the system's clinical benefits and the establishment of a reimbursement pathway made possible by the Category 1 CPT codes for the TULSA procedure. TULSA reimbursement was confirmed again for 2026 at urology Level 7, which is appropriate as TULSA utilized real-time MR, which is crucial to better clinical outcomes. Our team has also initiated engagement with private insurance carriers, and we expect coverage decision from carriers in the second half of 2026. Our global commercial leadership team has never been stronger than it is today. This includes sales, marketing, business development, health economics, market access, patient education, patient access, clinical service and strategic initiatives. We have a world-class team of professionals here in the U.S. and around the world. It is noteworthy that we have launched a strategic TULSA program team, which will use our organizational leverage to ensure successful TULSA program launches and this team will grow procedural volume thereafter. Our team remains focused on targeting high-volume urology centers and supporting physician training. We're leveraging positive clinical outcomes and patient testimonials to drive engagement and deepen relationships with our customers. Looking ahead, I'm confident in our ability to further accelerate this growth. We're well positioned to capitalize on the expanding interest in image-guided interventions and we continue to scale our commercial footprint while validating our technology in the prostate care market. And as Arun will also highlight, there are a number of important catalysts coming in 2026, that continue to drive our relief that we will reach high double-digit to low triple-digit revenue growth. Importantly, we believe we are now on a path to not just growth but profitable growth with this selling approach. The math to achieve this target is simple, with just 200 TULSA programs cases using existing MR installed base, assuming a conservative 50 TULSA procedures per site per year and a $5,500 recurring revenue to Profound per procedure, we would be at $55 million in procedural revenue. Add on to this $10 million in annual service revenue, and another $20 million in new capital sale revenue based on an estimate of 40 new TULSA-PRO systems sold per year at an average sales price of $500,000 per system. Altogether, this will put us around $85 million in annual revenue. With 70% plus gross margin already achieved, we would be profitable. We're also building strategic partnerships on a global basis. Recent distribution agreements with Al Faisaliah Medical Systems in Saudi Arabia and Getz Healthcare in Australia and New Zealand have already started to bear fruit with multiple systems sold in Q4 2025. Our partnerships with OEMs such as Siemens, are also progressing well, and there's more exciting opportunity to come on the partnership front as 2026 progresses. Thank you for your time. I will now turn the call over to Arun. Arun Menawat: Thank you, Tom, and good afternoon, again. Prostate cancer treatment has been a bipolar world up till now. Whole-gland robotic prostatectomy or radiation therapy are the primary tools for treating prostate cancer today. Trying to take some share away from these mainstream whole-gland modalities are focal therapy alternatives such as HIFU, cryoablation and IRE that treat typically less than 35% of the gland by focusing only on the visible cancer within the prostate. But TULSA is establishing itself as a third distinct category. TULSA-PRO can treat the whole-gland, a small portion of the gland and everything in between. At the same time, the TULSA procedure provides the best of both worlds. The same good clinical outcomes of whole-gland prostate cancer treatment but with lower side effect of focal gland treatment. The fact that the TULSA procedure is a third category all by itself is an important message. But it can be difficult for urologists and hospitals to understand the differences as they're getting bombarded by the focal messages from multiple companies. Difficult, but not impossible. Virtually, all surgeons who have used both TULSA-PRO and other technologies have ended up favoring TULSA by far because of its expanded capability to treat the full spectrum of prostate disease while minimizing quality-of-life side effects like urinary incontinence and erectile dysfunction. Today, we believe that whole-gland robotic prostatectomy and radiation therapy have run their course. And alternative focal prostate therapies are not enough. The TULSA-PRO system stands apart in its proven ability to treat the full spectrum of prostate disease as well as providing better economics to providers and more value to payers. TULSA uses real-time MR imaging that has several significant clinical and economic advantages. First, the real-time MR thermometry enables continuous visualization and autonomous temperature adjustment throughout the procedure. This level of precision allows the physicians to tailor therapy to each patient while minimizing side effects typically associated with robotic surgery or radiation. Second, MR produces standardized to the cross-sectional images enabling AI analysis unlike what may be possible using other imaging modalities, such as ultrasound. Using this capability, TULSA-PRO incorporates an AI-based treatment plan. Upon one click, the AI software segments the prostate and shows the surgeon a treatment design while keeping the nerve bundle and the sphincter muscle region safely outside the boundaries. Using a digital pen, the surgeon can either accept the AI-generated plan or quickly modify it, if necessary, making overall treatment planning fast and reliable. The TULSA-AI contouring assistant is based upon treatment designs by the best-known radiologist and is proven to be superior to surgeon designs. Third, MR enables real-time temperature monitoring. Using this capability and directional ultrasound from a catheter placed in the urethra, TULSA-PRO, gently heats tissue only to kill temperature between 55 to 57 degrees centigrade without boiling or charring the tissue. The net effect is that the whole-gland or any surgeon prescribed region can be treated effectively and the dead tissue is reabsorbed by the body. In the FDA registered TACT clinical trial, post-treatment prostate size was measured over time. The data showed that the median reduction in prostate size was 91% by effectively shrinking the prostate around the urinary channel, which is proactively protected during the procedure. Fourth, TULSA-AI enables cleaner margins. During TULSA procedure, real-time MR enables the treating surgeons to see abundance of cancer in the prostate. If necessary, the surgeon can engage another TULSA-AI module, Thermal Boost to apply additional heat to the region and ensure [ kill ] temperatures to the outer margin of the prostate or even slightly beyond the margin. Fifth, not to confuse things, we believe even TULSA partial gland or focal procedures are superior to other focal modalities, which all rely on ultrasound imaging. TULSA procedures are based upon real-time MR diffusion and T2 images. These images combined together visualize the abnormal cell regions of the prostate, which may be cancers. This real-time visualization allows surgeons to define the treatment region to completely include the suspicious zones, thereby increasing the likelihood of a more durable focal/partial gland treatment while maintaining minimal side effects. And finally, advanced real-time MR imaging provides confirmation and precision of cell kill at the end of the procedure, no matter what the intent to kill it in turn improves predictability of outcomes. To summarize, TULSA-PRO solves a debate about whether prostate cancer treatment should be whole-gland or focal without compromise. TULSA-PRO can be used to treat the whole-gland, a small portion of the gland or anything in between in large prostates, small prostates or even radio recurrent prostate, and with the clear benefit of MR imaging and guidance. And it is being used successfully to treat low, medium or high-risk cancers as well as salvage cases. Switching briefly to BPH. Mainstream treatment with transurethral resection of the prostate or TURP is largely unchanged over the past 100 years. Many alternative treatment methods have emerged that aim to improve the patient experience and reduce the rate of complications such as bleeding, erectile dysfunction, loss of ejaculation, and the need to stay in the hospital overnight for 1, 2 or more days. As demonstrated in the recently published study from the University of Turku, TULSA offers significant improvements in International Prostate Symptom Score, peak urine volume rates and discontinuation of BPH medications. That said, while urologists have been treating lots using TULSA-PRO since we received 510(k) clearance in 2019, and the technology is only 1 capable of treating hybrid patients suffering from both prostate cancer and BPH. Our BPH patient volumes have been low to date due to the relatively larger treatment duration compared to other modalities. The latest TULSA-AI module volume reduction is changing the BPH treatment paradigm. TULSA-AI volume reduction is designed to maintain all of the many proven advantages of treating cancer with TULSA, while leveling the playing field on the time it takes for a urologist to plan and complete the procedure by quickly identifying the overgrowing region of the BPH. The software streamlines the workflow and reduces procedure times to 60 to 90 minutes. Adoption of TULSA-PRO is also making more and more business sense. The economic proposition of an interventional MR has become stronger as of January 2026. CMS has studied reimbursement for prostate biopsy and made the determination that reimbursement for real-time MR in-bore biopsy should be separated from the method, which is prevalent today, which uses real-time ultrasound with prior diagnostic MR image registered to it. This allows the surgeon to visualize the cancerous region through the registered MR image, but have the convenience of ultrasound to perform the biopsy. While this technique is better than one where MR images are not used, clinical data shows that registration of MR images still create an error of about 20%. For that reason, CMS has now provided separate reimbursement for real-time in-bore MR biopsy as it is more accurate but more costly to perform. The reimbursement for a standard MR registered ultrasound image biopsy is about $3,500, whereas reimbursement for the real-time MR biopsy has been set at about $5,500, which is 57% higher. This is a huge change, and the implication is just beginning to get attention. And comparing Medicare national average payments hospital reimbursement for the TULSA procedure in 2026 is $13,479 compared to $10,860 for robotic surgery and $9,672 for focal therapies like HIFU and cryoablation. So now at the start of 2026, there is superior reimbursement for both in-bore MR prostate biopsy and the TULSA Procedure. Putting all this together, our thesis that the future of prostate disease care will be MR centered is coming true. This sufficient clinical evidence -- there is sufficient clinical evidence that if prostate cancer is visible on an MR, it should be treated immediately, making iMRI, in-bore biopsy and diagnostic modality of choice. Typically, there are 3 to 5 biopsy procedure performed for each one prostate cancer treatment and whereas there are about 1 million prostate biopsies done every year. No one single prostate cancer treatment modality is currently used for more than 100,000 patients per year. Doing the math, there is currently a clear disconnect between the preferred MR-guided diagnostic approach and mainstream treatment modalities. We believe only TULSA is suited to bridge that gap as we move forward. Our strategy in the near term is to focus on existing MRs and achieve the installed base of 200 TULSA-PRO sites. At the same time, we are in the final stages of achieving compatibility for the new Siemens Interventional MR, the Free.Max. We believe that as early as later in 2026, TULSA plus sites with the Free.Max plus TULSA-PRO will be operational, opening the door to the future and interventional MR suite with TULSA. These sites will further streamline the patient and staffing workflow, making it easier to further drive adoption. We continue to get confirmation that hospitals that are being paid for all qualified Medicare patients and that they are satisfied with the amount received. In addition, many commercial payers are also now covering the procedure on a case-by-case basis. And we are excited by the recent upgrading of our AI-powered software to include simpler patient workflow for patients who suffer from BPH symptoms. Having the flexibility to safely, effectively and efficiently treat a variety of patients with prostate cancer and now with BPH, gives our sites the flexibility to stack cases, creating a full TULSA Procedure day, which leads to efficiency and easier scheduling for the hospital staff. It also significantly expands our TAM. And the economics associated with real-time iMRI procedures, in prostate cancer, like MR in-bore biopsy and TULSA are becoming increasingly compelling. Before my closing remarks, I would like to take a few minutes to talk about our second large opportunity, Sonalleve. This technology, which is currently offered primarily as a onetime capital sale uses same MR imaging and thermographic technology, as TULSA-PRO and combines that with focused ultrasound from outside the body delivers -- delivered via a disk to treat disease. There are currently 10 Sonalleve devices operational in parts of Europe, China and Southeast Asia, where over 4,000 women have already been treated with the technology for adenomyosis and uterine fibroid diseases of the uterus that can cause chronic pain and heavy and/or prolonged menstruation. Treatment with Sonalleve has demonstrated pain and symptom relief without affecting the ovarian reserve and with reports of women preserving their fertility. Sonalleve is also now being used in research and clinical trials in Europe for the ablation of pancreatic cancer tissue and other oncological disease. We are working on an FDA regulatory strategy for the technology and a potential new recurring revenue opportunity on top of the initial capital sale for the device. And we'll provide more details on our progress later this year. To summarize, Profound is pioneering iMRI procedures, which enable precise incision-free therapies that improve clinical confidence, procedural control, and patient outcomes. By leveraging real-time MR guidance, Profound technology -- the technologies are designed to replace uncertainty with clarity across treatment planning, delivery and confirmation. We're the only company that has the technology to kill tissue from the inside of the body, via a catheter that is placed via a natural orifice, which is our TULSA technology, or from the outside via a disc, which is the Sonalleve technology. In either product configuration, MR is used to image and measure temperature in real time and enable cell kill with a minimum energy requirement. Our sales team is clearly delivering, and the pipeline as we define is now growing over 110 as compared to 97 at the end of 2025. TULSA-PRO install base was at 78 at year-end, and we expect that to reach approximately 120 by end of 2026. The new AI volume reduction module to treat patients with BPH symptoms is significantly reducing the procedure time, making it very competitive with other BPH treatment technologies. This application has the potential to add 400,000 patients to our annual TAM essentially tripling our previous TAM. Having the BPH module also enables physicians to create a full TULSA day during which both their prostate cancer and/or BPH patients are treated. From the perspective of the ease of scheduling and creating a vibrant TULSA program, this ability is particularly important. Our second technology platform, Sonalleve is poised to start becoming a more core part of our story in the coming months and quarter, both internationally and in the United States. And finally, we believe that on the basis of the many catalysts we see ahead, we can reach high double-digit to low triple-digit revenue growth. This ends our prepared remarks for today. With that, we're happy to take any questions you might have. Operator? Operator: [Operator Instructions] Our first question will come from the line of Ben Haynor with Lake Street Capital Markets. Benjamin Haynor: First one for me on the private payers, I appreciate the commentary on giving commercial insurers to pay for it, you think in the second half of the year. I was wondering if you can give us any sense of what your customers are seeing now. I know I think on the Q3 call, you mentioned that commercial insurers were reimbursing roughly $25,000 to $65,000 is the range you had seen. And then any commentary on whether you're being successful in getting any commercial rejections overturned ultimately? Arun Menawat: Ben, yes. So the number of patients who are going through the private is increasing. The typical payments are between -- I would say, most of them are between 1.5x to 2.5x of Medicare. So we're pretty satisfied and our sites are happy with the numbers. With respect to coverage and reversals from rejections were tracking better than 90% at this point. Just recently, I saw one very strategic reversal. There are certain independent organizations in the U.S. like Maximus and so on. These companies actually make independent determinations that hospitals use as guides or whether or not a new technology is considered experimental or standard of care, and they recently deemed our TULSA as standard of care. So we're pretty optimistic actually. We're very, very satisfied with the numbers that we're seeing, and we are very optimistic we'll start to see actually converting these reductions into coverage decisions in the second half this year. Benjamin Haynor: That's very helpful. Great. And then I apologize if I missed this, but can you maybe comment here on the dynamics of the sequential decline you saw in noncapital revenue here? Arun Menawat: We lost you a little bit. Could you repeat the question? Benjamin Haynor: Yes. I was wonder -- I apologize if I missed this, but could you maybe comment on the dynamics that you saw in terms of utilization? It looks like there was a sequential decline in noncapital revenue here from Q3 to Q4. Arun Menawat: [Technical Difficulty] Benjamin Haynor: Could you comment on the dynamics of utilization from Q3 to Q4 and whether the movement in noncapital revenue sequentially? Arun Menawat: Yes. Yes. Got it. Okay. Yes. No, I think the number of -- I think the trend that we have talked about is pretty much every site is slowly but surely increasing usage. And I think last quarter we had a specific number that quarter-over-quarter we were up about 20-plus percent. I think that trend continues in terms of procedures. I think as Tom talked about also a little bit in his presentation that I think this year, with the new catalysts, I think the CAPTAIN data coming out next Friday, the BPH module now being distributed to our customers, I think that certainly we expect that the rate of usage will increase at a faster pace in 2026. With respect to your question, if you're asking about the dynamics on the capital. I think, we are still in the early innings and capital is harder to predict than recurring revenue is for sure. And we did give a couple of market introductory prices to a couple of sites. In Q4, as Rashed mentioned, and I think at the moment, you will see the ratio of capital versus recurring in our total product mix is going to become a little bit more capital heavy, because we are selling the devices now. And as Tom mentioned, the pipeline is pretty strong. But over the long haul, I think that, we remain primarily a recurring revenue company. Over 70% of our revenue ultimately will come from recurring revenue. But in the next couple of years as we build the installed base, I think you'll see that ratio to be closer to -- it will range between 40% to 60% capital per quarter. Benjamin Haynor: Okay. Got it. And then just talking about the installs for this year and looking at for 40-or-so more units, and that's roughly 1/3 of the pipeline that you have. Are there any bottlenecks on year-end that need to be taken care of in terms of the capacity to install new units? Is there anything that you can improve on your side of things? Arun Menawat: Ben, we are a growing company. So most certainly, Q4 was a very dynamic quarter. And because we shipped for the first time systems in double digits. And yes, we are increasing our logistics and operations side, we're actually looking to put a warehouse in the U.S. that would allow us to streamline some of the shipments. We are also putting all the ERP systems to make sure all the scheduling and building of the devices are taking place. Nothing that is anything out of the ordinary that we would not do at this time in our company. But yes, there is a lot of dynamics along the lines of making sure that, as Tom and his team starts to build the top line that we are able to deliver appropriately. Operator: Our next question comes from the line of John McAulay with Stifel. John McAulay: I want to put a finer point on the recurring revenue question that's been asked. So just as I do the back of the envelope math here, if procedures grew roughly 20% quarter-over-quarter, as you said, total recurring revenue, $2.3 million, it implies that revenue per procedure declined significantly, something like more than 50% quarter-over-quarter. So I just want to understand how much of this is driven by the more capital-focused mix? Was there some kind of onetime conversion or discounting in here? And what should we expect go-forward on a revenue per procedure basis? Arun Menawat: Yes. So John, first of all, the 20% was year-over-year, not quarter-over-quarter. So when I say that -- yes, year-over-year. And we do look at inventory. And so we do sort of manage it a little bit. So I think when you see recurring revenue quarter-over-quarter, it does not necessarily reflect almost exactly through the usage of the product. And we do kind of manage that a little bit. Generally, actually, they will buy in the third quarter to use it in the fourth quarter. So you see that a little bit of up and down like that. So I would not directly correlate, but if you look at 6 months over 6 months, I think it will be relevant instead of quarter -- each quarter. There was no discounting at all. Our price for disposables is $5,500 fixed. And the sites that do not own the equipment is very few at this point. But in those cases, we do have higher number than $5,500. So there is absolutely no discounting on the disposable price. John McAulay: Understood. That's helpful. And switching gears to 2026, you talked about high double-digit, low triple digit growth. Consensus is currently, I think it's something like 120%. Our numbers closer to 100%. Where do you hope we end up in this range? I mean if I try to read between the lines here and I assume a range of 90% to 110%, not with specific numbers, it seems like 100% might be a median, but maybe you could just help us out on where you would hope estimates end up for the year ahead. Arun Menawat: Yes. So when we did not particularly provide official guidance on revenue at the moment, we certainly feel very confident in terms of the number of sites. And I think if your analysis though is in the right ballpark, in the sense that we're looking at, at least 42 sites this year, which we have provided. And if you look at the math that Tom provided in his presentation, I think you add up all of those, you're sort of going to end up with the range that you just described. John McAulay: Understood. That's helpful. And I could just sneak in one more question. You talked about the dynamic of recurring versus capital mix in the future, and you still believe in that 70-30 longer-term range, but in this year ahead, I mean I'm just looking at the fourth quarter results, I mean, the mix was something closer to 40% recurring, 60% capital, roughly. I mean is that the sort of mix we should be thinking about for 2026? Arun Menawat: I think so. John, I think that the number of sites is going to increase, and you can see if we're adding 42 sites that $0.5 million, you can see the number is going to be dominating. So I would say, at least -- on average, I would say, at least for the first few years, 50-50 or 60-40 is probably reasonable. But I want to sort of -- don't want to lose sight for the fact that we are primarily a recurring revenue company. And I think we went through a lot of detail today on purpose because it helps you see how TULSA is positioned against everybody. And you can hopefully see how confident we are about our positioning. And so part of the reason for that confidence is that when we see TULSA being placed, our devices are being used and the use is definitely increasing. And so I think that long term, that 70-30 mix is a very reasonable thing to expect. Operator: Our next question will come from the line of Michael Freeman with Raymond James. Michael Freeman: I'm going to ask a question on the CAPTAIN trial. It's exciting that you've decided to disseminate information on the trial next week. Can you go over the -- I guess, the decision-making process for releasing this data early. Was -- does getting an early look at this trial compromise the trial at all. Does it remain a Level 1 trial? And then following up on -- as a follow-up question, do you expect the early dissemination of this data to potentially accelerate reimbursement time lines for private payers? Arun Menawat: So yes, thank you. That's -- those are important questions actually. So let me answer your second question first. I do expect that the earlier data will suddenly gives us more confidence in getting coverage decisions this year. But to your first question, a little bit more technical. We are very careful, as you know, on making sure that our data when we present that our trials are pristine, and then with proper analysis and guidance from leading physicians. So as we looked at this, and it just happened in the last couple of days, as we looked at all this, those precedents and typically used and the reality is that 6-month data actually is a very important milestone data set. In fact, particularly for urinary incontinence, and it's used routinely in BPH trial, for example. And we have, as Mathieu described, there is sufficient data already out on the robotic prostatectomy arm with respect to margins, so which is a sort of indicator of the success of early treatment or not. So there's we're not presenting any data that will be considered out of the ordinary here. These are standard endpoints, and they are measured in a way that are very credible. So we are not going to compromise anything. We are running the company. We certainly execute every day, but we are running the company with a very strategic mindset. So we're absolutely not going to compromise anything. But having said that, I think you will see meaningful standard data that will be credible. Michael Freeman: Okay. All right. I wonder there was some discussion in the remarks about progress towards cash flow positivity. I wonder if you could provide a threshold, whether that's scale or time line to when you expect Profound to be -- to have reached cash flow positivity? Arun Menawat: Yes. So I can -- if you look at the data that we have been publishing and if you look at, for example, the first half of this year, our cash burn was just over $10 million, each quarter. If you look at third quarter, our cash burn was about $8 million. If you look at -- if you analyze the data in the fourth quarter, you will see the cash burn is down to around 6 -- a little bit above -- a little less than $6.5 million. So I think you can start to see the trend already and it is matching with the increase in the revenue. And again, they won't be perfect. It will be -- in some quarters, you'll see a little bit up or down because we are adding people and maybe they're not going to be completely synchronized. But I think the reason we are comfortable and confident and presented it because I think we can start to see the trend. And I think if you project your numbers, what as Tom mentioned, the end point is we think that we can be profitable in the range of $80 million to $85 million revenues. So you can see where we are in about $24 million, $25 million revenues with the cash plan, you can see the $80 million, $85 million. And I think with the growth rates that you can probably predict from the installed base, and it's just expectation, I think you'll be able to get pretty close. Michael Freeman: Okay. All right. I'm going to squeeze a quick one in. You provided good guardrails on TULSA install expectations for the year. I guess, more granularly looking at the first quarter as we're well progressed. Wondering if you could provide some commentary on, I guess, the pacing of those installations through the year and how first quarter is proceeded. Arun Menawat: I'm sorry, I couldn't hear everything you said. If you could please repeat it? Michael Freeman: Sure. I was looking for some color on TULSA installation progress during the first quarter. And also how we might expect pacing of those procedures through the year, given your expectations that you provided earlier in the call. Arun Menawat: Oh, I see. What you mean -- so you're looking for granularity quarter-over-quarter basis? Michael Freeman: That's right. Arun Menawat: So we're trying to get to a standardized way of announcing numbers, and we think more standardized is end of this quarter. So which is why we were at 78. We are higher than that today, for sure than we were at the time. But I would say, again, I think generally speaking, med tech companies growths are generally in the second half of the quarter. So I would say if you're modeling, I would model it sort of increasing quarter-over-quarter and not linearly every quarter. Operator: [Operator Instructions] Our next question will come from the line of Scott McAuley with Paradigm Capital. Scott McAuley: Already been covered, but maybe I could just ask on the BPH module. Any granularity on how many of the installations are currently using it? Arun Menawat: Good question, actually. I would say there are at least 10 sites that have already started using it. In terms of the forecast, I think the numbers are increasing pretty rapidly, I would say, by midyear, we will have at least 30, 40 sites using it. Scott McAuley: That's great. And there was a few announcements around international expansions and agreements. And I think in the margin discussion, there was a comment on some kind of introductory pricing, I believe, maybe for international, but I may have misread that. Any kind of progress on the international front for TULSA? Arun Menawat: Yes. Very good question, Scott. So in the second half of last year, we also started to get quite a bit of attention in the international markets. And historically, we've always talked about U.S. being are really, really the only focus. And U.S., most certainly is 90% of our focus today. But we felt that it was important that, in fact, the healthcare world is far more global than it might look. So getting incoming calls and getting opinion leaders in international markets, not serving them did not make sense. And so what Tom and the team have done is we've signed up with a number of distributors, the couple that he mentioned. And the discounts were only to those new distributors to get them going. But there was no discounting in the U.S., and we don't expect discounting in the future, which is why Rashed was very confident that the 70-plus percent margin that we've maintained for the year and for most of other quarters that, that is very much intact. So our strategy in the international market is still very careful, but it is through distributors. And we will have support people and high-level senior people who will manage the distributors, but we don't plan to grow a direct sales team in the international market. That is only for the U.S. But we're seeing, for sure, very good interest in number of -- I think Europe is going to be slow until there is reimbursement decisions in Europe. But I think the Asian markets are definitely very strong. Scott McAuley: That's great. And down the road, as that international kind of presence and impact grows, is that something you're going to separate out a bit more in terms of U.S. installations versus global installations and revenue relative to each of those areas. Arun Menawat: Yes. Over time, we will. Once they become material, we will. Rashed Dewan: Just one clarification. We do break out the international revenue. So there is a segment reporting, that's where we do break out revenue source where is it coming from. Scott McAuley: Yes, yes, definitely. I think it was more the international revenue specific to TULSA, but as it becomes more meaningful down the road, maybe be more specific around that. Operator: Our next question comes from the line of Chris Potter with Northern Border Investments. Christopher Potter: Just on the utilization question. From your customers' perspective, can you just talk about how many procedures per site they're looking for in terms of it making economic sense for them. In other words, I think if I'm doing the math right, each of your sites is doing 20 or 25 procedures a year now, which didn't sound like a whole lot. You gave the example of having 200 systems doing 50 procedures a year, is 50 procedures a year kind of the ideal for your typical customer? Or is it higher than that? I would think it would be higher than that. Arun Menawat: Yes. So at the moment, a number of these sites are very new. And so the sites that we installed in Q4 virtually is non-existent in terms of the utilization. So I think just that math of taking the whole installed base and that is probably, I would say, take 60% of the installed base and use that would give you a better number. Having said that, I think your key question, we think 50 is a very reasonable number. We have sites today that are doing well over 100. We do have some research sites that acquired the system early on that we're doing maybe 10 procedures per year and now that there's reimbursement there. These are large hospitals that are slow moving, but they are very slow moving here. But they are all looking to finally increase. And again, as reimbursement, particularly from private insurance companies kick in, they're going to start increasing as well. So I think to answer your question, do we think that the ultimate number is going to be better than 50? We do. But at the moment, since we are below 50, we think 50 is a good average target to hit. And 200 sites is not a very big number. We think we can achieve that also. And so I think over the long haul, I can certainly tell you if we hit average of 50, we're not going to be -- we're going to be a bit disappointed. But I think, particularly, as I was talking about in the prepared remarks, I think as they start establishing TULSA day with the ability to then treat whole-gland and partial-gland and BPH altogether, there's enough patient volume now with this model that I think 50 is a very achievable number. Christopher Potter: That's helpful. Would you expect that the average utilization per site would increase materially in 2026? Arun Menawat: I think in the second half of '26, I do believe that, yes. One of the things that Tom has talked about is that as we update our sales design and we described it a little bit for you. We are starting to put -- to go to the much more of a hunter/farmer model where the farmers are -- is a team that we're building that will pay attention to utilization more than before. Historically, because we've not had reimbursement, it's not been a big thing, but we've moved our genius team in the commercial organization. We're building a sales team that is a farmer-based team. I think that team together will drive better startup for these new sites, and better utilization over time. Operator: And I'm showing no further questions at this time. And I would like to hand the conference back over to Dr. Menawat for closing remarks. Arun Menawat: Thank you so much for spending the time with us. We really appreciate the attention. We are excited about where we're going, and we look forward to updating you at the end of Q1. Have a good evening. Operator: This concludes today's conference call. Thank you for participating, and you may all disconnect. Everyone, have a great day.
Operator: Good day, and thank you for standing by. Welcome to the Omada Health Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Allan Kells, Vice President, Investor Relations. Please go ahead. Allan Kells: Thank you. Good afternoon. Welcome to Omada Health's Fourth Quarter and Full Year 2025 Earnings Call. Joining me today are Sean Duffy, our Co-Founder and CEO; Wei-Li Shao, President; and Steve Cook, our CFO. Before we begin, I'd like to note that we'll be discussing non-GAAP financial measures that we consider helpful in evaluating Omada's performance. You can find details on how these relate to our GAAP measures along with the reconciliations in the press release available on our website. We'll also be making forward-looking statements based on our current expectations and assumptions, which are subject to risks and uncertainties including factors listed in our press release and in the risk factors found in our filings with the SEC. Actual results could differ materially, and we assume no obligation to update these forward-looking statements. With that, I'll turn the call over to Sean. Sean Duffy: Good afternoon, everyone, and thank you, Allan. 2025 was a milestone year for Omada. We became a public company, delivered 53% revenue growth for the year and achieved GAAP profitability for the first time in Q4. We also significantly outperformed initial expectations from the time of our IPO and we believe we are entering 2026 with momentum, with ambition and with a clear plan for what's next. Here are the highlights from Q4 and the full year. Total members reached 886,000 at year-end, up 55%, compared to 2024. Revenue grew 58% in Q4 and 53% for the full year to $260 million. Gross margins expanded to record levels. We achieved our first quarter of positive GAAP net income in Q4 at $5 million, and we delivered positive full year adjusted EBITDA of $6 million. We believe these results reflect the impact of strong market tailwinds, combined with a decade of investments. Omada's technology and operational platform, our clinical programs, our peer-reviewed research, productive distribution channels and more than a decade of rich and unique data are strongly suited for this exact moment, for when customer demand for chronic care solutions, a rapidly evolving GLP-1 marketplace and AI-driven innovation converge. We believe that 2025 demonstrated how we can capture that momentum. But the real story is at the level of the person we're supporting as a GLP-1 Care Track member recently told us. "The Omada program in collaboration with my doctor and the use of GLP-1 meds has been life-changing. I learned real skills needed to lose weight and be healthy for a lifetime. The beauty of the Omada plan was that I did not just jump in with all of these changes on day 1. The plan guided me to focus on different lessons each week and then select a goal for the coming week. When I was stuck, my coaches were there to make suggestions and help guide me along the way, knowing that someone cared and they took the time to check my meal log and comment about a recipe or a new meal idea I put together that looks good, helped me feel that I was not doing it alone." Stories like that get to the heart of what we do. Omada is on a mission to bend the curve of obesity-related disease. 40% of adults have obesity and nearly 2/3 have at least one cardiometabolic risk factor such as obesity, diabetes, hypertension or cardiovascular disease. We believe the health care system is structurally unable to address this at scale without a fundamentally different care model. A person's disease trajectory is determined largely outside the doctor's office through nutrition, movement, sleep medications and care plan adherence. Yet the broader health care system still organizes around infrequent 15-minute visits. Omada puts the space between those visits at the center of care through an integrated multi-condition care model refined over more than a decade. We've built a member experience that brings together care teams, AI, connected devices and a custom care platform designed for quality at scale. We've expanded into a multi-condition platform spanning weight health, diabetes, hypertension, musculoskeletal care, GLP-1 companion care, GLP-1 prescribing and our newly launched cholesterol program, giving employers the convenience of a single partner for multiple highly prevalent conditions. We've accumulated a large and growing body of peer-reviewed evidence and accreditations, which we believe is a key reason, employers and health plans choose Omada. We help the market understand that Omada delivers true clinical quality health care, which enables us to contract and bill as a health care provider, allowing our fees to be treated as medical spend. We've established thousands of customer relationships across a broad web of distribution channels, spanning an estimated more than 25 million covered lives and in operating for over a decade, we've amassed a robust and unique data set, tens of millions of care team messages and billions of data points that underpin our product, strengthen our AI capabilities and allow us to innovate more quickly on the back of significant scale. These investments form the foundation of everything ahead. They allow us to look through the windshield with optimism, ambition and excitement. 2025 served as a significant launch pad for our next chapter. And I want to touch on 3 areas where we're particularly proud. First, we believe 2025 was the year we solidified our position as a leader in enterprise GLP-1 companion care, while reinforcing that our opportunity expands well beyond GLP-1s. Employer demand to maximize the value of their GLP-1 investment and reduced waste drove significant adoption of our GLP-1 Care Track. As we've scaled to over 150,000 members on GLP-1, we've seen what we believe these members need most, support to stay on therapy, manage side effects, build sustainable habits and maintain results if and when they discontinue. Our results have shown that GLP-1 Care Track members on average achieved greater weight loss, compared with published real-world evidence and critically largely maintained their weight on average, 1 year after discontinuing GLP-1 therapy. These outcomes challenge the narrative of inevitable weight rebound and underscore the power of behavior change layered on top of medication. In November, we announced our GLP-1 prescribing capability. As the landscape grows more complex with oral and injectable options, variant doses and emerging maintenance therapies, employers are asking us to help them navigate it all. Adding prescribing strengthens our position by helping ensure that the right member is on the right medication at the right time while also delivering lifestyle support designed to improve outcomes and minimize waste. At the same time, the broader spotlight on GLP-1 has increased attention on cardiometabolic disease overall. Because Omada supports weight health with or without GLP-1s and helps members manage diabetes, hypertension and now cholesterol, we've also seen strong growth among members not on GLP-1s. For customers that choose not to cover GLP-1s, our weight health programs support their employees, and new options like our GLP-1 Flex Care, creates flexible path for employers to offer meaningful support even when they are not in a position to afford the medicines. Second, we made meaningful progress with AI in 2025, and I am particularly excited about our potential for AI innovation going forward. We've embedded AI throughout Omada. For members, we launched OmadaSpark, our AI-powered assistant that works alongside human coaches for real-time nutritional support, motivational challenges and habit building. We launched that in Q2 of last year and followed with enhancements in Q4 with Meal Map, an AI-driven experience focused on food quality, not just calories. For our care teams, AI-enabled tools like summarization let coaches spend less time on administration and more time on personalization. And 100% of our engineers are equipped with AI-assisted coding tools to improve development speed and output. What makes AI at Omada different from a typical software business is what sits underneath. In caring for members, we've received tens of millions of care team messages, billions of data points and more than a decade of specific clinical outcomes, comprising what we believe is one of the most exciting cardiometabolic data sets in digital health. That data can improve our AI tools and overall member experience such that interactions with today's members make the experience better for tomorrow's. The last area I'm proud of in 2025 is our commercial success. As Wei-Li will share, in 2025, we closed significant additional covered lives, which we believe positions us well going forward. Our between-visit care model and multi-condition platform continue to resonate as we closed contracts in the second half of 2025. Employers and health plans increasingly see the advantage of working with a single scaled evidence-based partner and our year-end results reflect buyers leaning into that vision. In 2026, we plan to maintain our focus on the pillars that power Omada's growth, expanding covered lives through new customers and channel partnerships increasing enrollment effectiveness, so that more eligible people become active members and driving deeper engagement and retention through AI in a continually improving member experience. Across these pillars, we're expanding capabilities. GLP-1 prescribing, cholesterol and GLP-1 Flex Care, greater personalization in content through AI and the use of AI to drive efficiency across engineering, operations and care delivery. These investments are intentionally designed to balance growth and profitability as we continue to move toward our long-term ambition of 20% plus percent adjusted EBITDA margins. We accomplished a great deal in 2025 for Omada's mission, and we are entering 2026 with bold ambitions to bend the curve of disease. That's what we're here for, and that's why we do what we do. With that, I'll hand things over to Wei-Li. Wei-Li Shao: Thanks, Sean, and hello, everyone. I'm proud of our teams and what they accomplished in 2025. It's an exciting time to be at Omada, and I'm pleased to walk through our results and progress. As Sean shared, we ended the year with 886,000 members, up 55% year-over-year. This includes 55,000 net new member additions in Q4, nearly double the net adds in Q4 of 2024. For the year, we added 314,000 net new members, compared to 182,000 in 2024. Growth continues to be driven by both multi-condition adoption and demand for our GLP-1 support capabilities, which together position Omada as a broad integrated partner for cardiometabolic care. We also benefited from improvements in marketing effectiveness, which drove higher enrollment rates across both new and existing customers. Key performance drivers in 2025 included estimated covered lives grew by more than 5 million, and we ended the year with over 25 million estimated eligible lives with strong performance across multiple channels, including the successful launch of a large new channel partner. Our e-mail enrollment rate improved significantly with the average percentage of a customer's population that receives our outreach and then enrolls increasing by 24% year-over-year. Member engagement remains strong as well. As of December 2025, more than 55% of our members in their 12-month of cardiometabolic programs still engaged with the platform at least once during the month and more than 50% of members in their 24th month engaged at least once during the month. Our focus on outcomes also remains consistent across our programs. Taken together, we strengthened funnel conversion at multiple layers, which gives us confidence heading into 2026. We ended the year having supported over 150,000 members on GLP-1s, adding more than 100,000 in 2025 alone. And as Sean mentioned, we continue to see growth beyond GLP-1s across our cardiometabolic suite. Substantial white space remains and our penetration across combined self-insured and fully insured lives is below 10% with a total addressable market that we estimate at over $138 billion. We have also been pleased to see developments in government-funded health care such as the passage of the Prevent Diabetes Act, which cemented Medicare coverage for virtual diabetes prevention programs. And while it's early and details are still developing, we are closely watching emerging programs like balance and access models for CMS. This government activity reinforces that virtual first prevention is increasingly recognized as essential to expanding access to quality care. Our strategy is organized around 3 pillars: Innovation, programs that work and our multi-condition platform. The results we delivered in 2025 are a direct reflection of progress across each. Beyond the AI capabilities Sean described, our innovation agenda in 2025 extended across several additional fronts. With respect to GLP-1 prescribing, since sharing our plans, we've had many discussions with interested customers and channel partners who are looking for help managing GLP-1 complexity. As GLP-1s evolve across oral and injectable forms, different doses and new mechanisms, employers need to manage switching, titration and benefit design in ways that improve ROI, not just increased spend, prescribing is a natural extension of our model, allowing Omada to act as a GLP-1 value maximizer across the entire journey from informing prescription decisions to supporting members on therapy to safely discontinuing medication when appropriate. We look forward to providing updates as we build out this capability. In addition to prescribing, we also have plans to support more flexible GLP-1 access models, including the GLP-1 Flex Care option we announced today. The need for alternative GLP-1 benefit in design solutions is underappreciated and we believe this could represent a significant opportunity. The GLP-1 market for large commercially insured employers is currently split, roughly 45% covering GLP-1s for obesity and roughly 55% that don't. Within this segment that covers, 2 of the country's largest PBMs have built GLP-1 solutions that include or offer Omada programs. One offers employers financial reassurance through a spend guarantee. And Omada has been a successful partner in that solution. The other expanded its GLP-1 offerings last year and Omada programs are an option there as well. But the 55% that aren't covering GLP-1s needs something different before moving from waiting and watching to confidently covering. That's where GLP-1 Flex Care comes in. It gives employers a structured way to connect eligible employees with clinical evaluation, prescribing and ongoing medical oversight for GLP-1 alongside Omada's lifestyle and behavioral support. Employers pay for the doctors' visits, labs and behavioral support, employees purchase branded GLP-1s out-of-pocket through credible cash pay channels. We believe the future for GLP-1 coverage will include multiple benefit design solutions addressing diverse employer needs, including robust clinical services, broad GLP-1 access, lifestyle support and financial reassurance. Our strategy is to be part of that spectrum, so employers can access the clinical benefits of our programs regardless of the benefit design they choose. We've also recently expanded our cardiometabolic offerings by adding a cholesterol program. This is a risk area that is often underserved in traditional cardiometabolic offerings despite the fact that up to 70% of adults with obesity have high cholesterol. Evidence from our existing programs has shown that virtual behavior first interventions can drive an average 39-point reduction in total cholesterol in 4 months among participants with diabetes and high cholesterol. Omada for cholesterol will build on that foundation, connecting behavior change, lab awareness and ongoing guidance from clinical specialists to cholesterol risk becomes visible and actionable within everyday life. We recently completed an initial commercial launch with a large enterprise customer that has more than 300,000 employees and then we expect a broader rollout in 2027. In summary, our innovation allows us to broaden how we support the management of cardiometabolic risk, leverage AI as a differentiator and deepen our relevance across a wide range of benefit strategies, making Omada a more flexible long-term partner for employers and health plans. Our second pillar is programs that work. Solutions grounded in evidence and behavior change science that deliver measurable durable outcomes. In 2025, we expanded our body of research on GLP-1 support. One analysis showed that members in our GLP-1 Care Track, who discontinued medication, largely maintained their weight 1 year later with an average weight change of only 0.8%, compared to 11% to 12% average weight regain reported in key clinical trials without ongoing lifestyle support. A separate analysis found that members in our enhanced GLP-1 Care Track who remained in the program and persisted on the medication for 12 months, achieved average weight loss of 18%, compared to 12% in real-world evidence without structured support. We also published our 30th peer-reviewed manuscript, focused on our joint and muscle health program, which showed that patients using a modest virtual physical therapy have lower total health care utilization and reduced MSK related costs and encounters on average at 6 and 12 months, compared to in-person PT even after accounting for program costs. These results demonstrate that our human-led digitally enabled model can drive outcomes that matter to members and customers. Our third pillar is the power of our multi-condition platform relative to Point Solutions. Customers increasingly recognize the advantage of working with a single scale partner across multiple conditions. Our ability to support obesity and weight health, diabetes, hypertension, cholesterol and MSK conditions, and GLP-1 care as 1 provider continues to be a key differentiator and the growth across our cardiometabolic suite reflects this. Revenue from our weight health program, which increasingly includes members on GLP-1s for weight loss, grew more than 50%, and revenue from both our diabetes and hypertension programs grew at rates 45% or more year-over-year. That broad-based growth across conditions reflects employers and health plans leaning into Omada as their integrated cardiometabolic partner, not just a single condition solution. In summary, our progress across innovation, programs that work, and our multi-condition platform helped to drive our strong 2025 results and provide tangible proof that customers are buying into this vision. We believe we're well positioned for 2026 and beyond. And with that, I'll turn it over to Steve. Steven Cook: Thank you, Wei-Li. Hello, everyone. I'll walk through our Q4 and full year 2025 results, discuss the key drivers and provide our outlook for 2026. Let me start with top line results. Members grew 55% year-over-year to 886,000. Revenue in Q4 was $76 million, up 58% year-over-year. For the full year, revenue was $260 million, up 53% compared to 2024. The primary factors driving growth include a broad industry focus on cardiometabolic conditions, deeper penetration of multi-condition customers strong adoption of our GLP-1 programs and more effective enrollment campaigns. As these strong results in macro trends feed into our business model, they are creating a durable, visible revenue stream with meaningful operating leverage, which I'll discuss in a moment. I'd also like to note that in Q4, we had a onetime transaction that resulted in approximately $2 million of additional revenue, gross profit and adjusted EBITDA. While relatively small and immaterial to full year results, I wanted to note it for any impact on sequential modeling from Q4 to Q1. Turning to gross profit. We saw significant margin expansion in both Q4 and the full year. Q4 GAAP gross profit was $54 million, up 67% year-over-year with GAAP gross margin of 71% versus 67% in the prior year. For the full year, GAAP gross profit was $171 million, up 66% and GAAP gross margin was 66% versus 61% in 2024. Q4 adjusted gross profit was $55 million, up 65%, compared to Q4 '24, and adjusted gross margin reached 73% in Q4, an all-time high and a 320 basis point improvement year-over-year, demonstrating our ability to operate above our long-term 70% plus adjusted gross margin target for the first time. For the full year, adjusted gross profit increased 64% to $176 million outpacing our 53% revenue growth by 11 points and driving adjusted gross margin up 450 basis points over 2024 to 68% in 2025. Over the past 4 years, we've nearly quadrupled revenue and expanded adjusted gross margins by more than 1,600 basis points, a trajectory that underscores the leverage in our business. This has been driven by our growing member base and multi-condition expansion with spreads fixed costs across a larger revenue base as well as care team efficiencies enabled by our platform, AI-powered tools and optimized staffing models. We believe these drivers can continue contributing margin expansion as we pursue our long-term target of 70% plus full year adjusted gross margins. Moving to operating expenses. We continue to demonstrate strong leverage below the gross profit line. Q4 GAAP operating expenses increased 28% year-over-year to $50 million, for the full year, GAAP operating expenses were up 25% to $183 million. Adjusted operating expenses grew 27% to $47 million in Q4 and 24% for the full year to $170 million. That 24% annual growth supported 53% revenue growth with strong operating leverage across all 3 operating expense lines. Key drivers included scale from our channel partnerships and B2C go-to-market approach, sales force leverage from selling multiple conditions with 1 sales force, R&D efficiency from a flexible program architecture and spending discipline as we work towards sustained profitability. Our steadfast commitment and multiyear focus on achieving profitability paid off in 2025 as we reached positive adjusted EBITDA a full year ahead of expectations, a milestone driven by financial discipline, strong growth and the operating leverage I've just described. We're proud of this accomplishment. Notably, Q4 also marked our first quarter of GAAP net income profitability. Specifically, we delivered GAAP net income of $5 million in Q4, which was a $13 million improvement, compared to a net loss of $8 million in Q4 of 2024. For the full year, GAAP net loss was $13 million, an improvement of $34 million, compared to a loss of $47 million in 2024. Adjusted EBITDA in Q4 was $8 million with an 11% margin, an improvement of $12 million and 18 margin points compared to a loss of $4 million and a negative 7% margin in Q4 '24. We Full year adjusted EBITDA was $6 million with a 2% margin, an improvement of $35 million and 19% margin points compared to a loss of $29 million and a negative 17% margin in 2024. Notably, we converted 40% of incremental revenue to the adjusted EBITDA line in 2025, which continues to highlight the scalability of our business. To wrap the discussion of our P&L, I'd like to provide some additional perspective. After we went public in June, initial consensus estimates were approximately $222 million of revenue and a $19 million adjusted EBITDA loss for 2025. We delivered $260 million of revenue and $6 million of adjusted EBITDA, with the positive adjusted EBITDA occurring a year ahead of projections. We're pleased with that performance, and we believe it reflects our strong market position, solid execution and the strength of our business model. Specific to our balance sheet, we ended 2025 with $222 million of cash and cash equivalents, up from $199 million at the end of Q3. We generated positive operating cash flow for the full year, a significant milestone. We have no debt outstanding having repaid our $30 million credit facility earlier in 2025. This gives us a strong financial position to invest in initiatives aimed at driving incremental growth and ROI while also maintaining flexibility. As for our guidance, we expect 2026 revenue in the range of $312 million to $322 million, with the midpoint reflecting 22% growth over 2025. We expect 2026 adjusted EBITDA in the range of $7 million to $15 million with the midpoint reflecting a $5 million increase compared to last year. Similar to our 2025 performance, our 2026 guidance is significantly above initial post-IPO consensus expectations. With our revenue midpoint approximately $50 million higher and adjusted EBITDA approximately $15 million higher, reflecting continued strong execution. Let me provide context on how we've approached guidance and on our growth trajectory. Our guided revenue of 22% at the midpoint comes on top of a 53% growth year that included a strong first wave of GLP-1 adoption and significant commercial momentum. This is an exceptional baseline to build from. We built our guidance, starting with our year-end base of 886,000 members and over 25 million estimated covered lives. Then we layer in historical enrollment conversion rates and observed engagement and retention trends with no significant improvement assumed. This allows us to anchor to what we consider our more highly visible level of revenue. Just as important is what's not in the guide. We have not embedded meaningful contributions from GLP-1 prescribing, GLP-1 Flex Care or our cholesterol program, and we have not assumed further improvement in enrollment conversion rates or significant revenue from contracts not yet signed. Our adjusted EBITDA guidance reflects the revenue outlook combined with the investments we've discussed. If we achieve revenue upside, we would expect a portion to contribute to a stronger adjusted EBITDA. We believe this approach reflects appropriate prudence for initial guidance and positions us to build on our track record of execution. Stepping back from the specifics of our guidance, we believe the most important story is the quality of our growth in 2025. As I shared, we converted 40% of incremental revenue to EBITDA. We achieved our first quarter of GAAP profitability, and we generated positive cash flow for the year. We continue to believe in the long-term scalability and profitability of our business. In closing, we are very pleased with our 2025 results, which reflected outperformance across all key metrics. Looking ahead, we believe our market position, strategic investments and scalable business model position us well for durable profitable growth. With that, we'll open the call for questions. Operator: [Operator Instructions] Our first question comes from David Roman with Goldman Sachs. David Roman: Steve, I really appreciate the detail on the guidance basis as you think about 2026. So maybe I could just push you a little bit on the assumptions there. And very specifically, I just want to make sure that we're hearing the outlook correctly that effectively the guidance contemplates only contribution from the existing business and not necessarily some of the new opportunities -- and if that is the case, I just want to make sure that we're not misreading this, and it looks like the guidance suggests some of the base business starting to hit a wall or markedly decelerates. So just to make sure that we're interpreting that correctly, and that's how you're intending to frame the guidance. Steven Cook: Yes, David, thank you for the question. Firstly, we're obviously extremely proud of the results in 2025 per some of the prepared remarks, growing 53% in 2025 was well ahead of expectations. And when we look back at your commitments from just 6 months plus ago during the IPO, we're trending meaningfully above that path at $50 million ahead on revenue and $15 million ahead on EBITDA. So we're carrying a tremendous amount of momentum, and we're a full year ahead of expectations that we set at that time. It's also worth noting that from the get-go, we have been communicating externally that we intend to grow this business for the foreseeable future at least a minimum commitment of 20-plus percent. And we think that the guidance reflects commitment against those projections. As we think about some of the inputs there, you're exactly -- you're correct in that we're basing it off of 886,000 exit members we're looking back. We're coming through all of our historical trends on enrollment rate conversion, on engagement rate and assuming that there's no material improvement across those metrics throughout the course of the year. We have a lot of internal investments and initiatives focused on improving those metrics to the extent we're able to capitalize on those throughout the course of the year, that would be incremental revenue compared to our guide. And then per some of your commentary, we spent some time in talking about our prescribing capabilities, GLP-1 Flex Care cholesterol. These are also not materially in our guidance numbers. Are we going to be launching a lot of those in market this year and as those gain market traction, and we have more of our customers purchasing those, those will be reflected in potential upside to the guide. David Roman: Super helpful. And maybe just a follow-up. As you kind of think about the -- what you've observed and February from conversions off of the 2025 -- sorry, excuse me, 2026 selling season. Can you just give us some flavor of maybe a little more detail how that tracked? And then how we should think about just the cadence of revenue and profitability throughout the year to make sure we have the phasing of the year, correct. Wei-Li Shao: This is Wei-Li. Let me talk a little bit about how we close the end of the year and to the extent that I can cast a little bit of high-level color on what we've seen this year in just the first couple of months. We're pretty pleased with how we closed the end of the selling season. I mean, we're up over 5 million additional eligible covered lives across our business. We've also seen continued momentum in terms of multi-condition product sales. And as mentioned earlier, last year, we improved our enrollment rate yield, our enrollment rate performance, more than 20%, 24% to be precise. And so we're pleased with the overall funnel developments, if you want to put it that way, or funnel conversion improvements, and as mentioned by Steve, that's going to be carried on into how we think about this year's performance. I won't go into too much quantitative characterization of January and February. But suffice it to say that things are tracking, and we like what we see there. As you might expect, as it is every year, the additional covered lives that we closed in the prior year, oftentimes are going live at the beginning of the year, it's the heavy enrollment season. and that certain pattern or that seasonality certainly exists too as well. Steven Cook: And David, I'll just add a little bit of color on some of the revenue and the EBITDA progression per your question. We do expect -- we had an extremely strong Q4. We saw 11% sequential growth quarter-over-quarter. That's stronger compared to what we've observed historically. If you looked at 2024, we only saw a 5% increase there. So we don't expect as big of a jump on Q4 revenue -- on Q1 revenue basing off of where we exited the year, and we also did have that onetime $2 million adjustment, which we don't intend to repeat going through the year. So Q1 should roughly be -- expect to be flat relative to Q4 win accounting for that $2 million, and then we'll sequentially grow revenue throughout the course of the year. And then as you're aware, Q1 is our largest net new enrollment volume quarter. It carries additional costs associated with increased device shipments as well as increased cost for our care teams as there's more labor in the first quarter. And then we'll steadily climb out of that as we go throughout the year, improving gross margin and improving EBITDA margin throughout the remainder of the year. Operator: Our next question comes from Sean Dodge with BMO Capital Markets. Sean Dodge: I just want to start maybe understanding a little bit better the mechanics of the new GLP-1 Flex Care program. It sounds like the existing GLP-1 Care Track, but now just building connections for the member to get a script and actually buy the drug. Does building that in, does that change the economics of the program for you at all? Do you get compensated for facilitating those connections? Or is this just more about kind of broadening the appeal and kind of the utility, the program to more employers. Sean Duffy: Thank you Sean. This is Sean here. Happy to talk about Flex Care. Let me just start with the characterization on the segments, in the employer market specific to GLP-1s for obesity because there are 2 primary groups. The first is those who cover. So that's roughly 45% of the market. They cover GLP-1s for obesity. Historically, when we talked about our Care Track, that's who that was targeted toward. Those are folks who want to maximize the value of that investment. It's actually a bigger segment. And that's -- roughly 55% of the large employers and those that just do not cover GLP-1s for obesity yet. But equally, they do want a way to support their employees. And that is what the GLP Flex Care solution is targeted toward because it gives these employers a structured model, where, yes, for your comments, they do pay Omada and would pay Omada more for the GLP-1 Flex Care offering because that includes clinical evaluation, prescribing lab ordering and Omada lifestyle and behavioral support while eligible employees can purchase the branded GLPs out of pocket through vetted cash pay channels, of course, with a focus on accessing the lowest available price. So this, in turn, allows that segment of the market to still offer their employees a chance for high-quality GLP-1 care with strong oversight without immediately taking on that full drug spend risk. Sean Dodge: That's super helpful. And then, Wei-Li, you mentioned having improved enrollment yield. I think you said 24% last year, so driving significant efficiencies on the marketing front. Is there anything you can -- anything more you can share on just like how you've been able to do that? I think you mentioned AI is playing a role there. And then just maybe how much runway you see being left when it comes to driving kind of incremental margin or marketing efficiencies? Wei-Li Shao: Yes, sure, Sean. Let me address that. In terms of how we were able to achieve that -- as you and others may recall, we do a lot of digital marketing. And as a result of that, we actually have the ability to do dozens if not hundreds of A/B tests. Those A/B tests can switch out concepts, creative, language, call to action, you name it, across the spectrum of what one would think about optimizing in our campaign outreach. And so that certainly is a component of that, and we did that last year. We did that in 2024. We did that in 2023. We're going to do it again in 2026. And we still think that there's runway to optimize those campaigns in that outreach. The other component, of course, is a multichannel component. And when we say multichannel or omnichannel, we mean about digital signage on-site at an employer, especially if they have a large distribution center with a large warehouse, for instance, employees that are on site. And then other forms, including direct mail, other types of flyers, so on and so forth. And even in those particular channels, we can then optimize, again, the frequency, how often we send, what is the depth of the content, the copy, the creative. And then we can actually look across entire campaigns and how we define a campaign is really a combination of all those things in a multichannel approach to understand how we stack them on each other. And so there's multiple dimensions upon which we can actually optimize and improve yield rates or employee enrollment rate. And we think, again, that there's still a runway to improve that in 2026, and that certainly is on the docket for us to do so. Operator: Our next question comes from Craig Hettenbach with Morgan Stanley. Craig Hettenbach: Sean, just going back to AI, plenty of debate on the impact, including potential disruption to business models. So against the backdrop of some of the concerns in the marketplace, where do you see Omada is most insulated? And what are some of the things you're doing to benefit from AI as opposed to be disrupted? Sean Duffy: Craig, thank you for the question. It is one that I and we think about a lot. Pulling that beyond Omada, I believe we are on the frontier of just a remarkably innovative moment in the history of health care. And this is the moment where, in our view, it's being propelled by AI. And so against that, there are a number of things that, I think, frankly, any innovative company can do, that these include leveraging AI coding assistance, using AI to improve member support using exciting frontier models within their app. So Omada is doing these. We're already seeing signs of how this impacts the business on a day-to-day basis, our members on a day-to-day basis, and that is, of course, an important part of ongoing improvements to margin. That being said, those are perhaps table stakes. I mean yes, there is one thing that we believe that is true today and will be true tomorrow. And that is the value of unique data sets that, in many cases, take years to build. We have tens of millions of care team conversations, hundreds of millions of biometric data points and billions of real-world data points. And so what that allows us to do and what we're excited is allows us to customize and personalize care in a way that's unique and in a way that's valuable. So it will take time to prove this out, and it will take time because we are in health care. We're regulated. We have devices, hardware, a supply chain, a complex web of distribution relationships and we're dealing with people's lives, which we take very seriously. So when I'm asked that question, I don't tend to view it as if AI will disrupt health care or disrupt Omada, rather, I view it as a question of who is going to build it in the right way in health care. And I believe we have the unique foundations to do just that here at Omada. Craig Hettenbach: Helpful. And as a follow-up, I wanted to focus in on just the hypertension/diabetes programs. I feel like they tend to get overshadowed just by all the excitement and interest in GLP-1. So -- can you talk about the traction you're seeing in those programs and just how you see the runway for growth in the coming years? Wei-Li Shao: Yes. Craig, this is Wei-Li, and you get extra points for asking a non-GLP-1 question. So I appreciate that. Yes, we've always said that the GLP-1 moment is actually a cardiometabolic moment, insofar as meaning that the discussion is a gateway into the broader cardiometabolic kind of condition question and challenge that our customers face. And in fact, when you look at the cardiometabolic landscape, the overwhelming majority of people who suffer from those conditions are not taking a GLP-1. So it actually represents a TAM that is as, if not larger than the current GLP-1 accessible market. So what does that mean in terms of our performance. We've always said from the get-go that a pillar of our strategy is to understand and realize that people who suffer from, let's say, obesity, also have diabetes, also have hypertension. As we all know, and that's why we provide a multi-condition platform. In multi-condition sales continues to be something that is strategically important and a huge strategic focus for us. And we talked about our progress on that. It continues -- we continue to make progress on that, and we're happy with that. But maybe a way to talk about the results in our portfolio products is that we saw strong growth, not only across our cardiometabolic suite, but across the individual programs. And so prevention or weight health, obesity grew more than 50% in both diabetes and hypertension grew 45% or more year-over-year. And we think that breadth of growth really reflects the customers increasingly using Omada as their integrated cardiometabolic partner excuse me, and not just for a single condition. So we're seeing growth in summary, in both diabetes and hypertension, almost directionally similar to the overall growth rate that we saw last year overall in revenue. Operator: Our next question comes from Ryan MacDonald with Needham & Company. Ryan MacDonald: Congrats on a quarter. Steve, maybe first for you, just so as we're thinking through the 2026 guidance. So obviously, you mentioned sort of no material changes or improvements in sort of enrollment yields and rates from there. So should we sort of take the guidance as sort of you grew covered lives 25% on a year-over-year basis. And so if you assume that sort of same conversion rate that sort of member count grows about that 25% rate. And then you see then some declines in average revenue per member. And if that's the case, can you help us understand what you're seeing from a program mix perspective that may be driving sort of this continued sort of ARPU declines. Steven Cook: Yes, absolutely right. Happy to provide some color there. Again, per some of the prior comments, just to recalibrate on what's in our baseline assumptions. It's just starting with that 886,000 members and then layering on some historical assumptions around enrollment conversion as well as engagement rate. I think the easiest way to think through the modeling next year is that ARPU stays relatively flat. Historically, it's been roughly just shy of $300 per ending member. And so -- and then building up your total member base off of that growing roughly in line with revenue guidance at 22%. What's important is what's not in the guide. And we talked a little bit about this, all which have the ability to drive incremental ARPU throughout the year. The first being some of the new product categories we're entering to the extent we're able to layer on GLP-1 Flex Care prescribing cholesterol. These are all accretive to ARPU throughout the year. we are creating internally some investments around driving more engagement through increased product and feature enhancement. The longer we can keep folks in program that also has the ability to drive additional ARPU with a little incremental cost as we go throughout the year. So the really way to just take the basis is to grow the member count by 22% and keep revenue roughly flat. Ryan MacDonald: Super helpful. I appreciate the finer point on that. And then maybe a secondary question for Wei-Li or Sean. Earlier this week, we had a benefits conference and what the conversation really standard around sort of for this year was -- so this idea that your average employee benefits portfolio is about 28 different point solutions today and that the conversation is really around in the current budgetary environment with health care costs continuing to rise at accelerating rates, as more of a consolidation, looking to see where there are duplicate solutions and then optimizing for outcomes, would love to know if this is something you're seeing sort of in the early stages of the 2026 selling season and how maybe this could potentially favor your multi-condition platform relative to sort of individual point solutions providers. Sean Duffy: Yes, Ryan, thank you for the question. I mean if you serve as a Head of Benefits and were on LinkedIn, you'd have about 50 messages a week coming in from point solution providers, and that does grow tiring, and that's a message we hear frequently about. And it's one that we respond to. It's been a recurring theme that customers love the fact that they can get quality care across multiple care areas from Omada. We see that across our portfolio suite. And even we see that within GLP-1s, where one buyer is one buyer. And equally, they recognize that tomorrow's strategy specific to their GLP-1s may not be the same as today's. And so we are thrilled with that. In fact, I think we have a proof of concept of this approach right in front of us in cholesterol. We announced Omada for cholesterol. That's a natural extension of our cardiometabolic suite. We like that. High cholesterol often, as shared in the remarks, coexists with obesity, diabetes hypertension. And one of the reasons that we got excited to do it is we heard about it from our largest customers who said, this is a clinical area where I care about. Omada, we trust you, we'd love if we could work together on it. And then we're starting out of the gate with a customer lined up there for Omada for cholesterol. Wei-Li Shao: And if I were just to tag on a little bit to that and add and what really drove that particular situation, and we're seeing is repeated across a number of opportunities is exactly what you mentioned around a fatigue around single-point solutions, imagining somebody who suffers from obesity, diabetes, hypertension and now, of course, some dyslipidemia or high cholesterol, they could be on as many 4 different applications in the consolidation into one multiproduct company, Omada, that has proven evidence-based results and outcomes and ROI, certainly is attracted to buyers, and we're seeing that play through, which is why we continue to see momentum in multiproduct sales and growth across the portfolio of programs. The last bit I would also mention is that we happen to be in the actual therapeutic areas or disease areas that HR benefits company CEOs, CFOs understand are actually the biggest drivers of their health care spend cardiovascular events, cholesterol, heart attacks, diabetes, obesity, MSK, they always register small company, big company always to the top of the top 5, top 6 areas that are driving spend. And so as employers and benefit solution providers decide to consolidate away from "you said 28 different point solution providers". They're obviously going to think about Omada, they're going to think about multi-condition platforms, but they're also going to think about those providers that are in the sweet spots that are driving most of their year-over-year health care spend and it happens to be the ones we're in. Operator: Our next question comes from Elizabeth Anderson with Evercore ISI. Elizabeth Anderson: Kind of think about improving gross margins. Steve, obviously heard what you said about the contribution to gross margins from the $2 million, but still improved quite nicely even without that. So can you talk about that and how you see those flowing through into 2026. I understand that, obviously, you guys have seasonality that will impact particularly the 1Q numbers, but just sort of how to think about that incrementally? And then if there's any more color you can provide on sort of what that adjustment was in the fourth quarter, that would also be super helpful. Steven Cook: Yes. Maybe I'll start there with the adjustment in the fourth quarter. We did have a $2 million onetime true-up. This was a negotiation that was cascading throughout the year with one of our larger partners. We also resolved that in the fourth quarter and as such, released that revenue. If we had negotiated it and resolved it earlier in the year, you would have seen that revenue recognized ratably throughout the course of the year. We don't expect that to recur on a go-forward basis. With regard to gross margin, again, tremendously proud of our performance in Q4, hitting 73% gross margin. As we've communicated consistently, our terminal annualized target continues to be 70% plus. So we believe Q4 really demonstrates our ability to hit to March towards that target in the long term. Two main drivers here: the first being ongoing traction with multi-condition customers. So the more diabetes and hypertension revenue that we drive through, those are coming through at our -- those are our highest priced products. And they drive incremental gross margin dollars and gross profit dollars for us. That was a large contributor. And then the second piece is just more cost efficiencies, and that came in 2 forms. The first is us just continuing to optimize our labor costs across our care teams. We've experimented with dozens of staffing models, and we really feel like we fine-tune that over the course of the past several years, which led to additional margin expansion as well as some of the prepared remarks, us continuing just to use AI and using a contact summarization, making our care teams more effective and more efficient. And we're going to be planning to roll some of those -- that momentum throughout the course of the next year. and we envision 2026 being another key stepping stone on our path to getting to a 70-plus percent gross margin. Operator: Our next question comes from Stan Berenshteyn with Wells Fargo. Stanislav Berenshteyn: First on retention dynamics, I know you commented that they're pretty steady over 12 and 24 months. I'm curious whether the new products of OmadaSpark and Meal Map, whether they've demonstrated any measurable improvement in engagement that you can point to? Wei-Li Shao: Yes. Thanks a lot, Stan. Wei-Li here. Let me take this one around OmadaSpark. So we launched this in the first half of last year and then fast forward with some enhancements to OmadaSpark. And so we're proud of that, and it allows our members to essentially have a nutritional AI assistant. Food is such an important part of the behavior change process. And then, of course, the Meal Map allows individuals to either dictate their food, snapshot their food with their camera, log their food in a number of different ways and then the nutritional density of the food is actually registered very accurately and then that information then translates into what meaningful changes can they make. And so I kind of recourse all of that because you can imagine the value that numbers have in seeing this knowing that nutrition in food and food quality and nutritional density is such an important part of generating a positive outcome, not just in obesity and weight health, but across diabetes, hypertension and now cholesterol and believe it or not, even in MSK as well. We're encouraged by the early results, members who interact with a lot of Spark, our health AI assistant, along with Meal Map demonstrating higher levels of ongoing engagement. And in fact, because they are returning to the app more frequently compared to those who haven't yet used the tools. And so we're seeing that lift. Now specifically, the Meal Map, which is the part and parcel of understanding what you eat, and then matching the behavior change. We're also seeing meaningful lifts in actual food tracking behavior, which is one of our strongest predictors of sustained weight management. And so all of these, of course, drive more activity with the app. And because we bill based upon activity for the majority of our business, we do believe over the long haul, and over time that this should potentially create some meaningful improvement in terms of financial performance. Stanislav Berenshteyn: And then I just want to follow up on the cover lives. I think you mentioned 25 million. That's about 5 million incremental from your prior disclosures. Can you share with us what is the mix of self-insured versus fully insured within those 5 million that you onboarded. Sean Duffy: Yes, sure. Right. So of the 5 million that we closed, the way to think about it and characterize that is that it was driven by strength across multiple commercial channels and across the product portfolio. So it wasn't densely concentrated in 1 significantly over the other. But if you were to look at the mix, our PBM channel is the largest contributor followed by strong performance in our self-insured, fully insured and ASO business. Operator: [Operator Instructions] Our next question comes from Richard Close with Canaccord Genuity. Richard Close: Great and all the success this year. Sean, maybe on GLPs, welcome your perspective on how you think about GLP prices coming down and how that impacts the growth opportunity for Omada, I do think there's some fears out there as those prices come down, maybe demand for programs like Omada gets impacted? Sean Duffy: Yes, Richard, thank you for the question. It's certainly an important one. And within that, it's also important to share that the way our accounts and customers view Omada is not a cost on top of their medication spend, but rather a value maximizer of their decision to cover GLP-1s for obesity. And so again, right now, the accounts that cover GLP-1s for obesity, it's roughly 45% of the market. They know the cost of that decision and what they're after is reduced waste. And so Omada Care Tracking capabilities allow us to support them across the entire journey from helping inform prescription decisions with our new prescribing capabilities to supporting realized outcomes well on therapy and, of course, to safely discontinue when appropriate. And so net, relative to the price of the meds, we believe these lower price points actually have the potential to increase GLP-1 utilization, which increases access to the medicines and thus, increases the need for Care Track services like Omada. And equally, for the market where employers say, look, I just can't afford these meds, I mean that's where a new GLP-1 Flex Care offering comes in, and that's the 55% of the employer market segment specific to GLP-1s. Richard Close: And then, Steve, maybe as a follow-up. I think you mentioned all the new programs are accretive. Can you put that into perspective in terms of ARPU? Steven Cook: Yes. That's a great question. We have priced across prescribing cholesterol and our GLP-1 Flex Care above our current rates. So for cholesterol, specifically, that's roughly priced in line with hypertension. But as we view -- as we observe more customers in taking these products, these all have the potential to uplift ARPU above where our current run rates are at $300 per year per average member. So as we get more traction in market, again, these are very nascent products. We're just starting out with them. We'll be able to provide more specific guidance on the exact measure of uplift that we're observing as we get traction with some clients. Operator: And our final question comes from Carly Buecker with Barclays. Carly Buecker: You have Carly on for Saket here. If we look back to 2018, when Omada launched its diabetes and hypertension programs, can you walk us through what the adoption curve looks like for those programs over time as we think about kind of a parallel to help frame the launch of the cholesterol program. How long did it take to roll out the diabetes and hypertension modules more broadly? And when did you start to see adoption really pick up steam and drive incremental revenue? Sean Duffy: Yes, I can start because again, those are good examples of how we love to innovate, which is on the back of really listening deeply to customer needs and ask and ideally finding kind of a one or multiple marquee customers to start the innovation journey with you. And so that was a couple of long-standing customers that had said, you know what, Omada, we love what you do in prevention in obesity and weight health. Would you consider diabetes? And so that started the journey. And then we did highlight the growth rates which are comparable to prevention, which I think is a statement on how that journey has gone. And so we're hoping to rinse and repeat with, of course, cholesterol, hoping to rinse and repeat with that same process of listening intently on things like GLP-1 prescribing GLP-1 Flex Care because we know based on how those grow, how they can be accretive over time. But I don't know, Wei-Li, if you have any comments on top of what I've shared. Wei-Li Shao: Yes. The only thing I would share on top of would be kind of qualitative and just imagining kind of the intent of the question. That was 6, 7 years ago in the Omada that was then in 2018. We're a very, very different Omada today. Our capabilities are far more evolved across the entire conversion funnel, starting with closing lives with channels and then employers and, of course, enrollment rate and engagement and so on and so forth, activation through the members. All that to say to me that I think what would have taken us 3, 4 years to eventually sell through a payer or PBM and then build a book of business to employers and then begin to enroll, I think we've gotten better at that. I know we've gotten better at that. And so we certainly think that we can beat those time curves in terms of full-scale adoption. The last thing I'd also remind everyone to as well is that our approach over the last few years in innovating and expanding new programs has not really just been looking at TAM, but as Sean mentioned, really listening to our customers and oftentimes, the trigger for us which accelerates adoption is actually when a customer says, "Boy, if you do this, we'll buy it." and we're seeing that reflected with our cholesterol program where a large customer came to us and said, hey, we're seeing this being a cost driver in our health care spend. We'd love to partner with you all, and we built that and immediately win in contracting and launched that customer earlier this year. And so the approach there is as such. Sean Duffy: And then last thing here. So just stepping back, what's fun is if you look at all these launches, we believe they really add up. I mean, between GLP-1 prescribing, GLP-1 Flex Care, Omada for Cholesterol, as I reflect on the journey we've been on, we are on pace to roll out more new offerings in 2026 than in any year in the history of our company. And so what this translates into, of course, is the opportunity set, translates into new ways to support specific customer needs and we believe a solid foundation for durable growth. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good evening, and welcome to Universal Music Group's Fourth Quarter and Full Year Earnings Call for the period ended December 31, 2025. My name is Nadia, and I'll be your conference operator today. Your speakers for today's call will be Sir Lucian Grainge, Chairman and CEO of Universal Music Group; Michael Nash, Chief Digital Officer; and Matt Ellis, Chief Financial Officer. They will be joined during Q&A by Boyd Muir, Chief Operating Officer. [Operator Instructions] As a reminder, this call is being recorded. Please also let me remind you that management's commentary and responses to questions on today's call may include forward-looking statements, which, by their nature, are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may vary in a material way. For a discussion of some of the factors that could cause actual results to differ from expected results, please see the Risk Factors section of UMG's 2024 annual report, which is available on the Investor Relations page of UMG's website at universalmusic.com. Management's commentary will also refer to non-IFRS measures on today's call. Reconciliations are available in the press release on the Investor Relations page of UMG's website. Thank you. Sir Lucian, you may begin your conference. Lucian Grainge: Many thanks, and thank you all for joining us on today's call. As you can clearly see from our results, last year was a very good year. Our artists, songwriters and labels once again wrapped up record-breaking successes. We made excellent progress across our strategic initiatives and continued our long uninterrupted streak of strong financial growth. I'm pleased to report that in 2025, both revenue and adjusted EBITDA grew by nearly 9%. I must begin by highlighting the creative excellence and commercial success of our artists and songwriters. Their extraordinary music continues to shape culture across the world. Every year, the IFPI, the Recording Music Industries Global Trade Association, reveals the world's top-selling artists for 2025, 9 out of the top 10 were UMG artists with Taylor Swift at #1. As you let that astonishing fact sink in, let me throw in another one. 2025 was the third year in a row that we have represented 9 out of the top 10 best-selling artists on the planet. The only recording artist whom we did not represent on recorded is Bad Bunny, and he's represented by our Universal Music Publishing division. No other company has ever come even remotely close to UMG's outstanding performance year after year in developing new artists who go on to become global brands. A quick look at the 2025 lists across major platforms reveals our remarkable industry-leading position. This slide highlights just a handful of them. Our extraordinary momentum continues to build with a string of recent #1 albums across genres and geographies from Taylor to Olivia Dean, King & Prince, Mrs. GREEN APPLE, both from Japan, Stray Kids, J. Cole, and I could go on and on. As to the critical acclaim and awards, I'll briefly mention how our artists and songwriters won big at this year's Grammy's. UMG artists and songwriter, Kendrick Lamar was the night's biggest winner with 5 awards, including Record of the Year. Kendrick is now the Grammy's most decorated rap artist of all time with 27 awards. Olivia Dean was named Best New Artist, the fourth time in the past 5 years that a UMG artist has received that honor. That also is an unprecedented achievement. Billie Eilish, Lola Young, Lady Gaga, Jelly Roll, Leon Thomas and UMPG's, Bad Bunny were amongst many other winners. It was also an incredible night at last year's Brit Awards -- sorry, last week's Brit Awards at the weekend, where UMG swept the major categories. Olivia Dean took home 4 awards, including Artist of the Year, Album of the Year, and Song of the Year. Other winners include Sam Fender, Lola Young, Dave and Jacob Alon. The Olivia Dean success is an indication how our U.K. company is developing new artists and once again delivering them to the world across all geographies. The demand for our music continues to grow. The subscriber numbers increase, so does the consumption. Industry data from Luminate shows that on-demand audio streams topped 5.1 trillion last year, an increase of nearly 10%. We unequivocally believe that the growth of the business will continue, hitting the 1 billion subscriber mark in the next few years. Our multipronged strategy to capture this growth, of course, includes our excellence in artist development, along with continued implementation of our Streaming 2.0 initiatives. But we will also make bold moves in 4 key areas of the strategic plan, each of which will create meaningful monetization opportunities, driving growth across an entire interconnected ecosystem, and that word interconnected is very significant. So today, as I want to share with you the progress we're making in those 4 areas: expanding our presence in label and artist services; accelerating our efforts in high potential markets; strengthening our direct-to-consumer and superfan initiatives; and adding to our growing portfolio of responsible AI partnerships. The first critical area is our services to independent labels, entrepreneurs and artists around the world, one of the fastest-growing areas of the business. Those labels operate in a diversity of markets, genres and languages and generate meaningful revenue from artist rosters of varying sizes. As much as they differ, they share a common desire to partner with a company that provides them with the best and widest range of services. In 2021, we established Virgin Music Group to expand our expertise and resources in this fast-growing sector, which will be further accelerated by the recent acquisition of Downtown Music. Matt will go into detail about Downtown's financials later. But for now, I will say that the combination of Virgin Music and Downtown will create a global end-to-end solution designed to meet the evolving needs of independent artists, entrepreneurs and rights holders at every stage of their development. The combined company will offer a broad, more flexible suite of services, ranging from high-touch to self-service platforms, including digital and physical distribution, marketing, business intelligence, neighboring rights, synchronization, royalties as well as publishing rights management. Our last acquisition of this magnitude was in 2011, which, of course, was EMI. At that time, we saw the value that others did not and doubled down on the traditional A&R and catalog business. Today, 15 years later, that acquisition is universally acknowledged as one of the most successful and strategically important in the history of the music industry. I firmly believe that our acquisition of Downtown will be as transformational. It creates a scalable and profitable engine of growth that also elevates UMG's core label, publishing and superfan businesses, enabling us to better cover the entire music industry. It is no small matter that Downtown also expands UMG's global footprint, collectively serving more than 5,000 business clients and more than 4 million creators in 145 countries. That last point leads us to the second critical area of our strategic plan, our growing geographical expansion into high potential markets. UMG's approach is to create a compelling array of business solutions that offer multiple ways for artists, labels and entrepreneurs to engage with us. Always in compliance with our strict investment criteria, we partner with the best of them and then deepen the partnership over time. Here's an example of our strategy in action. In India, Universal Music had operated a multi-label structure for years, already offering artists a compelling choice of brands. Earlier this year, we supplemented that choice by investing in Excel Entertainment. Excel is the leading film and digital content studio in a country where original soundtracks remain at the heart of the fast-growing music market. The deal gave UMG global distribution rights to Excel's future soundtracks, while our Publishing division became Excel's exclusive music publishing partner, and the 2 companies will launch a dedicated Excel Music label. On top of this, through Downtown and Virgin Music Group, we now service approximately 100 clients in the region, including new deals with Punjabi label, Jass Records and South Indian label, Millennium Records. So when you take a step back, you can see how UMG has built multiple points of entry into the Indian market. Each of our business units operate with its own unique creative and commercial expertise, but also has access to UMG's powerful global systems and resources. As a result, our ability to capture growth efficiently is increasing. This is an approach that is working well in many other dynamic, highly populated markets, including China. Moving on to our third key strategic effort. I'm very bullish about superfans, as you all know. Given the enormous demand for great products and exciting experiences, we believe this segment is massively undermonetized. Our own D2C business has grown to 1,600 online stores and generates hundreds of millions of dollars in revenue. This only scratched the surface of our potential. We will further scale our D2C business by stimulating an entire category of third-party superfan platforms, each with its own distinctive approach and model. These will operate alongside the premium tiers being developed by the traditional DSPs as well as what we're creating and how we're creating an ecosystem in which special events, experiences and products will entice superfans in both the virtual and physical worlds. As more common competition develops, more innovation will result. Connectivity to fans will increase and the opportunities to drive monetization will continue to multiply. We recently announced 2 partnerships in this space. The first is with Stationhead, a live music segment platform that connects artists and fans through real-time listening experiences, community interaction and integrated commerce. With over 250 UMG artist events in 2025, Stationhead contributed billions of premium UMG artist streams on subscription platforms across millions of active users. Their week of release listening parties contributed to 11 #1 albums across the entire industry. They've executed very successful fan campaigns for UMG, artists such as Sabrina Carpenter, Billie Eilish, Ariana Grande, KPop Demon Hunters, Nicki Minaj, Olivia Rodrigo and many others. The second partnership is with EVEN, which provides super fans with early access to music, exclusive content and community features. Interscope artist, J. Cole, for example, used EVEN for multiple direct-to-fan campaigns, including the 10th anniversary of Forest Hills Drives and the pre-release strategy for his latest album. Both projects leveraged EVEN's white label solution to reach hundreds of thousands of fans and sell millions of dollars of physical product. The EVEN campaign was a significant factor in The Fall-Off, his new album debuting at #1 in the U.S. We don't need to develop a new platform, but both Stationhead and even integrate directly into UMG's current architecture and its direct-to-consumer architecture, capturing fan data and fostering a deeper relationship between artists and fans. Superfan opportunities are rapidly evolving, and we will be right there at every step of their evolution. This evolution is being supercharged by AI, which leads us to, obviously, the fourth focus of our strategic discussion. Our embrace of responsible AI technologies continues to be very aggressive. We're forging partnerships across a spectrum of artist creation and fan engagement initiatives. And there are 2 separate initiatives. I'm very aware that a large swath of the investment community looks at the intersection of AI and media and sees only some of the risks. I want to be very clear, we fundamentally disagree with that view. We believe AI represents an unprecedented commercial opportunities for UMG and our artists in both the near and the long term. We're working tirelessly to shape the business models and the legal and legislative frameworks that will form the foundation of a responsible AI ecosystem. I encourage people to spend time to really understand the work that's being done and the opportunities that lie ahead. Personally, I've never really been more energized about the possibilities that we are pursuing. And once again, we face another exciting transformation. Here are just a few of the things that I'm excited about. On our last call, we discussed our agreements with Udio and Stability AI. Not long after that, we announced our licensing agreement with Klay Vision. Klay's large music model is trained entirely on licensed music. It will evolve AI experiences for superfans while respecting the rights of artists and songwriters. We're excited about this company's vision and applaud their commitment to ethically -- ethicality in generative AI music. In December, we then revealed we're also collaborating with Splice, the world's most popular music creation platform. Together, we are building a road map for the development of commercial AI tools rooted in creative control and sonic excellence. Last month, we unveiled the first of its kind alliance with NVIDIA, the world leader in AI computing. Our shared ambition is to transform and enrich the music experience for billions of music fans around the world. This collaboration will cover everything from artist tools to music discovery to fan engagement. NVIDIA articulated the relationship perfectly when they said, we're entering into an era where a music catalog can be exploited like an intelligent universe, conversational, contextual and genuinely interactive, and we'll do it the right way, responsibly with safeguards that protect artists work, ensure attribution and respect copyright. How phenomenal. Our work with NVIDIA will be a multiyear partnership and like our other AI initiatives, create significant win-win potential in market-led solutions. Our strategy for these AI deals is informed by a significant amount of consumer research, both our own and third party, we're just not sticking our finger in the wind. Our insights team recently conducted a global study on consumer attitudes towards AI and music. The key takeaway is that consumers want AI driven by human intent or AI as an enhancement of and not as a replacement for human creativity. Plus consumers are asking for transparency with respect to how AI is used in the creation of music. This research underscores our belief that AI isn't just an incremental revenue opportunity. It's going to introduce entirely new formats. The superfan AI experiences I mentioned earlier are just the beginning. We foresee entirely new AI formats that will offer fans greater personalization, hyper-personalization and social expression through artist-centric music experiences. Given the high level of interest in AI from both the creative and investor communities, I've asked Mike Nash, who you know well, our Chief Digital Officer, to present more on this in more detail later on this important topic. So that we can see how excited we are. What I've covered in my remarks today is only a fraction of what we're executing every day at UMG. With an artist roster and a music catalog that is the envy of the industry, we're also the biggest driver of new subscribers to the DSPs. And because we've earned a unique level of credibility and influence working with both established and emerging innovators, we continue to expand our already broad portfolio of revenue streams. Our vision is a stronger, more connected and ever-growing ecosystem that is attracting new entrepreneurs, expanding our full global footprint, accelerating our D2C business creating new products and experiences and leveraging AI to take music to places fans can barely imagine, and in ways in which they can barely imagine. In short, we're designing and building a strong foundation for a profitable and exciting future for our artists and our songwriters for our company, for the industry, and obviously, for our shareholders. We are extremely confident about the path ahead and look forward to a really strong 2026. Now on that basis of excitement and optimism, let me hand it over to Michael, and then we'll hear from Matt. Thank you. Michael Nash: Thank you, Lucian. I'll take a few moments to discuss in more detail how we're advancing the best interest of our artists and their fans with our AI strategy while promoting innovation. I'll do that by addressing 2 topics that are critical to better understanding the risks and benefits of AI for our business. The first topic is the perception of risk of AI revenue dilution and the thoughtful measures we've taken to neutralize any negative impact. The second topic relates to consumer receptivity to responsible AI innovation. First, misunderstandings have resulted from anecdotal press reports that AI-generated content has somehow overtaken the charts. Nothing could be further from the truth. Stories about #1 AI songs have been reported based on digital download charts where 2,500 units of a $0.99 legacy product can manufacture a chart #1. As you can see from the data on this slide, a handful of anecdotes have been completely over-extrapolated. We assembled this top 10 of chart debuting AI acts as identified by Billboard and Luminate. Consumption of this top 10 has been immaterial. The most streamed act didn't break into the top 7,000 globally in 2025, and the #10 act didn't break into the top 92,000. In the aggregate, the most prominent AI content barely registers even in the leading market for this English language repertoire, totaling less than -- excuse me, totaled less than 0.015% of the streams of the top 50,000 artists in the U.S. last year. Some commentators say, "That's right now. What about the future?" We don't have to theorize about the future of AI saturation as it's become a marketplace reality with 60,000 AI tracks being uploaded a day at present. What impact is any streaming of these tracks having on our revenue? Most of this content is AI slop or fraud botter associated with royalty diversion schemes. 85% of AI streams on one representative platform, Deezer, were identified as fraud and then excluded from royalty pool allocation. Apple recently reported that its efforts to address the flood of AI uploads included exclusion of 2 billion fraudulent streams last year. Platforms like Spotify have also outright removed tens of millions of spamming AI tracks from their services. So despite the huge volume of AI uploads, the aggregate organic consumption of AI content by actual consumers is less than 0.5% based on the best available data. That's consumption. What about revenue? It's important to take account -- it's important to take into account all 3 aspects of our deal to protect us from a revenue perspective. In addition to, one, anti-fraud provisions, there's two, demonetization of generic AI slop under UMG artist-centric agreements; and three, anti-AI dilution provisions in numerous UMG agreements we previously announced and discussed. Anti-AI dilution stipulations generally mean that pure AI-generated content, similar to other nonmusic content, is removed from the calculation of share of streams by the DSP for purposes of determining our artist royalties. Therefore, while we remain vigilant in addressing infringing AI services, we're seeing no indication that AI royalty dilution is a material issue for UMG from a revenue perspective. When you take into consideration the significant opportunities to commercialize AI innovation through new products and services that Lucian outlined and the empirical data demonstrating insignificant and comprehensively mitigated risk, thoughtful analysis will conclude that the impact AI will have on our business will be overwhelmingly net positive. The data on this slide makes it very clear that consumers are rejecting AI slop and fakery. What do they want from AI innovation, is applied to their music experience instead. That's the second topic I'll address with another set of data points. As Lucian noted, UMG conducts rigorous consumer research on strategic topics. Related to the highlights he covered, here, you see some key findings that emerged from a survey of 28,000 consumers conducted in 13 countries, representative of the global music marketplace. Use of AI is fast becoming mainstream with 54% of global consumers expressing familiarity. Not surprisingly, the predominant use case is search. And among those users, nearly half report conducting music-based queries such as what to listen to, what merch is available from my favorite artists, what concerts are near me. We see this as an early indication of the promise of AI that it holds for elevating discovery, recommendation and contextualization as AI becomes more integrated into music services. The vast majority of consumers continue to prioritize human artistry. They want clear disclosure in AI labeling and most seek transparency, safeguards and ethicality in AI music development and deployment. Confirming what the consumption data told us on the prior slide, by an almost 7:1 ratio, consumers express disinterest versus interest in so-called AI artists. In fact, over 2/3 of consumers want to be able to block purely AI-generated music entirely. In the U.S., where AI awareness is highest, nearly 3/4 of consumers want to block AI button. With this backdrop of attitudes and preferences, let's focus on music applications. Roughly half of consumers under 45 expressed interest in AI for music, predominantly interest in AI for enhancement of music experience, meaning deeper personalization of the experience and customization of music, restoring, remixing and reinterpreting favorite songs and interactive and co-creative music experiences. These emerge as key triggers of consumer interest and perceived value. The expression of interest translates into some of the most important components we are focused on, with the partners Lucian highlighted, in development of innovative new AI music services. What consumers are rejecting and what they want to embrace will define the business landscape of significant opportunity for UMG moving forward with AI innovation. And with that, I'll turn it over to Matt. Matthew Ellis: Thank you, Michael. 2025 was another excellent year for UMG, both creatively and commercially. Lucian outlined the strong sustained performance of our artists, songwriters and company and how our multipronged strategy will continue to propel our growth. Before I get into the details of our financials, I want to address our proposed U.S. listing. With the uncertainty in the market creating meaningful dislocation in valuations, our Board does not see this as the right time to move ahead with the listing. Should that change, we will update the market. Turning to our results. Once again, in 2025, we achieved healthy growth on both the top and bottom line. As always, we present our results on a constant currency basis. FX movements impacted 2025 revenue growth rates by 3%. And based on currency markets, we expect 2026 to include a 4% to 5% headwind to revenue. For the year, in constant currency, revenue grew 8.7%, which was more than 1 point of acceleration above the previous year's growth rate, and adjusted EBITDA grew 8.6%. This resulted in an adjusted EBITDA margin of 22.5%, in line with the prior year. Cost savings and operating leverage helped us maintain margins for the year despite headwinds from revenue mix and repertoire mix, cost pressures in our merchandising business and incremental overheads from business combinations. 2025 adjusted diluted EPS grew to EUR 1.03, up from EUR 0.96 in 2024. We remain on schedule with our EUR 250 million cost savings program, which began in 2024. We achieved our planned EUR 90 million in cost savings in 2025, including the expected EUR 40 million in savings in the second half of the year. We continue to expect that an incremental EUR 40 million to EUR 50 million in Phase 2 savings will be realized in 2026, with the remaining EUR 35 million to EUR 45 million benefit -- to benefit 2027. Before turning to the results for the quarter, I'd like to mention certain items that impact the comparability of our results versus the prior year. This detail is laid out on the slide you see in front of you as well as in our press release. First, the fourth quarter of 2025 includes a legal resolution contributing revenue of EUR 45 million and EBITDA of EUR 26 million. This is booked in downloads and other digital revenue in Recorded Music. We call out settlements for purposes of comparability. But as a reminder, legal recoveries are common in our business and represent real revenue earned from the copyrights we own. In fact, you may recall the fourth quarter of 2024 included 2 legal settlements. Together, they accounted for EUR 40 million of revenue and EUR 29 million of EBITDA and were booked primarily in Recorded Music licensing with a small amount in Music Publishing. In addition, the fourth quarter of 2024 included catch-up income of EUR 20 million from a DSP partner related to new product rollouts in the second and third quarters of 2024. This was booked in Recorded Music subscription revenue and had associated EBITDA of EUR 12 million. Since its revenue related to activity in the second and third quarters of 2024, it does not impact comparability for the full year results. So with that out of the way, let me turn to the quarterly results, where I will also provide figures adjusted for the items impacting comparability. In the fourth quarter, total revenue grew 10.6% in constant currency. Adjusted EBITDA grew 6.4%, while adjusted EBITDA margin of 22.5% was 70 basis points lower than the prior year quarter. Excluding the items impacting comparability in both years, total revenue grew 11.2% and adjusted EBITDA grew 8.6%. Margin was down 40 basis points to 22.0%, primarily due to headwinds from revenue mix and repertoire mix in Recorded Music and cost pressures in our merchandising business. Now let me turn to the results from each of our business segments. Recorded Music revenue grew a very strong 13.9% for the quarter and 9.3% for the year. Excluding the items impacting comparability, Recorded Music revenue grew 14.4% for the quarter and 9.1% for the year. Recorded Music adjusted EBITDA grew 9.6% for the year. Excluding items impacting comparability, adjusted EBITDA grew 9.7% in 2025 and adjusted EBITDA margin expanded 20 basis points to 25.5%. The benefit of cost savings and operating leverage more than offset margin headwinds from repertoire mix, outsized growth in lower-margin physical sales and incremental overheads from business combinations. The margin pressure from repertoire mix includes strong growth in Virgin Music, which has a different business model and margin structure than our traditional frontline label business. Looking further at Recorded Music revenue, subscription revenue grew 7.7% for the quarter. Excluding the DSP catch-up income in the fourth quarter of 2024, subscription revenue grew 9.6% for the quarter, largely thanks to continued healthy subscriber growth at many global, regional and local DSP partners. 6 of the top 10 markets, including the U.S., saw high single-digit or double-digit subscription revenue growth. The acceleration in subscription growth in the fourth quarter was primarily driven by retail price increases in some smaller markets, which more than offset minor 2024 price increase benefits we have now begun to lap. Subscription revenue grew 8.6% for the year, not very different from the rate of growth seen in 2024, even with a lower contribution from pricing and encouraging result as you look forward to the benefits still to come from our new Streaming 2.0 deals. 2025 growth did include an approximate 1% benefit from various acquisitions. We expect 2026 subscription revenue to benefit from improved wholesale rates in these agreements with the benefits layering in throughout the year. Ad-supported streaming revenue grew 9.3% in the fourth quarter and was up 4.7% for the year. Stripping out some contractual benefits in the quarter, underlying growth was mid-single digits and was driven by slightly better performance of several key platform partners. Physical revenue grew 21.3% in the fourth quarter and 11.4% for the year. The strength in the fourth quarter was largely driven by vinyl sales of Taylor Swift, The Life of a Showgirl, which drove outsized direct-to-consumer growth in the U.S. and Europe. License and other revenue also performed well, up 18.1% in the fourth quarter and 11.0% for the year. Excluding the legal settlements in the prior year, license and other revenue grew 26.8% in the quarter and 13.6% for the year. In addition to underlying licensing growth, the quarter benefited from strong live events and other related income, primarily in Japan, as well as from a compensatory payment as part of a strategic licensing agreement with an AI music platform. Turning now to Music Publishing. Revenue grew 1.4% in the quarter, or 2.8% excluding the prior year settlement referenced earlier. The slower growth in the quarter was due to the timing of collections from certain societies and other sources, which helped results in the fourth quarter of 2024. Underlying growth in the business remains healthy. While the growth rates vary, Music Publishing's reported revenue by quarter in 2025 was much more consistent than 2024. The performance of our publishing business is better viewed on a full year basis. In 2025, Music Publishing revenue grew 9.3%, or 9.8% excluding the prior year settlement. The strong Music Publishing growth for the year was fueled by strength in digital and synchronization revenue, while performance and mechanical revenue also grew. The growth benefited from the inclusion of Chord and a major television studio business win in this year's results, and we have now lapped the inclusion of both of these items. Music Publishing adjusted EBITDA grew 10.0% for the year or 10.5% excluding the items impacting comparability, and adjusted EBITDA margin expanded 20 basis points to 24.3%. Moving to Merchandising. Revenue was flat both in the quarter and for the year as this is a transactional business with release and tour schedule-driven volatility. In the fourth quarter, growth in touring and direct-to-consumer revenue offset lower retail sales. Merchandising adjusted EBITDA for the year declined 61% due to higher manufacturing and distribution costs driven by both product mix and broader cost pressures. We are continuing to take steps to improve the profitability of our merchandising business, including investing in our D2C business and working to reconfigure our manufacturing supply chain. Net profit for 2025 amounted to EUR 1.53 billion compared to EUR 2.09 billion in 2024, resulting in earnings per share of EUR 0.84 compared to EUR 1.14 last year. The decrease in net profit in 2025 was due to a smaller increase in the valuation of investments in listed companies, which increased EUR 283 million in 2025 compared to EUR 1.2 billion in 2024. Net profit included the EUR 227 million in noncash share-based compensation expense for 2025 compared to EUR 329 million in 2024. We expect a similar level of share-based compensation expense for 2026. In addition, net profit reflects restructuring costs of EUR 95 million in 2025 related to our strategic organizational redesign as well as EUR 45 million of costs related to our U.S. listing and certain M&A advisory costs compared to EUR 169 million of restructuring costs in 2024. Adjusted net profit grew 7.0% to EUR 1.91 billion in 2025, resulting in adjusted diluted EPS growth of 7.3% to EUR 1.03 compared to EUR 0.96 in 2024. In line with our commitment to pay a dividend of at least 50% of our net profits as adjusted for certain noncash items, UMG has proposed a final dividend for 2025 of EUR 514 million, or EUR 0.28 per share. If approved at our AGM, this would bring our full year dividend to EUR 0.52 per share, in line with our 2024 dividend. Before I turn to cash flow, I'd like to take a moment to talk about the importance of our long-term minded and financially disciplined reinvestment in our business. With our focus on long-term value creation, we continue to reinvest in the healthy growth we see enduring in our business for years to come. This could take a number of forms. For one, it, of course, includes signing new artists and re-signing, broadening and extending our relationships with existing artists. It includes investing in our infrastructure and technology to maximize opportunities in an evolving landscape, for example, around AI, data and analytics, direct-to-consumer and superfan efforts. It includes the addition of music and publishing catalogs to our best-in-class collection. And it also includes M&A as we strengthen our presence in high-potential music markets and expand our independent label services businesses through Virgin Music Group. I'd like to take a minute to speak about the re-signing of artists and specifically royalty advances. As a reminder, advances are recoupable against artists' future royalties. Cash royalties are paid once an advance is fully recouped. There's a very low level of risk in advances to our most established artists, given that we have a long history of how they have performed, clear visibility of the returns and a unique understanding of where opportunities exist to expand our partnership beyond recorded music or music publishing rights. Further, deals are most often structured to extend until advances are recouped, giving us added protection. The advances are normally recouped not just through the future releases from our artists, but also the catalog of the prior work that audiences continue to engage with. Our spend on advances is a strong reflection of the health of our business. We have an unprecedented roster of the world's best artists, which continues to expand. And we expect continued healthy growth in the monetization of our robust catalog of songs and recordings. In 2025, we proactively extended and expanded deals with some of our biggest recording acts and songwriters as we expect to do in 2026 as well. We view the successful long-term relationships with our superstar artists and songwriters as the truest reflection of the value UMG provides them. In many cases, these artists are not only extending their existing partnership with UMG, but broadening into new areas where they haven't historically worked with us. It's important to recognize that advances in 1 year don't typically relate to revenue in that particular year, and recoupment is not necessarily associated with advances made in the same year. Therefore, it's difficult to draw any meaningful conclusion from looking at net advances in a given year or from advances as a percent of sales. Looking over a longer period allows for a more meaningful analysis, so consider this view of the past 6 years. Between 2019 and 2025, gross advances grew at an 8% CAGR. During the same time frame, UMG's revenue grew by 10%, and adjusted EBITDA improved 14%. In combination with the other areas of investment I mentioned, such as accelerating our investment in Virgin Music and expanding our growth in high-potential markets, we have put in place a EUR 1 billion bridge facility to help fund this investment cycle. With the underlying growth in our EBITDA, our leverage remains unchanged at 0.9x as of December 31, 2025, and we are committed to maintaining our current credit ratings. UMG is the company that is today due to the consistent investment in the future that Sir Lucian and the team have made year after year. We remain financially disciplined and are best positioned to assess and value any music assets in the market. The level of investment in our sector by nontraditional players in recent years shows the conviction that others have about the future of music, and we couldn't agree with them more. Our optimism about the future means that we intend to continue our disciplined investing to ensure that UMG remains the industry leader. Now let me turn to free cash flow. In 2025, our net cash provided by operating activities before income taxes paid was EUR 2.14 billion compared to EUR 2.10 billion in 2024. As I mentioned, 2025 included a step-up in royalty advance payments related to the timing of major artist renewals. Royalty advance payments, net of recoupments, amounted to EUR 402 million in 2025 compared to EUR 186 million last year. Income taxes paid increased to EUR 403 million from EUR 349 million in 2024, and net interest and other financing activities was EUR 90 million compared to EUR 70 million in the prior year. Free cash flow before investing activities amounted to EUR 1.6 billion in 2025, similar to '24. Conversion to free cash flow before investments was 55% of adjusted EBITDA. While this is at the lower end of our historical range, it reflects the variability of the timing of artist advances, which I discussed the importance of a moment ago. This significant cash generation allowed us to continue our long-term investment in the business. We spent EUR 854 million on investments in 2025, including on CapEx, catalogs and other strategic acquisitions, compared to EUR 1.1 billion in 2024. Free cash flow amounted to EUR 702 million compared to EUR 523 million last year, driven by the strong cash generation of the business and lower level of investments year-over-year. To give you a bit more color on our investments, in 2025, we spent EUR 280 million on catalog acquisitions, net of divestments of intangible assets, similar to our net spend of EUR 266 million in 2024. The divestments included catalogs transferred to Chord as well as other intangible sales. We spent EUR 195 million on CapEx and other intangible asset investments, which mostly includes CapEx, like software investments, compared to EUR 183 million in 2024. We expect CapEx to be EUR 100 million to EUR 200 million higher in 2026 due to real estate projects in a number of our key locations. The remainder of our other 2025 investment spending of EUR 379 million focused largely on deals which push forward our strategic initiatives, including deals in Thailand, Vietnam, Indonesia and Japan as well as certain superfan initiatives. We also used EUR 104 million on further funding for Chord. This number will obviously be higher in 2026, with the inclusion of the Downtown and Excel investments, together with activities still to come during the year. Before we move to Q&A, I wanted to take a moment to comment on our recently closed Downtown acquisition. For purposes of comparability, we plan to break out quarterly revenue and EBITDA for Downtown in 2026. To give you a sense of the scale of their business, in 2025, Downtown's unaudited results show revenue of EUR 891 million and EBITDA of EUR 40 million. With the strong 2025 results, we paid a 17x 2025 EBITDA on a pre-synergy basis and expect the post-synergy multiple to be closer to 13x. We're very excited to welcome Downtown to the UMG family and are encouraged about the future for Virgin Music Group. In summary, 2025 was another year of strong financial, strategic and operational performance and provides us with the optimism for the opportunities ahead of us in 2026 and beyond. And with that, Sir Lucian, Boyd Muir, Michael Nash and I will now take your questions. Operator, please open the line for Q&A. Operator: [Operator Instructions] The first question goes to Omar Mejias of Wells Fargo. Omar Mejias Santiago: Maybe first on subscription growth. You've now delivered subscription growth of 8-plus percent over the past 6 quarters with little to no material benefit from pricing, and now growth is approaching double-digit levels. With Streaming 2.0 agreements kicking in and DSPs implementing price hikes, are there any offsetting items that would prevent subscription growth from further accelerating over the next couple of quarters? Just trying to get a better understanding on some of the puts and takes impacting growth going forward. Matthew Ellis: Thanks, Omar. Let me start with that, and then Michael will add some color commentary as well. So thank you for pointing out the strong growth we've had for 6 quarters now, over 8%, as you say, without really the benefits of Streaming 2.0 benefits kicking in. In terms of any offsetting items, of course, the only thing I'd refer to is, as I said in my prepared remarks, we had a small benefit last year from some of the companies we added. But we expect to see the pricing changes kick in during the course of 2026. You won't see the full effect come in all at once as of January 1. But as you say, we're excited that we've created this level of momentum as we now come into this new period of time. So with that, Michael, I'll let you add. Michael Nash: Let me just add, referencing Capital Markets Day, we provided a framework for thinking about the Streaming 2.0 deals that we were looking to implement. We've now announced 3 of those Streaming 2.0 deals. As Matt said, we're looking for the benefits from the rate rises to start to impact the results. And I would still reference the 8% to 10% CAGR midterm guidance that we gave you for the period from 2023 to 2028. That's the target that we're delivering to. We would be delighted if we had opportunities to accelerate. But at this time, I would just focus on the fact that we established a game plan, we're executing the game plan, and we expect to be able to continue to deliver to the targeted guidance. Operator: The next question goes to James Heaney of Jefferies. James Heaney: Can you just talk about the strength that you saw in streaming revenue in the quarter? How much of that do you think is overall improvements to the ad products at the DSPs versus just general ad market strength? Anything to parse out there would be helpful. Matthew Ellis: Yes. Thank you for the question. As I mentioned in the remarks, we have a diversity of partner services and formats. And every quarter, we see some differences in the comps related to different deal terms and timing of renewals. About half of the growth in 4Q is actually due to a contractual benefit that came through. I think if you look at the low to mid-single-digits underlying growth posted in prior 3 quarters, that gives you probably a better sense of where the -- as we think about that revenue stream going forward there. So certainly enjoyed the jump up there in the fourth quarter, but would expect something more in line with prior quarters going forward. Michael, you can talk a little more about our ongoing efforts in that space. Michael Nash: Yes. Moving forward, we do continuously urge caution in revenue growth expectations here as we have reminded you all on these calls over the last several quarters. But we remain highly focused on driving growth over the midterm. And what we reflect on as we look at market evolution is, there is a secular migration of advertising spend from analog to digital. We see a focus on video and social as being very attractive categories to be recipients of that spend. We believe in working with our partners on better monetization of ad-supported listening, the increased engagement of social video platforms, and we do expect to see sustained growth over the midterm in ad-supported. Operator: The next question goes to Julien Roch of Barclays. Julien Roch: Two questions for Matt, if I may. On catalog acquisition, you did EUR 280 million, which was higher than I thought as my understanding is that Chord Music would do some of the catalog acquisition that you had done directly in the past. So could you give us an indication for catalog acquisition in 2026? I understand it depends on the opportunity, but some indication would be useful. And then you had a whole speech about net content investment in artists, how it comes with positive returns. But you also said that '26 would see an elevated level like 2025. So is the interpretation that the '26 level will be broadly around the EUR 400 million of '25? Is that the right interpretation of what you said? Matthew Ellis: Thank you, Julien. Thank you for the question. So look, '26 advances will depend on when certain artist deals close. But it's really not surprising that in a growing industry where royalties are increasing, that advances would also be increasing. So as I mentioned earlier, since 2019, advances have grown by an 8% CAGR and revenues have grown by 10%. So you can see certainly those things are moving together. And just based off of the -- both the roster of artists that we've had for a while, and you heard from Lucian's comments, the success we've had with new artists again in 2025, as shown at the 2 award shows over the past couple of weeks, that we continue to bring more successful artists into the roster, and that's going to continue to drive advances that we pay out and also recoup again. So we'll wait and see which deals close during the course of the year to see where that goes, but I actually see increases in our advances outstanding as a sign of a healthy growth in the industry going forward. In terms of expectations around catalog acquisitions in 2026, and Boyd, maybe you can jump in on this one as well. Again, it's a little bit of very early in the year here, and we'll see what comes out. We're excited about the progress that Chord has made as they continue to acquire catalogs that we work closely with them. As I mentioned in my remarks, we had not only our investment -- our initial investment in them in 2024. We made an incremental investment last year because they are continuing to find good catalogs to invest in. And we're happy to partner with them and expect to continue to see strong volumes of catalog transactions, and we will be in our fair share or more of those, I'm sure, as the year goes on. Boyd Muir: Julien, I mean, just to add to what Matt said, we've got very clear -- if you look to the priorities that -- the strategic priorities that Lucian ran through, clearly, aligning ourselves in the growth markets to a similar market share position as we have in the more developed markets is incredibly important, particularly as we see the increasing number of subscribers being added into those growth markets. So we've stated that as our objective. One aspect of this is clearly is M&A. It's all local language. The deals are all relatively small. But over the last 3 years, we've acquired 18 businesses in these growth markets, and we're looking at -- we have a pipeline of deals that we're working on at the moment. And just similarly on Chord, I mean, Chord has performed very well, 20 catalog acquisitions and it's basically its first full year as being part of the -- or be associated with Universal Music. And also, what is good is that their ability to attract long-term time horizon investors has been very strong in 2025. So I think we're very positive about where we are with Chord. Operator: The next question goes to Peter Supino of Wolfe Research. Peter Supino: I wanted to ask you a question at the intersection of investment and growth. As your cash investment pace normalizes in the '27 or 2028 time frame as contemplated in your Capital Markets Day, can Universal still maintain a 7% like sales growth rate, which was the view expressed at that time? Or is that a growth rate which includes the normalized benefits of heavy acquisitions like you've made in the last 2 years? Matthew Ellis: Yes. Thank you, Peter. So look, certainly, when we gave Capital Markets Day guidance, we were focused on the view of the business out 5 years at that point in time. I would say, looking at the business today, there is nothing that changes our positive outlook for the business, not just through 2028, but beyond. Certainly, we expect to continue to invest in the business as well, and that will supplement the growth. But there is still significant runway in the core part of streaming and subscription business for both increased subscriber volumes and increase in ARPU. And we don't expect those things to, in aggregate, a flatline 3 years from now. So Michael, I don't know if you want to add anything as we look at that. Michael Nash: I think that everything we've seen with the evolution of the market makes us confident in what we have projected as the performance of the business on an organic basis. So we're not at this point saying that we need to change the allocation of cash to support the objectives that we identified, which we're delivering to. Boyd Muir: And the other thing that I would add, in the guidance that we gave, we did note -- that, that guidance did not include any transformational M&A. And we talked -- Matt and Lucian talked about the acquisition of Downtown, and that clearly is a transformational transaction. Operator: The next question goes to Clay Griffin of MoffettNathanson. Clayton Griffin: Matt, you framed the advance -- the change in advance well, I think. But just maybe just step back and explain or help us think through the competitive dynamics in that space. Are you seeing renewed pressure from PE and some of these JV structures? And how is that impacting your ability to retain top-tier talent? Matthew Ellis: So great question. As I think about it, we see more activity in the catalog space than in the advances space in terms of those what I would refer to as newer entrants to the music business. So that's where we see them show up more. But as I said in my remarks, we're advantaged from the standpoint that our view of the value of any music asset is based off of the largest data set in the industry. So that helps us ensure that we believe we know the right value for each catalog that comes to market and is available. But we do see more of them showing up in processes. We're also involved in, in the catalog space more than the advances space. Boyd Muir: No, you said it well. Operator: The next question goes to Michael Morris of Guggenheim. Michael Morris: I wanted to ask, first, just to go back to the first question and your response about subscription growth in 2026. It sounded like your answer implied that -- or maybe explicitly said that you expect the growth rate to be within the range that you provided at the Investor Day, of 8% to 10%. Is that a fair characterization? Or do you think that this is one of those years where you could exceed that range of growth? And then my second question is about these consumer-facing AI services, if I could. They appear close to rolling out. The majority of the discussion seems to be around newer players like Udio and Klay rather than sort of your established DSP partners. Do you expect the majority of that engagement with AI tools to come from new players? Or do you expect launches from your DSP partners? And do they have the rights to launch products at this point? Matthew Ellis: Yes. Let me start with your first question, Michael. Thank you for both of them. The -- just to be clear, while I provided some factors that will drive subscriber growth this year, and we're certainly excited about having the new deals actually show up in our revenue streams this year, I did not say that our expectation is that subscription growth this year would be in the range that we provided for the full 5-year period of 8% to 10%. So we'll see where it plays out during the year. We're confident that with the continued growth we see and those new price points kicking in, there will be a positive benefit for 2026. Michael, I'll let you... Lucian Grainge: It's Lucian. I'd like to just add there, sorry to interrupt you. The work that we've done over the last 10, 12, 13 years with the DSPs, they feel like our established business partners and of course, that, they are. But you have to remember that 15 years ago, no one had ever heard of them. So the work that we're doing and the work that they're doing, Spotify, Apple, Amazon, YouTube, obviously, what I've seen, I'm extremely encouraged by. And we will be working with them. We are working with them alongside new players. We talked about NVIDIA. I'm not able to talk about the array of other conversations that we're having with companies and platforms which are equally as innovative and exciting and well funded. They're investing many, many billions in infrastructure as we all know. And whenever there's a new technology, a new format comes out of it. So we've got an encouraging environment where we're working to keep every single format that we have going, growing and improving in terms of what the technology and the products can provide at the same time is -- and I've said this before, we want to be and are the hostess with the mostest. We want to be every single dinner party that there is around town, and that's what we continue to do. These formats and these businesses are not mutually exclusive. We are working with them all. And it comes back to why we're as excited about what the products are, about the opportunities for artists. I've seen them. They're incredibly compelling. In the same way that I saw ad-funded streaming and I saw that the dream from ad-funded streaming was going to be into premium subscription. And we are right -- we've seen this. I've done it. We've managed these transformations. If you really want to go down memory lane, I've gone through from LP vinyl into the CD then into the digital downloads. I like what's going on. I like what I see, and we're attacking it, and we're excited by it. Operator: The final question goes to Silvia Cuneo of Deutsche Bank. Silvia Cuneo: I wanted to ask about Downtown Music. Since the completion of the acquisition, could you please elaborate on the first strategic priorities for the business and the main revenue drivers for 2026? Any color on the recent trends will be helpful. And then secondly, regarding your AI partnerships, particularly with Udio, can you comment about what is expected as a contribution of the Udio licensing to your 2026 financials, perhaps at a high level, and from when? And if you could comment about the potential AI licensing opportunities pipeline in 2026. Lucian Grainge: I'd like to just comment before I hand it over to the team on some of the specifics on high-level strategy with regard to Downtown. In the same way that I spoke just a few moments ago about sort of parallel businesses and parallel activities, I see exactly the same with Downtown. You can see our performance year in, year out. For the last 3 years, we've had 9 out of the top 10 best-selling artists in the world. So that's the top of the market. But we are very aware and we can all see that the rest of the market is also growing. So Downtown gives us an opportunity to grow our artists and label services, and we've got a 2-step, twin approach to everything that's going on within the marketplace. So in the same way that we talk about Mrs. GREEN APPLE or King & Prince in Japan or BTS out of Korea, we are also looking at and talking about tuck-in investments and bringing in entrepreneurs and providing label services throughout the rest of the world through the Downtown-Virgin strategy. You have to remember, Virgin is, I suppose, the brand name. It was Virgin that acquired Downtown. And we also have another company in there, which is a white label business called Ingrooves. So we've actually got 3 interfacing businesses at various stages of the artist entrepreneur label services business and function, which is growing. And I'm excited about what we're doing, and I'm excited that we're able to close Downtown, and that's one of the reasons why we did it. We're covering every single blade of grass in terms of region, content, culture, genre, format, technology, and that's how we're doing it. Michael Nash: With respect to the second question regarding the planned launches of some of the announced new services and the pipeline, I think that we've said publicly in the announcement of some of these services that they have plans for launching this year. To be more specific about that, obviously, that would be a conversation with the individual services, but we're working to support the launches of the partnerships that we've entered into. In terms of giving you any guidance with revenue contribution, that's not something that we typically do in any category or would be doing with respect to the launch of new services. But in terms of the pipeline, I would direct you back to Lucian's call to action note in October of 2025 in which he talked about a dozen different partnerships potentially being in the pipeline. And we've obviously delivered on the number of those new deals since then. But you can rest assured that we're speaking with every single relevant party, whether that's a new entrant or that's an established platform, about the potential to harness AI innovation in developing their services. So we're very focused in delivering on that pipeline. With respect to scope of opportunity, one point that I would make is, we've talked about super premium, and our research suggesting that 20% of the current subscriber base is the target for a significantly improved offer, they'd be willing to pay double the current subscription price for. What's happened over the last year is that AI innovation has kind of overtaken the conversation around technology innovation with all the service providers and with respect to the evolution of music, we're going to see AI being a significant component of what will become the super-premium tiers of 2026 and beyond. So that gives you some sense of scope of opportunity. But then as Lucian mentioned, AI is not just an incremental revenue opportunity. AI is an introduction of a new set of formats. This is a paradigmatic change in the landscape with respect to innovation and the evolution of music. So we believe that this is something that, over time, implemented in a number of different ways, including things like agent AI, could potentially lead to significant opportunity for customer value realization at the end of this decade and into the next. Operator: Thank you. This now concludes today's call. Thank you all for joining, and you may now disconnect your lines.
Operator: Good day, everyone, and welcome to the Genesco Inc. Fourth Quarter Fiscal 2026 Conference Call. Just a reminder, today’s call is being recorded. I will now turn the call over to Jason Ware, Vice President of Finance and Investor Relations. Please go ahead, sir. Jason Ware: Good morning, everyone, and thank you for joining us to discuss our fourth quarter fiscal 2026 results. Participants on the call expect to make forward-looking statements reflecting our expectations as of today, but actual results could be different. Genesco Inc. refers you to this morning’s earnings release and the company’s SEC filings, including its most recent 10-Ks and 10-Q filings, for some of the factors that could cause differences from the expectations reflected in the forward-looking statements made today. Participants also expect to refer to certain adjusted financial measures during the call. All non-GAAP financial measures are reconciled to their GAAP counterparts in the attachments to this morning’s press release and in schedules available on the company’s website in the quarterly results section. We have also posted a presentation summarizing our results here as well. With me on the call today is Mimi Eckel Vaughn, Board Chair, President, and Chief Executive Officer, and Sandra Harris, Senior Vice President of Finance and Chief Financial Officer. I would like to turn the call over to Mimi. Mimi Eckel Vaughn: Good morning, everyone, and thank you for joining our fourth quarter earnings call. Let me begin by taking a moment to thank Sandra for the contributions she has made to our company. Since stepping into the CFO role, she has been part of our important progress, strengthening our financial discipline, navigating through a dynamic external environment, and working to achieve meaningful profit improvement. We wish her the best of luck in her future endeavors. We have already begun an active search for her successor and plan to work through this search expeditiously. As a reminder, I will assume the role of interim CFO in a seamless transition working closely with our talented and deeply experienced finance leadership team and leveraging my prior time in the CFO role. This morning, I will start with a review of the quarter and year before turning it over to Sandra to cover our financials and walk through guidance for the coming year. Then I will come back and discuss our strategy and fiscal 2027 initiatives before opening it up for questions. We delivered a strong finish to fiscal 2026 with fourth quarter results that exceeded our expectations and reflected outstanding execution during the most important shopping period of the year. We exit the year with clear momentum as we head into fiscal 2027. As we have discussed throughout the year, the consumer environment remains selective and intentional. The consumer engages during key shopping moments and pulls back in between, a pattern that became even more pronounced in the back half of the year. We saw it clearly in December. After a choppy October and a measured November, demand accelerated meaningfully during peak holiday weeks. The final weeks leading up to Christmas were among our strongest of the year. When the consumer came out to shop, they came out with purpose. We had just the right assortment, and our people were ready to serve them however they wanted to shop, and they responded decisively. For the quarter, total comparable sales increased 9%, building on robust 10% comparable performance last year. Stores were especially strong, propelled by exceptional conversion over holiday and higher transaction size, while digital reaccelerated, especially during peak weeks. This balanced performance across channels reinforces the strength of our multi-channel model, especially in high-volume periods. Journeys once again led the way. The transformation and strategic growth work we have been executing over the past two years—elevating the assortment, leaning into our sharp point on the style-led teen girl, building our brand, improving the experience, and rolling out 4.0 stores—continues to translate into sustained comp growth and meaningful profit improvement with double-digit comp gains in Q4 this year on top of double-digit gains last year. Holiday performance at Journeys was driven by a powerful combination of demand for both casual and athletic lifestyle footwear. Casual and boots saw a notable lift and really drove the business, particularly within key brands and franchises. At the same time, we continued to build athletic as a year-round category for our customer, and that strength added to the quarter. The work of our expert merchant team helped drive strong full-price selling and higher average selling prices, clear proof that when we deliver key styles and must-have product, the consumer is willing to stretch for it. What is most exciting is we grew total customers in December and January and continued to achieve market share gains. Journeys performance far outpaced the overall footwear market as Journeys gains important traction with the larger youth customer base we are targeting, especially the teen girl. Our 4.0 stores shined over the holidays and continue to outperform the fleet, driving higher traffic and improved productivity. These stores not only elevate the experience but reinforce our authority across brands and categories. We now have more than 84 4.0 locations, and they are becoming an increasingly meaningful driver of performance. In addition, I want to give a shout-out to all our Journeys store teams across the store footprint who did an absolutely amazing job and delivered fantastic conversion during the holiday this year. At Schuh, the U.K. retail environment remained highly competitive, ending in a lackluster holiday season, especially for discretionary categories. While many of the brands driving Journeys growth also resonated at Schuh, greater price sensitivity had the U.K. consumer looking for bargains. With the goal of exiting the year in a clean inventory position, the team navigated the season, driving positive comps at the expense of gross margin, with promotional activity taking a toll on profitability for the quarter. Taking a broader view, we see a similar consumer opportunity to Journeys in the U.K., but are clear-eyed about the work ahead at Schuh. As I will discuss shortly, we are focused on restoring margin discipline and improving store productivity in fiscal 2027. Moving now to our branded business, at Johnston & Murphy, we made encouraging progress as the quarter unfolded with comps improving in each successive month and meaningfully in the run through holiday. Apparel and accessories performed well, supported by new trend, renewed product focus, and faster innovation cycles. The refresh in the ICON quarter-zip program and growth in knits and blazers were prominent contributors to these increases. Our partnership with Peyton Manning launched right before the start of the fourth quarter, generated strong engagement and traffic lift, and we saw improved comp trends in both stores and online as the holiday period progressed. Promisingly, this momentum has increased further into the first quarter with greater return to work and more interest in dressing up. Genesco Brands Group continued through its transition year. The tail end of the Levi’s and other license exits and tariff impacts weighed on results, but we have simplified the portfolio and prepared for the launch of Wrangler footwear this fall, which positions this business for healthy growth following the start-up year. Looking back, fiscal 2026 represents a meaningful step forward. We delivered positive overall comps in every quarter of the year while extending Journeys straight to six consecutive quarters of comp growth reaching back to fiscal 2025. We strengthened our market share in key customer segments. We improved operating income year over year. We delivered EPS in the range we laid out at the start of the year despite massive disruption and negative impacts from tariffs, a tough footwear backdrop, and a much more challenging U.K. market. And importantly, we demonstrated that our company can perform in a volatile, event-driven consumer environment. We see meaningful earnings opportunity to unlock in each of our strategically well-positioned businesses, but we must evolve our concepts to meet the needs of the customer, which have rapidly changed in recent years. Journeys has been our number one priority, and we have demonstrated real success unlocking much greater profitability. With Journeys on its way, we intensify our attention to our other businesses with Schuh at the top of the list. Importantly, we enter the year in a strong position to achieve this overarching goal, thanks to clean inventories and initiatives in place to drive the improvement. Indeed, Q1 is off to a good start in North America, even with the February weather disruption. The year reinforced a critical lesson: the right product, the right brand positioning, the right experience in stores and online. All of these matter, and when we get these aligned, we win, enabling us to take another meaningful step forward in fiscal 2027. I want to thank our talented and incredible people who are at the core of what we achieved in the year we just finished and will achieve in the year to come. And with that, I will turn it over to Sandra to walk you through the financial details for the quarter and our outlook for fiscal 2027. Sandra Harris: Thanks, Mimi. Overall for the quarter, we grew revenue, delivered high single-digit comps, meaningfully leveraged SG&A, and generated adjusted EPS of $3.74, up $0.48 versus last year. For the full year, adjusted EPS was $1.45, finishing above our revised estimates and well ahead of the prior year. Fourth quarter revenue of $800 million increased 7% year over year. Comparable sales rose 9% with stores up 9% and direct up 8%. Importantly, this marked our strongest quarterly comp performance of the year across both channels, delivered in our highest-volume quarter and on top of strong results last year. All businesses delivered positive comps in the quarter. Journeys led with 12% growth, driven by continued strength in key franchises and full-price selling. This built on 14% in Q4 last year, a remarkable stack comp result. Johnston & Murphy comps increased 2%, with sequential improvement in December and January. Schuh comps rose 3%, driven in part by holiday promotional activity. Notably, e-commerce penetration at Schuh exceeded 50% of sales in the quarter, reflecting a highly promotional environment and continued value-driven online behavior in that market. These gains, as well as favorable foreign currency impact, were partially offset by lower revenue from ongoing store optimization and closures, and the wind down of licenses at Genesco Brands. We ended the quarter with 42 net fewer stores versus a year ago, which was a decrease of about 3% of the fleet and 2% of the square footage, representing about 1% of the sales. Closing these stores was accretive to operating income and for many we also saw a positive sales transfer. Adjusted gross margin for the quarter declined 90 basis points versus last year. The decrease was primarily driven by heightened promotional activity at Schuh along with the ongoing tariff pressure and changes in channel mix at Genesco Brands. Journeys and Johnston & Murphy gross margins were supported by strong full-price selling that mostly offset brand mix shift and tariff pressures. SG&A expense was 39.1% of sales, leveraging 140 basis points year over year. In addition to our store optimization efforts related to right-sizing the store fleet that removes store expense, additional cost actions including rent reductions, selling salary efficiencies, freight negotiations, and other procurement efficiencies combined with high single-digit comp growth drove the leverage. We achieved this significant leverage despite the expected higher brand marketing investments and a meaningful increase in performance-based incentive compensation expense, which is primarily accrued in the fourth quarter as earned. As a result of our strong performance, adjusted operating income was $56 million for the quarter, an increase of 17% compared to $48 million last year, and adjusted diluted EPS was $3.74 versus $3.26 in Q4 last year. Full-year adjusted diluted EPS was $1.45 versus $0.94 last year, and we ended the year with an adjusted tax rate of 30%. Now turning to capital allocation and the balance sheet. We generated $164 million of free cash flow in the fourth quarter and nearly $84 million for the full year, ending the year in a positive net cash position. Year-end inventories were up modestly versus last year, reflecting a deliberate investment in key items at Journeys to support sustained consumer demand and continued momentum. Inventories at Schuh were lower on a constant currency basis as a result of significant promotional sell-through during the holiday period, leaving the business in a cleaner position exiting the year. And at Genesco Brands, inventories declined significantly with the sell-off of product related to the license exits. Capital expenditures in Q4 were primarily focused on retail stores, ending the year with 84 Journeys 4.0 stores. We also opened four new Johnston & Murphy stores during the quarter. While we did not repurchase shares in the fourth quarter, we repurchased approximately 600,000 shares earlier in the year, representing about 5% of shares outstanding at that time. We have $29.8 million remaining under our current authorization, and as a reminder, we have repurchased 50% of our outstanding shares since the beginning of fiscal 2020. Our strong liquidity and revolver capacity provide more than enough flexibility to support our strategic priorities and disciplined capital allocation approach. Turning now to fiscal 2027 guidance. We exited the fourth quarter with solid momentum. As we look to fiscal 2027, we expect continued strength at Journeys, improvement at Johnston & Murphy, and a reset for Schuh to drive profitability. While we navigate a fluid external and consumer environment, we expect to add to this year’s gains. Before I get into the specifics of our guidance, there are a few key factors shaping this year that I want to highlight: first, positive comps being offset by store closures and license exits resulting in flattish sales; second, gross margin improvement driven by reduced Schuh promotions and lapping license exit headwinds; third, continued cost discipline, though no leverage on a flat sales base; and fourth, quarterly tax rate volatility due to the valuation allowance with a comparable full-year rate. This all results in healthy improvement in operating profit and earnings per share for the year. Let me expand on each of these, beginning with sales. For fiscal 2027, we expect comparable sales to increase approximately 1% to 2%, after increasing 6% in fiscal 2025 and 9% in fiscal 2026. Journeys comps are projected to be positive again this year, which along with positive comps at Johnston & Murphy will more than offset negative comps at Schuh from the promotional reset. This is a deliberate trade-off. We are prioritizing margin recovery and earnings improvement at Schuh over short-term comp gains. These comp gains will be reduced by approximately $30 million of sales from planned net store closures related to our ongoing store optimization efforts, including Schuh, and roughly $30 million of net sales from the license exits. As a result, we expect total sales to range from down 1% to flat for the year. By division, we expect low single-digit sales growth at Journeys, as comp growth is partially offset by planned store closures; Schuh sales are expected to decline mid-single digits, reflecting store closures and sales headwinds with fewer promotions; we expect Johnston & Murphy sales to increase mid-single digits, helped by new stores and wholesale expansion; and at Genesco Brands, sales will decline due to the timing gap between Levi’s wind down and the launch of Wrangler later in the year. For the full year, we expect gross margin to improve approximately 50 to 60 basis points, driven primarily by margin recovery at Schuh with more full-price selling, and at Genesco Brands as we lap prior liquidation. At Journeys, we expect modest rate pressure from brand mix but growth in average selling prices. Regarding tariffs, although we expect higher unmitigated dollar exposure in fiscal 2027 due to a full-year impact, ongoing mitigation efforts including pricing actions and sourcing adjustments are expected to result in a net negative operating income impact of approximately $5 million to $10 million, already included in these assumptions. With the flat sales, we expect full-year SG&A as a percent of sales to deleverage only about 10 to 30 basis points compared to last year, reflecting investments to support longer-term growth, along with continued store optimization efforts and cost savings initiatives, including the benefits from our strategic technology transformation we announced back in January. As in prior years, profitability will be weighted to the back half of the year given seasonal sales patterns. We expect year-over-year operating income growth to improve after the first quarter, but be quite weighted to the fourth quarter, as we benefit from higher volume, improved store productivity, and lapping a highly promotional period at Schuh. Our guidance assumes no share repurchases, resulting in fiscal 2027 average share count of approximately 10.9 million. We expect our full-year effective tax rate to be approximately 30%. However, as an important call-out, due to our tax valuation allowance and our seasonal earnings profile, we expect our effective tax rate to be materially lower in the first three quarters, roughly 7% to 8%, with a fourth quarter true-up to reach the full-year rate. This will distort quarterly earnings per share comparisons, particularly in Q1 and Q2 where a lower tax rate will generate higher losses per share in loss-making quarters. So we recommend investors focus on operating income trends as the cleanest read on underlying performance. Based on these assumptions, we expect fiscal year adjusted operating income to be in the range of $32 million to $38 million and adjusted EPS to be in the range of $1.90 to $2.30. We expect capital expenditures of $65 million to $70 million, primarily for Journeys remodels and selected new stores at Journeys and Johnston & Murphy. Now for some additional color specific to the first quarter. We expect first quarter comps to be in line with the full-year range, fueled by stronger anticipated tax refunds and more robust Journeys comps, diluted to some extent by notably negative Schuh comps. Even with the positive comp, sales will be down a little for the reasons that we have discussed. For gross margin, we expect the rate to be flattish to last year, as there is more opportunity for pickup as the year progresses. On SG&A, we expect deleverage at the high end of our annual range given it is our lowest-volume quarter. This results in an expected adjusted operating loss that is a little over $1 million worse than last year, and adjusted EPS that will be quite a bit lower than last year due to the tax rate impacts. Again, Q1 is the most pressured quarter year over year. We expect improvement from here with higher sales volumes and more gross margin recapture. In fiscal 2027, we remain focused on driving profitable growth by investing in our businesses, continuing cost discipline, and improving performance in challenged areas. Our aim is to build on the progress made in fiscal 2026 and continue rebuilding the company toward historical profitability levels to unlock shareholder value. And now, I will turn it back over to Mimi to provide an update on our fiscal 2027 strategy. Mimi Eckel Vaughn: Thank you, Sandra. We advanced our business over the last few years through our footwear-focused strategy, comprised of six pillars designed to meet evolving customer needs and improve our cost structure in response to changes in the retail landscape. Looking back, we more than doubled e-commerce to nearly $600 million in a little over five years, now representing over 25% of direct-to-consumer sales. We added BOPIS and other essential omnichannel capabilities. We introduced loyalty and signed up over 15 million members in just a few short years. We dramatically evolved our product assortments. We built meaningful data analytics and CRM capabilities, and we removed tens of millions of dollars from our cost structure, among other achievements. Entering the new year, we are evolving our focus with what we call “footwear first,” an advancement of our strategy that centers our work even more clearly around the customer. Our priorities going forward are now on four strategic growth drivers: number one, creating and curating winning product; number two, elevating our distinctive retail and consumer brands; number three, delivering exceptional consumer experiences; and number four, building amazing teams. In addition, reshaping the cost structure remains a focus until we achieve historical profit levels, but it is now embedded in our annual plans. These four drivers form our overall company strategy, but each business has its own important slate of initiatives for the new year that brings this to life. Starting with Journeys, we have said Journeys’ strategic growth plan aims to make Journeys the destination for the style-led teen, especially the teen girl. No other concept goes across athletic, casual, and canvas footwear. This is how Journeys is differentiated and represents the white space we found to build on its strengths to serve a wider teen audience interested in style and trend that is six to seven times larger than the market we have traditionally served and who is underserved in the mall today. In fiscal 2027, you will see us building on our progress in the second full year of executing this strategy. In addition, we are taking the four key areas we have been concentrating on for Journeys and expanding them to five. Together, these initiatives position us to continue comp growth and expand profitability as we have successfully demonstrated so far. Starting with product and diversifying our footwear leadership, we achieved success with a more premium, more elevated assortment, giving us confidence to expand our female-led positioning and open-to-buy with key vendors. We grew through a diversified portfolio of multiple brands this past year and see opportunity to extend a number of iconic franchises across categories, including lifestyle running, casual, low profile, and sandals. Growth will come from trend leadership and newness from these categories, growth from the new brands we introduced last year, and growth from new models from existing in-demand brands. Leaning into these key trends and newness, we see opportunity to drive ASP increases once again this year as well. Second, building the Journeys brand, bringing our refreshed trend and style-led positioning to expand awareness with this broader teen audience and acquire new customers. Our Life on Loud campaign, with 750 million impressions across top streaming platforms and social in the fall, will extend into spring, backed by increased media spend totaling millions of dollars. For back-to-school and holiday, we will be unveiling a new creative concept with headline talent backed by even more media spend. We will elevate our editorial content, expand our employee ambassador program, and increase our social media presence to fuel discovery and our position that Journeys is the place for the latest on-trend footwear. As a preferred brand partner, we will build upon our activations like the ones we did last year with the Nike launch and the customization tour with UGG. And lastly, we will launch a community platform focused on teen well-being, creating energy and positivity to engage with our customer base. Third, reimagining the store fleet. Our new 4.0 format is a key component of our strategy and demonstrates the power of an elevated physical shopping experience, delivering stronger new customer acquisition and higher comp lift. In the coming year, we will double the 4.0 store count, adding another 80-plus to our fleet. About two-thirds of these will be remodels, and the balance will be relocations to bigger footprints and some additional new stores for more growth. We expect to end the year with about 20% of the fleet converted to 4.0 stores. Another exciting initiative is expanding the 4.0 concept to Journeys Kidz and experimenting to test the results. This new Kidz concept will be connected to the big Journeys format but with some intentional differences. Among other features, Kidz 4.0 will increase display across all size ranges to see if we are able to drive higher store volumes. The fourth and new area we have broken out for Journeys is driving digital evolution. With the growth of AI, improving discoverability within search is a key focus. Improving the website experience is another, along with testing new online customer acquisition and retention tactics in general and also in connection with the All Access loyalty program. And finally, unlocking the power of our people. Our investment in building stronger retail teams engaged in better selling behaviors and stronger conversions paid dividends, and we are building on these efforts in the coming year. Now moving over to Schuh, we see the same opportunity in the U.K. as we have at Journeys to be the leading fashion footwear destination for style-led youth with a sharp point on the female customer under 25. As such, we moved Schuh under the Journeys Retail Group and Andy Gray’s leadership in late fall last year. We have a number of the elements in place at Schuh, such as a new store format, and have the strategy work underway to refine our customer proposition and competitive positioning. However, in the year to come, our immediate priority is on actions to significantly improve Schuh profitability in this reset year. Some of the most important are reducing Schuh’s reliance on discounting. While the U.K. market has been challenged with heavy promotional activity, matching promotions helped sales but hurt profits. We ended the year in a clean inventory position, enabling us to begin removing several calendar promotions and focus on gross margin recovery. This reset will take some time, but our aim is to get back to full-price selling of must-have product. As part of this and to further the progress the merchant team has made on product elevation and brand access, Schuh will leverage the Journeys Global Retail Group under the leadership of Chris Santella to work with our key brand partners to better serve this coveted customer. This was a critical component of the Journeys strategic growth plan when we started that work as well. Efforts began last year and will continue this year to optimize the store fleet, closing unproductive stores to improve the overall cost base and store channel economics. Finally, we are targeting additional cost reduction actions in areas like selling salaries and rent reductions and implementing quick wins on experience like better visual merchandising and social media updates. As progress on these initiatives take hold, we will then shift our focus to Schuh’s strategic growth plan focused further on customer, brand awareness, and experience. Moving now to our branded platform, Johnston & Murphy will expand its consumer reach as a modern lifestyle brand. Delivering fresh and distinctive products continues as the primary focus. The plan this year is to capitalize on the favorable trend shift for J&M—more tailored styling, more dressing up—while maintaining comfort. We plan further growth in apparel and accessories, building on success injecting the assortment with greater freshness due to shorter lead times, and capitalizing on trends like the shift into knits. In footwear, we are renewing the assortment with 30% more new introductions, including franchise updates and new concepts like the Ripley. We will leverage accelerated development tracks to deliver greater freshness in season as well. We plan to add to our brand and awareness building like the successful partnership with Peyton Manning, and expand distribution by opening 10 to 15 new stores, which increases our fleet by 5% to 10%. And finally, Genesco Brands has done an incredible job quickly building out a full line for Wrangler footwear in anticipation of the fall launch. As we move into the year, our evolved footwear-first strategy centers on the consumer and rebuilding profitability while driving growth. With the work we have already done and this new strategy, we are confident in our ability to drive improvement while positioning the company for future growth beyond fiscal 2027. And with that, I will now open it up for questions. Operator: Thank you. We will now be conducting a question-and-answer session. We will be taking two to three questions from each analyst for the first round, and if there are additional questions, we encourage you to get back in the queue. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please for our first question. Our first question is from the line of Mitch Kummetz with Seaport Research. Please proceed with your questions. Mitch Kummetz: Yes, thanks for taking my questions. I guess my first question is on Journeys. I was hoping you could say how the business is performing quarter to date. Also, what sort of comp is embedded in the low single-digit sales increase? I would guess probably something kind of in the mid-single-digit range as far as comp goes. And then do you expect comp to be pretty consistent for Journeys over the course of the year by quarter, or do you expect it to be stronger in the back half given that that is where we see, you know, back-to-school and holiday pop up and the consumer being very event driven? And then I do have a couple of follow-ups. Mimi Eckel Vaughn: Perfect. Thanks for joining us this morning, Mitch. We have been really pleased by Journeys growth and performance over the last couple of years, and I will just take you back and say that this is our first full year of the Journeys turnaround. And so when you look to see where comps have been, we increased comps by 6% in fiscal 2025 and then followed by 9% in fiscal 2026, so really incredible comp growth. I will take your first question and say how is the business performing quarter to date. As I said, we are really pleased with where we are quarter to date. It has only been a month, it has been February, but we are tracking in the mid-single digits, and there has been a lot of disruption in terms of weather, but there was a lot of disruption last year as well. When we think going forward and expect the comp for this year, we do not quite get to mid-single digits for this year. I think it really is just being mindful or excited about all the initiatives that we have. We are mindful of the peaks and valleys that come through the course of the year, which we saw last year, and I think that we have embedded that within our forecast. In terms of the comp by quarter, we expect a higher comp in the early part of the year. We are looking at tax refunds and think that it should be a positive tailwind to what we see in Journeys. And then, of course, in the back part of the year, the business comped an incredible 12% on top of a 14% last year, so we are mindful of that. But all these great initiatives are in place to continue to drive that business forward. Most importantly, we are taking Journeys to a place it has never been before with a more elevated product mix and serving a broader customer base. Mitch Kummetz: And then thank you for that, Mimi. And then my second question, also on Journeys. Can you talk a little bit about maybe some changes to the assortment this year? I know you had said on prior calls that you had added, you know, HOKA, Saucony, and Nike, and Nike came late in the year. I am just curious with those brands in particular. I know that when you introduce brands like that, they start out, you know, in select stores. Curious to know if you are, you know, growing the number of stores that those brands are in and if you are—are any other new brands that you could speak of that you will be adding to the Journeys assortment in fiscal 2027? Then I have one last question. Mimi Eckel Vaughn: Great. I have talked a lot about how fashion has been broadening and that our teams are embracing more wearing and occasions. The really important takeaway here is that we need to have the brands that our customer has and what is represented within their closet, and so that is what we have been striving to do. And Journeys is the place that no matter what is relevant—and there will always be something relevant—we will be well positioned to be very deep in what matters most to our consumer. And so what I will talk about for this year is that once again, our year is not dependent on adding new brands. We see opportunity within the existing franchises. I think our growth was spread out. I think it is 10 different brands that we see growth spread out across, and we see some continued opportunity to add to the franchises that saw some very good growth this year. And so as far as the new brands, we do expect some growth from these new brands. We do expect to add additional product in on balance. But again, the overall growth for the year is really not dependent on adding anything new. And when we add the next brand, I will let you know. Mitch Kummetz: My last question on Schuh. Can you say how much pressure Schuh was on gross margin in 2026 and how much recovery you are anticipating in 2027 as you, you know, cut out some of the promotions in that business? Mimi Eckel Vaughn: Sure. I think what is important is that we are going to withdraw from promotions. We will not get there all the way this year, but we will make a really good dent into it. And I will ask Sandra just to recap how much we gave up in gross margin and how much we expect to pick up. Sandra Harris: Yes, Mitch. So the deleverage that was created in 2026 in gross margin, or the lower gross margin, 60% of that is attributable to Schuh, with the majority of the rest related to the exit of the licenses, with some small impact from tariffs. Mimi Eckel Vaughn: Yes, so I think it was 250 basis points altogether, and we do not think we will take all of that back up as we go through the course of the year this year. I think it has been a couple of years in a row that we have lost gross margin due to the promotional environment. We cannot get it all back in one year, but we are going to make a very good start. Operator: Thank you. Our next questions are from the line of Joseph Vincent Civello with Truist Securities. Please proceed with your questions. Joseph Vincent Civello: Hey, guys. Thank you so much for taking my questions. You gave some great color on the category strength during Q4 and where you see growth coming from this year. Can you talk about the canvas category at all, how that performed over the holidays, and what you are thinking about the pipeline for that in 2026? Mimi Eckel Vaughn: Joe, thanks for joining us this morning. When I think about the growth that Journeys experienced in the fourth quarter and the categories that propelled the growth, it really was all about casual and about boots. We saw a nice pickup in boots after several years of not a lot of forward momentum in the boot category. And so our fourth quarter was all about casual. And what is exciting about our business is that we have got a nice balance, and so we have got athletic in other parts of the year and we will be leaning into athletic, particularly lifestyle running, through the course of the spring. Canvas continues to be a relevant and important category for our customer base. It is a much more accessible price point than some of the other categories. But we have seen the consumer stretching up to pay up for what they want, and we are not anticipating growth in the canvas category overall for this year. Joseph Vincent Civello: Got it. And you have made a lot of gains, obviously. You know, we have talked about the new brands, higher heat, the customizable event. Are you continuing to see brands engage more with you guys, you know, just to provide, you know, more premium in-store experiences for customers? Mimi Eckel Vaughn: For sure. We—and they—are so excited about what we have accomplished over the last couple of years. And it all starts with who is the consumer we are trying to serve. And we are—we have always been known for teens. We have always been a bit more female-focused, but we are leaning significantly into that. And when you think about how well that customer is served with apparel, she is really well served where you can think of 10 to 15 places that she goes in the mall, and the place that she can go for her footwear is to Journeys. And so our brands want access to this very coveted customer. This customer has demonstrated that she likes to shop in the physical world. It is a pastime. It is fun. It is engaging. She is super educated about what she wants. She keeps up with fashion trends, and we are continuing to lean further into our trend leadership and into the style setting that is out there, and working with our brands to be able to do it. So it is a fantastic partnership in terms of what we are able to do together. So what is important is that we are promoting the Journeys brand, but also promoting the brands that our consumer wants. And so going forward, we have done activations with our brands. We will continue to do activations with our brands. We are adding more premium product. We do see additional opportunity to push up ASPs through the course of the year, and the consumer is responding really well. We have committed to opening more 4.0s, so we have a great environment for our brands to put their products, and, yes, we will continue to build. Joseph Vincent Civello: Got it. Yes, makes sense. And then on that ASP comment, can you sort of break out, like, how much of that might be coming from, you know, just continuing to expand your premium assortment versus underlying, like, product—the pipeline that the brands are setting themselves, like, in terms of higher ASPs? Mimi Eckel Vaughn: Sure. So it is both. For sure, the industry has been taking price increases and, you know, always when brands have heat or items have heat or franchises have heat, brands are always seeing an opportunity to be able to take price increases as appropriate—just with a nod, if you are a hot brand, you certainly have the opportunity to expand pricing. And then overall cost pressure from higher tariffs is driving some of that as well. But it is also that we are improving the premium nature of our assortment, and so we are actually adding items that are at a higher average selling price than the overall assortment today. So altogether, it is a positive combination. We are just seeing, in general, some ASP pickups from, in general, some price increases, but also adding new items to the assortment that are more premium in nature. Operator: Thank you. As a reminder, if you do have additional questions, we encourage you to get back in the queue. Next question comes from the line of Sam Poser with Williams Trading. Please proceed with your question. Sam Poser: Good morning, everybody. Thanks for having me on the call. I have got a handful. Number one, what is the timing by concept of the store openings and closings? And then within that, how many 4.0 stores are you planning to have open this year? Mimi Eckel Vaughn: Sam, thank you for joining us this morning, and I will talk about 4.0s, and then I will ask Sandra to talk about openings and closings for the year and just overall timing of that. But we are delighted with the 4.0 performance. I know you have been in our stores. We managed to get more than 80—I think it is 84—open through the course of the year this year, and we plan to open 80 more over the course of the year again this year, and it will be about 20% of our fleet. But what is notable, and I want to call this out to you, is that about two-thirds of those are just remodels in place, which is what we mostly did last year. But about a third of them are larger stores, so we are expanding our footprint in many of the locations because we really like what we have seen. We have been able to drive more productivity, and we need more space. And particularly in the more premium malls, we are performing even better than average. And so more premium malls, more opportunity to take bigger square footage, allows us to be able to not just get the lift from the remodel in place but to add square footage overall. And so we will continue with that. And I think I did call out too that we are doing a Kidz 4.0, and we are going to see how that works. Over to Sandra for the openings and closings. Sandra Harris: Yes, and then, Sam, in our summary deck that is posted, there is a listing of the openings and closings expected for next year by division. But just in general, we are expecting to open 23 stores next year, predominantly weighted to Johnston & Murphy, and that will be more towards the back half of the year. And in regard to the closures, we have about 75 stores. About 75% of that will be Journeys and the ongoing store optimization, which we do around lease expiration timing. And then we have about 13 for Schuh and six for Johnston & Murphy. And those are actually timed— Sam Poser: Time out. I know all of that. I read that in the thing. All I am trying to do is figure out by quarter how many you are opening and planning to open and close by concept, by quarter. That is what I am trying to figure out. I know the total. I just do not want to put in my model you are opening stores at the wrong time or closing stores at the wrong time. Mimi Eckel Vaughn: Right. Yes, Sam. So on the 4.0s, we are doing them obviously throughout the year pretty evenly. Q1, Q2, with about double of that in Q3, so they are open and they are ready and they are productive, right? And then in regard to the other Johnston & Murphy stores, opening them in the prime period—Q3 and some into Q4. On the store closures, it is all around lease expiration, but predominantly they are split between Q1 and Q2 and trailing off in Q3 and Q4. Sam Poser: Okay. Thank you. And then can you talk about the sales in the license businesses and how much, like, how down that is going to be in the first half of the—how bad it is going to be year over year in the first half? Is it expected to be up at any point in time in the year? And you ran, I think you had, like, around a 30% to 35% gross margin at one time, it was down. What is the thought process to get back to those higher gross margins within that business? Mimi Eckel Vaughn: Yes. So I will give you a little color, and I will get Sandra to get the numbers. So we expect the most pressure from the down sales—I think we told you it is a net $30 million altogether. We expect the most pressure in the second quarter and then the third quarter, not much in the fourth quarter, and then some in the first quarter. So the majority of what is—I would say about two-thirds of the loss is going to happen between the second and third quarters. It used to be a 35% gross margin business. We absolutely want to get it back to that level. We will not be there yet this year. We are starting up the Wrangler, and I know you have seen the line, and the team has done an amazing job getting the full line out quickly. But the plan here is that our Dockers business—we are down to Dockers and Wrangler. We simplified the assortment. And, you know, Dockers is moving toward that 35%. We are going to need some time to experiment with Wrangler, and therefore will not hit that gross margin level until we grow that business. Sam Poser: And then lastly, I understand that there is an opportunity with Wrangler in mass, but that does not appear like where you are starting it. Can you talk about the timing and the initial plans for the type of—where you are looking to put it this year? Mimi Eckel Vaughn: Sure. There is opportunity for Wrangler in many tiers of distribution. And if you look where the apparel is distributed, it informs the thinking that mass is an opportunity, but there are much higher tiers of distribution where we are going to start. And so the initial collection—and we are going to be focused on Western, and we are going to be focused on work. We call the first horizon Western specialty, farm and ranch. Really, the top of the pyramid is where we are starting—tier-one distribution that will really set the halo for later distribution in mass. So it is not going to be in the near term that we are going to get to mass. It is going to be in some of the more premium accounts, Sam. So that is how we are going about establishing the footwear part of this brand. Operator: Our next question comes from the line of Mantero Moreno-Cheek with Jefferies. Please proceed with your questions. Mantero Moreno-Cheek: Thank you for taking my question. Can you triangulate what is driving the ticket and traffic at Journeys and the rest of the brands? And then also, on inventory, you ended the year up 2% and I am just guessing that it implies that units are down. Is there anything you can discuss there on inventory, on AUR, ticket, and traffic? And I will follow up after that. Mimi Eckel Vaughn: Sure, Mantero. I will start with just talking about traffic and ticket and the like, and then I will hand it to Sandra to talk about inventory. But in general, in the fourth quarter and in general in the footwear industry, traffic has been down. I think for the industry in general, traffic was down close to 10% in the fourth quarter. And I think that is a measure of a couple of things. One is that consumers are more educated, they are doing less window shopping, they know what they want when they come in. And so the traffic that is coming in is more qualified traffic. What we have been working on is we have been working on conversion, and our businesses across the board saw higher conversion in the fourth quarter. I called out Journeys conversion. The store associates are really doing phenomenal work to drive great conversion for the customers across the lease line well into the double-digit levels. And then average selling price is the other piece that is moving the needle. And so it is conversion and selling price and transaction size that is moving the needle. Units are down overall. I think the consumer in general is stretching up to buy what they want, and units are down across the industry. But the important thing is that they are really stepping up and accepting the price points and reaching to buy that must-have product that they want. Sandra Harris: Yes, one final note on inventory: units are down, but we also have the exits of the licenses at Genesco Brands Group, and then we also have the highly promotional cadence at Schuh, which sold off a lot of inventory. And so on a constant currency basis, they are down well. Mantero Moreno-Cheek: Thank you. And then my follow-up is, have you—or did you—say how much higher the 4.0 stores are comping versus the rest of the chain? Mimi Eckel Vaughn: Yes, we did. For this time around, we said that they have been comping 25%-plus, and they continue at that level. And we saw stronger everything. You heard how strong Journeys was over the fourth quarter, but you can take everything that we said and 4.0s were even stronger—stronger traffic, stronger conversion, stronger selling prices, more new customers. And new customers are going to be the hook for the 4.0 stores. It is the visible difference and the manifestation of the new Journeys strategy. And so the ability to attract new customers is stronger in the 4.0s, and so we will continue to roll out this year and have more opportunity to do that. Operator: Thank you. Mimi Eckel Vaughn: Thank you. Operator: At this time, we will turn the floor back to management for closing remarks. Mimi Eckel Vaughn: Great. Thank you, everyone, for joining us, and we look forward to talking with you on our next call. Operator: This will conclude today’s conference. We thank you for your participation. You may now disconnect your lines at this time, and have a wonderful day. Sandra Harris: Thank you.
Operator: Good day, and welcome to the Allient Inc. Fourth Quarter Fiscal Year 2025 Financial Results. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Craig Mychajluk, Investor Relations. Please go ahead. Craig Mychajluk: Yes, thank you, and good morning, everyone. We certainly appreciate your time today as well as your interest in Allient Inc. On the call today are Richard S. Warzala, our Chairman, President and CEO, and James A. Michaud, our Chief Financial Officer. Rick and Jim will review our fourth quarter and full year 2025 results, provide a strategic and operational update, and share our outlook. We will then open the line for questions. As a reminder, our earnings release and the company's slide presentation are available on our website at allient.com. If you are following along, please turn to Slide 2 for our safe harbor statement. During today's call, we will make forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated. These risks and factors are outlined in our SEC filings and in the earnings release. We will also discuss certain non-GAAP measures we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying the earnings release as well as the slides. With that, please turn to Slide 3, and I will turn it over to Rick to begin. Richard S. Warzala: Thank you, Craig. Welcome, everyone. We entered 2025 with clear priorities: expanding structural margins, strengthening the balance sheet, and positioning the portfolio around durable secular growth drivers. As we close the year, I am pleased to say we made measurable progress on all three. We delivered a strong fourth quarter and, importantly, exited 2025 with improving momentum across the business. The fourth quarter reflected several highlights, but it can be summarized by a few themes: improving industrial demand, disciplined execution across the organization, and structural margin expansion driven by our Simplify to Accelerate Now program. This performance was not only a function of higher volumes; it was operating leverage. It was improved mix. And it was sustained cost discipline translating directly into stronger profitability. We saw improving conditions at our largest vertical, industrial. A significant automation destocking we have discussed throughout the year appears largely behind us, and ordering patterns are returning to more normalized levels. At the same time, demand for our power quality solutions supporting data center infrastructure remains strong. Vehicle performance was stronger than expected in the quarter, primarily tied to commercial automotive production timing. While we do not view that as a structural shift, it contributed to the top line in the period. Medical remained steady and consistent, and aerospace and defense reflected normal program timing dynamics. So what we experienced in Q4 was broad participation across the portfolio. That balance across verticals matters. It reinforces diversification of the model and supports the durability of our results. Equally important, the margin expansion we delivered was not simply volume-driven. It reflected better mix when compared with last year's results, improved cost structure, and continued execution under our Simplify to Accelerate Now initiative. The operational work we have been doing over the past few years is now clearly embedded in the model. Turning to Slide 4, and looking at the full year, 2025 was about strengthening the foundation of the company. We set out a clear objective under our Simplify to Accelerate Now program: reduce complexity, improve throughput, and strengthen margins in a way that is sustainable. We targeted a set of structural savings in the range of $6 million to $7 million for 2025, and while not yet complete, we delivered meaningful progress on that target. These savings are being realized through footprint optimization, where we are consolidating overlapping operations and focusing our resources where we have scale and competitive advantage; accelerated product development, where we streamlined our process and reduced time to market for our offerings; and lean manufacturing disciplines, where we improved standard work and reduced non-value-added time on our shop floors, consistent with best practices that help cut cost while improving quality and reliability. This is a journey and it never ends. One example that speaks to all three is the transition of our Dothan facility. We announced this last year as part of our realignment strategy, with the plan to focus Dothan on advanced fabrication capabilities, including machining. As a result, we transferred assembly work to facilities where we have complementary capabilities. That effort, while still a work in progress, is expected to drive down costs and reduce complexity across our North American footprint. Overall, we delivered record gross margins for the year. We expanded operating income at a rate well ahead of revenue growth. We generated record operating cash flow. And we reduced net debt significantly, bringing leverage down to levels that give us real financial flexibility. The balance sheet today looks very different than it did a year ago. And that matters because it allows us to invest in organic growth, support new program launches, and pursue disciplined capital allocation opportunities from a position of strength. With that, let me turn it over to Jim for a more in-depth review of the results. James A. Michaud: Thank you, Rick, and good morning, everyone. Turning to Slide 5, fourth quarter revenue increased 17% year over year to $143.4 million, including 15% organic growth on a constant currency basis. The growth was driven primarily by strengthening industrial demand, particularly automation and power quality applications, as well as increased commercial automotive shipments within the vehicle market. From a geographic perspective, 50% of revenue was generated in the U.S., with the balance coming primarily from Europe, Canada, and Asia Pacific, consistent with our diversified footprint. Let me walk you through performance by major vertical because that is where the real story sits. Industrial revenue increased 24% in the quarter. The primary driver was strengthening automation demand as ordering patterns from our largest automation customer returned to more normalized levels following the extended destocking cycle. In addition, demand for power quality solutions supporting data center infrastructure remained very strong. Those applications continue to benefit from electrification and digital infrastructure investment. Vehicle revenue increased 35%. This was primarily due to increased commercial automotive shipments tied to a transitioning model program. As Rick mentioned, we view this as production schedule timing rather than a new long-term run rate. Construction markets also improved, and power sports conditions appear to have stabilized relative to earlier softness. Medical revenue increased 9%, supported by steady demand for surgical instruments and continued traction in precise motion applications. Aerospace and defense declined 5%, reflecting the lumpy nature of defense and space program shipments along with the previously announced M10 Booker Tank program cancellation. Importantly, underlying defense program activity remains solid. Distribution channel sales increased 11%, although that remains a smaller component of total revenue. Turning to Slide 6, here we show the composition of our revenue over the trailing twelve months, along with the year-over-year change in each market and the key drivers of that change. This slide really highlights something important about how the business has evolved, and what you are seeing in the mix is intentional. Industrial remains our largest vertical, and it is increasingly anchored by higher-value applications: power quality for data center infrastructure, motion solutions tied to automation, and applications aligned with electrification. That is where we have been directing engineering focus and capital. Aerospace and defense continues to represent a meaningful and growing contributor. While quarterly shipments can be lumpy, the underlying program activity and pipeline remains solid, and that vertical provides longer-cycle visibility. Medical remains steady and consistent. Surgical applications continue to be reliable contributors, and our precision motion capabilities position us well in that space. Vehicle, while still important, is a smaller percentage of the mix than it was previously. That is partly market-driven, but it is also strategic. We have intentionally shifted away from lower-margin programs and toward higher-value applications across the portfolio. So when you step back, the mix today is more margin-accretive and better aligned with durable secular growth drivers than it was just a couple of years ago. That evolution matters because it supports the margin expansion and earnings durability we have delivered. On Slide 7, gross margin expanded 90 basis points year over year to 32.4%. The improvement was driven by higher volumes, favorable mix, and operational efficiencies from our Simplify initiative. Sequentially, gross margin moderated largely due to a higher proportion of vehicle revenue, which carries lower relative margins. For the full year, gross margin expanded 150 basis points to a record 32.8%. Turning to Slide 8 and the drivers behind the margin and operating income expansion, what stands out in 2025 is not just the headline results, but how we have achieved them. As Rick outlined, the Simplify to Accelerate Now program was designed to structurally reduce complexity, improve throughput, and strengthen margins. The operating performance you see here is the financial expression of that work. The structural savings we delivered in 2024 and now 2025 are embedded in the business, and they are showing up directly in leverage and operating income expansion. Realignment costs related to these actions during the year are primarily associated with the Dothan transition. The transition to date has been successful not just from a cost perspective, but operationally. We are realizing enhanced manufacturing focus and early elements of the anticipated savings. When you layer these structural improvements with improved volume and mix, the impact on leverage becomes clear. At the operating level, we drove meaningful improvement in expense discipline. We captured upside from higher volumes while at the same time controlling SG&A, allowing operating income to grow significantly faster than revenue. In the fourth quarter, operating income increased 76% to $11.4 million, or 7.9% of revenue. For the full year, operating income increased 46% to $44 million, or 7.9% of revenue. Turning to Slide 9, you can clearly see how the structural margin expansion and disciplined execution translated into meaningful bottom-line growth. Net income for the quarter more than doubled to $6.4 million, or $0.38 per diluted share. Adjusted net income was $9.3 million, or $0.55 per share. Adjusted EBITDA was $19 million, or 13.3% of revenue, up 170 basis points. For the full year, net income was $22 million, or $1.32 per diluted share. Adjusted EBITDA was $76.9 million, or 13.9% of revenue, representing 210 basis points of expansion year over year. Our full-year effective tax rate was 23.3%. For 2026, we expect our tax rate to be between 21% and 23%. Turning to Slide 10, this slide reflects disciplined execution against the three financial priorities we outlined at the beginning of the year. Those priorities were improving working capital and inventory efficiency, taking out structural costs, and reducing debt and strengthening the balance sheet. Starting with cash generation, we delivered record operating cash flow of $56.7 million for the year, up 35% from the prior year. That level of cash conversion reflects both improved profitability and better working capital management. Inventory discipline was a major focus in 2025. Despite navigating automation normalization and rare earth considerations during the year, we improved inventory turns to 3.2 times compared to 2.7 at the end of 2024. That is a meaningful step forward. We tightened planning processes, aligned production more closely with demand signals, and reduced excess inventory that had built up during the prior cycle. Importantly, we did that while maintaining strong customer service levels. On receivables, days sales outstanding improved to 57 days for the year versus 60 last year. That reflects better collections, stronger billing discipline, and improved customer mix. When you combine inventory turns improvement with DSO reduction, you see a structurally better working capital profile. Capital expenditures for 2025 were $7 million, with disciplined, focused investments tied to customer programs and productivity initiatives. For 2026, we expect capital expenditures in the range of $10 million to $12 million, primarily supporting customer programs and growth initiatives. So Slide 10 is really about execution. We said we would improve working capital. We did. We said we would drive structural cost improvements. We did. And we said we would reduce debt. That shows up clearly on the next slide as the balance sheet story is directly connected to the execution we just discussed. Total debt declined to $180.4 million. Net debt declined to $139.7 million, a $48.4 million reduction year over year. Our leverage ratio improved significantly to 1.82 times from 3.01 at the end of 2024. Our bank-defined leverage ratio ended the year at 2.34, comfortably within covenant levels and providing meaningful headroom. The combination of stronger earnings, improved cash conversion, and disciplined CapEx allowed us to materially deleverage in a single year. That is important for two reasons. First, it lowers financial risk and reduces interest burden over time. Second, it creates flexibility to invest in organic growth, support new program launches, and evaluate disciplined capital deployment opportunities from a position of strength. So when you look at Slides 10 and 11 together, they tell a clear story. Operational improvements translated into cash. Cash translated into deleveraging, and deleveraging translated into flexibility. That is the financial flywheel we have been working toward. And with that, if you advance to Slide 12, I will now turn the call back over to Rick. Richard S. Warzala: Thank you, Jim. As we move through the fourth quarter, order trends improved. Automation demand is stabilizing, power quality tied to data center infrastructure remains strong, and our aerospace and defense pipeline continues to provide long-term, long-cycle visibility. Orders were up sequentially and year over year; we exited with a book-to-bill ratio slightly above one. That is important as it reflects positive momentum as we enter 2026. Backlog ended the year at approximately $233 million, with the majority expected to convert within three to nine months, consistent with our historical patterns. The visibility we have today supports a constructive start to the year. As we look into 2026, we believe we are positioned to build on that momentum. At the same time, we remain realistic. The macro environment is still uneven across certain end markets. Customer capital spending can move in phases, and policy and tariff considerations remain part of the broader landscape. We continue to monitor developments closely, and we will adjust as needed. With respect to the recent Supreme Court ruling and broader trade policy discussions, we are continuing to evaluate any potential implications. As we have discussed previously, we have taken proactive steps over the past several years to diversify our supply base, localize certain sourcing where appropriate, and manage tariff exposure through pricing and operational adjustments. We remain disciplined in how we evaluate these developments, and we will adjust as needed. What gives us confidence is what we control. We control our cost structure, and it is structurally better than it was a few years ago. We control working capital discipline, and we demonstrated that in 2025. We control capital allocation, and we strengthened the balance sheet meaningfully over the past year. And we continue to align the portfolio around higher-value motion controls and power solutions serving durable secular drivers of electrification, automation, energy efficiency, increased defense spending, and digital infrastructure. These drivers are not short-cycle themes. They represent long-term shifts in how energy is generated and used, how systems are automated, and how infrastructure is built. Allient technologies are directly aligned with those transitions. We exit 2025 with improved margins, stronger cash flow, and a materially stronger balance sheet. That combination provides flexibility and resilience, and it positions us to execute through varying market conditions. We believe we are entering 2026 from a position of strength. We have an excellent opportunity to leverage the foundation we have been building through our Simplify to Accelerate Now initiatives, simplify our organization, drive out cost, and accelerate growth rates well into the future. With that, operator, please open the line for questions. Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Our first question comes from Tomohiko Sano with JPMorgan. Please go ahead. Tomohiko Sano: Good morning. Thank you for taking my questions. So while the cyclical macro recovery, such as improving ISM, is expected, Allient has clearly been driving structural growth and margin improvement through initiatives like Simplify to Accelerate Now. Looking ahead to 2026, which do you see as the bigger contributor to growth and margin expansion, external tailwinds or your own self-help measures? Any more color on 2026, please? Thank you. Richard S. Warzala: Okay. If I understand your first question, you are looking for what are the seculars that we expect to be generating the largest growth opportunities for us in 2026. Is that correct? Tomohiko Sano: Mhmm. I want to get a better sense about cyclical characteristics of the recovery you have seen versus the structural themes you see in 2026. Richard S. Warzala: I am sorry. I do not know whether it is our line or your line, but you are breaking up on us, and I am having a hard time picking up some of the comments or questions. Tomohiko Sano: I am sorry. Could you talk about 2026 growth of sales driven by cyclical recovery versus structural items? For the revenue side, I wanted to get some color on the margin side as well. Thank you. Richard S. Warzala: Okay, I think I have it here now. First off, as we talked about here, as we have been repositioning our business and looking at where we see some of the longer-term drivers, we mentioned data center infrastructure. We do see that continuing. We see, I believe, one of the issues that has been addressed quite a bit over the last few days here has been about the energy side of it and how they are going to generate power, and it seems like some of the companies are stepping up to do that on their own, which I think was a major concern. That does not affect us. We obviously need the power, and as the data center expansion continues, we play a significant role in making sure that power is being delivered efficiently and effectively, and eliminating distortion within the grid and so forth. So I think we do see that opportunity continuing now into 2026 and into the future. Again, it is based upon infrastructure; it is based upon capital projects, and of course those are subject to the developments as the prime contractors and developers determine the right timing for those. As far as aerospace and defense, we have heard, let us call it, defense more than aerospace. That is impacted by many factors, and now, given the war that is going on in Iran right now, I think it is going to take a little bit of time to settle down for us to figure out how that will have an impact on our business, whether it is immediate or long term. That is too soon to call. As far as the other programs go, which we have been very actively involved in, we see some of the key drivers in terms of defense applications, whether it is drones, whether it is missile defense, and so forth. We have been a player in those markets for some time now, and we do see that continuing. One thing that is occurring there is, of course, the requirement for defense products and suppliers to be based in North America or the U.S., and that definitely plays to an advantage for us as we do have a significant manufacturing base and design engineering team in North America. The other areas that we see opportunities, of course, is we do not see medical slowing down. The advent of AI in medical and the use of sophisticated diagnostic tools, and again, some of the key areas that we have been involved in for many years, we continue to participate, and we are excited about that. Automation will come, and automation comes in the form of our normal industrial automation and even in the robotic side of it, sometimes referred to as humanizing and so forth. Again, it is another area we participated in, and we continue to participate in. We see growth and stabilization there. European markets, especially Germany, seem to be remaining a little bit soft, and they are not predicting any growth for 2026. We will see how that shakes out as the year goes along, but the forecast we are getting right now is that the industrial markets in Germany, in fact, may decline this year, which we saw some signs that it was going to improve; the latest information we are getting is that may not be the case. And I think our diversification in many different markets plays well for us, and there is a good balance. We do believe that the industrial sector will continue to grow because we do have automation in that sector, as we call it, and also the data center infrastructure is in there as well. So we do see that continue to grow, and we see defense growing, whether it is timing—as Jim had mentioned, the government canceled the M10 Booker program—and that is a realignment of how they see the priorities on the battlefield going forward and the challenges that are being faced. As far as margins, margins are a big factor based upon mix for us. I can tell you that our focus and emphasis on new applications has been in the markets where the margins are above our average. That has been our focus, will continue to be our focus, and capital spending will align with that. So I think that we are in pretty good shape. Our book-to-bill ratio was improving, and that is one of the things that we pay close attention to to determine whether we have converted some of the opportunities we are working on, and it is showing up in bookings that will later show up in shipments. That is a long-winded answer; I hope I have covered them all. If not, you can ask me to add to that if necessary. Tomohiko Sano: Thank you. Very helpful, Rick. Thank you. And just a follow-up on capital allocation. Congrats on leverage improved and strong cash flow generation. How would you prioritize capital allocation for 2026 among organic growth investment, M&A, and shareholder returns, please? Richard S. Warzala: Sure. I would say to you that, again, going into 2026, we feel that our pipeline of opportunities is quite strong, and our investments that we make will be to support what we have control over and in hand right now, which is some significant opportunities, and we will need to invest to realize some of those opportunities. So that is going to be the majority of the investment that we see going forward. I would also say to you that we are paying very close attention in terms of the pipeline of acquisitions. We have had certain areas that we will not discuss on the call here that we are paying close attention to, and if the opportunity does arise, we think we are well positioned to take advantage of that and to move forward with it. I think the Simplify to Accelerate Now initiative—I just want to make it clear—we are not done. We had several initiatives that were well underway and executed quite successfully, but certain things were not completed in 2025 that are carrying into 2026, and we will have the discipline to get them done and drive cost out. We also see other opportunities when we look at our infrastructure and our footprint to continue to drive cost out, to become more efficient in the way we do things. So that is not ending; that will continue. It is not like we did a mad push for a couple years and it is all completed. It is not. There is more opportunity ahead of us. And 2026 will not be one where we just sit back and say, okay, let us take a deep breath and look at what we did and move on from here. We are going to be aggressively going after additional opportunities to improve our cost base, and they are there. Tomohiko Sano: That is very helpful as well. Thank you very much. That is all from me. Richard S. Warzala: Thank you, Tomo. Operator: The next question comes from Gregory William Palm with Craig-Hallum. Please go ahead. Gregory William Palm: Thanks. Good morning, everybody. Congrats on a good way to finish 2025. I do not remember the last time you actually grew revenues sequentially from Q3 to Q4. Maybe it has happened once or twice, but I understand a little bit was due to some outsized growth in commercial vehicle, which you talked about. But broadly speaking, what else drove the better-than-expected seasonality that you would normally see? And just to be clear, what kind of trends have you seen so far in Q1? Richard S. Warzala: Yeah, great question, Greg, because it was abnormal. You are absolutely correct. You have followed us a long time, and as we say, going into Q4, there are always some unknowns. We have seen years where demand was pent up—supply chain crisis, things like that—which caused irregularities in the normal cyclical patterns that we would see during the year. We did in fact have a few pull-ins that we had not anticipated, so it did elevate Q4 sales to a certain extent, one that we mentioned in the commercial vehicle side of it. We do not see that having—that was a one-time surge based upon some demand that had been sitting out there, and we see returning to normal. A couple other areas were a few surprises, and I will not mention in detail what they were. They were pulling in product, and then as we turned the year, we saw that reflected in a little bit lower demand in the first quarter. So there were some offsets there that we are going to have to address and see—it is still early, of course—how that lands. But that is a little bit unusual, and thank you for pointing it out, because there were, I will say, three different drivers of that. One was a one-time, which will reduce to normal, and the other two, we did see a little bit of reduction after they were pulled ahead as we started the year. But nothing that we see that will change normal run rates on an annual basis. It was just unusual. Gregory William Palm: Leaving this aside, what type of demand are you seeing right now across your markets? Any change? I know things strengthened as we went through 2025, but any strength? I am just curious as you look at what has occurred over the last week, what kind of risks or even opportunities could that bring about this year? Richard S. Warzala: Our order input seems to be coming in quite well, and we saw improvement through the year, and as you mentioned, we watch that very closely because that is obviously an indicator of what we are going to see in terms of converting it into shipments. That is encouraging. We see that continuing to flow in nicely. As far as what has happened in the last week, of course, there is no surprise in saying that on the defense side of the business, we certainly do supply products that are being utilized right now. How that converts into orders—you know, we were also surprised when they were heavily consumed, and we did not see production orders happening as fast as we would have expected, which indicated there was a big stockpile. We think the stockpile had been chewed up. We saw some return to starting to ship again for some defense-related products. So if you just ask for what our gut feel is, there will need to be an increase in certainly some of the products that we deliver to do some replenishment. What the total amount is—the impact—is hard for me to say. But I am sure we will start seeing some of that fairly soon. Gregory William Palm: I know you mentioned drones, and that is an opportunity that you have called out a little more recently. Are you able to share with us any traction that you are seeing, just in terms of what the opportunity set might be emerging there? Richard S. Warzala: Our company is well regarded and well respected for high-performance solutions, custom engineering, and so forth. I would say our activity in that market had been primarily in that space, and it accelerated. It certainly accelerated as far as the pipeline of opportunities, the prototyping that we are doing, the quoting that we are doing. It also seems to be expanding into the class one or group one, whichever way you want to describe it, devices, and has caught our attention. One of the areas of opportunity for us that we see is that we know how to produce product and buy in. We have one of the benefits that we enjoy based upon having a certain percentage of our business—as we have stated in the past, we try to keep it in the single digits—automotive, is we know how to produce higher-volume solutions cost-competitively with the use of automation. So I see it as very encouraging, and I see it as a real opportunity for us to take our know-how that we have gained and developed over the years and to redeploy it into some of these other areas. While the pricing and the margins may not necessarily be the same as the higher-performance custom engineered products, certainly the volumes do give you the opportunity from a volume standpoint and from an operating margin standpoint to be incremental to our business. So that is an area that we see. The shift to North America has created an increase in inquiries. As I said, we have been in the business in different applications. We see our technology base in electronics and controls and motors and lightweighting and composites definitely gives us an opportunity to expand that. So we are pretty excited about it. Gregory William Palm: And I guess just last one. I recall last year you announced the facility expansion where you are doing a bulk of the data center work, and I am curious what the status is of that. Do you feel like you have adequate capacity once it is done to capitalize? What are you seeing in terms of the opportunity set there? Richard S. Warzala: Yes. To answer your question, it is coming along extremely well. It will be late second quarter, early third quarter when it is fully operational. Timing could not have been better. That is all I can say. Timing could not have been better. The opportunities we are seeing, and the fact that we had addressed it in advance to expand our capabilities and our footprint, were definitely fortuitous as the demands of the market continue to go up. I think they will start to unfold later in the year. You will start to see some significant increases in volume in that area. And our timing was good. Gregory William Palm: Okay. Perfect. Appreciate all the color. Thanks. Richard S. Warzala: Thank you, Greg. Operator: The next question comes from Matt McAllister with Lake Street Capital Markets. Please go ahead. Matt McAllister: Hey, guys. Thanks for taking my questions. I want to go back to the data center opportunity. From your comments here in the Q&A and then prepared remarks, it sounds like it would be safe to say you expect the data center opportunity to accelerate in 2026 over 2025 in terms of growth rate. Is that correct? James A. Michaud: Yes, we do. Richard S. Warzala: And what I would say to you is that definitely the opportunities are there. As Greg asked in the previous question about the expansion to our facility, our main facility was underway, and last year was approved and is reaching the point of completion. That is critical for us to be able to handle the increased demand that we expect to see. I will say to you that there was an acceleration into last year of some of the products that we produce and accelerated deliveries, and you are going to have to pay close attention to the order input rates and what we see there, because it is not a smooth, incrementally improving business. You can see fairly substantial jumps in opportunities and timing of orders and when the demand and shipments are going to occur. It is not just going to be a straight line. We will see that perhaps in the third and fourth quarters of this year where you will see some ramping. Matt McAllister: Is this growth primarily driven by new contract wins with new customers, or is it a mix between expanding wallet share with existing customers? Richard S. Warzala: The market itself is expanding, and we have talked in the past about some of our capabilities that put us in a very nice competitive position in the market, and I think that is what is driving it. So it is market expansion, and the technology we have to support and service that is also being recognized and accelerating some of those opportunities for us as well. I do not want to—you are fairly new, and I appreciate you joining us as an analyst. In the past, we talked about an acquisition that we did in Wisconsin that gave us capability and a manufacturing capability and footprint in Mexico. We have been leveraging that to a great extent and helping us accelerate our ability to meet those demands. It has proven to be very helpful for us as we have been addressing some of those. So it has been our capability, our production capability, the expansion that we are doing to continue to improve upon that, as well as our technology, which gives us a nice competitive edge in the marketplace. I am not saying we are alone, but we clearly have product that is recognized as high-performing and very cost effective. Matt McAllister: Okay. And then last one for me. With the M10 Booker program coming to an end, is there any other program you can share with us to give us an idea where you expect to head next, or is it something you cannot share? Richard S. Warzala: No. I would rather not share. Sure, we could share what defense programs, but as we found out with M10 Booker, that was not a one-year program. That was a six- or seven-year program. If you look at it, there is logic behind what is happening. As the battlefield is transitioning, the utilization of drones, the utilization of missiles, less boots on the ground—Booker was a larger vehicle. It is not going to go away in itself for the need for those larger vehicles and boots on the ground in some applications or some arenas. But we will see a shift towards smaller, more agile, more autonomous vehicles, and we are positioned as well on those. One of the things for us to get the message out—as we have acquired companies in the past, and we looked at more of a fully integrated solution—we provide significant advantages in that we can handle the electrification; we can handle actuation. So we have got motors, we have got controls, we have got drives, we have got I/O, and we have lightweighting composites. Those composites are used quite extensively, and composites are not just for lightweighting. There are other reasons you use lightweighting: structural integrity or improved strength, EMI protection, as well as lightweighting to make them more efficient as you move towards whether it is electric or hybrid vehicles to improve battery life and so forth. I would say that we are in a unique position to be able to offer all of that to some of the prime contractors in addition to one of the things where the Department of War is pushing really hard now—accelerated development. These long design-in cycle times like a six- or seven-year Booker program and then canceling at the end, the speed of play is going to be absolutely critical. If you have products that are already being utilized in other markets that you can leverage, that gives you a competitive advantage. In many cases they are vehicles, and since we have been very strong in the vehicle market with some of our products, we are able to leverage those. So COTS—commercial off-the-shelf—products are critical. We can leverage those, and we can apply engineering and modifications to fit them for purpose, whether it is more ruggedized, more environmental, lighter, higher performance, and so forth. We are very excited about it, and we have made an investment. You have not seen the returns on those investments yet, but we are highly confident that we are positioning ourselves well for the future. Matt McAllister: Awesome. Thanks. Operator: Again, if you have any questions, please press star then 1. Our next question comes from Ted Jackson with Northland Securities. Please go ahead. Ted Jackson: Thanks very much. You guys sound so optimistic; it is infectious. A couple of questions. Dick, on the domestication of work and its drive for you, you have been dancing around that, and this whole thing with DAA—there are two buckets to bringing stuff back into the country. One is the actual manufacturing, and the other is the supply chain. For Allient, the manufacturing bucket is pretty straightforward. Is there work that you need to do on the supply chain to bring anything into compliance within DAA by the time it becomes fully into effect in January? Richard S. Warzala: It is a very good question. The answer is there is always going to be work to be done there. There are no quick answers to some of the rare earth minerals and materials that are being utilized in some of the higher-performing products here. You are 100% correct. We have the capacity and the capability to produce in North America. We have got ample capacity, and some of the work that we have been doing over the past few years that we have talked about—facility rationalization—and it is there, and it is to our advantage. We have about 1,200,000 square feet of manufacturing space within the company, and in North America a substantial portion of that. We freed up a significant amount of space that we can redeploy if there is a quick demand and a ramp-up for certain initiatives that may be undertaken. Supply chain is another challenge, and we have been hot and heavy on it and working on it. We have a team that is on it, but I will not tell you that it is completely solved. We are subject to other governments and other policies they may impose. We have been working hard to minimize the impact, to solidify supply chain sources, but some of that ramp-up has not been as quick as we would have liked to have seen it or the government would have liked to have seen it. So there is clearly going to have to be—government is going to have to look at that and really decide—there is a desire and there is a reality, and whether the two meet. I think we will be working through some of that this year. It is an excellent question. It is something that we are on top of. We are doing everything we can possibly do to resource. We already started before some of this had happened. Regionalization of supply chain had nothing to do with tariffs and duties and restrictions. It was more of a logical business decision. So we were pretty well prepared. On the other hand, we cannot control when some of the other factors that come into play could impact us. Jim, do you have anything you want to add to that? James A. Michaud: What I would tell you, Ted, and this is just really dovetailing what Rick just mentioned, the Feds are investing billions of dollars in a number of companies here in the U.S., and obviously we have been in contact with all of them. But as Rick just mentioned, it is going to take time for all of the supply chain in and around the rare earths and the processing of materials and so forth to evolve. I do not think it is going to all happen when we hit January 1. But I can tell you we have teams here that are working diligently with a variety of different suppliers, and we are setting the foundation for us to partner with these companies that the government is investing in. Ted Jackson: I did want to get into magnets, but let us keep on, and so I am going to jump over here. On the main issue for you on the supply chain side is rare earth around magnets. Everyone has that problem. I have to believe that your government is well aware of that. Do you have any dialogue with the government? Do they understand that at some level you have to be practical, or are you just saying that yourself? Richard S. Warzala: As Jim mentioned, we have been in close contact with the government and the key in the government, working hand-in-hand to—and that is why I said to you, at some point in time, there is a desire and there is a push, but there is also reality of the timing when all of this could occur. I can just tell you this: we are hand-in-hand. We are in there. We are working with the identified sources that are being supported and invested in. And we are not letting up on it. We are not stopping there. It is a continuous effort to make sure that we are working all the angles as well as staying very close to the key government officials and activities that are being undertaken right now. Ted Jackson: Beyond magnets, is there any other critical components or parts that you have had to go out and resource or need to resource to move into compliance? Richard S. Warzala: Yes, to answer your question, there are other components, but they are not as complicated or as difficult to resource. It may be a cost factor more than anything. Something else that does impact that as well. Without getting into all the details of the different components that we are seeing, you are seeing certain supply shortages in pockets of areas, even electronic components. You see some things popping up based upon demand in other areas that are occurring that are stressing the supply chain. But to answer your question, yes, there are other components that are key. If you are talking about motors, for a motor to function—whether it is laminated steel, whether it is bearings—there are alternatives. The alternatives may be more costly, but there are alternatives. Magnets are a little bit unique in themselves, so highlighting the magnet side of it is important. The others are there, but they get impacted based on other factors. Ted Jackson: So it sounds like it will just be a topic for discussion every quarter as you progress through it, and you are not the only one. There are so many different companies. I am shifting over to the commercial vehicle market and the fourth quarter. You had like a pig in the python with regards to the fourth quarter. I would ask, one, if you could quantify it a bit to help us realign how our first quarter will look, because you typically have some seasonality from fourth to first, just to make sure that it is helpful for analysts in terms of getting their 2026 numbers done. And then on a more macro level, the commercial vehicle market seems very much on a rebound. You have seen a pickup in freight rates. If you listen to PACCAR and Volvo and all the Class 8 guys, starting in November they saw order activity bookings pick up substantially. It continued through January. I have talked to some of their suppliers. It continued through February. You are going to see a lot of that translate into an improved demand environment probably when we get to the back half of 2026, assuming this continues, and it sets up well for 2027. Can you talk about what things you are supplying into that market and how you see that market playing out as we roll through the year and into 2027? Richard S. Warzala: Is your question about what we supply into the commercial automotive, or what do we supply into the truck and construction, or all of them? Ted Jackson: All of them. I was trying not to get too granular, but I am always interested in more than this. I am American. Richard S. Warzala: What I will say is this. Yes, we did see, and we can echo, that we saw some improvements. When we talk about vehicle—and thanks for bringing it up because many times people have their own definition—our definition of vehicle is commercial automotive, bus, construction, marine, agricultural, truck, and rail. That is what we consider vehicles. We have to continually remind people when we talk about vehicle, and also we do have powersports in there. When we talk about vehicle, do not get too wrapped up in thinking of us as an automotive company. We have mentioned we have a target to keep that in single digits. The major reason for that is it is a long lead-time design-in cycle time, it is very cost competitive, and it is heavily capital intensive. We have chosen to invest our money in other areas. But we did see increases across the board. The impact of the one-time effect of the fourth quarter that you could see going forward, I would tell you about $2.5 million in fourth quarter. As far as the applications go, when you get into agricultural, construction, and so forth, we are in several applications, different types of actuators and so forth. One of the key elements that we are in across the board in vehicles is steering applications. It is agnostic to whether it is gas or electrification, so we can be utilized in each. We are also involved in electrohydraulics for some of the larger vehicles, again primarily in the steering area. We have great expertise in steering, and that is where we focus our efforts not just in vehicle but also in some of the industrial applications as well. Does that help you? Ted Jackson: That does. I know we are at the timeline, so I will stop. Richard S. Warzala: Okay. Thank you, Ted. Thank you, everyone. I think if there are no more questions, which I believe there are not, operator, can you confirm that? Operator: Yes. This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. Richard S. Warzala: Thank you, everyone, for joining us on today's call and for your interest in Allient. We will be participating in the JPMorgan Industrials Conference in Washington, D.C. on March 17. As always, please feel free to reach out to us at any time, and we look forward to talking to you all again after our first quarter 2026 results. Have a great day, and that will conclude the call, operator. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to the Kingstone Companies, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Stefan Norbum, Kingstone Companies, Inc. Investor Relations representative. Thank you. You may begin. Stefan Norbum: Thank you and good morning everyone. Joining us on the call today will be President and Chief Executive Officer, Meryl Golden, and Chief Financial Officer, Randy Patten. On behalf of the company, I would like to note this conference may contain forward-looking statements, which involve known and unknown risks and uncertainties, and other factors that may cause actual results to be materially different from projected results. Forward-looking statements speak only as of the date on which they are made, and Kingstone Companies, Inc. undertakes no obligation to update the information discussed. For more information, please refer to the section entitled “Risk Factors” in Part I, Item 1A of the company's latest Form 10-Ks. Additionally, today's remarks may include references to non-GAAP measures. For a reconciliation of these non-GAAP measures to GAAP figures, please see the tables in the latest earnings release available at the company's website at https://www.kingstonecompanies.com. With that, it is my pleasure to turn the call over to Meryl Golden. Meryl? Meryl Golden: Thanks, Stefan. Good morning, everyone, and thanks for joining our call. I am delighted to share the results of our most profitable quarter and year in Kingstone Companies, Inc.’s history. I want to thank the amazing Kingstone Companies, Inc. team and our select producers for making it possible. Let me start with the headlines. In the fourth quarter, we delivered net income of $14.8 million, diluted earnings per share of $1.30, diluted operating earnings per share of $1.80, a GAAP net combined ratio of 64.2%, and an annualized return on equity of 51%. For the full year, net income more than doubled to $40.8 million, diluted earnings per share increased 95% to $2.88, and our return on equity was 43%. These results exceeded the guidance we provided in November. I am particularly proud that from year-end 2023 to year-end 2025, we grew direct premiums written 39% while improving our combined ratio by 30 points. These results are structural, not simply weather-driven, and they validate the transformation we have executed. What sets Kingstone Companies, Inc. apart and what drove these results is clear. First, our Select product, now 57% of policies in force compared to 45% one year ago, continues to improve risk selection, properly matching rate to risk and driving lower claims frequency. Second, our producer relationships generate strong retention and consistent new business flow. Third, our operating efficiency, with a net expense ratio that improved from 41% in 2021 to 30% in 2025, provides durable margin advantage. And last, our conservative financial position, with no debt and robust reinsurance, means we can grow with confidence. Turning to the quarter, direct premiums written grew 14% to $82.8 million, driven by higher average premiums and strong retention. For the full year, direct premiums written grew 15% to $277.8 million, and our New York personal lines policies in force grew over 7%. The hard market conditions in our Downstate New York footprint have not changed materially. Demand from our producers remains strong, supported by policies from the GARD Renewable Rights Agreement which we began writing in September. New business policy count has increased sequentially from Q2, and in Q4 grew 25% over Q3. In this environment, what separates the winners from the rest is straightforward: highly segmented products to better assess risk, low expenses, claims execution, and deep producer relationships. We have built these advantages; we will not chase volume at the expense of underwriting discipline. Net earned premium growth remains a powerful tailwind. Net premiums earned increased 38% in the fourth quarter and 46% for the full year, primarily due to our reduced quota share, which allows us to retain a greater share of premium and underwriting profits. The decision to reduce our quota share reflects our confidence in the quality of our book and that our underwriting results warrant retaining more premium. As such, we have reduced our quota share even further for 2026, and net earned premium growth will continue to be a tailwind. On underwriting, our fourth quarter net combined ratio of 64.2% reflects exceptional performance across the board. The underlying loss ratio was 34.7%, an improvement of over 14 points from the prior-year quarter, driven by meaningfully lower claim frequency. The improvement in frequency, particularly for non-weather water, our largest peril, is a trend we have shared throughout the year, and we attribute it to the effectiveness of risk selection in our Select product. During the quarter, we also recognized the benefit from continuing improvements in our claims operations, with faster cycle times and providing earlier visibility into ultimate property claims cost. For the full year, our underlying loss ratio improved nearly 4 points to 44.4%, and our catastrophe loss ratio was just 1.2 points. I want to be direct. While we benefited from very low catastrophe activity in 2025, our underlying performance improved materially. Even with a normalized catastrophe load, our full-year combined ratio would have been in the low 80s, reflecting the differentiated platform we have built. As we shared in the second quarter, we have set a five-year goal of $500 million in direct premiums written by year-end 2029, approximately doubling the size of the company through continued growth in New York, measured expansion into new markets, and strategic inorganic opportunities. I am pleased to share that our first new market will be California, which we will be entering in 2026 on an excess and surplus (E&S) lines basis. California is one of the largest homeowners markets with $15 billion in written premium, almost double the size of New York, and the largest E&S homeowners market in the country, where the supply-demand imbalance for homeowners coverage continues to grow. The E&S approach gives us the flexibility to price wildfire risk using forward-looking models to set prices to achieve our margin requirements and to apply strict underwriting standards, including rigorous property-level risk selection and real-time accumulation management. We will start small, consistent with our disciplined approach, and scale as we gain confidence in our pricing and product. The initial contribution from California will be modest, less than 5% of our 2026 premium, with the vast majority of our volume continuing to come from New York. But the opportunity is enormous, and California will become a large contributor to our growth over time. Turning to our outlook for 2026, I want to explain an important change in how we are reframing our outlook for this year because we think it will help investors better understand our business. Starting this year, we are introducing the underlying combined ratio, which excludes catastrophe losses and prior-year reserve development, as our primary operating lens. We define it as the underlying loss ratio plus the net expense ratio. This metric isolates the performance we control, including pricing, risk selection, claims management, and operating efficiency, from the inherent volatility of catastrophe events. In 2025, our underlying combined ratio was 74.4%, an improvement of 5.1 points from 79.5% in 2024. That improvement is structural. It reflects Select product penetration, earned rate adequacy, and operating leverage, and is independent of catastrophic weather events. At the same time, our record combined ratio of 75% benefited from an outlier low catastrophe loss ratio of just 1.2 points. To put that in context, the six-year average cat loss ratio from 2019 through 2024 is 7.1 points. Both 2024 and 2025 were well below the average, including two consecutive mild winters. So when you look at our 2026 guidance, I want to be very clear about the bridge. The headline year-over-year change in earnings per share and return on equity is driven almost entirely by our assumption of a higher-than-normal catastrophe load, not by any deterioration in our underlying business. In fact, our underlying combined ratio guidance of 74% to 76% is comparable to 2025. The headline story is straightforward: the controllable business is healthy and growing; the year-over-year change reflects cat normalization. Here is our updated guidance for fiscal year 2026: direct premiums written growth of 16% to 20%; an underlying combined ratio, excluding catastrophes and prior-year reserve development, of 74% to 76%; a catastrophe loss assumption of 7 to 10 points, which is at or above the six-year historical average and reflects the elevated winter storm activity we experienced in 2026; and a net combined ratio of 81% to 86%. Diluted earnings per share of $2.20 to $2.90, with a midpoint of $2.55, reflects an increase at the midpoint relative to our initial outlook and the benefit of a lower quota share cession for 2026. The 16% to 20% direct premium growth target helps keep us on pace toward our five-year goal of $500 million in direct premiums written by year-end 2029. I want to give investors the tools to model different catastrophe scenarios. On an illustrative basis, and this is not guidance, each one point of catastrophe loss ratio has approximately a $0.13 impact on diluted earnings per share. So if you want to see what our earnings power looks like at fiscal year 2025 cat levels of 1.2 points, the illustrative answer is approximately $3.53 per diluted share, which represents 23% growth year over year. That is the underlying trajectory of this business. I want to emphasize that weather is unpredictable, and our 2026 guidance assumes a higher-than-average catastrophe year given the winter weather in 2026. As a reminder, our catastrophe reinsurance program limits our maximum first event loss to $5 million pretax, or approximately $0.27 per share after tax, whether from a hurricane or a winter storm. We will refine our outlook as the year unfolds. Before I hand it to Randy, I want to briefly address the regulatory proposals in New York regarding homeowner insurer profitability. We share the goal of affordability for consumers, and we are monitoring these proposals closely and engaging constructively through industry bodies. We believe any final legislation will need to account for the inherent volatility of catastrophe-exposed property insurance and the importance of maintaining carrier capacity and availability for New York homeowners. We will continue to execute with discipline, advance our measured expansion roadmap, and allocate capital prudently to drive sustained profitable growth. I remain highly confident in Kingstone Companies, Inc.’s strategic direction and fully committed to creating long-term shareholder value. With that, I will turn the call over to Randy Patten, our Chief Financial Officer, for a more detailed review of our results. Randy? Randy Patten: Thank you, Meryl, good morning again, everyone. The fourth quarter was our most profitable quarter in the company's history and our ninth consecutive quarter of profitability. During the quarter, we reported net income of $14.8 million, diluted earnings per share of $1.03, a 64.2% combined ratio, and an annualized return on equity of 51%. For the full year, net income was $40.8 million, more than doubling the prior year and the most profitable in company history. Performance is driven by strong net earned premium growth as our reduced quota share and our 2024 new business surge continue to earn in. This was combined with very low catastrophe losses, favorable frequency trends, and lower expenses, aided by adjustments to the sliding-scale ceding commissions due to both an improvement in the attritional loss ratio and low catastrophe losses. As a reminder, the quota share reduction from 27% to 16% for the 2025 treaty year reflected the improved quality of our book and increased our projected earnings per share by approximately $0.25 for 2025. For the 2026 treaty year, we have further reduced our quota share cession from 16% to 5%, reflecting continued confidence in the quality of our underwriting portfolio and capital position to support our growth. This reduction is expected to increase projected earnings per share by approximately $0.20 for 2026, as incorporated in our updated guidance ranges. Our net investment income for the quarter increased 55% to $3.0 million, up from $1.9 million last year. For the full year, we achieved a 44% increase, reaching $9.8 million. The momentum is due to robust cash generation from operations, which has enabled us to grow our investment portfolio to $309.7 million and benefit from higher fixed income yields. We also continue to reposition a portion of the portfolio to capitalize on attractive new money yields of 4.7% in the fourth quarter. While we remain conservative in our investment strategy, we are actively seeking opportunities to enhance our portfolio yield and duration. As of 12/31/2025, our fixed income yield is 4.3% with an effective duration of 4.4 years, up from 3.7% and 3.9 years at 12/31/2024, an increase of 60 basis points and a half year, respectively. During the quarter, we recognized an additional $1.0 million in sliding-scale contingent ceding commissions under our quota share treaty, with about half coming from lower attritional losses and half from lower catastrophe losses, which contributed a 1.9 percentage point decrease in the 27.9% expense ratio reported in the fourth quarter. For the full year of 2025, we reported an expense ratio of 30%, an improvement of 1.3 percentage points from the prior year. Reaching 30% for the expense ratio is an important milestone for the company. As a reminder, the company's expense ratio was 41% in 2021, and in four years we have successfully lowered the expense ratio by 11 points through several expense initiatives. I would now like to provide some detail on the guidance framework Meryl introduced. For the full year 2025, our underlying combined ratio was 74.4%, comprised of a 44.4% underlying loss ratio and a 30% expense ratio. This was a 5.1 point improvement from 79.5% in the prior year. For the full year of 2026, we are guiding to an underlying combined ratio of 74% to 76%, reflecting continued benefits from our Select product and operating leverage. Our full-year 2025 catastrophe loss ratio of 1.2 points was well below the six-year historical average of 7.1 points for the 2019 through 2024 period. Our full-year 2026 guidance includes 7 to 10 catastrophe loss points, which is above our historical average and incorporates the elevated winter storm activity experienced during 2026. The difference between our full-year 2025 reported combined ratio of 75% and our full-year 2026 guided range of 81% to 86% is mostly attributable to the inclusion of above-average catastrophe losses and minimal change to our underlying combined ratio. I will conclude my portion of the call today discussing our capital position. We have no debt at the holding company. Shareholder equity ended the year at $122.7 million, an increase of 84% during the year. Book value per diluted share increased 75% to $8.28, and book value excluding accumulated other comprehensive income increased 56% to $8.69. For 2025, return on equity is 43%, an increase of nearly seven percentage points from the prior year. Given this foundation and our outlook, we declared our third consecutive quarterly dividend during 2026 and have ample capital to fund the disciplined growth initiatives that Meryl outlined. With that, I will now turn the call back to Meryl for closing remarks. Meryl Golden: Thanks, Randy. I just want to underscore one thing. The results we are sharing today reflect the durable competitive advantages we have built in underwriting, in our producer relationships, and in our operating model. We are entering 2026 with a strong foundation, a clear roadmap for profitable growth, and the financial flexibility to execute. We look forward to updating you as the year progresses. Operator, we are ready for questions. Operator: Thank you. We will now open for questions. Our first question today is coming from Robert Farnam of Brean Capital. Please go ahead. Robert Farnam: Hey there and good morning. I have a couple of questions. One, let us just talk about California first, because obviously California risks are not quite the same as Downstate New York risks. So I kind of wanted to know, and I think this is going to be your first foray into kind of the excess and surplus lines basis of writing things. So I just want to know, how do you see the differences in the risks? How do you expect performance-wise? I am just trying to get a little bit more color as to how California may be different from New York. Meryl Golden: Sure. So we hired an actuarial consulting firm earlier this year to look at the landscape of all the catastrophe-exposed property markets for Kingstone Companies, Inc. to expand, and California came out on top because it is a very large market, it is dislocated, and it is completely diversifying for Kingstone Companies, Inc. relative to New York. So our plan is to enter with the same differentiators as we have in New York. We are going to be using our Select product, and that same firm that helped us build the Select product is helping us modify it to be appropriate for the California market. We are entering E&S so we can have a highly segmented product and use best-in-class models for underwriting and rating of wildfire risk and for risk aggregation. And we are fortunate that we have some underwriters and some claims employees that have experience in California, so that will be really helpful to us. But mostly, the point I want to make about our entry into California is that we will be disciplined. Our plan is to enter small, less than 5% of our premium for 2026, make sure we understand the market and we are doing everything right before we expand. Robert Farnam: And if I read right in the presentation, you have a 30% quota share on the California business. Is that right? Meryl Golden: That is correct. Out of an abundance of caution, we have a 30% quota share for California initially. Robert Farnam: Okay. And are you looking to write all across California, or are you looking, like, Northern California, Southern California? Or coastal California? You know, where the wildfires could possibly be? I am just kind of curious. Obviously, in New York, you have a specific targeted area, so I did not know if California would be similar. Meryl Golden: Yes. So in California, we are going to write all across the state. It is really important to manage our concentration in any area of California to manage the wildfire exposure, and we will be doing that in real time. And we are focused on low to moderate wildfire risk. Robert Farnam: Okay. Same kind of target size value for homes as in New York? Or something? Meryl Golden: Same as New York. Robert Farnam: Okay. Just to change tack a little bit here. So your expense ratio—obviously, you have had a lot of progress getting it down to 30%. Do you see, like, where do you see a happy run rate as to where that expense ratio can get to? Are you pretty much where you should be, or do you think you could still squeak some improvement out of that? Meryl Golden: Randy, do you want to take that? Randy Patten: Sure. Hey, Bob. Good morning. Robert Farnam: Hey. Randy Patten: Yes. So reaching a 30% expense ratio is a huge milestone for the company. As you know, if you look back to 2021, we were at 41%. I think with some economies of scale, we can get that expense ratio down possibly another half to a full point. But it is kind of where we expect it to be—kind of in the 29% to 30% range is where ultimately we will be comfortable with that expense range. Meryl Golden: Great. I just want to add, Bob, that most of the expense to enter California has already been incurred in terms of developing the product and programming the product, and we will likely need to add some staff, but a modest amount of staff as we continue to grow in California. So I think we are going to get scale economies, as the platform we have built is scalable. Robert Farnam: Yes. Right. Yes. I saw that in the presentation. You are talking about your ability to scale up is not going to have a whole lot of impact on the expenses at this point. So that is great. Last question for me—I probably ask you every quarter—but obviously, with such profitable business, has there been a change in competition at this point in New York? It is just something that baffles me that you do not have a whole bunch of other companies trying to get into the same market to try to capture the same profitability. Meryl Golden: Yes. I mean, we have been hearing lately about different companies planning to enter the state, but let us not forget that competition has come and gone in New York, and Kingstone Companies, Inc. has been able to execute regardless of the competitive environment. We are in a really good place in Downstate New York. We have our Select product that properly matches rate to risk, low expenses, we are providing great service to our producers and our policyholders, and we have very deep and broad producer relations. So I feel confident we can compete successfully with whoever is entering New York State. Robert Farnam: Okay. Good. Good answer. Congrats on a great year. That is it for me. Meryl Golden: Thanks, Bob. Operator: Thank you. Next question is coming from Gabriel McClure, a Private Investor. Please go ahead. Gabriel McClure: Good morning and congrats on an outstanding quarter. Meryl Golden: Thanks, Gabe. Yes. So— Gabriel McClure: I think Bob asked most of the questions that I had for you. Just wanted to circle back on the exposure limits on the policies in California. Can you remind us again what our exposure limits are on our New York policies? Meryl Golden: Sure. We just, in New York, increased the available Coverage A, or value of the home, to $5 million. So we had been operating with a max of $3.5 million for all of last year, and we have just increased to $5 million. And that would be our plan for California as well. We are going to start off with a cap that is a bit lower, and as we gain confidence in our product, we will open up to $5 million as well. Gabriel McClure: Okay. Got it. And then I think in your prepared remarks, you made a little bit of reference to the winter storm that you all had a couple of weeks ago. Did we have some noticeable claim activity from that storm? It looked pretty bad from out here in Arizona. Meryl Golden: Yes, Gabe, it is obvious you are not in the Northeast because it has been a bad winter. We have not just had one winter storm. There have actually been seven catastrophe events that have been declared since January 23. So the one thing I want to say is our claims department has been working so hard. I am so proud of the way they have managed this catastrophe event and the service that they have been able to provide to our policyholders. And our estimates for the winter storm losses have been included in our guidance for 2026. So we have mentioned that we are planning for an at or above average catastrophe loss year of 7 to 10 points, and that includes the catastrophe activity from Q1. Hopefully, the winter is over, and there will not be any more catastrophes declared. Gabriel McClure: Okay. Yes. I hope so. Got it. Okay. And then just last thing, the California opportunity is super exciting and interesting. I know Bob asked most of my questions already, but is there anything interesting or anecdotal that you have about the California market that you might want to share? Meryl Golden: I think what is really important to understand is that the market is in need of capacity, and many people think that is because of wildfire. And certainly, wildfire is a major risk for California, but the primary issue in California is the regulatory environment, which precludes companies from charging adequate prices for the underlying exposure. So as an E&S writer, we are not subject to that same regulation, so it gives us a real advantage, and that is why you are seeing in California the E&S market for homeowners is growing faster than any other place in the United States. So I think it is a terrific opportunity to highlight the differentiators that Kingstone Companies, Inc. brings to the market, particularly relative to pricing sophistication and producer relationships, and I am really excited to start writing business there in Q2. Gabriel McClure: Sounds really good. That is all for me. Thanks, Meryl. Operator: Thanks, Gabe. We are showing no additional questions in queue at this time. I would like to turn the floor back over to Ms. Golden for closing comments. Meryl Golden: Great. Thank you, everyone, for joining us today. It is a really exciting time for Kingstone Companies, Inc., and we appreciate your support. Have a wonderful day. Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
Operator: Good morning, and welcome to the Information Services Group Fourth Quarter 2025 Conference Call. This call is being recorded, and a replay will be available on ISG's website within 24 hours. Now I'd like to turn the call over to Mr. Will Thoretz for opening remarks and introduction. Mr. Thoretz, please go ahead. Will Thoretz: Thank you, operator. Hello, and good morning. My name is Will Thoretz. I'm Head of Corporate Communications for ISG. I'd like to welcome everyone to ISG's Fourth Quarter conference call. I'm joined today by Michael Connors, Chairman and Chief Executive Officer; and Michael Sherrick, Executive Vice President and Chief Financial Officer. Before we begin, I would like to read a forward-looking statement. It is important to note that this communication may contain forward-looking statements, which represent the current expectations and beliefs of the management of ISG concerning future events and their potential effects. These statements are not guarantees of future results and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. For a more detailed listing of the risks and other factors that could affect future results please refer to the forward-looking statement contained in our Form 8-K that was furnished last night to the SEC and the Risk Factors section of our most recent Form 10-K and 10-Q filings. You should also read ISG's annual report on Form 10-K and in the other relevant documents, including any amendments or supplements to these documents filed with the SEC. You will be able to obtain free copies of any of ISG's SEC filings on either ISG's website at www.isg-one.com or the SEC's website at www.sec.gov. ISG undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. During this call, we will discuss certain non-GAAP financial measures, which ISG believes improves the comparability of the company's financial results between periods and provides for greater transparency of key measures used to evaluate the company's performance. The non-GAAP measures, which we will touch on today include adjusted EBITDA, adjusted net earnings and the presentation of selected financial data on a constant currency basis. Non-GAAP measures are provided as additional information and should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. A the reconciliation of all non-GAAP measures presented to the most closely applicable GAAP measure, please refer to our current report on Form 8-K, which was filed last night with the SEC. And now I would like to turn the call over to Michael Connors, who will be followed by Michael Sherrick. Mike? Michael P. Connors: Thank you, Will, and good morning, everyone. I should note that Will is now handling the opening of our call after the passing of a long-time colleague, Barry Holt in December. Barry was with me when I started the firm in 2006 and was heard on all of our investor calls up until now. Our condolence is again to the whole family. Today, we will review our solid Q4 results driven by double-digit growth in Europe and in our recurring revenues. Progress on our AI initiatives, our view of the current demand environment and our outlook for Q1. ISG delivered a strong Q4 to cap off in an outstanding year, powered by continuing client interest in our AI-centered transformation services. In the fourth quarter, nearly 35% of our revenues were from AI-related research and advisory services. For the full year, that number was nearly 30%, up 3x from 2024. This shows that AI is rapidly being mainstreamed as a core aspect of our traditional technology transformation work. Technology disruption has always fueled our growth in times of significant change, enterprises often struggle to adapt, so they turn to a trusted adviser for insights and expertise to chart the path forward and our results reflect that. We are still in the early stages of AI adoption will continue to accelerate as the technology and its governance matures. For our clients, it's not a question of if they will leverage AI, it's a question of how. Success requires the right data engineering, proper governance and workers ready to embrace the operating model changes AI is creating. We're seeing our AI clients leverage our entire value chain, research, benchmarking, advisory and governance, so they can navigate this new paradigm quickly and effectively. For the fourth quarter, ISG delivered revenues of $61.2 million, at the top end of our guidance and up 6% versus the prior year. Our growth was led by Europe, which continued its second half momentum with Q4 revenues up 28% and by our recurring revenues, which were up 13% globally led by our research and platform businesses, especially government services. For the full year, recurring revenues were $112 million, 46% of our total. Propelled by a more profitable mix of business and our strong operating discipline, we saw a continued acceleration of our profitability in Q4. Adjusted EBITDA was $8.1 million, that was up 24%, and our EBITDA margin rose nearly 200 basis points to 13.2%. For the full year, our revenues were $245 million, up 7%, led by an 11% growth in our Americas region, and this excludes our '24 results from the divested automation unit. Our adjusted EBITDA exceeded $32 million, and that was up 28% versus the prior year. And our margin for the full year was 13.2%, up 300 basis points. ISG continues to be a cash-generating engine with full year operating cash flow of $29 million, up 46% versus the prior year. A little over 2 years ago, we launched a series of initiatives and investments to establish leadership in AI, and we're continuing to develop and deploy new capabilities as we move through 2026. In January, we acquired the AI Maturity Index, it's an AI readiness benchmarking and intelligence platform that allows organizations to identify gaps in their workforce readiness and use a data-driven approach to achieve rapid improvement. Combined with our change management services, our AI maturity offering helps clients accelerate the return on their AI investments. The platform is already generating strong interest in opening up new client discussions about our broad range of AI-related capabilities. Also in January, we formed a dedicated team to drive continued expansion of our AI leadership. This AI acceleration unit is addressing our most complex and far-reaching AI initiatives. It is led by our Chief AI Officer, Steve Hall, who returned from Europe this month and will now have this unit on a full-time basis. The team includes experts from across our advisory, research and change management teams. We are living in an AI-centered world and are committed to seizing this opportunity. Nearly every technology transformation now requires some element of AI, and this is fundamentally changing the value proposition for both service and software providers. We are at the center of this revolution with innovations like our autonomy level pricing model, which provides clients a new way to value work depending on the degree of AI effort applied to a task. Our AI-powered sourcing solution, ISG Tango is built to address this changing landscape. We continue to add new functionality and expand the amount of total contract value, or TCV, we run on the platform. It is now more than $25 billion. That's up from $7 billion from the prior year. Now let me turn to our regions. The Americas delivered $38 million of revenue in Q4 and driven by double-digit growth in our research and governance businesses and in our consumer and enterprise industry verticals. For the year, excluding the '24 results from the divested automation unit. The Americas region finished up 11%, its best performance since 2021. Key plan engagements during the fourth quarter included Baxter, AGCO and Marriott. During the quarter, we won a multimillion dollar engagement with a leading consumer products company. ISG is supporting a next-generation global business services program. leveraging AI and other technology to optimize processes across this company. Their goal is to reduce operating costs by 40%. We also generated more than $1 million in revenue, working with a leading U.S. hospital network. This one on an AI-driven technology sourcing engagement that will deliver savings to this company of more than $130 million or 20% of their operating costs. Our Europe region continued its second half momentum with an excellent fourth quarter. Revenues were up 28% to $19 million, driven by double-digit growth in our advisory software and research businesses. and in our consumer health sciences, manufacturing and public sector verticals. Key client engagements in Europe in the fourth quarter included manpower, American Express and Roche. ISG is working with a large multinational player at the heart of the AI industry on a series of engagements worth more than $1 million. Our work includes helping this client incorporate AI and detect service management, workplace benchmarking, hybrid cloud sourcing and software, engagements that have firmly established ISG as the client's adviser of choice and provide us with a strong foundation for additional work through the year. And another $1 million-plus engagement, we're working with a global marketing and media company to deliver technology strategy, sourcing and transformation. With software providers incorporating AI aggressively into new contracts, we're also conducting a complex multi-region software advisory engagement. This will generate $15 million in annual savings for this client alone and align their AI consumption with demand. Now turning to Asia Pacific. Our Q4 revenues of $3.9 million were down $1.1 million compared with the prior year. We did see double-digit growth in our insurance industry vertical. However, we will need the public sector, as I mentioned a while back to reignite greater spending for this region to return to historical growth patterns, which we expect later this year. Key clients in the quarter include Singtel Optus with Singapore Exchange and Resolution Life. During the quarter, we won a $1 million engagement with a large Australian retailer to support the client's AI-driven technology transformation and its selection of a BPO provider to modernize its finance operations and HR functions with an AI-enabled business processes. Now let me turn to the broader market. As we look at overall demand, we see clients remaining cautious in a still uncertain macro environment, even if they continue to invest in AI-related business transformation, cost optimization and insights to plan the journey ahead. Increasingly, we see clients demanding clear business outcomes, a reshaping of their partner ecosystems and specialized capabilities. This plays directly to our strengths. ISG is well positioned to deliver insights and actions that lead to real business value for clients. Our proprietary data platforms and the on-the-ground expertise continue to deliver great ROI for our clients. So with that, let me turn to guidance. Despite continued macroeconomic uncertainty, ISG remains well positioned, and we are confident in our ability to capitalize on the accelerating demand for AI-led transformation. For the quarter, we expect revenues in the range of $60.5 million to $61.5 million and adjusted EBITDA between $7.5 million and $8.5 million representing continued year-over-year growth. Now let me turn the call over to Michael Sherrick, who will summarize our financial results. Michael? Michael Sherrick: Thank you, Mike, and good morning, everyone. Revenue for the fourth quarter was $61.2 million, up a solid 6% from the prior year. For the quarter, currency had a positive $1.3 million impact to revenue. Americas revenue was $38.3 million, up 1% in the fourth quarter. For the full year, excluding the 2024 results from our divested automation unit Americas revenue was up 11%, its best year-over-year growth in 4 years. For the quarter, Europe delivered revenue of $19.1 million, up 28%, while Asia Pacific revenue was $3.9 million, down $1.1 million from the prior year. Fourth quarter adjusted EBITDA was $8.1 million, up 24% from $6.5 million in the year-ago period and resulting in an EBITDA margin of 13.2%, which was 189 basis points higher year-on-year. For the quarter, ISG delivered operating income of $5.1 million, resulting in an operating margin of 8.4%. Reported net income for the quarter was $2.6 million or $0.05 per fully diluted share as compared with net income of $3 million or $0.06 per fully diluted share in the prior year. I would note, during the fourth quarter of 2024, ISG recorded a $2.3 million net gain on the sale of its automation unit. Excluding this gain, net income and GAAP EPS would have been $0.7 million and $0.01 per fully diluted share, respectively. Fourth quarter adjusted net income was $4 million or $0.08 per fully diluted share compared with adjusted net income of $3 million or $0.06 per fully diluted share in the prior year's fourth quarter. Headcount as of December 31, 2025, was 1,290. For the quarter, consulting utilization was 69%, in line with our average fourth quarter utilization. Full year utilization of 73% was in line with our mid-70s target. We ended the year with cash of $28.7 million, flat from the end of the third quarter and up $5.6 million year-on-year. For the quarter, net cash provided by operations was $5.1 million, supported by our solid operating results and continued focus on working capital. For the full year, we generated operating cash flow of $29 million, up 46% year-on-year. During the quarter, we paid dividends of $2.2 million and repurchased $2.3 million of stock. Our next quarterly dividend will be paid March 26 to shareholders of record as of March 20. At quarter's end fully diluted shares outstanding were $50.5 million, down $100,000 from the prior year. Our quarter-end gross debt-to-EBITDA ratio was just under 1.9x, down from 2.4x at December 31, 2024, and just below our 2x to 2.5x target range. At quarter's end, our debt was unchanged. And for the quarter, our average borrowing rate was 5.8%, down 125 basis points year-on-year. Overall, our balance sheet remains solid and continues to improve, providing us with a strong foundation to both operate and invest in the business, especially in our AI initiatives. Mike will now share concluding remarks before we go to Q&A. Mike? Michael P. Connors: Thank you, Michael. To summarize, ISG delivered another strong quarter, continuing our AI-powered momentum. Our 6% revenue growth in Q4 was led by double-digit growth in Europe and our recurring revenue businesses. We grew our adjusted EBITDA by 24% and margins by nearly 200 basis points. Our strong Q4 capped an outstanding year with revenues up 7%, driven by an 11% growth in the Americas. Adjusted EBITDA was up 28% and margins for the year up 300 basis points. We continue to generate strong cash flow, delivering operating cash of $29 million for the year, up 46%. Looking ahead to disruptive and powerful force of AI will continue to be a growth catalyst for ISG as the technology matures and adoption begins to scale. In this environment, our ability to deliver the full value chain of our research, our benchmarking, advisory and governance is a key competitive advantage for ISG. One that we believe enhances ROI for our clients and creates long-term value for our shareholders. So thank you very much for calling in this morning. And now let me turn the session over to the operators for your question. Operator: [Operator Instructions] Our first question comes from Marc Riddick from Sidoti. Marc Riddick: Good morning. So I wanted to start with some of the things that you're seeing. Maybe you could talk a little bit about -- you touched on this in the prepared remarks might be a little bit on what you're seeing as to differentiation of climate verticals. But also maybe you could talk a little bit about -- you've talked in the past about the sort of the offensive versus defensive spending that you're seeing? Maybe you could talk a little bit about maybe how that's evolved and maybe what you're seeing currently there? Michael P. Connors: Yes. So look, I think, first of all, there is -- I think it's a mix, Marc, there's a lot of defense going on, but there's also a lot of offense. I think it varies by industry segment, if I was thinking about the industries and thinking about offense, defense. First of all, where we're seeing a real significant area is around consumer, around retail. We see it around the financial services area, energy, utilities. And why is all that? Well, certainly, the consumer has been hit pretty hard in this whole kind of macro environment. The challenges around AI and the data centers puts pressure on the energy and utility companies. With the oil kind of moving, now the energy companies are flushing a bit more with cash. But we're seeing kind of a combination of trying to get a transformation journey going, and it varies. The consumer side is very defensive, I would say, on most of the areas. And clients like the energy side or even health sciences, I would say, are a little more offensive. So it's mixed back but all of them are working to try to figure out how they can embed AI to make their operations efficient, make it smoother for our client, customer exchange or user experience. And so it's kind of all over the board, which is good for us. There's a lot of disruption, and we like disruption from both a technology and an industry standpoint, Marc. Marc Riddick: Great. And then I know it's a little early in the process, I suppose, but maybe you can talk a little bit about the acquisition early days. It seems as though it's something that's it's fairly attractive for you and as well as the opportunities and maybe add clients from the base that you currently work with. But maybe you could talk a little bit about be it the early days of what you're seeing with the maturity innings as well as then maybe you could segue into sort of the current acquisition appetite and maybe what you're seeing out there? Michael P. Connors: Yes. So again, what this does is it assesses kind of the readiness by individual in an organization. And then you add up all the individuals and you get a good picture of the readiness of the workforce. Let me give you an example. There was a company, there was a large, let's call it, audit firm that one of the big technology firms was developing a new audit platform for. And as a result of this or platform, they estimated that they could save if you think about a lot of the work that goes on and quarterly gatherings of information from audit firm, they thought they could estimate savings of somewhere between 20% and 30%. It turns out that technology was great, but the audit partners were not willing to engage and embrace the new platform. Why? Well, the new platform, if you can actually take 20% to 30% cost out of some of those services, if you're charging a large client x millions of dollars for that audit today, likely you are not charging that same amount for that audit tomorrow with a new kind of efficient audit platform. That group was not ready, although they spent the money from a technology standpoint to prepare them. What this assessment does is it allows us to go into clients, assess individuals, build it up and clear prices understand what is the readiness level of their workforce to embrace, engage views and be ready for AI. And so for us, this is opening doors because our AI, energy and efforts around a lot of our clients. This readiness is an important factor to be sure that they can have success when implementing them. So anyway, it's -- as we think it's a great door opener for us, and it really has been a nice little add-on to our overall AI advisory business. And I will say, Marc, we are happy to have you or anyone on this call, we're happy to send you a link. You can take it yourself, this readiness on an individual basis. It literally takes only about 15 minutes. You get your own report, you get your own assessment. It's all done digitally, if you will, and it's pretty cool. So just let us know. Marc Riddick: Sounds good. Looking forward to that, definitely. And then maybe just thoughts on the current acquisition pipeline out there or appetite for -- certainly with the balance sheet being stronger, continuing to improve. Maybe talk a little bit about your appetite, currently. Michael P. Connors: Yes. So we are still in the market. We are constantly looking at M&A, as you know, that is kind of our heritage. We're looking at anything that can help us around recurring revenues and help us around our AI journey with clients. And the market is pretty good. We're having some good discussions, and we'll see how things unfold. But we're in a pretty strong position, and we feel pretty good about what may be out there during the course of the next year or so. Operator: Our next question comes from David Storms from Stonegate. David Storms: Just wanted to maybe circle back to the acceleration unit. What do early wins look like for them? I know there's a lot up in the air and things are changing rapidly. But what would you hope to accomplish over maybe the short to medium term? Michael P. Connors: Yes. I think from a quantitative standpoint, I'll start there and kind of build into it. We have about 30% of our revenues today that are AI related. Now that's up from about 10% about a year or so ago. We are looking to get to 50%. And one of the reasons for that is, is that we have a great talented upskilled workforce globally. And because of that, we are in high demand on all things AI. And with that, that means we want to be able to utilize the capabilities we have with our client base, and we have, I think, some pretty firm pricing as a result of that. . So number one, just from a targeting standpoint, we want this unit to help us move from kind of 30% to 50%. So if you want to look at it on a quantitative basis. The key is this is kind of a small almost I'll look at it as a seal team where we have our Chief Software Analyst, we have a Chief Change Management Officer. We have our Chief AI Officer, which Steve Hall has been that for almost 3 years now. We have this small group of people that are really helping us accelerate on a global basis. And that's what we're looking to accomplish, continuing to add features like the AI Maturity Index and other things as we move through '26 and '27. So that's our thinking around it, Dave. David Storms: That's great color. I appreciate that. With a lot of the movement that we're seeing with [indiscernible] landscape, how are you seeing the visibility in your pipeline change? Or is it becoming more difficult to manage that as things move through the process faster? Or are you seeing customers maybe measure twice and cut once and still have maybe some extended sales cycles? Michael P. Connors: Yes, it's a good question. It does mix. We have seen -- let me use the U.S. We have seen some things in the U.S. move out of the first quarter into the second quarter. The pipeline is still very strong. The pace is a bit mixed, again, depending on what's going on in the world. We have the new tariff situation. Now we have a bit of the geopolitical, that always puts a little bit of a little bit of fear into the buyers, if you will. But having said that, I think our view of '26 is that we will see our work, we will see an acceleration as we go through the year. I think you'll continue to see Europe where it is. I think Asia Pacific will be a back half. I think the U.S. will be -- we have a tough compare quarter-over-quarter in the first quarter, but you'll see the U.S. really accelerate, I think, in Q2 onwards based on our pipeline. So it's a little bit mixed, and it just kind of depends on this macro environment and how people behave. But the demand is there. The pipe is there, the pace I think will be choppy for a quarter or 2 quarters, depending on how the world reflects. David Storms: That's great. I do really appreciate that. And then maybe just one more for me, trying to tie together your recurring revenue and the AI revenue. Are you seeing AI spend be pretty recurring? Or are there sections of it that tends to be more or less recurrent than others? Just any thoughts there would be great. Michael Sherrick: Yes, Dave, it's Michael. I mean, I think it's a mix. I mean, as you can imagine, AI is very quickly becoming a part of most projects and things that we do. And so as a result, some will be in things that are recurring, right? Things like governance, things like research, those will be recurring and others will be embedded into two projects, right, where we're looking at back office towers that are moving to a genetic AI and other forms of technology to help automate and drive efficiency. So it's going to be a combination, very similar, I think, to prior technology movements. Operator: Our next question comes from Vince Colicchio from Barrington Research. Vincent Colicchio: So I'd like to have you talk about labor supply for a moment. we know that with -- in AI type work, labor is leverageable, highly productive. But having said that, is your AI -- are your AI capabilities where they need to be to meet current demand. And to get to your 50% target, will it be difficult to get the people you need? Michael P. Connors: Yes. Good question, Vince. First of all, we have now -- while we scale the entire workforce up on AI skills and so on through the end of last year, we now have what we call an advanced training that's ongoing that we expect all of our client-facing colleagues around the world to be completed by the end of April. So this will take them to another level. The second bit is because we have 30% of our revenues and engagements that have embedded, if you will, and we're getting a lot of hands on experience with our team. So one, I think we're going to be in a very good place skill-wise, I think we're going to be in a very good place in terms of real, live engagements, hands-on work with our clients, and we feel pretty good that we have the talent base or can attract the talent base to supplement what we currently have, but we have been reskilling and upskilling our teams now for almost 18 months and feel pretty good about it. So from a labor standpoint, we've always had very low turnover industry, as you know, quite a bit below industry averages, and that continues today. So that allows the retention of the skill sets that we have and then we'll complement it accordingly. Vincent Colicchio: So it sounds like Europe will continue to be strong in Q1. And just curious about what service lines should lead in Q1 into early Q2? Michael P. Connors: Yes. So I think you're right, that's how we see it, if we see the U.S., they have a tough quarter-over-quarter compare, but Europe still continue kind of their strong, if you will, growth areas. But the area there will continue to be and all things on the recurring revenue streams in Europe. The backlog, as you know, we talked about this, Europe was a little behind the U.S. It began to catch up in terms of buyer behavior and movement on AI journey during the second half of last year, it's picked up momentum. You saw that in the fourth quarter, and we think you'll see that in in the first quarter. The pipeline in the U.S., in particular, is very heavy. Things have moved out a little bit, but we expect that also to move nicely upwards as the year progresses. So our recurring revenues around research, our governance, especially AI governance are all very hot, and we expect that to continue during the first quarter. Vincent Colicchio: When I think about this index business, it seems like a really good tip of the spear to get you into a lot of new accounts. I assume you're thinking like that. And are you seeing that pay off so far? I mean it's very early. Michael P. Connors: Yes. It is a tip of the spear, and it's -- we've got about 30 clients that are currently in our pipeline. But more importantly, we are using it as a door opener with our AI services. It's a terrific tool. It's a terrific assessment. It gives instant feedback to an enterprise in terms of where their workforce is. So yes, we're very excited about. It's kind of the tip of the spear. We like it and as I said earlier, we're happy to send you the link for you to do it yourself. It's all gone electronically digitally. It's pretty swift. You'll see how it operates with the clients as well. Operator: Our next question comes from Kasi SriHari from Singular Research. Kasi SriHari: Yes. So my first question is for what you're seeing in the field, are clients beginning to consolidate their advisory and benching spend around a smaller set of partners for AI and sourcing? Or is the wallet share still spread across multiple firms? Michael P. Connors: Good question. I think from our perspective, we think there's going to be some consolidation. And the reason we think it is because clients want more of them being informed with information. They want an outcome. So the insights are going to be very important, but execution with scale is probably even more important. And if you can combine the insight with the advisory of sale, and then you can actually help them AI govern, we think that's nirvana. And that's why we think we're really well positioned. So we'll see how this progresses over the next year or 2 years. But our sense is that clients are becoming much more interested in an outcome based, not just being informed. So that's how we see this evolving over the next couple of years. Kasi SriHari: And as you deploy this majority index with more clients. Are you seeing any patterns by industry or geography in terms of who's actually generally ready to scale versus who is still in the early stage? And how does that prioritize your own go-to-market strategy? Michael P. Connors: No, it's a good question. I think it's too early to give you a, I'll call it, a fact-based assessment on that. I would say that based on what we have done from an assessment standpoint, what this index has done, it's pretty all over the board. It's really the -- because it's still so new, we think it's we all are seeing this every day, and we think it's been around. But the reality is this is 2.5 years old, but really less than that in terms of any kind of scale going on. So I think it's a mixed bag. I don't have an industry specific, if it's that. I would say that when the workforce is as dispersed and divested as a major Global 200, Global 300 company, much more difficult to get the readiness. If the enterprise is smaller and a little more contained, maybe a bit better. But we'll need a little more time to get a fact-based approach. But right now, it's pretty broad-based, I would say. Kasi SriHari: Got it. And given that with your new team related to, given that most 30% of your revenue is now AI-related, what portion of your delivery teams are actually spending majority of the tape in AI-centric versus more traditional sourcing and transformation mix to evolve in 2026? Michael P. Connors: Yes. No, that's a very good question. I think I would say 75%, 80% of our workforce is now engaged in something AI related. It may be very early stage and therefore, converting from revenue maybe smaller in some cases. But when you have 30% of your revenue, you're getting it heavier in some spots, lighter and others. But I would say 75% to 80% of our workforce now is touching AI in their work. . Kasi SriHari: And does the AI world come with premium pricing in terms of billable holes? Michael P. Connors: We think that the AI work that we're doing is, I'll call it, firmly priced. Kasi SriHari: Okay. Got you. And on the consumer side, you mentioned that that's a very hot vertical for you, partly because of the tariffs. And with the recent consumer win, are the consumer engagements tending to be -- I assume are not to be short on the urgent but cost takeouts more long term? And can you talk about how you're transforming that into a multiyear relationship, if you could talk about that over? Michael P. Connors: Yes. No, good question. So on the consumer side, we're very very active with a number of large consumer companies globally, and I gave a few examples, I think, in our prepared remarks. But what they're really looking at is taking their entire kind of operating cost base kind of breaking that up into different, I'll call it, towers and saying, how can we optimize that cost base in the very near term utilizing all the technology capability that's out there and do it at scale and with a significant outcome. And that's why I think some of the examples I gave you, we have one we're working on a very large consumer company. Their goal is 40% of their operating costs reduced within the next 3 to 4 years. It's a very large number. It's a multibillion dollar, if you will, optimization, using technology, using AI, using automation, using lots of other techniques but that is not atypical of the consumer companies, different scale on that one. The other one you saw -- I think I gave an example was a 20% optimization using it. The way they're looking at it is first inform me, give me the research you have around AI, the capabilities, what does the ecosystem look like, you are experts in that. Tell me who is out there, who is doing one at what levels? How does that apply to my particular business and then importantly, help me execute it. So don't just inform me, don't just give me an analyst kind of perspective, but give it to me, advise me, help me execute it all the way to the end. And that is what we're seeing there. Operator: Our last question comes from Joe Gomes from NOBLE Capital. Jacob Mutchler: Jacob Mutchler on for Joe Gomes this morning. My first question is related to ISG Tango. Just curious if you could talk about what is driving that growth and how that -- how Tango's performing with mid-market clients and -- and then also if you could touch upon a comment you made on the prepared remarks about, I believe it was increasing, was it the technical capabilities of Tango or maybe the amount of flow that it could handle -- any color would be appreciated. Michael P. Connors: Sure. Well, first of all, on pain, let me cover a couple of things just to give you the scope and scale. We have about $25 billion of contract value now running through that approximately. So this is at approximately $11 billion of that, so call it a little over 40% of that is the mid-market. You'll recall when we launched this, we felt that this platform would enable us to go into companies that we had not been into before. because of the way we price, which is higher priced, if you will, tougher to justify at a mid-market company. But what Tango does is it digitizes a lot of the process. And so the beauty of it is that it's a win-win for the enterprise. And the enterprise, we put all the data onto our platform. The ones that are bidding for some of the work that the enterprise wants to have done, whether it's in infrastructure or applications or supply chain, they get to go to the digital platform. The client then can see everything that the technology companies like the IBMs or Accenture are doing. And then what the outcome is, is that for the enterprise, they get speed to value. So what may have taken longer will take shorter because it's all digitized. And from the technology provider standpoint, take it the Accenture, the IBM, they know that there's going to be an outcome. So the the cost of the pursuit of the enterprise X., they know that they're making an investment. They may win they may lose, but they know they're going to be a winner or a loser. And so from that standpoint, they know there'll be an outcome, and they also get speed to the outcome. So the process from beginning to end is also quicker. And then from an ISG standpoint, we are able to gather of all that data. We put it into our black box. And importantly, we're able to utilize talent in a bit more flexible way on a global basis because it takes us a little less time, and we can take our talent and spread them over multiple kind of engagements. So that's the win-win-win with Tango, and that's why I think it's moved at the pace that it has. So the mid market, by the way, is -- yes, I said about 30%. I think it's around 25% -- it's around 25%, just to give you -- just to clarify, Jason. Jacob Mutchler: Got you. Okay. And then briefly turning to Asia. What is the -- I know you mentioned that you're expecting to return to growth in the back half. Is there a catalyst of what's going to precipitate that event? Or just any color around what's going to help drive Asia back to growth? Michael Sherrick: Yes. Jacob, I think it's Michael. As Mike commented, for Asia, we really need to see the the public sector begin to improve. We've seen some improvement in the pipeline there. Obviously, we need to close that business, but that's obviously the the early sign of beginning to see some life come back is that we're seeing some better opportunities in our pipeline. Operator: And I'm showing no further questions. I'll turn the call back over to Mike Connors for his closing remarks. Michael P. Connors: Okay. In closing, let me thank all of our professionals worldwide for our continuing progress and further collaboration and unwavering dedication to our clients in driving our long-term success. I think our people have a passion for delivering the best information, insights, advice and support to our clients as they continue their AI-powered transformations, and I could not be prouder of them. And thanks to all of you on the call for your continued support and confidence in our firm. Have a great rest of the day. Operator: This concludes today's teleconference. You may disconnect at any time.
Operator: Good afternoon, ladies and gentlemen, and welcome to the African Rainbow Minerals Interim Results for the 6 months ended 31 December 2025. [Operator Instructions] Please note that this event is being recorded. I will now hand the conference over to Thabang Thlaku. Please go ahead. Thabang Thlaku: Thank you very much. Good afternoon, everyone. So we're all together in the room here. We've got the entire management team. We've got Phillip Tobias, Tsung Shang, Mike Schmidt, Jacques van der Bijl, Thando Mkatshana, La Berger and Johan Jansen. So the entire management team is here to answer all your calls. We're not going to do an introduction. We're going to go straight into Q&A. So we'll just give them some time to take Q&A. Operator: [Operator Instructions] Our first question comes from Ntebogang Segone of Investec. Ntebogang Segone: Perfect. I think my question is quickly on Thando or to Thando in relation to the ARM Coal. I mean I see domestic sales were down 15% year-on-year at GGV and then PCB also was down 3%. And then I also see also on the revised guidance, particularly around those local sales volumes going forward, they've been revised downwards. Could you please just provide some guidance on the contracts and downward revision of that coal business and how we should then be looking at it, particularly on the local sales side? And then in relation to Modikwa, I just wanted to understand, so I saw that like -- so tonnes more were up 5% year-on-year, but the PGM concentrate did go down by 3% due to that plant recovery. How does the recoveries outlook profile with open pit combined look like for Modikwa? And if you could maybe speak more around that 4% unit cost reduction at Modikwa and how we should also look at it going forward? I'll leave it there for now. Thando Mkatshana: With regard to the domestic sales, the main supplies to Eskom. As you probably know, the burn rate in terms of Eskom and power generated from their side has been reducing. So we are having that impacting our domestic sales. The positive thing out of that, obviously and tying it up with an improved performance from TFR is that some of the coal we do divert into the export market prices. So in terms of our contract with Eskom, we have contracted for GGB, it's about 2.5 million tonnes at 100% for the full year of sales. But yes, it all depend on whether they are responsible for the entire logistics as well in terms of getting transport and picking it up. But from time to time, when they don't use or take that coal and derivatives into the export market. I hope that kind of answers your question. Ntebogang Segone: Yes. And the water accumulation there in the coal business there with Mundra, how will that impact production going forward? Thando Mkatshana: Yes, that's a simple -- maybe a bit of quick background is that, that used to be an old underground mine where we're mining now. So we are mining those eras through an open cast method, and we had better accumulation of coal. We have -- that has been, I would say, in the once-off matter. We have since revised the pit layout and we've added additional pumping capacity. Having said so though, across all our business, I think the range that we have been experiencing in the last 2 years has been somehow more than the normal range. So those have impact from time to time. But in the main challenge of the water accumulation has been addressed for now. Unknown Executive: Will you take the Modikwa question. Unknown Executive: Certainly. I must state that the open cost is not the preferred source of ore for Modikwa. We're putting that through the concentrator while we are building up the reserves underground in the UG2. The 6E grades for the underground UG2 is 4.76 grams per tonne. While for the open cast, it's higher, it's anything between 5.2 grams a tonne and 6.5 grams a tonne. The challenge, however, sits with the recovery. Typical recovery for normal underground UG2 is sitting at about 84.5%, 85% while the open cast closer to surface, highly oxidized can be sitting between 50%, 54%. The benefit of the open cast is that it's a much lower cost operation. UG2 cost per 6E ounce comes in underground ZAR 20,200 per 6E ounce, while the open cast comes in at ZAR 16,000. So although you lose some ounces, you're seeing the benefit in terms of the cost. We're going deeper with the open cast. So as you are proceeding deeper, the ore becomes less oxidized and your recovery goes up. So we are confident in the outlook for the open cast as a temporary gap filler Modikwa. Thank you. Operator: [Operator Instructions] And we do have the next person in the queue, which is Tim Clark of SBG Securities. J. Clark: All right. I've got a few questions. I'll sort of roll through them slowly. Let's start with -- the finished stock that you've agreed to sell the 1.2 million tonnes. Can you give us an idea, please, of just the sort of time frame over which you'll sell that, what the offtake is, what the contract is? Unknown Executive: Yes. So the contract has been concluded for 1.2 million tonnes over a 12-month period, which started in February. So the intention is to offtake 100,000 tonnes per month for 12 months. J. Clark: That's very helpful. Let's talk about just how we should think about Nkomati going forward just in terms of spend. You've got this chrome plant, which is going to give some kind of revenue credit. How should we think about it? Just -- I mean, you've got the liability outstanding. Can you give us like some kind of sense or guidance just for our models for the next, I don't know, 2, 3 years of what we should model in terms of -- how we should think about Nkomati in terms of the plant and then offsetting and the spend on rehab, please? Unknown Executive: Thank you for that. I will also ask Tsu to help in terms of the rest of the rehab. But to an extent, this, as you pointed out, this revenue subsidizes the cost of care and maintenance, which as we have indicated in the past, I think we're going to be generating between ZAR 20 million and ZAR 25 million of revenue that will come and subsidize that cost. And yes, so I'm not sure if I've answered. On the rehab side, did you ask on the rehab in terms of margin, we are currently not really undertaking major rehab because we are completing this feasibility study in terms of looking at optionality going forward. As we have indicated, we have quite advanced on that. And I think it is very encouraging and we're confident that when we take it to the Board, it will get approval and we'll make an announcement in due course. So there's no really major rehab that's happened. Same for the water treatment plant, which we have indicated in the past. J. Clark: Okay. So that feasibility study, is that another version of a nickel -- is the feasibility study just to open up another nickel mine effectively a new Nkomati in some different form? Sorry, I don't know much about it. Unknown Executive: Yes. That's what it will entail really recommissioning the mine and bring it back to life. But obviously, in a much more, let me say, a remodel maybe a smaller scale than previously. That's what we are looking at. But yes, we'll be able to share the details in terms of the actual volumes and so on after we've finalized that study and taken further report. But I think that gives a good indication. And in line with that, obviously, also with the very encouraging chrome prices, we are looking at a potential a bigger chrome production than what we are currently doing. Unknown Executive: And on the rehab liability, Tim. So that rehab liability. Unknown Executive: Sorry, just giving more color on the rehab liability. Tsundzukani T. Mhlanga: Yes. Thanks, Tim. Just to let you know, so that we have as at 31 December from Nkomati just over ZAR 2 billion, so it's ZAR 2,011 million or ZAR 2.0 billion. But then just remember that we did receive the ZAR 325 million from Norilsk, which was their contribution as part of the transaction towards the rehab water -- water rehab. Thabang Thlaku: Sorry, it's Thabang. I just -- I want to ask additional questions on your behalf, so we can just clarify some things. So current monthly production of chrome, where are they now and what are we planning to... Unknown Executive: Around 8,500 tonnes per month that we are achieving. But we will peak at about 11,000 tonnes per month of chrome concentrate. Thabang Thlaku: At steady state? Unknown Executive: With the current project. The bigger at the stage we're still finalizing a few items related to the vent recovery process, and that will complicate those volumes, but they are much higher than the current project. Thabang Thlaku: When do you expect to get to 11,000 tonnes per month? Unknown Executive: 11,000 tonnes per month in the month of April. Thabang Thlaku: In April? Unknown Executive: Yes. Thabang Thlaku: And what kind of profit margins are we seeing with the chrome production at Nkomati more or less? Unknown Executive: That plant, it cost us about ZAR 10 million, so I just want to check. It cost us just under ZAR 10 million per month to produce that -- ZAR 20 million to ZAR 25 million. So it's between ZAR 15 million and ZAR 10 million dependent obviously on the chrome price. Unknown Executive: Yes. I think maybe just to come in, overall, just correct me if I understood well. I think in the next 12 months, we should be able to make at least a profit of ZAR 100 million with this 500,000 tonnes as the EBITDA would be positive? Thabang Thlaku: It's revenue or profit? Unknown Executive: Yes. It varies between as I said. Thabang Thlaku: And then just to add -- with regards to the broader Nkomati question, I think it's too early for us to give too much information. As you can imagine, with the geopolitical changes that have been happening, there are some offtakers who've been looking for nickel supply out of Indonesia because of their relationship with China. As a result, Nkomati has become a little bit more attractive to other nickel producers. But it's still early stages. We're doing the study, and we're only sort of going to go for board approval later in the year. And once we do have the details, we'll come back and guide the market accordingly. J. Clark: I'll ask one last question, please. Just on Two Rivers, I was just reading your commentary about being impacted by sympathetic geological structures. I never heard of those before. Can you just chat to how long it's going to take before your productivity improves as the geology improves? Just how long -- you sort of spoke about it improving over time now that you're getting past the docs, maybe you can just give us some timing. Johan Jansen: This is Johan Jansen. What we encountered was a fault parallel to the advancing phases. So about 18 months ago, we started intersecting the fault. We've done redevelopment, went through the fault. We've established the faces on the other side of the fault, which was quite an effort. And at this stage, we are busy bringing the supporting infrastructure up to date the conveyor belts, moving them back to within 60, 80 meters from the face. We've already seen an improvement in the productivity, and we will continue to see that over the next quarter. And by the start of the next financial year, we will be back on 320,000 tonnes per month. Unknown Executive: I think, Tim, that's what I said that -- Tim, that's what I said, our forecast for F '27 will be an improved output because we'll be moving towards strength out of these geological features. Operator: [Operator Instructions] Our next question comes from Thobela of Nedbank. Thobela Bixa: I did get cut off a few times here. Please forgive me if I do ask questions that have been asked already. Earlier on during the webcast, you talked about the value in use model when I asked a question about the realized pricing on the manganese. Could you just expand some more what is meant by value in use model for ARM? And how does that potentially improve your realized pricing? And it did seem as though -- and it did seem as though she wasn't just talking about just sort of the manganese operation, but this perhaps could be applied in other divisions. Can I just get clarity on that as well? So that's my first question. And then I'll ask my second question later. Unknown Executive: Thobela, I would like to expand on that. So what is value in use, you take your specific and you are correct, we need -- for manganese at Black Rock as well as iron ore at Khumani and it is tested in various applications. So where it would be used in different smelters and for what purpose in the smelters. And you develop a model to determine the intrinsic value of your ore type to the customer buying it. And through having that value, you can maximize the economic value you get back in your pricing. And to just further explain it, obviously, in a smelter, they don't only use your specific type of ore. They would use different suppliers type of ore, which has got different grades and contaminants. And we know Black Rock as well as Khumani has got a very high-grade reserves. And we are doing this work in specific to ensure that we get the netback per product on maximizing economic value. So it would mean that we would receive above an index price realization for premiums for our specific product based on our product's value. Thobela Bixa: Okay. No, that's clear. Go ahead, Thabang. Thabang Thlaku: Your answer also applies to iron ore question. Okay, Thobela, go to your next question. Thobela Bixa: Yes. Maybe just a follow-up on that is, would that then maybe mean that your sales volumes perhaps because you may -- I mean, would your sales volume remain the same in terms of how you are forecasting currently? Or would this value in use kind of affect your sales potentially given perhaps you may have to change your products back there? Unknown Executive: No, it would not have any impact on your volumes. The only impact that it would have is on your revenue line. Intent is to see if we can get better prices due to the specific ore type, and we can engage on that. So no, volumes will remain the same, both for Black Rock and Khumani, which is currently in the 5-year plan. Thobela Bixa: Okay. And then my second question is around the domestic sales in the iron ore division. I think my question, I guess, is you've talked about having signed a new contract to sell for domestic sales. Where would those -- given that Beeshoek was the one that you used to supply to your domestic markets. So I'm guessing Khumani will be now the one supplying into that. And is that -- I mean my understanding was that your export sales, you derived better revenue there versus perhaps on the domestic side. Could you just clarify as to why perhaps go via this route. Unknown Executive: So for clarity, the contract on Beeshoek was signed with AMSA, and it was for 1.2 million tonnes. We're sitting with a stockpile of 1.48 million tonnes. The only reason why we signed a contract with AMSA and it is not at a brilliant rate, it's ZAR 800 per tonne, where our previous rand per tonne on Beeshoek was ZAR 1,221. So you can imagine it's 25% lower than our previous base price. That's the best option we could get to get some value for the stocks currently lying at Beeshoek. The intent is never to supply the domestic market from Khumani, no. Khumani is an export mine. And our revenue receiving from exports is much better. So yes, the domestic market will definitely not be supplied by Khumani. This is an isolated matter in specific pertaining to Beeshoek being on planned maintenance, and we're having that 1.48 million tonnes of stockpile. Unknown Executive: And maybe just to comment to, I mean, just a bit of background. You remember that at some stage, we said we don't have a long-term contract with our sole customer, but we were still busy in negotiation with them. And then the last basically delivery of all was done in July, during which period we were still negotiating. And that was at the back of the November '24 when they announced the potential shutdown of the long steel business. So that being announced in November, they were still taking some products for us. And with us being in the mining, obviously, you have to be producing, delivering stockpile so that we can really deliver whatever quantities that are required. So we -- at the back of hope that we're going to enter into an agreement, we still carried on mining and we only need to do the line on the sand out end of October, we said we cannot carry on. At that time, we've already accumulated 1.486 million tonnes. So we just have to basically sell this and clean up everything at... Thobela Bixa: Okay. No, that's helpful. I have my one last question on Two Rivers. I think if I recall well, in terms of your ramp-up profile of prior to the Merensky project being put on care and maintenance. It was quite significant just in terms of what was anticipated then? And then if I look at the current ramp-up profile with the Merensky project being sort of pulled back again into production, this one, this ramp-up profile seems a bit softer. Could you just explain what's the thinking now versus before you put that particular project on care and maintenance. Unknown Executive: Thobela, on the Merensky project, like we communicated earlier today, we started the decline development in October last year, a limited development whilst we're just finishing the feasibility study to recommence with the project. And we plan to complete all of that work as well as the review work and third-party work by May this year, and then we'll take it to the partners for approval with the planned restart date of the 1st of July. The current -- we have redone the whole life of mine model and optimize the mining cuts, et cetera, we get the best value out of the project. And extracting the resource at the maximum grade. And with this latest ramp-up schedule, the schedule that we've done, we ramp up to 200,000 tonnes per month over a 3-year period. So from July 3 years we have steady state production. We are benefiting now obviously from the fact that we've already got 3 levels developed and we are proceeding down towards Level 4, of which 2 are already equipped. So we do have quite a big head start compared to the original feasibility study. Unknown Executive: Thobela, Tsu just actually made me aware. When you're looking at our PGM forecast, the Merensky numbers are not there. So you can't compare this to the numbers that we gave you in 2024 because we're still to include that once we go through the government -- yes. Once the governance process is done, then we'll update the Merensky guidelines. Thobela Bixa: I'm actually looking at the year before that, 2023, where at the time, the Merensky project was due to come in online. And then if I look at your ramp-up profile then, I have it right in front of me. I think from '23 to -- let's say, well, from '24 to '25, you're going to move from 313 cores to 485 cores or kilo ounces. So that's that big jump versus perhaps, I guess, the current softer profile. Thabang Thlaku: Yes. But that's because those numbers did include the Merensky estimate and these don't... Unknown Executive: I can add I think we haven't disclosed in the we haven't disclosed in the current numbers the Merensky ramp-up, like Thabang and Tsu rightly say that we still believe that governance process. However, I can share that the work that we've done with the mining schedule, that ramp-up is over a 3-year period. So I think it's substantially still in line with what we've guided before. Thobela Bixa: Okay. So -- Go ahead. Unknown Executive: Just to help you -- just to clarify, I mean, remember what Doug said, where we stopped in August '24 we were already at Level 3, and this is going to be a 5-level operation, delivering 25,000 tonnes per half level. So we need to develop to Level 4 and to Level 5. And that is basically going to take us about 2 years to do that. Then the third year that Jacques is referring to is when we ramp up to steady state, so which is basically from the beginning, it will be a total of 3 years to get to steady state. Thobela Bixa: Okay. Because my -- I guess my understanding was that the bringing back of the Merensky project would take a lot less time than what I'm hearing now. I guess that's where the misunderstanding would have been. Unknown Executive: I can maybe also just add too that obviously, with the concentrated plant finished, we could sequence now and see exactly when is the optimal that with a combination of building stockpile upfront maybe for the first 6 months or a year and then only starting that. So it doesn't mean that it's a 3-year ramp-up, you're only going to start seeing ounces -- do incremental additional ounces from Merensky in 3 years' time. You could, as quick as within about 12 months, you start to see additional ounces coming from Merensky. Operator: We have a follow-up question from Ntebogang of Investec. Ntebogang Segone: Just a quick one on the Two Rivers production currently, yes, there were like some geological challenges faced in 1H. I just want to quickly confirm as to going forward, is the 3.09 head grades that was reported for 1H sustainable going forward? Or if you could maybe guide us more on how you see that head grade improving as then the geological issues improve? And then in relation to the Two Rivers Merensky project, I mean my understanding is that there's around ZAR 2.6 billion of working capital that needs to be put for it to then be able to get back online. With the current planning, I don't know if it's fair for me to ask if you could maybe provide just some form of color in terms of how you're going to be spending that ZAR 2.6 billion over the next 2 years, if it is then what is approved. And then I think my second last question or my last question is mainly around project priority. I just want to have some like a greater clarity around your growth projects. I mean you've got Nkomati, you've got Bokoni, you've got Two Rivers Merensky project. Are you able to -- or even other M&A and then there's also Surge also as well as part of your growth projects, right? Are you able to explicitly rank those growth projects in order of capital priority for us? Yes, I'll leave it there. Unknown Executive: Yes. Do you want to comment on the grade? Unknown Executive: Yes. If I can go first on the grade, please. Thank you for the question. The grade of 3 mining is a fair outlook of what we could expect going forward. We've moved into an area with split reef. So the grades will no longer be as high as it has been in the initial phases of the project. But the monitoring of the quality of the mining is excellent, and I expect to see the grade remaining where it is. Unknown Executive: Thank you very much. And then in terms of the project, yes, you are correct. I mean we've got the trade-off studies that is currently underway in Nkomati. We are now recovering chrome from the 500,000 tonnes stockpile that you mentioned, and there's another study as well on the chrome side that is taking place, a study basically to restart nickel. So that is basically Nkomati complex. And you come to Two Rivers, obviously, the project there that still needs to be concluded is the Merensky. And as Jacques says, also, we're basically at the tail end of completing that study. The numbers will be put on the table to see what are the returns, confirm the capital that is required, confirm everything and basically the contributions that, that project is going to bring to the Two Rivers mine. And then we also mentioned that we already completed the DFS at Bokoni. We're doing the independent review, third-party review. We do the value engineering, firm up the numbers. And these 3 will have to be ranked in the order of priority and an investment decision will be made at the right time in terms of how we stagger them. The Surge where we are, we will most probably say one can say maybe the best guess is come end of June, we should really have the outcome of the pre-feasibility study, whereafter that will really transition to a definitive feasibility study with some regulatory approval process. We see that process being concluded most probably the best case towards 2029. And then if everything else work well, that mine should really go into execution around 2030. So if you look at the project staggering, the Surge is still about -- last year, we used to say 5 years. It's about 4 years now from execution unless things are really expedited in terms of the approval in cost. We've also seen the response from the Canadian government as far as expediting some of these critical mineral projects. Unknown Executive: If I may also just add with regards to the capital. Maybe just in reference with Khumani, alluded to the volumes that we are looking at the potential open pit mining is less than what we did before. And also the fact that the mine was a producing mine was placed on care and maintenance, the ramp-up capital that we would require to put that mine back into operation is not as substantial as completely building greenfields mine. So it's certainly, I think, a lot more affordable. And depending on how the economics stack up because it's an open pit, it ramps up production very quickly. It should become potentially cash positive generator in a much shorter period of time compared to Bokoni project, where there's a new concentrator plant that needs to be built and substantial underground development. And with regards to Merensky, I think the biggest amount of money that would have to be spent is on the mining, specifically building working capital and stockpile to consistently be able to feed the mill. And both Two Rivers substantially stronger balance sheet, the forecast is that Two Rivers would be able to fund the full capital required to complete and ramp up Merensky from the strength of its own balance sheet and from its cash flow generation without requiring additional funds from the 2 partners. And that then really just leads to current that we would have to see and we're busy with finalizing that work. What we've also said is we are looking at a much smaller study and 120,000 tonnes and we believe this is the right size, which strikes the right balance between capital required as well as sufficient volumes to ensure sustainability and cash competitiveness from a unit cash cost point of view. And we would be able to provide further guidance on that cash flow required to support that project during the next results issue. Thabang Thlaku: Ntebogang, is your question answered? Ntebogang Segone: The ranking part is the one that's not answered. Thabang Thlaku: Yes. Yes, that's the sense that I got, Ntebogang. We're sort of giving you detail on what we're doing at the projects, but we're not ranking them. But if I had to summarize what I think Phillip and Jacques are trying to say is that if you look at the current project pipeline, quite a few of these projects are actually still in steady state. And until they're completed and we've got Board approval, it's very difficult for us to say we're going to prioritize project A over project B, right? So that's number one. And I think Jacques was also just trying to illustrate to you that some of the projects are actually going to be able to self-fund because they'll be generating some cash themselves. And some bigger projects like Bokoni and Surge, only once we've got the information in front of us, will we be able to make a decision going forward. Because remember, your capital allocation model is continuously evolving. And it would be very premature for us to say we're prioritizing this now in 2, 3 years' time once the studies are done and we've got board approvals, the world has changed. So yes, so we can't give you an explicit project ranking right now, specifically because a lot of these are still in study phase and don't have work. Unknown Executive: And as just said earlier on, most probably when we come to the next reporting cycle, we will be having detailed outcome and the decision would have been made. We'll be able to update the market in terms of where we are. Unknown Executive: If I may also just add, as part of this analysis, we're obviously doing very detailed cash flow schedules for all of these projects. And then we also look at it on a portfolio view, where we look at from an ARM's point of view, what is the forecast cash flow coming in from the operations, what would be the cash required to finance each one of these projects as well as our other commitments with regards to returning money back to the shareholders in the form of dividends that we are committed to. So we're making a very prudent decision in terms of which project will start first. And also maybe we don't do all of them at the same time just because from an affordability point of view that we do stagger in. And then maybe just one last point. There's absolutely no decision made at this time. We are still busy with the study book, and we will review the results as well as the cash flow requirements on a portfolio view very carefully before a recommendation or decision is made. Ntebogang Segone: Maybe to finish off, which is -- my question is mainly around balance sheet, right? So your balance sheet has strengthened to now currently with net cash of around ZAR 8.4 billion. And then I'm also then taking into account of the Harmony hedge collar. So one can possibly consider that I'm not an accountant, but like a lazy balance sheet. So I'm trying to understand with the excess cash that you guys have on my view, what is management thinking around using that cash for future growth? So that's what I'm trying to understand in your projects, the ranking and also the prioritization in terms of capital allocation. I don't know if I'm making sense. Unknown Executive: Thanks for that question. No. So I might have a different view from yourself in terms of it being a lazy balance sheet, but be that as it may, that's okay. So I think -- so I mean, you're quite right. Our balance sheet has strengthened from June where we are now, sitting still in a relatively strong net cash position. But the question you're asking, that was actually quite valid and quite -- one that we actually deliberate amongst ourselves with and specifically knowing that we've got these projects, we've got this project pipeline. We have ammunition in terms of raising additional funds through using Harmony collar and end -- but at the same time, still looking at the projects that are in the pipeline and seeing those that can generate cash as quickly as possible because at the same time, you do not wish to be strained or find yourself in distress in terms of having to honor commitments and you don't have enough cash. So as Jacques was saying that you really do need to look at it from a portfolio perspective. Yes, you're sitting on cash currently, but there is a pipeline. But there are also other moving parts where we're looking at the cash coming in from Assmang in the form of management fees as well as dividends and all the other commitments. And then it's really just quite a tight balancing act that we're going to have to make. So that -- also the balance sheet will also be informing the decisions that we make in terms of which project we're actually going to proceed with, what is palatable for us and what we can comfortably deliver on without straining the balance sheet. But again, if we find ourselves in a place where -- and I'm hoping we are there, where we decide not to go with any projects, then instead of sitting then on the cash, we will definitely look at returning that cash to the shareholders. Because remember, we look at the cash and we say, okay, how can we generate a return more than that cash just sitting in the bank, and that's where then we will deploy that cash towards to say we believe we can get you as a shareholder, a better return than our weighted average cost of capital. But if not, then the default then say, okay, then let's rather then return to shareholders. I hope that helps a little bit. Operator: Our next question comes from Andrew Snowdowne of Ninety One. Andrew Snowdowne: I am seeing you next week, but I thought I'd ask this question now anyway. And it's just really following on the previous question. The capital allocation slide that you showed, was that the order of priority in which you're looking at things? Or are you just saying these are all the things that are considered because it is quite an interesting order in which is displayed. I guess that's the first question. And then the second one, maybe you can talk me through why you put the collar in place in the first place if you're not actually using it. Again, to the previous point, you're sitting on -- I'm in the same camp. It's a lazy balance sheet. 18% of your market cap is now sitting in cash. You're also seeing a significant value for your Harmony stake. And yet there doesn't seem to be any real initiative by management to try and unlock any of that value. So maybe you can just talk me through some of that. And again, in line with that, just looking at where you're ranking things like share buybacks and maybe you can just remind us where -- just how much you're allowed to buy back at this point. Tsundzukani T. Mhlanga: Thanks. So maybe just the first question around the capital allocation guidelines. So the way they are documented that it's not an order of priority. I think we do have a footnote at the bottom of the slide where we do say that. And then secondly, the question around... Unknown Executive: Collar, if we're not going to use that... Unknown Executive: I can speak to that. I think when that collar was put in place, it was to reflect the time and the strategic intent behind it, which I'll share now. But at that point in time, specifically on our PGM basket prices were a lot more depressed. We're talking about March, April last year, even though it was our view that the metals were in deficit, however, due to the destocking of the substantial inventory above surface, we haven't seen the metal prices were not reflective of the fundamentals, the supply of the 3 metals, specifically platinum, palladium and rhodium. So the whole strategic intent behind the collars there was at that time, even the strong rally up in the gold price, Harmony share price responded quite positively. And we said, given those growth ambitions that we do have, the uncertainty around the PGM prices, how long it will take before it starts to recover, it may be good to just try and strengthen the balance sheet by having some fixed security in place that if we want to, for instance, in future, deploy some of our cash on some of these growth projects that we are -- that could be value accretive and generate cash above our weighted average cost of capital. We don't want to get into a position where you draw down your available cash on the balance sheet and then the commodity price weakness continues and you start to come under balance sheet stress. So in that case, it's good if there's a facility available, maybe linked to a revolving credit facility that you do have access to. So it's really just capitalizing at the time on the good Harmony prices that we saw. And with the benefit of hindsight, it sort of rallied even further beyond that. But in the context of where we were with the commodity prices and not knowing exactly how long it will take, specifically for the PGM prices to respond. Where we are now, we still think it's a good facility because that strategic intent behind it hasn't fallen away. So the -- if we do proceed with some of these projects, it may still be good to put a revolving credit facility in place. We will obviously use the cash first because that's a lower cost of interest compared to paying interest on the RCF. But at least you've got access to that liquidity on a very short period of time if you need it. Because as a holding company and a commodity producer, especially in today's world, commodity prices are very volatile up and down, and you need a bit of headroom to make sure that you've got -- you can cover yourself in any eventuality that may happen. I hope that sort of provides a bit of clarity. And the only reason why we have used the collar is use of proceeds. We haven't finished the studies yet, and we will do that over the next couple of months. And as soon as we make a decision, then we will look at what is the most appropriate way to utilize that strategically to protect the balance sheet. Andrew Snowdowne: Maybe just a very quick follow-up on that. Because your actions and the outlook comments don't seem to be marrying up at the moment. You're talking about a much stronger second half versus the one you've just reported. And if we look at what the basket price, and particularly for PGMs has done since then, iron ore, I think there's a consensus a little bit lower, but it's still holding up. The rand, yes, was stronger, but it's now been weakening a little bit with the events in the Middle East. The sense is you should be generating very significant free cash flow over the next 6 months, which puts you in an even stronger position. So maybe you could -- do you agree with that view, first off, what are your concerns at this point because the actions by the company don't seem to be marrying with the outlook. Just how good an outlook do you need before you start utilizing that significant cash balance? I guess that's the question. Jacques van der Bijl: If I can answer that, you're quite right. I think our outlook is also very much in line with some of our peers and the commentary that Mats made that we do think in the context at least of the PGM prices, the prices will remain stronger for a longer period of time, which is positive. And that we will specifically from our 2 operations, Two Rivers as well as Modikwa should be at least current basket prices quite strongly cash generative. However, we've seen also how quickly things can change in today's world with the volatility. And we have been wrong in the past what we've guided on the outlook and it doesn't transpire. So that's why we do think that it is prudent to keep a certain amount of cash or access to cash in the form of RCF available that you don't overextend yourself. But the intent is once these projects are -- studies have been completed and we have properly evaluated to make a decision on going forward with them or not. And at that point in time, we'll be in a much better position to see what resources do we need from the balance sheet to be able to support those projects. Unknown Executive: Sorry, I just wanted to add something to what Jacques, yes -- just to add to what Jacques said, I think someone said it on the podium earlier. Yes, the platinum operations will be generating cash, but that won't necessarily come through the center. That cash will be used to fund the requirements of those businesses on Two Rivers, specifically on Merensky. So depending on what that built in, I'm not sure what it is, we'll go towards that. And then we do what as well is some increased CapEx requirements that, that cash -- the mine as it is, is generating that cash will go towards funding that. I just wanted to add that. Unknown Executive: Andrew, the last question was on the issue of the share buybacks. You did ask a question as to whether we consider doing another share buyback. I mean, as Tsu mentioned, it's part of the thing that we consider whenever we have a capital allocation review decisions to say which ones come first. Where we are now, as Jacques mentioned, in the next 2 months, there's some serious decisions that we have to be made in terms of those 3 project studies. And this thing as well is weighed against all the other points that we have to consider. And we do take note of what you raised with... Andrew Snowdowne: Super. Maybe one last one. And as you can tell, we're going to have an interesting meeting next week. The -- just can you maybe give me a sense because I'm sure you've done the calculations to at current spot the sort of free cash flow that you'd expect to generate? Or is that a number you're willing to share? Unknown Executive: No, is that free cash flow in CVM or at group level? Andrew Snowdowne: Either way, just an indication because, again, from what we've seen so far and what things have done, if anything, the one number that surprised everybody is just how strong cash generation is. My worry is that management is coming across a little bit too conservative given the current market conditions, hence the question. Unknown Executive: We have to get that information, sorry. Can we give it to you when we see you next week. Or we can drop you an e-mail once we have found the number. Operator: We have a follow-up question from Ntebogang of Investec. Ntebogang Segone: Sorry, guys. Just a quick one, right? So if the PGM -- if the cash flow from the PGM business will be funding these projects. Now my question is around dividends going forward. I mean dividends, your dividend policy is based on dividend received. Ferrous outlook seems muted. So you're not expecting as much dividend received from Ferrous as historic levels. And then now the cash from the PGM business, all of all, essentially, I'm assuming that now because we will be funding these projects, it will then not be going to dividends to the African Rainbow Minerals. So how should we then look at dividends going forward for ARI? Unknown Executive: We are committed to basically giving cash back to our shareholders so -- and it's a capital allocation decision, but it's a commitment that we have made in the bigger scheme of things. As we weigh this project that we need to advance, we also basically take into consideration the dividend payment as well. Unknown Executive: Yes. Maybe I can add, Ntebo. So our dividend policy remains that 40% to 70% of the dividends that we receive from the underlying operations. So yes, as you point out, we might not be expecting -- and I mean we were not expecting actually before this rally in the PGM basket price. We were not expecting dividends coming through from those operations for the next 3 years. So thankfully, we're in a better place. But if those operations are able to fund their requirements and there's anything that's left over that will obviously be given up through to ARM and to our partners. But I think what you can model if you need to model is work with that 40% to 70%. In last couple of years, we have gone above that range, and that is when we -- looking at the cash that we're actually sitting on, we say, okay, actually, we can afford to go beyond that range and we make that decision. We've made it a few times quite often. So -- but just to be on the conservative side, still use that 40% to 70% as a guideline for the dividends that ARM would then be paying. Unknown Executive: I think also maybe just to add on, I think it just sort of links to the question that Andrew asked before, at current spot prices, and we'll run the numbers. But sort of my assessment is that if the current spot price prevail in the -- the cash generative -- cash that will be generated above as well as is quite substantial. And I think that most likely will be more than what the -- so there will be surplus cash available even after servicing requirements to complete the Merensky study as well as the development at the Da. So there is a good chance that if the current prices prevail, that there will be cash passed up through the form of dividends to our book. Unknown Executive: And equally, as ferrous is facing challenges due to pricing and cost and while we try to turn around that business, you can expect more on that front. Operator: Ladies and gentlemen, with no further questions in the question queue, we have reached the end of the question-and-answer session. I will now hand back for closing remarks. Unknown Executive: Thank you, everyone, for dialing in. We appreciate your participation. We will be on the road next week -- investors. If you've got any more questions or you feel like we may be didn't answer some of your questions to your satisfaction, please feel free to call me or send an e-mail and we'll endeavor to give you accurate answers as soon as possible. But thank you very much, everyone. Operator: Ladies and gentlemen, that concludes today's event. Thank you for joining us, and you may now disconnect your lines.
Operator: Good afternoon, ladies and gentlemen, and welcome to the African Rainbow Minerals Interim Results for the 6 months ended 31 December 2025. [Operator Instructions] Please note that this event is being recorded. I will now hand the conference over to Thabang Thlaku. Please go ahead. Thabang Thlaku: Thank you very much. Good afternoon, everyone. So we're all together in the room here. We've got the entire management team. We've got Phillip Tobias, Tsung Shang, Mike Schmidt, Jacques van der Bijl, Thando Mkatshana, La Berger and Johan Jansen. So the entire management team is here to answer all your calls. We're not going to do an introduction. We're going to go straight into Q&A. So we'll just give them some time to take Q&A. Operator: [Operator Instructions] Our first question comes from Ntebogang Segone of Investec. Ntebogang Segone: Perfect. I think my question is quickly on Thando or to Thando in relation to the ARM Coal. I mean I see domestic sales were down 15% year-on-year at GGV and then PCB also was down 3%. And then I also see also on the revised guidance, particularly around those local sales volumes going forward, they've been revised downwards. Could you please just provide some guidance on the contracts and downward revision of that coal business and how we should then be looking at it, particularly on the local sales side? And then in relation to Modikwa, I just wanted to understand, so I saw that like -- so tonnes more were up 5% year-on-year, but the PGM concentrate did go down by 3% due to that plant recovery. How does the recoveries outlook profile with open pit combined look like for Modikwa? And if you could maybe speak more around that 4% unit cost reduction at Modikwa and how we should also look at it going forward? I'll leave it there for now. Thando Mkatshana: With regard to the domestic sales, the main supplies to Eskom. As you probably know, the burn rate in terms of Eskom and power generated from their side has been reducing. So we are having that impacting our domestic sales. The positive thing out of that, obviously and tying it up with an improved performance from TFR is that some of the coal we do divert into the export market prices. So in terms of our contract with Eskom, we have contracted for GGB, it's about 2.5 million tonnes at 100% for the full year of sales. But yes, it all depend on whether they are responsible for the entire logistics as well in terms of getting transport and picking it up. But from time to time, when they don't use or take that coal and derivatives into the export market. I hope that kind of answers your question. Ntebogang Segone: Yes. And the water accumulation there in the coal business there with Mundra, how will that impact production going forward? Thando Mkatshana: Yes, that's a simple -- maybe a bit of quick background is that, that used to be an old underground mine where we're mining now. So we are mining those eras through an open cast method, and we had better accumulation of coal. We have -- that has been, I would say, in the once-off matter. We have since revised the pit layout and we've added additional pumping capacity. Having said so though, across all our business, I think the range that we have been experiencing in the last 2 years has been somehow more than the normal range. So those have impact from time to time. But in the main challenge of the water accumulation has been addressed for now. Unknown Executive: Will you take the Modikwa question. Unknown Executive: Certainly. I must state that the open cost is not the preferred source of ore for Modikwa. We're putting that through the concentrator while we are building up the reserves underground in the UG2. The 6E grades for the underground UG2 is 4.76 grams per tonne. While for the open cast, it's higher, it's anything between 5.2 grams a tonne and 6.5 grams a tonne. The challenge, however, sits with the recovery. Typical recovery for normal underground UG2 is sitting at about 84.5%, 85% while the open cast closer to surface, highly oxidized can be sitting between 50%, 54%. The benefit of the open cast is that it's a much lower cost operation. UG2 cost per 6E ounce comes in underground ZAR 20,200 per 6E ounce, while the open cast comes in at ZAR 16,000. So although you lose some ounces, you're seeing the benefit in terms of the cost. We're going deeper with the open cast. So as you are proceeding deeper, the ore becomes less oxidized and your recovery goes up. So we are confident in the outlook for the open cast as a temporary gap filler Modikwa. Thank you. Operator: [Operator Instructions] And we do have the next person in the queue, which is Tim Clark of SBG Securities. J. Clark: All right. I've got a few questions. I'll sort of roll through them slowly. Let's start with -- the finished stock that you've agreed to sell the 1.2 million tonnes. Can you give us an idea, please, of just the sort of time frame over which you'll sell that, what the offtake is, what the contract is? Unknown Executive: Yes. So the contract has been concluded for 1.2 million tonnes over a 12-month period, which started in February. So the intention is to offtake 100,000 tonnes per month for 12 months. J. Clark: That's very helpful. Let's talk about just how we should think about Nkomati going forward just in terms of spend. You've got this chrome plant, which is going to give some kind of revenue credit. How should we think about it? Just -- I mean, you've got the liability outstanding. Can you give us like some kind of sense or guidance just for our models for the next, I don't know, 2, 3 years of what we should model in terms of -- how we should think about Nkomati in terms of the plant and then offsetting and the spend on rehab, please? Unknown Executive: Thank you for that. I will also ask Tsu to help in terms of the rest of the rehab. But to an extent, this, as you pointed out, this revenue subsidizes the cost of care and maintenance, which as we have indicated in the past, I think we're going to be generating between ZAR 20 million and ZAR 25 million of revenue that will come and subsidize that cost. And yes, so I'm not sure if I've answered. On the rehab side, did you ask on the rehab in terms of margin, we are currently not really undertaking major rehab because we are completing this feasibility study in terms of looking at optionality going forward. As we have indicated, we have quite advanced on that. And I think it is very encouraging and we're confident that when we take it to the Board, it will get approval and we'll make an announcement in due course. So there's no really major rehab that's happened. Same for the water treatment plant, which we have indicated in the past. J. Clark: Okay. So that feasibility study, is that another version of a nickel -- is the feasibility study just to open up another nickel mine effectively a new Nkomati in some different form? Sorry, I don't know much about it. Unknown Executive: Yes. That's what it will entail really recommissioning the mine and bring it back to life. But obviously, in a much more, let me say, a remodel maybe a smaller scale than previously. That's what we are looking at. But yes, we'll be able to share the details in terms of the actual volumes and so on after we've finalized that study and taken further report. But I think that gives a good indication. And in line with that, obviously, also with the very encouraging chrome prices, we are looking at a potential a bigger chrome production than what we are currently doing. Unknown Executive: And on the rehab liability, Tim. So that rehab liability. Unknown Executive: Sorry, just giving more color on the rehab liability. Tsundzukani T. Mhlanga: Yes. Thanks, Tim. Just to let you know, so that we have as at 31 December from Nkomati just over ZAR 2 billion, so it's ZAR 2,011 million or ZAR 2.0 billion. But then just remember that we did receive the ZAR 325 million from Norilsk, which was their contribution as part of the transaction towards the rehab water -- water rehab. Thabang Thlaku: Sorry, it's Thabang. I just -- I want to ask additional questions on your behalf, so we can just clarify some things. So current monthly production of chrome, where are they now and what are we planning to... Unknown Executive: Around 8,500 tonnes per month that we are achieving. But we will peak at about 11,000 tonnes per month of chrome concentrate. Thabang Thlaku: At steady state? Unknown Executive: With the current project. The bigger at the stage we're still finalizing a few items related to the vent recovery process, and that will complicate those volumes, but they are much higher than the current project. Thabang Thlaku: When do you expect to get to 11,000 tonnes per month? Unknown Executive: 11,000 tonnes per month in the month of April. Thabang Thlaku: In April? Unknown Executive: Yes. Thabang Thlaku: And what kind of profit margins are we seeing with the chrome production at Nkomati more or less? Unknown Executive: That plant, it cost us about ZAR 10 million, so I just want to check. It cost us just under ZAR 10 million per month to produce that -- ZAR 20 million to ZAR 25 million. So it's between ZAR 15 million and ZAR 10 million dependent obviously on the chrome price. Unknown Executive: Yes. I think maybe just to come in, overall, just correct me if I understood well. I think in the next 12 months, we should be able to make at least a profit of ZAR 100 million with this 500,000 tonnes as the EBITDA would be positive? Thabang Thlaku: It's revenue or profit? Unknown Executive: Yes. It varies between as I said. Thabang Thlaku: And then just to add -- with regards to the broader Nkomati question, I think it's too early for us to give too much information. As you can imagine, with the geopolitical changes that have been happening, there are some offtakers who've been looking for nickel supply out of Indonesia because of their relationship with China. As a result, Nkomati has become a little bit more attractive to other nickel producers. But it's still early stages. We're doing the study, and we're only sort of going to go for board approval later in the year. And once we do have the details, we'll come back and guide the market accordingly. J. Clark: I'll ask one last question, please. Just on Two Rivers, I was just reading your commentary about being impacted by sympathetic geological structures. I never heard of those before. Can you just chat to how long it's going to take before your productivity improves as the geology improves? Just how long -- you sort of spoke about it improving over time now that you're getting past the docs, maybe you can just give us some timing. Johan Jansen: This is Johan Jansen. What we encountered was a fault parallel to the advancing phases. So about 18 months ago, we started intersecting the fault. We've done redevelopment, went through the fault. We've established the faces on the other side of the fault, which was quite an effort. And at this stage, we are busy bringing the supporting infrastructure up to date the conveyor belts, moving them back to within 60, 80 meters from the face. We've already seen an improvement in the productivity, and we will continue to see that over the next quarter. And by the start of the next financial year, we will be back on 320,000 tonnes per month. Unknown Executive: I think, Tim, that's what I said that -- Tim, that's what I said, our forecast for F '27 will be an improved output because we'll be moving towards strength out of these geological features. Operator: [Operator Instructions] Our next question comes from Thobela of Nedbank. Thobela Bixa: I did get cut off a few times here. Please forgive me if I do ask questions that have been asked already. Earlier on during the webcast, you talked about the value in use model when I asked a question about the realized pricing on the manganese. Could you just expand some more what is meant by value in use model for ARM? And how does that potentially improve your realized pricing? And it did seem as though -- and it did seem as though she wasn't just talking about just sort of the manganese operation, but this perhaps could be applied in other divisions. Can I just get clarity on that as well? So that's my first question. And then I'll ask my second question later. Unknown Executive: Thobela, I would like to expand on that. So what is value in use, you take your specific and you are correct, we need -- for manganese at Black Rock as well as iron ore at Khumani and it is tested in various applications. So where it would be used in different smelters and for what purpose in the smelters. And you develop a model to determine the intrinsic value of your ore type to the customer buying it. And through having that value, you can maximize the economic value you get back in your pricing. And to just further explain it, obviously, in a smelter, they don't only use your specific type of ore. They would use different suppliers type of ore, which has got different grades and contaminants. And we know Black Rock as well as Khumani has got a very high-grade reserves. And we are doing this work in specific to ensure that we get the netback per product on maximizing economic value. So it would mean that we would receive above an index price realization for premiums for our specific product based on our product's value. Thobela Bixa: Okay. No, that's clear. Go ahead, Thabang. Thabang Thlaku: Your answer also applies to iron ore question. Okay, Thobela, go to your next question. Thobela Bixa: Yes. Maybe just a follow-up on that is, would that then maybe mean that your sales volumes perhaps because you may -- I mean, would your sales volume remain the same in terms of how you are forecasting currently? Or would this value in use kind of affect your sales potentially given perhaps you may have to change your products back there? Unknown Executive: No, it would not have any impact on your volumes. The only impact that it would have is on your revenue line. Intent is to see if we can get better prices due to the specific ore type, and we can engage on that. So no, volumes will remain the same, both for Black Rock and Khumani, which is currently in the 5-year plan. Thobela Bixa: Okay. And then my second question is around the domestic sales in the iron ore division. I think my question, I guess, is you've talked about having signed a new contract to sell for domestic sales. Where would those -- given that Beeshoek was the one that you used to supply to your domestic markets. So I'm guessing Khumani will be now the one supplying into that. And is that -- I mean my understanding was that your export sales, you derived better revenue there versus perhaps on the domestic side. Could you just clarify as to why perhaps go via this route. Unknown Executive: So for clarity, the contract on Beeshoek was signed with AMSA, and it was for 1.2 million tonnes. We're sitting with a stockpile of 1.48 million tonnes. The only reason why we signed a contract with AMSA and it is not at a brilliant rate, it's ZAR 800 per tonne, where our previous rand per tonne on Beeshoek was ZAR 1,221. So you can imagine it's 25% lower than our previous base price. That's the best option we could get to get some value for the stocks currently lying at Beeshoek. The intent is never to supply the domestic market from Khumani, no. Khumani is an export mine. And our revenue receiving from exports is much better. So yes, the domestic market will definitely not be supplied by Khumani. This is an isolated matter in specific pertaining to Beeshoek being on planned maintenance, and we're having that 1.48 million tonnes of stockpile. Unknown Executive: And maybe just to comment to, I mean, just a bit of background. You remember that at some stage, we said we don't have a long-term contract with our sole customer, but we were still busy in negotiation with them. And then the last basically delivery of all was done in July, during which period we were still negotiating. And that was at the back of the November '24 when they announced the potential shutdown of the long steel business. So that being announced in November, they were still taking some products for us. And with us being in the mining, obviously, you have to be producing, delivering stockpile so that we can really deliver whatever quantities that are required. So we -- at the back of hope that we're going to enter into an agreement, we still carried on mining and we only need to do the line on the sand out end of October, we said we cannot carry on. At that time, we've already accumulated 1.486 million tonnes. So we just have to basically sell this and clean up everything at... Thobela Bixa: Okay. No, that's helpful. I have my one last question on Two Rivers. I think if I recall well, in terms of your ramp-up profile of prior to the Merensky project being put on care and maintenance. It was quite significant just in terms of what was anticipated then? And then if I look at the current ramp-up profile with the Merensky project being sort of pulled back again into production, this one, this ramp-up profile seems a bit softer. Could you just explain what's the thinking now versus before you put that particular project on care and maintenance. Unknown Executive: Thobela, on the Merensky project, like we communicated earlier today, we started the decline development in October last year, a limited development whilst we're just finishing the feasibility study to recommence with the project. And we plan to complete all of that work as well as the review work and third-party work by May this year, and then we'll take it to the partners for approval with the planned restart date of the 1st of July. The current -- we have redone the whole life of mine model and optimize the mining cuts, et cetera, we get the best value out of the project. And extracting the resource at the maximum grade. And with this latest ramp-up schedule, the schedule that we've done, we ramp up to 200,000 tonnes per month over a 3-year period. So from July 3 years we have steady state production. We are benefiting now obviously from the fact that we've already got 3 levels developed and we are proceeding down towards Level 4, of which 2 are already equipped. So we do have quite a big head start compared to the original feasibility study. Unknown Executive: Thobela, Tsu just actually made me aware. When you're looking at our PGM forecast, the Merensky numbers are not there. So you can't compare this to the numbers that we gave you in 2024 because we're still to include that once we go through the government -- yes. Once the governance process is done, then we'll update the Merensky guidelines. Thobela Bixa: I'm actually looking at the year before that, 2023, where at the time, the Merensky project was due to come in online. And then if I look at your ramp-up profile then, I have it right in front of me. I think from '23 to -- let's say, well, from '24 to '25, you're going to move from 313 cores to 485 cores or kilo ounces. So that's that big jump versus perhaps, I guess, the current softer profile. Thabang Thlaku: Yes. But that's because those numbers did include the Merensky estimate and these don't... Unknown Executive: I can add I think we haven't disclosed in the we haven't disclosed in the current numbers the Merensky ramp-up, like Thabang and Tsu rightly say that we still believe that governance process. However, I can share that the work that we've done with the mining schedule, that ramp-up is over a 3-year period. So I think it's substantially still in line with what we've guided before. Thobela Bixa: Okay. So -- Go ahead. Unknown Executive: Just to help you -- just to clarify, I mean, remember what Doug said, where we stopped in August '24 we were already at Level 3, and this is going to be a 5-level operation, delivering 25,000 tonnes per half level. So we need to develop to Level 4 and to Level 5. And that is basically going to take us about 2 years to do that. Then the third year that Jacques is referring to is when we ramp up to steady state, so which is basically from the beginning, it will be a total of 3 years to get to steady state. Thobela Bixa: Okay. Because my -- I guess my understanding was that the bringing back of the Merensky project would take a lot less time than what I'm hearing now. I guess that's where the misunderstanding would have been. Unknown Executive: I can maybe also just add too that obviously, with the concentrated plant finished, we could sequence now and see exactly when is the optimal that with a combination of building stockpile upfront maybe for the first 6 months or a year and then only starting that. So it doesn't mean that it's a 3-year ramp-up, you're only going to start seeing ounces -- do incremental additional ounces from Merensky in 3 years' time. You could, as quick as within about 12 months, you start to see additional ounces coming from Merensky. Operator: We have a follow-up question from Ntebogang of Investec. Ntebogang Segone: Just a quick one on the Two Rivers production currently, yes, there were like some geological challenges faced in 1H. I just want to quickly confirm as to going forward, is the 3.09 head grades that was reported for 1H sustainable going forward? Or if you could maybe guide us more on how you see that head grade improving as then the geological issues improve? And then in relation to the Two Rivers Merensky project, I mean my understanding is that there's around ZAR 2.6 billion of working capital that needs to be put for it to then be able to get back online. With the current planning, I don't know if it's fair for me to ask if you could maybe provide just some form of color in terms of how you're going to be spending that ZAR 2.6 billion over the next 2 years, if it is then what is approved. And then I think my second last question or my last question is mainly around project priority. I just want to have some like a greater clarity around your growth projects. I mean you've got Nkomati, you've got Bokoni, you've got Two Rivers Merensky project. Are you able to -- or even other M&A and then there's also Surge also as well as part of your growth projects, right? Are you able to explicitly rank those growth projects in order of capital priority for us? Yes, I'll leave it there. Unknown Executive: Yes. Do you want to comment on the grade? Unknown Executive: Yes. If I can go first on the grade, please. Thank you for the question. The grade of 3 mining is a fair outlook of what we could expect going forward. We've moved into an area with split reef. So the grades will no longer be as high as it has been in the initial phases of the project. But the monitoring of the quality of the mining is excellent, and I expect to see the grade remaining where it is. Unknown Executive: Thank you very much. And then in terms of the project, yes, you are correct. I mean we've got the trade-off studies that is currently underway in Nkomati. We are now recovering chrome from the 500,000 tonnes stockpile that you mentioned, and there's another study as well on the chrome side that is taking place, a study basically to restart nickel. So that is basically Nkomati complex. And you come to Two Rivers, obviously, the project there that still needs to be concluded is the Merensky. And as Jacques says, also, we're basically at the tail end of completing that study. The numbers will be put on the table to see what are the returns, confirm the capital that is required, confirm everything and basically the contributions that, that project is going to bring to the Two Rivers mine. And then we also mentioned that we already completed the DFS at Bokoni. We're doing the independent review, third-party review. We do the value engineering, firm up the numbers. And these 3 will have to be ranked in the order of priority and an investment decision will be made at the right time in terms of how we stagger them. The Surge where we are, we will most probably say one can say maybe the best guess is come end of June, we should really have the outcome of the pre-feasibility study, whereafter that will really transition to a definitive feasibility study with some regulatory approval process. We see that process being concluded most probably the best case towards 2029. And then if everything else work well, that mine should really go into execution around 2030. So if you look at the project staggering, the Surge is still about -- last year, we used to say 5 years. It's about 4 years now from execution unless things are really expedited in terms of the approval in cost. We've also seen the response from the Canadian government as far as expediting some of these critical mineral projects. Unknown Executive: If I may also just add with regards to the capital. Maybe just in reference with Khumani, alluded to the volumes that we are looking at the potential open pit mining is less than what we did before. And also the fact that the mine was a producing mine was placed on care and maintenance, the ramp-up capital that we would require to put that mine back into operation is not as substantial as completely building greenfields mine. So it's certainly, I think, a lot more affordable. And depending on how the economics stack up because it's an open pit, it ramps up production very quickly. It should become potentially cash positive generator in a much shorter period of time compared to Bokoni project, where there's a new concentrator plant that needs to be built and substantial underground development. And with regards to Merensky, I think the biggest amount of money that would have to be spent is on the mining, specifically building working capital and stockpile to consistently be able to feed the mill. And both Two Rivers substantially stronger balance sheet, the forecast is that Two Rivers would be able to fund the full capital required to complete and ramp up Merensky from the strength of its own balance sheet and from its cash flow generation without requiring additional funds from the 2 partners. And that then really just leads to current that we would have to see and we're busy with finalizing that work. What we've also said is we are looking at a much smaller study and 120,000 tonnes and we believe this is the right size, which strikes the right balance between capital required as well as sufficient volumes to ensure sustainability and cash competitiveness from a unit cash cost point of view. And we would be able to provide further guidance on that cash flow required to support that project during the next results issue. Thabang Thlaku: Ntebogang, is your question answered? Ntebogang Segone: The ranking part is the one that's not answered. Thabang Thlaku: Yes. Yes, that's the sense that I got, Ntebogang. We're sort of giving you detail on what we're doing at the projects, but we're not ranking them. But if I had to summarize what I think Phillip and Jacques are trying to say is that if you look at the current project pipeline, quite a few of these projects are actually still in steady state. And until they're completed and we've got Board approval, it's very difficult for us to say we're going to prioritize project A over project B, right? So that's number one. And I think Jacques was also just trying to illustrate to you that some of the projects are actually going to be able to self-fund because they'll be generating some cash themselves. And some bigger projects like Bokoni and Surge, only once we've got the information in front of us, will we be able to make a decision going forward. Because remember, your capital allocation model is continuously evolving. And it would be very premature for us to say we're prioritizing this now in 2, 3 years' time once the studies are done and we've got board approvals, the world has changed. So yes, so we can't give you an explicit project ranking right now, specifically because a lot of these are still in study phase and don't have work. Unknown Executive: And as just said earlier on, most probably when we come to the next reporting cycle, we will be having detailed outcome and the decision would have been made. We'll be able to update the market in terms of where we are. Unknown Executive: If I may also just add, as part of this analysis, we're obviously doing very detailed cash flow schedules for all of these projects. And then we also look at it on a portfolio view, where we look at from an ARM's point of view, what is the forecast cash flow coming in from the operations, what would be the cash required to finance each one of these projects as well as our other commitments with regards to returning money back to the shareholders in the form of dividends that we are committed to. So we're making a very prudent decision in terms of which project will start first. And also maybe we don't do all of them at the same time just because from an affordability point of view that we do stagger in. And then maybe just one last point. There's absolutely no decision made at this time. We are still busy with the study book, and we will review the results as well as the cash flow requirements on a portfolio view very carefully before a recommendation or decision is made. Ntebogang Segone: Maybe to finish off, which is -- my question is mainly around balance sheet, right? So your balance sheet has strengthened to now currently with net cash of around ZAR 8.4 billion. And then I'm also then taking into account of the Harmony hedge collar. So one can possibly consider that I'm not an accountant, but like a lazy balance sheet. So I'm trying to understand with the excess cash that you guys have on my view, what is management thinking around using that cash for future growth? So that's what I'm trying to understand in your projects, the ranking and also the prioritization in terms of capital allocation. I don't know if I'm making sense. Unknown Executive: Thanks for that question. No. So I might have a different view from yourself in terms of it being a lazy balance sheet, but be that as it may, that's okay. So I think -- so I mean, you're quite right. Our balance sheet has strengthened from June where we are now, sitting still in a relatively strong net cash position. But the question you're asking, that was actually quite valid and quite -- one that we actually deliberate amongst ourselves with and specifically knowing that we've got these projects, we've got this project pipeline. We have ammunition in terms of raising additional funds through using Harmony collar and end -- but at the same time, still looking at the projects that are in the pipeline and seeing those that can generate cash as quickly as possible because at the same time, you do not wish to be strained or find yourself in distress in terms of having to honor commitments and you don't have enough cash. So as Jacques was saying that you really do need to look at it from a portfolio perspective. Yes, you're sitting on cash currently, but there is a pipeline. But there are also other moving parts where we're looking at the cash coming in from Assmang in the form of management fees as well as dividends and all the other commitments. And then it's really just quite a tight balancing act that we're going to have to make. So that -- also the balance sheet will also be informing the decisions that we make in terms of which project we're actually going to proceed with, what is palatable for us and what we can comfortably deliver on without straining the balance sheet. But again, if we find ourselves in a place where -- and I'm hoping we are there, where we decide not to go with any projects, then instead of sitting then on the cash, we will definitely look at returning that cash to the shareholders. Because remember, we look at the cash and we say, okay, how can we generate a return more than that cash just sitting in the bank, and that's where then we will deploy that cash towards to say we believe we can get you as a shareholder, a better return than our weighted average cost of capital. But if not, then the default then say, okay, then let's rather then return to shareholders. I hope that helps a little bit. Operator: Our next question comes from Andrew Snowdowne of Ninety One. Andrew Snowdowne: I am seeing you next week, but I thought I'd ask this question now anyway. And it's just really following on the previous question. The capital allocation slide that you showed, was that the order of priority in which you're looking at things? Or are you just saying these are all the things that are considered because it is quite an interesting order in which is displayed. I guess that's the first question. And then the second one, maybe you can talk me through why you put the collar in place in the first place if you're not actually using it. Again, to the previous point, you're sitting on -- I'm in the same camp. It's a lazy balance sheet. 18% of your market cap is now sitting in cash. You're also seeing a significant value for your Harmony stake. And yet there doesn't seem to be any real initiative by management to try and unlock any of that value. So maybe you can just talk me through some of that. And again, in line with that, just looking at where you're ranking things like share buybacks and maybe you can just remind us where -- just how much you're allowed to buy back at this point. Tsundzukani T. Mhlanga: Thanks. So maybe just the first question around the capital allocation guidelines. So the way they are documented that it's not an order of priority. I think we do have a footnote at the bottom of the slide where we do say that. And then secondly, the question around... Unknown Executive: Collar, if we're not going to use that... Unknown Executive: I can speak to that. I think when that collar was put in place, it was to reflect the time and the strategic intent behind it, which I'll share now. But at that point in time, specifically on our PGM basket prices were a lot more depressed. We're talking about March, April last year, even though it was our view that the metals were in deficit, however, due to the destocking of the substantial inventory above surface, we haven't seen the metal prices were not reflective of the fundamentals, the supply of the 3 metals, specifically platinum, palladium and rhodium. So the whole strategic intent behind the collars there was at that time, even the strong rally up in the gold price, Harmony share price responded quite positively. And we said, given those growth ambitions that we do have, the uncertainty around the PGM prices, how long it will take before it starts to recover, it may be good to just try and strengthen the balance sheet by having some fixed security in place that if we want to, for instance, in future, deploy some of our cash on some of these growth projects that we are -- that could be value accretive and generate cash above our weighted average cost of capital. We don't want to get into a position where you draw down your available cash on the balance sheet and then the commodity price weakness continues and you start to come under balance sheet stress. So in that case, it's good if there's a facility available, maybe linked to a revolving credit facility that you do have access to. So it's really just capitalizing at the time on the good Harmony prices that we saw. And with the benefit of hindsight, it sort of rallied even further beyond that. But in the context of where we were with the commodity prices and not knowing exactly how long it will take, specifically for the PGM prices to respond. Where we are now, we still think it's a good facility because that strategic intent behind it hasn't fallen away. So the -- if we do proceed with some of these projects, it may still be good to put a revolving credit facility in place. We will obviously use the cash first because that's a lower cost of interest compared to paying interest on the RCF. But at least you've got access to that liquidity on a very short period of time if you need it. Because as a holding company and a commodity producer, especially in today's world, commodity prices are very volatile up and down, and you need a bit of headroom to make sure that you've got -- you can cover yourself in any eventuality that may happen. I hope that sort of provides a bit of clarity. And the only reason why we have used the collar is use of proceeds. We haven't finished the studies yet, and we will do that over the next couple of months. And as soon as we make a decision, then we will look at what is the most appropriate way to utilize that strategically to protect the balance sheet. Andrew Snowdowne: Maybe just a very quick follow-up on that. Because your actions and the outlook comments don't seem to be marrying up at the moment. You're talking about a much stronger second half versus the one you've just reported. And if we look at what the basket price, and particularly for PGMs has done since then, iron ore, I think there's a consensus a little bit lower, but it's still holding up. The rand, yes, was stronger, but it's now been weakening a little bit with the events in the Middle East. The sense is you should be generating very significant free cash flow over the next 6 months, which puts you in an even stronger position. So maybe you could -- do you agree with that view, first off, what are your concerns at this point because the actions by the company don't seem to be marrying with the outlook. Just how good an outlook do you need before you start utilizing that significant cash balance? I guess that's the question. Jacques van der Bijl: If I can answer that, you're quite right. I think our outlook is also very much in line with some of our peers and the commentary that Mats made that we do think in the context at least of the PGM prices, the prices will remain stronger for a longer period of time, which is positive. And that we will specifically from our 2 operations, Two Rivers as well as Modikwa should be at least current basket prices quite strongly cash generative. However, we've seen also how quickly things can change in today's world with the volatility. And we have been wrong in the past what we've guided on the outlook and it doesn't transpire. So that's why we do think that it is prudent to keep a certain amount of cash or access to cash in the form of RCF available that you don't overextend yourself. But the intent is once these projects are -- studies have been completed and we have properly evaluated to make a decision on going forward with them or not. And at that point in time, we'll be in a much better position to see what resources do we need from the balance sheet to be able to support those projects. Unknown Executive: Sorry, I just wanted to add something to what Jacques, yes -- just to add to what Jacques said, I think someone said it on the podium earlier. Yes, the platinum operations will be generating cash, but that won't necessarily come through the center. That cash will be used to fund the requirements of those businesses on Two Rivers, specifically on Merensky. So depending on what that built in, I'm not sure what it is, we'll go towards that. And then we do what as well is some increased CapEx requirements that, that cash -- the mine as it is, is generating that cash will go towards funding that. I just wanted to add that. Unknown Executive: Andrew, the last question was on the issue of the share buybacks. You did ask a question as to whether we consider doing another share buyback. I mean, as Tsu mentioned, it's part of the thing that we consider whenever we have a capital allocation review decisions to say which ones come first. Where we are now, as Jacques mentioned, in the next 2 months, there's some serious decisions that we have to be made in terms of those 3 project studies. And this thing as well is weighed against all the other points that we have to consider. And we do take note of what you raised with... Andrew Snowdowne: Super. Maybe one last one. And as you can tell, we're going to have an interesting meeting next week. The -- just can you maybe give me a sense because I'm sure you've done the calculations to at current spot the sort of free cash flow that you'd expect to generate? Or is that a number you're willing to share? Unknown Executive: No, is that free cash flow in CVM or at group level? Andrew Snowdowne: Either way, just an indication because, again, from what we've seen so far and what things have done, if anything, the one number that surprised everybody is just how strong cash generation is. My worry is that management is coming across a little bit too conservative given the current market conditions, hence the question. Unknown Executive: We have to get that information, sorry. Can we give it to you when we see you next week. Or we can drop you an e-mail once we have found the number. Operator: We have a follow-up question from Ntebogang of Investec. Ntebogang Segone: Sorry, guys. Just a quick one, right? So if the PGM -- if the cash flow from the PGM business will be funding these projects. Now my question is around dividends going forward. I mean dividends, your dividend policy is based on dividend received. Ferrous outlook seems muted. So you're not expecting as much dividend received from Ferrous as historic levels. And then now the cash from the PGM business, all of all, essentially, I'm assuming that now because we will be funding these projects, it will then not be going to dividends to the African Rainbow Minerals. So how should we then look at dividends going forward for ARI? Unknown Executive: We are committed to basically giving cash back to our shareholders so -- and it's a capital allocation decision, but it's a commitment that we have made in the bigger scheme of things. As we weigh this project that we need to advance, we also basically take into consideration the dividend payment as well. Unknown Executive: Yes. Maybe I can add, Ntebo. So our dividend policy remains that 40% to 70% of the dividends that we receive from the underlying operations. So yes, as you point out, we might not be expecting -- and I mean we were not expecting actually before this rally in the PGM basket price. We were not expecting dividends coming through from those operations for the next 3 years. So thankfully, we're in a better place. But if those operations are able to fund their requirements and there's anything that's left over that will obviously be given up through to ARM and to our partners. But I think what you can model if you need to model is work with that 40% to 70%. In last couple of years, we have gone above that range, and that is when we -- looking at the cash that we're actually sitting on, we say, okay, actually, we can afford to go beyond that range and we make that decision. We've made it a few times quite often. So -- but just to be on the conservative side, still use that 40% to 70% as a guideline for the dividends that ARM would then be paying. Unknown Executive: I think also maybe just to add on, I think it just sort of links to the question that Andrew asked before, at current spot prices, and we'll run the numbers. But sort of my assessment is that if the current spot price prevail in the -- the cash generative -- cash that will be generated above as well as is quite substantial. And I think that most likely will be more than what the -- so there will be surplus cash available even after servicing requirements to complete the Merensky study as well as the development at the Da. So there is a good chance that if the current prices prevail, that there will be cash passed up through the form of dividends to our book. Unknown Executive: And equally, as ferrous is facing challenges due to pricing and cost and while we try to turn around that business, you can expect more on that front. Operator: Ladies and gentlemen, with no further questions in the question queue, we have reached the end of the question-and-answer session. I will now hand back for closing remarks. Unknown Executive: Thank you, everyone, for dialing in. We appreciate your participation. We will be on the road next week -- investors. If you've got any more questions or you feel like we may be didn't answer some of your questions to your satisfaction, please feel free to call me or send an e-mail and we'll endeavor to give you accurate answers as soon as possible. But thank you very much, everyone. Operator: Ladies and gentlemen, that concludes today's event. Thank you for joining us, and you may now disconnect your lines.