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Operator: Greetings. Welcome to Orion Properties Inc. Year End 2025 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the call over to Emma Little, Investor Relations. Thank you. You may begin. Emma Little: Thank you, and good morning, everyone. Yesterday, Orion Properties Inc. released its results for the quarter and year ended 12/31/2025, filed its 2025 Form 10-Ks with the Securities and Exchange Commission, and posted its earnings supplement to its website at onlreit.com. During the call today, we will be discussing Orion Properties Inc.’s guidance estimates for calendar year 2026 and other forward-looking statements, which are based on management's current expectations and are subject to certain risks that could cause actual results to differ materially from our estimates. The risks are discussed in our earnings release as well as in our Form 10-Ks and other SEC filings, and Orion Properties Inc. undertakes no duty to update any forward-looking statements made during this call. We will also be discussing non-GAAP financial measures, such as funds from operations, or FFO, and core funds from operations, or core FFO. These non-GAAP financial measures are not a substitute for financial information presented in accordance with GAAP, and Orion Properties Inc.’s earnings release and supplement include a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP measure. Hosting the call today are Orion Properties Inc.’s Chief Executive Officer, Paul McDowell, and Chief Financial Officer, Gavin Brandon. And joining us for the Q&A session will be Chris Day, our Chief Operating Officer. With that, I am now going to turn the call over to Paul McDowell. Paul McDowell: Good morning, everyone, and thank you for joining us on Orion Properties Inc.’s 2025 Year End Earnings Call. As recently announced, Orion Properties Inc. has begun a strategic options review process as management and the board of directors continue to explore pathways to unlock value for our shareholders. Since this process is in the early stages, we will focus today's call on our operating performance and the tremendous progress we made further stabilizing the portfolio and executing our business plan during 2025, which has now positioned us for core FFO earnings growth in 2026 and beyond. We completed over 900,000 square feet of leasing in 2025, on top of the 1,100,000 square feet we leased in 2024, reflecting an improving market backdrop. We also signed an additional 183,000 square feet after year end. These are meaningful volumes, particularly given the reduced size of our portfolio and have really moved the needle to enhance the quality and stability of our lease roll. One critical metric to measure our success is weighted average lease term, or WALT, which averaged nearly 10 years on new leases signed in 2025. This is nearly double our portfolio average WALT. Overall, the average WALT for all leasing activity in 2025 was 7.5 years, which continues to move in the right direction and is approaching six years for the total portfolio. Cash rent spreads on fourth quarter renewals were up for the third straight quarter at 12.8%, though overall, 2025 rent spreads remained volatile and were down 7.1% for the year, but were up an average of 3.7% when comparing ending rents in the current term versus ending rents in the renewal term. Importantly, our 2025 leasing momentum and noncore dispositions translated into a 600 basis point improvement in our leased rate year-over-year to over 80% at year end and a 500 basis point improvement in our occupancy rate to 78.7% at year end. Equally significant, our lease rollover profile has improved and we entered 2026 with scheduled lease expirations totaling just $11.4 million of annualized base rent in 2026. This is relative to the nearly $16.2 million of annualized base rent that was scheduled to expire in 2025 and $39.4 million in 2024. This positions us to drive further occupancy gains and stabilize revenues as we continue to lease, sell vacant properties, and selectively recycle capital into new cash-flowing assets throughout this year and into next. Leasing momentum remains constructive so far in 2026. Our pipeline is robust, and we have over 1,000,000 square feet in either discussion or documentation stages, which includes several full building leases as well as longer duration renewals and new leases with terms materially greater than the average of our portfolio. Our accelerating portfolio improvement through increased disposition activity was another key story for the year. During 2025, we sold 10 properties totaling more than 960,000 square feet for approximately $81 million of gross proceeds, which included two vacant traditional office properties and one stabilized traditional office property sold in the fourth quarter for $32 million. Subsequent to year end, we sold two more vacant properties in Bedford, Massachusetts, and Malvern, Pennsylvania, totaling an additional 516,000 square feet for over $13 million, and are under contract to sell additional noncore properties for gross proceeds of roughly $36 million in the near term, including the 37.4-acre Deerfield, Illinois property where we completed the demolition of the six buildings formerly leased to Walgreens during the fourth quarter. While the per square foot price of these sales varied from $17 per square foot to $216 per square foot, our focus was on selling properties where we felt the releasing prospects did not outweigh the burden of continuing to carry them. These sale transactions will substantially reduce the estimated carry costs associated with these vacant properties by a combined $10.3 million annually. Our 2025 and near-term dispositions will generate a total of roughly $130 million, and this has allowed us to maintain reasonable debt levels while still funding vital tenant improvement allowances, leasing commissions, and other capital expenditures to support our strong leasing activity. We are also actively evaluating opportunities to recycle a modest percentage of these proceeds into acquisitions as we continue to shift our portfolio concentration away from traditional suburban office properties and toward dedicated use assets, or DUAs, where our tenants perform work that cannot be replicated from home or relocated to a generic office setting. These property types include medical, lab, R&D, flex, and government properties, all of which we already own. Our experience is that these assets tend to exhibit stronger renewal trends, higher tenant investment, and more durable cash flows. A terrific example of this strategy is the Barilla Americas headquarters building we just purchased at the end of last week in Northbrook, Illinois. In addition to serving as Barilla's headquarters, the building also houses their sole test kitchen and R&D facility in the U.S. Worldwide, the Barilla Group is the world's largest maker of pasta and their pasta and sauces are a familiar sight on U.S. grocery shelves. The 75,000 square foot building is subject to a 10.8-year lease with current net rents at approximately $15.30 per square foot and growing 2.5% annually. We bought the property for $15 million, equating to a going-in cash capitalization rate of 8.1% and an average capitalization rate over the approximately 11-year lease term of 9%. At year end, approximately 35.8% of our portfolio by annualized base rent consisted of dedicated use assets, versus 31.8% at the end of 2024, and we expect this percentage will continue to increase over time through disposition activity and targeted acquisitions. We recognize, as a small cap REIT, that G&A expense is a very important consideration and we remain disciplined on expenses at the corporate level. In 2025 and early 2026, we reduced headcount by more than 10%, including at the executive and senior vice president levels, and managed controllable G&A. We estimate these initiatives will generate about $1.8 million of annualized savings. These efforts are, however, offset by inevitable inflation, expected increased accounting fees associated with SOX 404 internal control audit requirements beginning in 2026 for us, and legal and other expenses associated with managing an activist investor. Turning very briefly to the balance sheet, as Gavin will give more detail in his remarks. In February, we were able to deal with both our major debt maturities that had been scheduled to come due within the next year. First, with the support of our existing lenders, we entered into a new $215 million secured revolving facility which will mature in February 2029, inclusive of two six-month extension options. Second, we extended our existing $355 million CMBS loan by three and a half years to August 2030, inclusive of two extension options totaling 18 months. These very significant achievements give us the financial flexibility and term to continue to execute on our business plan. A final note on our strategic options process. While we have increasing confidence in our stand-alone prospects, over the past three years, as we have consistently disclosed, management and the board have devoted time to considering avenues for Orion Properties Inc. to potentially pursue in addition to our business plan. Our ongoing public strategic options review process will provide further opportunity to consider with our board and our financial advisers what could be a range of potential strategic alternatives to maximize stockholder value. And as we have said before, we remain very open to pursuing any actionable proposals. To sum up, the progress we have made over the past four years, and which progress accelerated in 2025, has materially de-risked and stabilized our portfolio and we are finally set for meaningful growth from a core FFO standpoint over the next several years. Our priorities in 2026 remain: improve portfolio quality, lengthen WALT, renew tenants and fill vacant space, reduce risk, lower expenses, prudently manage leverage, and position Orion Properties Inc. with a more stable and durable earnings profile. We believe these are the right steps to unlock long-term value which will make Orion Properties Inc. attractive to investors and potential strategic partners alike. I will now turn the call over to Gavin Brandon for the financial results. Gavin Brandon: Thanks, Paul. For the fourth quarter of 2025 compared to 2024, Orion Properties Inc. had total revenues of $35.2 million as compared to $38.4 million, and core FFO of $0.19 per share as compared to $0.18 per share. As expected, we recognized $0.03 per share of lease termination income in 2025 associated with the Fresno, California asset sale. Adjusted EBITDA of $16.1 million versus $16.6 million. The year-over-year changes in operating income are primarily related to current year vacancies and costs incurred for the Deerfield demolition, offset by income from our San Ramon property acquired in 2024 and carry cost savings from dispositions of vacant assets. G&A came in as expected at $6 million compared to $6.1 million. CapEx and leasing costs were $17.8 million compared to $8.2 million, which primarily relates to work performed at our Buffalo, New York property for our new 160,000 square foot lease with Ingram Micro, which is expected to commence in April 2026, and at our Lincoln, Nebraska property where our new 886,000 square foot lease with the United States government commenced in February 2026. For the full year 2025 compared to 2024, Orion Properties Inc. had total revenues of $147.6 million as compared to $164.9 million, and core FFO of $0.78 per share, which included approximately $0.09 per share of income from lease terminations and end-of-lease obligations. This compares to core FFO of $1.01 in 2024, which included $0.04 per share of lease termination income. Adjusted EBITDA was $69 million versus $82.8 million. The year-over-year decreases in operating income are primarily related to current year vacancies and costs incurred for the demolition discussed earlier, offset by income from our 2024 acquisition and carry cost savings from dispositions of vacant assets, as well as successful property tax appeals. G&A came in as expected at $20.3 million as compared to $20.1 million in 2024. 2025 G&A includes $423,000 in legal and other expenses related to managing an activist investor. CapEx and leasing costs were $60 million compared to $24.1 million in the prior year. The increase in CapEx in 2025 was driven by completion of landlord and tenant improvement work related to the acceleration in our leasing activity. As we have previously discussed, CapEx timing is dependent on when leases are signed and work is completed on leased properties. We expect to allocate more capital to CapEx over time as leases roll and new and existing tenants draw upon their tenant improvement allowances. Our net debt to full-year adjusted EBITDA was a relatively conservative 6.8x at year end, and on a modified basis, net of restricted cash, was approximately 6.2x. As of 12/31/2025, and as adjusted for our new secured $215 million revolver, we had total liquidity of $145.9 million, including $22.9 million of cash and cash equivalents and $123 million of available revolver capacity. We also had $39.9 million of restricted cash, including our pro rata share of the joint venture's restricted cash. Orion Properties Inc. continues to manage leverage while maintaining significant liquidity to support our ongoing leasing efforts and provide the financial flexibility needed to execute on our business plan for the next several years. Since our spin, we have repaid a net $173 million of outstanding debt as of year end while supporting our current business plan. As Paul mentioned, on February 18, we entered into a credit agreement for a new senior secured credit facility revolver, which refinances our original credit facility revolver. The new credit facility revolver extends the maturity date until February 2029, including two six-month borrower extension options. It reduces the lender's commitment to $215 million to more closely align with our business plan, reduces the interest rate margin on our borrowings by 50 basis points to SOFR plus 2.75%, and eliminates the 10 basis point SOFR adjustment, which will help to lower future interest expense. As of 03/05/2026, we had $127 million outstanding and $88 million of borrowing capacity under our new credit facility revolver. We appreciate the continued support from our lending group and the timeliness of executing the credit agreement prior to our 10-K filing, which alleviated any accounting disclosures with respect to near-term debt maturities. On February 17, we amended our CMBS loan. The loan modification agreement extends the maturity date by two years to February 2029, subject to two borrower extension options for a total of 18 months until August 2030. During this time, the fixed interest rate on the CMBS loan of 4.971% will remain unchanged, and excess cash flows after payment of interest and property operating expenses will be swept by the lender to be applied to a combination of prepaying the outstanding principal balance of the CMBS loan and funding reserves which we can access principally for capital expenditures. As part of the loan modification, we negotiated partial release provisions for certain assets in the pool that we may dispose of and repay principal. Additionally, yield maintenance premiums will no longer apply to principal payments made during the term. Potential property dispositions, as well as the amortizing nature of the CMBS loan, will repay principal and reduce interest expense during the term, further lowering leverage over the next several years. As of 03/05/2026, we had $353 million outstanding under the CMBS loan and $37.7 million in an all-purpose reserve. Turning to the York Street joint venture. The nonrecourse mortgage debt was $128.8 million as of year end, and our 20% share of that was $25.8 million. Due to the capital constraints of our joint venture partner, the joint venture was unable to make an approximately $16 million loan principal prepayment to satisfy the 60% loan-to-value condition to extend this debt obligation until 11/27/2026. The lenders have been providing short-term extensions while the joint venture remains in active, cooperative discussions with the lenders with respect to the plans of the portfolio and an additional extension. Further, the joint venture has entered into a contract to sell one of the assets out of the portfolio and is in active discussions with the lenders on additional asset sales to repay debt. Due to the uncertainties regarding the Arch Street joint venture investments, as of 12/31/2025, we reduced the carrying value of our investment to zero and recorded a loan loss reserve against our member loan to the Arch Street joint venture. The impairments are driven by accounting rules, which are focused on the probable recoverability of our investment in and collection of the member loan based on facts and circumstances as of 12/31/2025. The Arch Street joint venture contributed approximately $0.05 of core FFO in 2025, which primarily related to interest income from our member loan and management fees. We have not included income from the JV in our outlook for this year past February 2026. While we have written our investment in the JV down due to the uncertainty around the debt finance and our partner's ability to meet capital calls, we continue to believe that the portfolio, which is performing with an occupancy rate of 100% and a weighted average lease term of 6.3 years, has positive equity. We expect to continue to work with the JV's lenders and our JV partner to find a way to collect our member loan in full and unlock our equity. As for the dividend, on 03/04/2026, Orion Properties Inc.’s board of directors declared a quarterly cash dividend of $0.02 per share for 2026. Turning to our 2026 outlook. As previewed last quarter, 2025 represented a trough for our core FFO, excluding lease-related termination income, as our recent leasing and capital initiatives begin to translate into improved recurring earnings power over 2026 and beyond. Core FFO for the year is expected to range from $0.69 to $0.76 per diluted share. As a reminder, core FFO for 2025 would have been $0.69, excluding $0.09 of lease termination income. G&A is expected to range from $19.8 million to $20.8 million. Excluding noncash compensation, we expect 2026 G&A will be in line or slightly better than 2025. We also do not expect G&A to rise significantly in the outer years, including noncash compensation. As a percentage of revenue and total assets, our G&A remains in line with other similarly sized public REITs. Net debt to adjusted EBITDA is expected to range from 6.5x to 7.3x. With that, we will open the line for questions. Operator: Thank you. If you would like to ask a question, you may press star followed by one. You may press two if you would like to remove your question from the queue, before pressing the star keys. Our first question is from Mitch Germain with Citizens JMP. Please proceed. Mitch Germain: Thank you. It seems like your leasing pipeline is almost two times higher relative to last quarter. Is that just an overall conviction that you are seeing in office leasing? Is the tide really turning a bit more positively here? Paul McDowell: Good morning, Mitch. I think it is probably a little bit of both, frankly. You know, our portfolio is not very big, so the numbers can move pretty dramatically if we start to get some leasing momentum on one or two properties, which is exactly the case that has occurred from last quarter to this quarter. And I would characterize that leasing momentum that we have gotten as a result of the market improving somewhat. So I think it is a bit of both. But I would reemphasize that the number may be volatile quarter over quarter. Mitch Germain: And from a historical context, and I know that the track record is three, four years for you guys, when you look at your leasing pipeline and compare that to the success rate that you have had, maybe if you have thought about what the percentage is that you have seen historically in your ability to take the pipeline into a lease? Paul McDowell: We have not calculated that specifically. But I will tell you, Mitch, that our success rate has improved very significantly over the past two years. I think, in 2023, you might remember, we only leased 230,000 square feet of space and we did not have any new leases. And in 2024, we did 1,100,000 square feet, and in 2025, we did 900,000 square feet, and 183,000 square feet so far this year, with a pretty strong pipeline. So I would say that our ability to turn inquiry into signed leases has really improved a lot. And I would say that the decision-making process at tenants has also shortened up quite significantly, where they are now looking at space, deciding it meets their needs, and then entering into lease negotiations with us. Mitch Germain: That is helpful. Last one for me. The Barilla transaction, was that a broker that brought it to you, was it a relationship, and I do understand some of the criteria as to why you consider it a stronghold or an investment, and maybe what percentage of the asset is office versus nontraditional or more like industrial space? If you could provide some context there. Paul McDowell: Well, the transaction came to us through the broker. You know, it was brokered. It was a marketed transaction, so we saw it as well as other market participants. Stephanie Peacher works for us, she is the one who does acquisitions, and so she keeps a close eye on the market, and she brought that in from the brokerage community. The property itself contains the test kitchens and R&D facilities for the Barilla operations here in North America and South America as well, so very important. From a percentage perspective, about half, roughly, is their test and R&D, and half is office. Mitch Germain: Thank you. Operator: Our next question is from Matthew Gardner with JonesTrading. Please proceed. Matthew Gardner: Hey, good morning, guys, and thanks for taking the question. It is good to see you back in the market acquiring properties. How should we think about the pace of the remaining, I guess, vacant properties being disposed of throughout the year, and then what should we look for from you to go out and acquire more properties? Paul McDowell: Yes, that is a great question. On the vacant property side, it is important to note that we had a huge amount of activity in 2025—obviously, 10 properties in 2025 and then two additional vacant properties in 2026—and then we have pending a couple of additional sales, our vacant land in Deerfield, Illinois. With respect to the pace of vacant sales in the future, we do not have that much vacancy left, but as we generate—as vacancy comes online, we are going to take a hard look, and we will make a judgment about whether or not we sell those properties or whether we hold them for lease-up. Some of the vacancy that we have now, we feel pretty confident about our ability to lease it up, so that is the primary focus. With respect to acquisitions, we have been very judicious. This is only our second acquisition since the spin. But we do want to recycle capital, and so when we have capital recycled from sale of either vacant properties or stabilized properties, both of which we did last year, we look at that capital, and we can allocate it towards debt repayment, we can allocate it towards our existing asset base for tenant improvements and leasing commissions and building improvements and the like, or we can allocate it towards acquisitions, all of which we expect to do during the course of this year. Matthew Gardner: I guess just looking at the upcoming lease maturities, it looks like through 2028, there is a little under 46% that is scheduled to roll over. What kind of opportunity does this present to you in terms of being able to go out there and grow these cash spreads and generate that FFO growth? Paul McDowell: Well, I think we do expect core FFO to grow meaningfully in the coming years as the portfolio stabilizes and as we rent stuff up. We have had, I would characterize it, which is I think reflective of the broader market, mixed renewal rent increases or decreases. Sometimes the market requires us to lower rents for renewal because that is just what the market will bear. But as we have seen at the end of last year, where we had three quarters in a row of increases in renewal rents, we hope that continues into 2026 and 2027 as the market gradually recovers. But I think it is going to be volatile quarter over quarter. Matthew Gardner: Got it. That is helpful. Thank you, guys. Operator: There are no further questions at this time. I would like to turn the conference back over to Paul for closing remarks. Paul McDowell: Okay. Thank you, everyone, for joining us today on the call. We had a terrific year in 2025, and we are hoping to have just as good a year in 2026. We look forward to updating you on our first quarter later in the year. Thank you. Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the South Bow Corporation fourth quarter and year-end 2025 earnings call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, we will open up for questions. To ask a question during the session, you will need to press 1-1 on your telephone, then hear an automated message advising your hand is raised. To withdraw your question, please press 1-1 again. Please be advised that today’s call is being recorded. I would now like to hand it over to your speaker, Martha Wilmot, Director, Investor Relations. Please go ahead. Martha Wilmot: Thank you, Victor, and welcome, everyone, to South Bow Corporation’s fourth quarter and year-end 2025 earnings call. With me today are Bevin Mark Wirzba, President and Chief Executive Officer; Van Dafoe, Senior Vice President and Chief Financial Officer; and Richard J. Prior, Senior Vice President and Chief Operating Officer. Before I turn it over to Bevin, I would like to remind listeners that today’s remarks will include forward-looking information and statements, which are subject to the risks and uncertainties addressed in our public disclosure documents, available under South Bow Corporation’s SEDAR+ profile and in South Bow Corporation’s filings with the SEC. Today’s discussion will also include non-GAAP financial measures and ratios that may not be comparable to those presented by other entities. With that, I will turn it over to Bevin. Bevin Mark Wirzba: Thanks, Martha, and good morning, everyone. We appreciate you joining us today. 2025 was an important year for South Bow Corporation. It was a year that tested our organization, but ultimately a year that demonstrated the resilience of our business and the discipline of our decision making. We delivered financial results that were slightly ahead of expectations, advanced our first growth initiative to completion, and, most importantly, continued to operate safely. Safety remains the foundation of everything we do. In a year of significant activity, we delivered a strong occupational safety record, reflecting the commitment of our employees and contractors even under challenging conditions. We also made meaningful progress on our Milepost 171 remedial actions, continuing to prioritize system integrity and working toward returning Keystone to baseline operations. Richard will speak to Milepost 171 shortly. Our focus on safety and operations goes hand in hand with South Bow Corporation’s financial discipline. Strong financial performance in 2025, supported by our highly contracted and predictable cash flows, enabled us to deliver on our capital allocation priorities. Now turning to growth. At our Investor Day last November, we outlined our ambitions to grow our business. Today, we see multiple potential paths to achieving those growth objectives. This will include a combination of organic opportunities that leverage our existing infrastructure to support anticipated crude oil production growth in the Western Canadian Sedimentary Basin, as well as inorganic opportunities that diversify and enhance the competitiveness of our base business. The policy environment in North America is becoming more constructive, and we believe Canada has a tremendous opportunity to grow production and add incremental egress in the coming years. Canadian producers aspire to materially grow their asset bases, and with our customer-led strategy, we are looking to put forward the most competitive solutions to meet their needs, while aligning with our capital allocation principles and risk preferences. All growth at South Bow Corporation will be balanced with financial discipline. This is non-negotiable for our team and board of directors. We remain committed to maintaining a strong balance sheet and returning a meaningful and sustainable dividend to our shareholders, all while investing in growth. That balance is central to our strategy. The Blackrod Connection project is a good example of how we think about organic growth at South Bow Corporation. It builds on existing infrastructure and enables us to safely and reliably move Canadian crude to a desirable market at a competitive toll. A recent endeavor of ours, the Prairie Connector project, has garnered some attention. While currently in early stages, the project would provide firm transportation service from Hardisty, Alberta, leveraging and optimizing South Bow Corporation’s pre-invested infrastructure and connecting to other systems downstream to deliver Canadian crude to U.S. refining and demand markets, including Cushing and destinations on the Gulf Coast. An open season to determine commercial interest is currently underway, and we look forward to discussing this potential solution further in the future. With that, I will now ask Richard and Van to provide an update on the operational, commercial, and financial aspects of the business. Go ahead, Richard. Richard J. Prior: Thanks, Bevin. I will start by talking about our safety performance. We had significant construction activity levels across our business last year, from the Blackrod project, to the Milepost 171 response and restoration, to executing a significant maintenance and integrity program. The scope amounted to more than 2.5 million work hours, where we achieved zero recordable safety incidents. Our strong focus on safety supports the well-being of our workforce and the communities where we operate. Earlier this week, we placed the Blackrod Connection project into commercial service less than 24 months from the time of sanctioning. The project was on time and on budget, with exceptional safety performance. As our first growth initiative, this is a significant accomplishment for the organization and demonstrates that we have a highly capable team that can develop and execute organic projects and deliver competitive solutions to our customers. Turning to Milepost 171, last month, PHMSA posted the results of the independent third-party root cause analysis, which confirmed that the characteristics of the incidents were unique and that the pipe and welds met industry standards for design, materials, and mechanical properties. We began proactively addressing many of the recommendations after the incident occurred last April and have made significant progress on our remedial actions and integrity work, with 11 in-line inspection runs and 51 integrity digs to investigate 68 pipe joints completed across the system so far. In parallel, we continue to work closely with our in-line inspection technology providers to enhance tool performance and detection capabilities. We are operating the Keystone pipeline at a high system operating factor, which has enabled us to continue meeting our contracted commitments while under pressure restrictions. As we progress our remedial and integrity work and share our findings with the regulators, we expect pressure restrictions to be lifted in a phased manner. The lifting of pressure restrictions would present an opportunity for a modest increase in spot movements later in 2026. With that, I will turn it over to Van to walk through our financial performance and outlook. Van Dafoe: Thanks, Richard, and good morning. First, I will speak to our financial performance in 2025. South Bow Corporation delivered solid results despite a challenging backdrop that included geopolitical and market uncertainty, tight pricing differentials, and pressure restrictions following Milepost 171. South Bow Corporation delivered normalized EBITDA of $1,020 million in 2025, slightly above our expectations of $1,010 million, with a modest outperformance driven by our marketing segment. While 90% of our business is underpinned by high-quality cash flows generated from long-term contracts, our marketing affiliate does make small contributions to our bottom line. Early last year, we took steps to reduce our risk exposure in the face of market volatility, and the team did a great job throughout the year to partially offset some of those losses. Our tax team also did an exceptional job optimizing our tax position throughout the year. Reflecting these efforts, South Bow Corporation reported distributable cash flow of $709 million, in line with revised guidance and more than 30% above our original guidance. This outperformance expanded our free cash flow position, enabling us to accelerate our deleveraging priority. We exited 2025 with a net debt to normalized EBITDA ratio of 4.7x, slightly better than the expected 4.8x. All other items were in line with our 2025 guidance. After a solid year, South Bow Corporation is starting 2026 in a position of strength, and we are reaffirming our financial outlook for the year. As Blackrod cash flows ramp in the second half of the year, we will continue to direct our free cash flow to strengthening our balance sheet, remaining on track to meet our leverage target of 4.0x in the medium term. As we deleverage, we also intend to allocate capital towards growth, and we will share our growth capital plans once we have sanctioned our next initiative. Finally, the stability of our financial results enables us to deliver a meaningful return to our shareholders. In 2025, we returned $416 million, or $2.00 per share, through our sustainable dividend. With that brief financial overview, I will hand it back to Bevin for closing remarks. Bevin Mark Wirzba: Thanks, Van. Thanks, Richard. To close, I will come back to what defines South Bow Corporation. We operate critical and enduring energy infrastructure in a corridor that connects one of the strongest and most secure supply basins in North America to some of the most attractive refining and demand markets, and we have a growing set of customer-led opportunities that leverage our pre-invested infrastructure. We plan to do that with a focus on safety, integrity, and discipline, and you can trust that our growth will be paired with balance sheet strength and sustainable shareholder returns. That is fundamental to how we run this company. 2025 showed what South Bow Corporation can deliver. We are confident in the foundation we have built, and the path ahead offers even greater opportunity. You can expect us to execute it the right way. With that, I will now ask the operator to open the line for questions. Operator: Thank you. And as a reminder, to ask a question, you will need to press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question will come from the line of Theresa Chen from Barclays. Your line is open. Theresa Chen: Good morning. With respect to the open season for the Prairie Connector project, can you discuss any early indications of commercial interest at this point, understanding that you are still very early on? And then, in general, how are you thinking about competition for U.S.-bound WCS egress from Enbridge and Energy Transfer, as well as the impact of incremental Venezuelan barrels flowing to the U.S. Gulf Coast, potentially displacing WCS in PADD 3? What do you see as Prairie Connector’s key competitive advantages? Bevin Mark Wirzba: Thank you, Theresa. Thanks for joining the coverage group. To your question on the Prairie Connector, we are in early stages as I mentioned. I did say in our remarks that we are a customer-led strategy, meaning that we had good alignment with our customers heading into the open season. That is as much as I can share with respect to the outcome of the open season at this time. Obviously, in addressing your second question, the impacts of the other open seasons and Venezuela, my earlier remarks also focused on providing the most competitive solution for our customers, and we believe what we have put forward is a very competitive offering that should attract the attention that we are looking for. With respect to the other opportunities, owning and controlling the most competitive and direct path to the Gulf Coast has always been an advantage that South Bow Corporation has leveraged, and we will continue to do so. Theresa Chen: Thank you. And in relation to the existing Keystone system, after sharing the root cause analysis related to Milepost 171, can you talk about the timeline of lifting the pressure restrictions in a phased manner? Can you give some details around this? What are your expectations for how much the pressure and hydraulic capacity could step up beginning in 2026? And then, within your annual guidance, how much of an impact is this given expected capacity for higher spot movements, but also the expectations for tight differentials nonetheless? Can you help us reconcile this? Bevin Mark Wirzba: Thank you, Theresa. Even initially after the incident, as Richard pointed out, we have been working very closely with our regulator on all the remedial efforts, and we have made tremendous progress on the digs and in-line inspections to date. Early on, we were able to have some de-rates lifted already on the system as we progressed. What we described in our release is that we intend to continue those remedial efforts at pace this year so that we could see a lifting of the corrective action order by the end of this year. We are in active dialogue with the regulator to ensure that what we are doing and what we are finding informs the plans as we go forward. In terms of the capacity that would be realized, it would be returning to the kind of operational capacity that we delivered in previous years, which was, I believe in 2024 and early 2025, just north of 600,000 barrels per day of delivered capacity. With respect to your last part of the question, our outlook in terms of our earnings and our guidance, the timing of this incident occurred when ARBs were quite tight with TMX coming on in 2024. The basin was long-piped by approximately 250,000 barrels per day. In 2025, we saw the basin grow north of 100,000 barrels per day and continuing to grow here in 2026. We believe that our guidance, while it includes the impact of not being able to move as many spot volumes as we had hoped, reflects that the market really does not open for us until early 2027, and then, at that point, we are planning and targeting to have the de-rates lifted so we can take advantage of those ARBs as the basin grows and overtakes the egress out of the basin. Theresa Chen: Thank you very much. Operator: One moment for our next question. Our next question will come from the line of Robert Hope from Scotiabank. Your line is open. Robert Hope: Morning, everyone. Two questions on the Prairie Connector. Maybe first, just in terms of a follow-up on when you think incremental capacity will be needed out of the basin? And then how would that mesh with what you would think would be a reasonable regulatory time frame and construction time frame if this project does proceed. Bevin Mark Wirzba: Thanks, Rob. One of the benefits of having a strategy that focuses on our pre-invested corridors is that we are in a position where our permits are in place in Canada for the Prairie Connector, and we are working closely with the Canada Energy Regulator to manage through that. Obviously, it is early stages, so we are not going to share our timelines for a potential development, but I would suggest, much like the Blackrod project where we were working within an existing corridor, our ability to advance construction quickly in a regulated environment is consistent with the Prairie Connector project objectives. With respect to the timeline of the need for the project, you can see from our customer base that most are announcing or suggesting they have growth ambitions over the next three to five years of quite materiality. Being able to develop the project over the mid-term would be consistent with providing a competitive solution for our customers at the time frame of when they are intending to have their production growth. Robert Hope: Alright. Appreciate that color. And then maybe as a follow-up, as we take a look at what the Prairie Connector would connect into in the U.S. and the path down to the Gulf Coast, we have seen Bridger file already for some regulatory approvals there. But how do you envision working with partners to help get barrels down to the Gulf Coast? Bevin Mark Wirzba: Great question, Rob. We will not speak on behalf of other developers. What I can say is our team has learned through many previous projects that allocating risk appropriately amongst all stakeholders—our customers, ourselves as developers, and partners—is really critical. The team has been working diligently on that front to ensure that we have the right alignment amongst all stakeholders to ensure that we have a project that could be advanced within our risk preferences, which, as I have stated, is critical. We will not sacrifice our capital allocation discipline through advancing any project. Robert Hope: Alright. Appreciate the color. Seems like an interesting project. Thank you. Bevin Mark Wirzba: Thanks, Rob. Operator: Thank you. One moment for our next question. Our next question will come from the line of Robert Kwan from RBC Capital Markets. Your line is open. Robert Kwan: Great. Thank you. Good morning. If I can just ask about how your growth initiatives—do you have a preference, or how do you think about the role of joint ventures and partnerships versus just outright acquisitions, over and above the organic initiatives? Bevin Mark Wirzba: Thank you, Robert. Within our strategy, we have always said that leveraging the pre-invested capital on the ground and organic allows us to develop projects at a 6x to 8x EV-to-EBITDA build multiple, and Blackrod was demonstrated at the low end of that range. Clearly, organic development that fits the needs of our customers with the same risk preferences that we have been able to achieve with even our base operations is far more accretive for shareholders over the long term. But as I pointed out in my remarks, to complement that organic strategy, there are opportunities that we believe we could leverage inorganically that provide diversity and provide some additional synergies to the business. Obviously, those will not advance at that same EV-to-EBITDA build multiple, but the combination of an organic and inorganic strategy, we believe, can deliver the shareholder returns we are targeting. Robert Kwan: Great. Thanks. And if I could just finish by asking about the open season, there is some language there about asking potential shippers to demonstrate market demand for incremental egress opportunities. What should we take away from that specific wording? And then how should we think about this with respect to the existing Keystone capacity and your contract rollovers or expirations that would occur in roughly the same proximity as this initiative? Bevin Mark Wirzba: Two great points, Robert. First, the language is actually pretty benign in that, from a regulatory standard, we have to prove need and necessity for any development that happens. That need and necessity on our existing permits was demonstrated years ago, and that need and necessity still exists today. The language is really pointing to our customers indicating to us, if they support the open season, that they have need and necessity—they have growth ambitions that require us to develop this capacity. On the second point with respect to base Keystone operations and potential impact of recontracting, the way we think about it is we are really developing a corridor. The Prairie Connector would be in addition to that corridor, and it really serves the same customer base and the same demand markets. We believe that the combination of the two would be an extremely competitive corridor going forward, and we believe that we can provide that competitive solution for customers going forward, making the corridor in and of itself the ideal solution for getting Western Canadian oil sands production down to the Gulf Coast. Robert Kwan: That is great. Thanks, Bevin. Appreciate the thought. Operator: One moment for our next question. Our next question will come from the line of Sam Burwell from Jefferies. Your line is open. Sam Burwell: Hey. Good morning, guys. Another open season question, but maybe from a different angle. Are there any learnings to be had from what happened with the original Keystone XL, especially on the U.S. side? Anything that went wrong on that project that is within your control to perhaps do differently with this one? Obviously, the route will be different, and it is different in many ways. What gives you more confidence in this project’s success where Keystone XL did not? Bevin Mark Wirzba: Sam, great question. I was around, and many of our team were around, during that last attempt. There are a tremendous amount of learnings. Subject to the permit that we have, we are developing it in a very consistent manner to that permit’s requirements, but our conversations with our customers and how we can work with them through a commercial offering—we are leveraging a lot of those learnings in those commercial discussions that are confidential at this time. As I mentioned in my opening remarks, the policy environment in North America has been far more constructive. The unfortunate events that are ongoing in Iran and the tragic events in Ukraine have highlighted that energy security and establishing energy corridors are critical. Those realities are a great backdrop for us to provide a solution that increases energy security in North America between the great resource in Canada and the strong demand markets on the U.S. Gulf Coast. Sam Burwell: Okay. Understood. And then, tying onto that, the Bridger proposal mentioned that a Presidential Permit is required to cross the border. That was obviously an issue with Keystone XL that everyone knows about. Is there a point in time, or a point in construction, or some threshold met whereby the Presidential Permit is ironclad and cannot be revoked? Has anything changed with that dynamic since 2021 when President Biden effectively put the kibosh on Keystone XL? Bevin Mark Wirzba: Per my earlier remarks, Sam, we are only going to talk to our component of a project, which is delivering service from Hardisty to the border. My comments around risk allocation and structuring, and your earlier comment around lessons learned—there are a lot of things going into the commercial dialogue right now amongst ourselves and with our partners. I will leave our partners to speak to their own business. We have really focused on finding a solution that we can deliver for our customers, with an allocation of risk that makes sense for all stakeholders in this approach. If we are not able to achieve that risk allocation that we all believe we need, then the project just will not advance. Sam Burwell: Okay. Understood. Thank you, Bevin. Bevin Mark Wirzba: Thanks, Sam. Operator: Thank you. One moment for our next question. Our next question will come from the line of AJ O’Donnell from TPH. Your line is open. AJ O’Donnell: Hey. Morning, everyone. I am going to sneak in one more about the Prairie Connector, maybe just talking about leveraging your existing corridor. I think we know that you have some pipe already in the ground in Canada. But let us say things go to plan and the project moves forward. Thinking about these barrels getting into Cushing and ultimately getting down to the Gulf Coast, can you speak to what is needed on your U.S. Gulf Coast infrastructure in order to accommodate potentially 450,000 barrels per day going down to the Coast? Would that be all on the existing Keystone system, or would you be looking to leverage other infrastructure as well? Any details you can provide there would be great. Bevin Mark Wirzba: AJ, the Keystone system in this corridor has been built in phases—Phase 1, Phase 2, Phase 3. Phases 2 and 3 were the extension of the Keystone system to Cushing and then to the Gulf Coast. Phase 3 of the system, the Gulf Coast, was sized and built for the original expansion of that system, which is what we are now building into with our Prairie Connector. It is just a continuation of that sequenced expansion of the broader Keystone system. We did build capacity on that Gulf Coast section for increased volumes. There will be some facility modifications through our base Keystone system, but this is all a continuation of that sequenced expansion of our base corridor. AJ O’Donnell: Okay. Thanks, Bevin. And then maybe just one more, shifting into marketing. I realize it is a smaller portion of your business, but spreads have been on the move, particularly WCS Houston trading pretty far back from Brent and WTI right now. Can you speak to what is going on at Houston and if you are seeing any opportunities either in the short or medium term to potentially capture some upside there, either through marketing or maybe storage opportunities? Bevin Mark Wirzba: AJ, great question. We are always in a dynamic crude oil market. It appears in the last few years, with some macro volatility earlier this year with Venezuela and now with the war that is ongoing in Iran. We have taken a really risk-off strategy with our marketing affiliate. As we pointed out, last year we went through a situation where, early in the year, there were tariffs that caused volatility. That caused us to reevaluate how we leverage our marketing affiliate and get back to a customer-led strategy. The strategy around our marketing affiliate is really to reduce the overall operating costs and variable tolls for our customers. We do not try to take advantage of swings that we see down in Houston on the WCS. We do manage and contract MarketLink, because we still have capacity there, and we have seen some movements, as you say, but it is really a non-material part of our strategy. We are focused on our 90% contracted business and managing that as best we can. Operator: Thank you. One moment for our next question. Our next question will come from the line of Ben Fullerton from TD Cowen. Line is open. Aaron MacNeil: Oh, I guess I had my associate run this one. It is Aaron MacNeil here. Good morning, all. Thanks for taking my questions. You guys highlighted Blackrod as a successful project in the context of the balance sheet and in your prepared remarks. Maybe bigger picture, can you speak to how you may look to finance a potentially larger-capital and longer-duration project given the leverage and payout ratio profile of South Bow Corporation? Bevin Mark Wirzba: Thanks, Aaron. At our Investor Day, we laid out a number of different financing strategies, whether it is financing a project at the asset level or partnering with other capital sources. We will look at the specifics of any capital project to ensure that we manage the cost of capital as well as match it to the execution risk. The point I would like to make is, when you think about us developing projects—going back to my comments around within our risk preferences—means that we are not going to take risks that would not allow us to debt finance something, and that can be a base case for people to look at. You have to have the conditions, the contract terms, the investment-grade counterparties, and the risks mitigated to a level that can attract debt-level financing that aligns with our risk preference. That might not be the best way to finance it, but the principles around managing the risks are consistent with any financing approach. We wanted to make clear to our market in November that there are multiple solutions on that front. I will just remind that we go back to our risk preferences and making sure that anything we develop meets those criteria. Van Dafoe: And, Aaron, it is Van here. We will also keep with our deleveraging journey to get to 4.0x by the mid-term, 2028. We are not deviating from that. Aaron MacNeil: Okay. That is helpful. And then, switching gears a bit, we have been fielding a lot of questions on the Grand Rapids arbitration. I can appreciate that you are not going to speak to the ongoing legal matter, but I was hoping you could help with some clarifying items. First, again, I assume the answer is no here, but is the Blackrod Connection project included in the scope of a potential sale? And then, second, how should we be thinking about sanctioning new projects with connectivity to Grand Rapids while arbitration is ongoing? Bevin Mark Wirzba: Aaron, Blackrod we advanced as South Bow Corporation alone. PetroyChina is not involved in that project. They were offered an opportunity to participate in it, and that is as much as I can say. As part of the partnership agreement, when we do pursue growth—obviously growth within the partnership frame is open to all partners—and whether or not our partners choose to capitalize into those projects is up to them. Aaron MacNeil: Okay. Alright. That is all for me. Turn it back. Operator: Thank you. One moment for our next question. The next question will come from the line of Robert Catellier from CIBC Capital Markets. Robert Catellier: Hey. Good morning. Most of my questions have been exhausted here, but I will take a shot in the dark to see if you are interested in putting out a potential capital number for the Prairie Connector project should it make it through the open season and have enough commercial interest? Bevin Mark Wirzba: Robert, unfortunately, you are not going to bait me with that. I will take a pass. We are obviously in early stages. Our team has done a good amount of work, given it is an existing corridor, but we are not establishing any cost at this point in time. Robert Catellier: Understood. And related to that, is there any ability or understanding that you can invest in some of the downstream pieces, whether it is project or otherwise, should the project move forward? Bevin Mark Wirzba: We are really speaking to the Prairie Connector component as how we are looking to participate going forward, and we are still in commercial discussions ongoing. As you can appreciate, the scale of what would be contemplated in Canada is a very meaningful development for South Bow Corporation. Robert Catellier: Okay. Thanks very much. Operator: Thank you. One moment for our next question. Our next question comes from the line of Jeremy Tonet from JPMorgan Securities. Your line is open. Jeremy Tonet: Hi. Good morning. Bevin Mark Wirzba: Morning, Jeremy. Jeremy Tonet: Just wanted to turn to slide 19, if we could, with the Blackrod and project ramp there. If you could remind us what gives you confidence to the ramp as you laid out in the slide—it looks like the 2027 contribution could be three to four times the size of 2026. With the project just online now, can you walk us through that a little bit more? Bevin Mark Wirzba: Great question, Jeremy. We did the final tie-in weld earlier this year, so our systems are fully prepared for our customer to begin the ramp-up. The sequence of events that we are not in control over on their end—whereby they have already been steaming their asset. Once the wells start producing, they will fill their tankage and infrastructure, fill the pipeline, and then fill our tankage. That is when the production will actually start hitting the Grand Rapids corridor. There is a build-up that takes time to effectively get through commissioning and filling the existing infrastructure, and that happens through the balance of the last half of this year. We have made comments in the market previously—I will remind folks that the commercial agreements agreed to between ourselves and our customer were to acknowledge that ramp in terms of their production growth. In 2027, our outlook is that we will have a full-year contribution of that EBITDA, given the commercial agreements. Jeremy Tonet: Got it. Understood. Thank you for that. And if we think about 2027 in totality, are there any other major moving pieces as we think about growth at that point in time? Bevin Mark Wirzba: I will refer to my previous remarks, Jeremy. We are working hard this year to move through the corrective action order and complete the remedial efforts, which would then allow us, if the order is lifted, to return to full capacity on our base systems, which would give an opportunity for us to achieve that spot capacity out of the basin at a more material level than what we are experiencing. Just to remind you, 94% of our base system is take-or-pay, and we reserve 6% for spot capacity. That is the capacity we are targeting to leverage in 2027. Jeremy Tonet: Understood. I will leave it there. Thank you. Bevin Mark Wirzba: Thanks, Jeremy. Operator: Thank you. One moment for our next question. Next question will come from the line of Patrick Kenny from NBC. Your line is open. Patrick Kenny: Thank you. Good morning, everyone. Just maybe back on the funding plan for Prairie Connector, assuming a successful open season here. Can you confirm your desire for Alberta government involvement, if any, either as an equity partner or perhaps providing loan guarantees through construction, just to help protect your financial guardrails along the way? Bevin Mark Wirzba: Thanks, Patrick. You are referring to the model that was pursued historically, and I believe the Premier has been clear that she wants private developers to develop projects. We are pursuing Prairie Connector as South Bow Corporation today. With respect to your question around loan guarantees and other commercial matters, I will refer back to my comments that we are looking at the risk framework and allocating risk appropriately amongst the customers and us as a developer and, broadly, other stakeholders. We feel that we are in a different environment today where we are able to have those discussions and ensure good alignment of where those risks should be allocated. Patrick Kenny: Got it. Thanks for that. And then maybe on the 60-day review period following the March 30 deadline. How should we think about this period in terms of the binding commitments? Can they be nullified by any material change in policy such as the emissions cap, industrial carbon tax, or any other developments that might come out of the MOU between Alberta and Ottawa? Would these binding commitments basically be taking on the full stroke of pain risk, so to speak, beyond March 30? Bevin Mark Wirzba: As you point out, Patrick, there is a lot going on. When I refer to a constructive policy environment, constructive also means a very active policy environment where our customers are working closely with not only us on this open season, but considering the broader framework that the federal and Alberta governments are putting together. That is consistent with the timeline of what we are pursuing. I will not speak to those conditions or those discussions because I am not a part of them. Our timeline with having a binding open season and the time from there is just the regulated approach of how you develop a project. That is why we have been thoughtful about making a competitive solution for our customers, acknowledging the significant commitment that they have to make over the time frame of the development to commit to a project like this. These are not small decisions by anyone. I think the basin customers have relayed that, under the right policy environment, there is an ability for them to grow. We will have to defer to them on whether they feel they have the confidence to grow into the capacity that we are offering. Patrick Kenny: Okay. That is great, Bevin. I appreciate the comments. Operator: Thanks, Patrick. Thank you. One moment for our next question. Our next question comes from the line of Benjamin Pham from BMO. Line is open. Benjamin Pham: Hi. Thanks. Good morning. Maybe to start off on potential acquisitions. Can South Bow Corporation provide an update on your appetite and observations on acquisitions since your Investor Day? I am also particularly interested in valuation levels on M&A versus organic growth. Bevin Mark Wirzba: Ben, as articulated in the Investor Day and in my earlier remarks, we are pushing all the boats down the field—both organic and inorganic. Certainly, organic, leveraging our pre-invested corridors, has better valuations. To complement and diversify our business, we have been in active dialogues to try to move down the path on inorganic opportunities. In both cases, as per my last response to a previous question, we can put forward the most competitive organic opportunities for our customers, but it still takes our customers to decide if they can commit. On the inorganic side, we can provide a compelling potential solution for an acquisition, but it takes the counterparty to similarly view it as a good outcome. We are managing a multi-pronged approach where we are advancing conversations on organic and inorganic in parallel. Benjamin Pham: And then maybe just a quick follow-up on that. It sounds like you have not seen, with the market valuations expanding meaningfully since your Investor Day, that the spread between the two has widened since that time? Bevin Mark Wirzba: I think we have seen a flight to the energy sector and, in particular, to hard assets like infrastructure. Many have moved. I think that has raised the confidence in shareholders in the space and the investment proposition that infrastructure has. It gives us more confidence in the equity capital markets, if something did work on the inorganic side, that it could be supported in a transaction. Yes, valuations have improved, but I think the strength and thesis around infrastructure investment has strengthened as well. If anything, it is a slight tailwind for us. Benjamin Pham: Got it. And maybe on the Prairie Connector—you had the Big Sky proposal about a year ago. Are you able to compare and contrast the two? Is it just something more to downstream is changing, Canada is unchanged? And then, secondarily, on the Canadian permits, is that just a permit reaffirming with the CER, as you mentioned earlier in your commentary? I just want to clarify that portion of it. Bevin Mark Wirzba: In contrast to 2025, we had a Canadian government that was going through a significant transition. We had a potential tariff environment that was very uncertain, and we had a policy and regulatory framework that was not clear and did not provide the signposts for our customers to legitimately view any kind of meaningful growth as an alternative. Fast forward a year later, all those three things have materially moved in favor of a more constructive environment to consider a development. We did find that the Prairie Connector project—getting barrels to the U.S. Gulf Coast—is a very strategic advantage, and leveraging that pre-invested corridor more broadly also provides advantage. With respect to the permitting situation, these are very complex developments. The largest of the permit requirements, as you say, are held with the Canada Energy Regulator. We have to work within those permits that have been awarded, and there are expectations and things that we have to do to maintain them if we begin developing the project. There are no other material permits required at this point in time. Benjamin Pham: Okay. Understood. Thank you. Operator: Thanks, Ben. One moment for our next question. Our next question comes from the line of Sumantra Banerjee from UBS. Your line is open. Sumantra Banerjee: Hi. Good morning. Thanks for taking the question. I was curious—how you mentioned that you materially exited the TSA with TC and were able to see some workflow optimization. Are there any specific examples of the optimization you could talk to? Bevin Mark Wirzba: Thanks, Sumantra. Our team had three objectives last year, in addition to table stakes of safe operations, and one of those objectives was exiting the TSAs as soon as we could. That ties to one of our key objectives this year, in terms of now optimizing our business workflows and processes. We have already begun seeing some optimizations occur since October when we were effectively off of the TSAs, and we have a number of work streams along that front in each of the areas. An easy example would be supply chain and procurement—utilizing the historical ERP system that we had until we stood up our own system, all those business processes around invoicing and procurement were done in the old way, and now we are able to establish new processes. We have workstreams on financial planning and analysis and on our systems. We are building a new process around budgeting and real-time analysis of our financials and costs, giving the tools to our teams so they can run the business as efficiently as possible. We see 2026 as a big year of standing up all those optimizations. We are leveraging the latest technology in AI where it is appropriate and where it can help make those processes more efficient. Sumantra Banerjee: Got it. That is really helpful. Just wanted to shift towards capital allocation quickly. I know you outlined your priorities in the release, but how are you looking at balancing dividend growth versus reducing the leverage? Bevin Mark Wirzba: I will turn it over to Van on our dividend policy. I want to remind folks that we are going to stick to our capital allocation philosophy with respect to building out this business. When we spun, we were allocated a significant amount of debt and a very meaningful and sustainable dividend, but at a very high level and at payout ratios maybe a bit higher than we like. Van, you can talk through our journey on deleveraging and dividend growth. Van Dafoe: Sure. Thanks, Bevin. Our payout ratios on a DCF basis and on an earnings basis were higher than what we would like. We would like them to be, on a DCF basis, in the low 60s on a consistent basis, and, obviously, under 100% on an earnings basis. Until that time, we would not contemplate a dividend increase. On top of that, our journey to get to 4.0x leverage—again, we would not contemplate a dividend increase until we get to that point. Once we do, our plan would never be to forecast future dividend growth. If we decide we are going to increase our dividend, we would state that, and that would be our new dividend level. Sumantra Banerjee: Got it. That is really helpful. Thank you so much. Bevin Mark Wirzba: Thank you. Operator: This concludes the question-and-answer session. I would now like to turn it back over to Bevin for closing remarks. Bevin Mark Wirzba: Thank you for joining us today and for your continued interest in South Bow Corporation. We look forward to connecting with you in a couple of months’ time. Have a great day. Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
Operator: Good morning, ladies and gentlemen, and welcome to Cohen & Company Inc.'s fourth quarter 2025 earnings conference call. My name is Robert, and I will be your operator today. Before we begin, Cohen & Company Inc. would like to remind everyone that some of the statements the company makes during this call may contain forward-looking statements under applicable securities laws. These statements may involve risks and uncertainties that could cause the company's actual results to differ materially from the results discussed in such forward-looking statements. The forward-looking statements made during this call are made only as of the date of this call; the company undertakes no obligation to update such statements to reflect subsequent events or circumstances. Cohen & Company Inc. advises you to read the cautionary note regarding forward-looking statements in its earnings release and its most recent annual report on Form 10-K filed with the SEC. Earlier today, Cohen & Company Inc. issued a press release announcing fourth quarter and full-year 2025 financial results. Today's discussion is complementary to that press release, which is available on the company's website at cohenandcompany.com. This conference call is being recorded, and a replay of it will be available for three days beginning shortly after the conclusion of this call. The company's remarks also include certain non-GAAP financial measures that management believes are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measures is provided in the company's earnings release. After the prepared remarks, the call will be opened up for questions. I would now like to turn the call over to your host, Mr. Lester Brafman, Chief Executive Officer at Cohen & Company Inc. Thank you. You may begin. Thank you, Robert, and thank you, everybody, for joining us for our fourth quarter 2025 earnings call. Lester Brafman: With me on the call is Joe Pooler, our CFO. We are pleased with our strong fourth quarter and full-year 2025 results, which were driven by the continued expansion of our client franchise and particularly our full-service boutique investment bank, Cohen & Company Capital Markets, which continues to focus on frontier technologies including digital assets, energy transition, and natural resources. In 2025, we strengthened our leadership team with the appointment of additional managing directors to expand our presence in the energy and energy transition sectors as well as across space technology, aerospace, and communications infrastructure. During the year, CCM closed $43,000,000,000 in transactions and, according to SPAC Research, ranked number one in SPAC IPO underwritings by left book-run deals and in the de-SPAC advisory with leading share in de-SPAC PIPE transactions, reflecting the strength of our client franchise and execution capabilities. Supported by its growing team and strong pipeline of transactions, we believe that CCM is well positioned for continued success over the long term. CCM's pipeline is more robust than it was a year ago, reflecting our strong IPO presence and significant de-SPAC opportunities. Going forward, we will continue to focus on being the advisor of choice to growth in frontier technology sectors of the economy. For the full year of 2025, basic and fully diluted net income attributable to Cohen & Company Inc. per share was $8.33 and $4.35, respectively. Total revenue was $275,600,000, an increase of 246% from 2024, and adjusted pretax income of $41,400,000, representing 15% of total revenue. We finished 2025 with $2,300,000 of revenue per employee. Additionally, we announced a special dividend of $0.70 per share as well as our recurring quarterly dividend of $0.25 per share. These dividends are in addition to the special dividend of $2 per share that was announced in December 2025 and paid in January 2026. As we look ahead, with first quarter 2026 revenue trending substantially higher than first quarter 2025, we are well positioned to continue building on the significant momentum underway and remain confident in our ability to drive long-term sustainable value for our stockholders. Now, I will turn the call over to Joe to walk through this quarter's financial highlights in more detail. Thank you, Lester. I will begin with a discussion of our operating results for the quarter. Joe Pooler: Our net income attributable to Cohen & Company Inc. shareholders was $8,100,000 for the quarter, or $1.48 per fully diluted share, compared to net income of $4,600,000 for the prior quarter, or $2.58 per fully diluted share, and a net loss of $2,000,000 for the prior-year quarter, or $1.21 per fully diluted share. Our fully diluted earnings per share calculation reflects all convertible membership units in our primary operating subsidiary, Cohen & Company LLC, as if they are converted to shares, and it also reflects an income tax expense adjustment at an estimated effective tax rate as if our ownership structure was a full C-Corp for the entire period. Our adjusted pretax income was $18,300,000 for the quarter, compared to adjusted pretax income of $16,400,000 for the prior quarter and an adjusted pretax loss of $7,700,000 for the prior-year quarter. As a reminder, adjusted pretax income and loss is a key earnings measurement for us as it incorporates enterprise earnings attributable to our convertible non-controlling interest, which is substantially held by our Founder and Chairman, Daniel Cohen. Daniel holds his interest in the enterprise through the primary operating subsidiary, Cohen & Company LLC, which is a consolidated subsidiary of Cohen & Company Inc. As noted in prior earnings calls, CCM has become an increasingly important component of our company, generating revenue of $50,800,000 in the fourth quarter and $180,184,000,000 in the full year 2025, an increase of 370% from full-year 2024. CCM revenue as a percentage of total company revenue was 67% for the full year 2025. Investment banking and new issue revenue was $55,000,000 in the fourth quarter compared to $69,000,000 for the prior quarter and $8,200,000 for the year-ago quarter. $50,800,000 of our investment banking and new issue revenue came from our CCM business and was primarily driven by SPAC M&A and SPAC IPO transactions. European insurance origination generated an additional $3,600,000, and commercial real estate origination generated $300,000 for the quarter. As a reminder, we received financial instruments as consideration for services provided by CCM instead of cash at times, which are included in other investments at fair value on our consolidated balance sheets. Beginning in the fourth quarter, and reclassified historically, any realized or unrealized gains or losses on these financial instruments after the day of the transaction closing are now being reported in our investment banking and new issue revenue line item. Net trading revenue came in at $13,800,000 in the fourth quarter, up $300,000 from the prior quarter and up $4,900,000 from the prior-year quarter. Asset management revenue totaled $2,700,000 in the quarter, up $700,000 from the prior quarter and up $600,000 from the prior-year quarter. Fourth quarter principal transactions and other revenue was positive $31,500,000, primarily due to the completion of the business combination between our sponsored SPAC, Columbus Circle Capital Corp I, and ProCap Financial. The December 5, 2025 closing of the business combination resulted in $33,000,000 of principal transactions revenue in the fourth quarter from the markup of consolidated founder and placement shares, primarily held by the consolidated sponsor of the SPAC. After the business combination closing, there was an offsetting $16,500,000 of compensation expense related to the founder shares that were allocable to employees upon the closing, and there was an offsetting $8,500,000 of non-convertible non-controlling interest expense related to founder shares allocable to third-party investors in the consolidated sponsor. At the end of the year, Cohen & Company Inc. held 2,543,000 shares of ProCap Financial, which trades on NASDAQ under the symbol BRR. Compensation and benefits expense for the fourth quarter was $57,800,000, which was up from both prior quarters primarily due to fluctuations in revenue and the related incentive compensation, including the $16,500,000 of expense recorded related to the founder shares allocable to Cohen & Company Inc. employees from the sponsor of Columbus Circle Capital Corp I. The number of company employees was 126 at the end of the year, compared to 124 at the end of September and 113 at the end of the prior year. Net interest expense for 2025 was $1,500,000, including $1,200,000 on our trust preferred securities, $200,000 on our senior promissory notes, and $45,000 on our bank credit facility. Loss from equity method affiliates totaled $5,100,000, primarily due to $3,100,000 of mark-to-market losses on one of our SPAC series fund investments, which was partially offset by a $1,500,000 credit recorded in the net income (loss) attributable to non-convertible non-controlling interest line item. In terms of our balance sheet at the end of the year, equity was $103,100,000 compared to $90,300,000 as of the end of the prior year. The non-convertible non-controlling interest component of total equity was $400,000 at the end of the year and $11,500,000 at the end of the prior year. Thus, the total enterprise equity excluding the non-convertible non-controlling interest was $102,600,000 at the end of the year, a $23,800,000 increase from $78,800,000 at the end of the prior year. At quarter end, consolidated corporate indebtedness was carried at $33,000,000. As Lester mentioned, we declared a quarterly dividend of $0.25 per share and a special dividend of $0.70 per share, both payable on April 3, 2026 to stockholders of record as of March 20, 2026. The $0.70 per share special dividend is on top of the $2 per share special dividend that was announced in December 2025 and paid in January 2026. The Board of Directors will continue to evaluate the dividend policy each quarter, and future decisions regarding dividends may be impacted by quarterly operating results and the company's capital needs. With that, I will turn it back over to Lester. Thanks, Joe. We remain confident in our ability to execute on our strategic priorities and continue driving progress as we enhance long-term value for our stockholders. Please direct any offline investor questions to Joe Pooler at (215) 701-8952 or via email to investorrelations@cohenandcompany.com. The contact information can also be found at the bottom of our earnings release. Operator, you can now open the call lines for questions. Thank you for joining us today. Operator: We will now open for questions. At this time, we will be conducting a question-and-answer session. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the keys. Our first question comes from Mike Grondahl with Northland Securities. Your line is now live. Hey, guys, thank you and congrats on a nice year. Joe, I think in your comments, or Lester, talking about the pipeline, you said it was robust and off to kind of a good start. Could you go into just a little bit more detail there, kind of what you are seeing, and is there any sector sticking out? Lester Brafman: Yeah. I think if we were standing on this call a year ago and looking at where our pipeline is, we are ahead of where we were last year. I think that is as much kind of context as I would like to give. And in terms of sectors, look, we dominate in the SPAC, in the de-SPAC space. That is really our strength. And so from there, as we spoke before, it really leads us into deals across all of the frontier technology space, which you are looking at whether it is digital assets, whether it is energy, energy transition, any real growth companies really fits into the SPAC product. Now, that being said, business begets business, and from what we have printed in the SPAC space, we have got some traditional M&A mandates, some capital raises, capital markets advisory work, and we are starting also to build out more industry verticals in that frontier technology space, hiring a banker focusing on space and aerospace, as well as some of the telecommunications, new telecommunications areas, and energy in the energy space as well. So when we think about industries, we think about what fits into that SPAC product. Mike Grondahl: Got it. Mike Grondahl: And then what would you say your top two priorities for 2026 are? Lester Brafman: Our top two priorities in 2026 are expanding our investment bank, expanding our footprint, getting more verticals, and not being as dependent on the SPAC product. So that is one priority. And on the fixed income trading side is, again, continue to do the same thing, continue to grow our footprint there. We are looking to add probably eight people or so in that area, all synergistic with leading with the mortgage space and trading with other products around there. So when I think about how our investment bank has grown dramatically, obviously year over year, we are in the right spaces and we have spent a lot of time making sure we have really good market share, but I do not want to forget about the fixed income trading business, which revenue-wise was close to $50,000,000 this year, and we would like to get that up to $60,000,000–$65,000,000 or so. That is where we have been, and I think if we get a couple of rate cuts, we should be able to get a little wind at our back in that area as well, but again, a little bit more stable on the fixed income side and looking at more growth in the capital markets side of investment banking. Mike Grondahl: Got it. Then maybe just lastly, I do not know if you have it handy or not, but the investment banking MD headcount at the end of 2024 and then what it was at the end of 2025? And just with your expansion plans, a rough estimate of where it could be at the end of 2026? Lester Brafman: I do not have those numbers in front of me. I think we have promoted two MDs, and again, I do not have the exact number, but my sense is we promoted a couple of MDs last year and we have hired a couple of MDs into new areas this year so far. My guess is we probably add another two to three through promotions and hiring over the year, maybe as many as four or five. So I guess two to five would be how you bound the range, or three to five is how you bound the range there. Joe Pooler: Yeah, and that is right. At the end of the year, the investment bank had 28 total employees, and we anticipate growth of about five, excluding interns, in 2026. But that can move around to the extent that we see an opportunity to hire an MD that makes sense. Mike Grondahl: Perfect. Thanks, guys, and good luck in 2026. Lester Brafman: Okay. Thanks, thanks. Operator: There are no further questions at this point. I would like to turn the call back over to Lester Brafman for closing comments. Lester Brafman: Thank you, Robert, and thanks, everyone, for listening today. We look forward to reconvening next quarter. You may now close the call. Operator: This concludes today's call. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Greetings, and welcome to the Drilling Tools International Corp. 2025 Year End and Fourth Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Dennard, investor relations. Thank you, sir. You may begin. Ken Dennard: Thank you, operator, and good morning, everyone. We appreciate you joining us for Drilling Tools International Corp.'s 2025 Year End and Fourth Quarter Conference Call and Webcast. With me today are R. Wayne Prejean, Chief Executive Officer, and David R. Johnson, Chief Financial Officer. Following my remarks, management will provide a review of year-end fourth quarter results and 2026 outlook before opening the call for your questions. There will be a replay of today’s call that will be available via webcast on the company’s website that is drillingtools.com. There will also be a telephonic recorded replay available until March 13. Please note that any information reported on this call speaks only as of today, 03/06/2026, and, therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. Also, comments on this call will contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of Drilling Tools International Corp.’s management. However, various risks, uncertainties, and contingencies could cause actual results, performance, or achievements to differ materially from those expressed in the statements made by management. The listener or reader is encouraged to read the company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K to understand certain of those risks, uncertainties, and contingencies. The comments today will also include certain non-GAAP financial measures including, but not limited to, adjusted EBITDA and adjusted free cash flow. The company provides these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures. A discussion of why we believe these non-GAAP measures are useful to investors, certain limitations of using these measures, and reconciliations to the most directly comparable GAAP measures can be found in our earnings release and our filings with the SEC. And now with that housekeeping behind me, I would like to turn the call over to R. Wayne Prejean, Drilling Tools International Corp.’s Chief Executive Officer. Wayne? R. Wayne Prejean: Thanks, Ken, and good morning, everyone. I will open with some comments on our full-year results, then hand the call over to David to review fourth quarter financials and our 2026 outlook. After that, I will wrap it up with a few additional thoughts before we open up for questions. We are pleased with our strong performance in the fourth quarter, which enabled us to finish the year on a positive note. These results demonstrate our ability to deliver consistent returns in the face of continued market softness. Despite global rig count declining 7% year over year, we were able to produce resilient results and generate significant free cash flow. In fact, Drilling Tools International Corp.’s annual adjusted free cash flow has grown each year since going public in 2023. This is an achievement we take great pride in and underscores our ability to operate efficiently, capitalize on opportunities in the market, and navigate the evolving energy landscape. Our 2025 results came in at or above the high end of our guidance ranges. We generated total rental revenues of $129,600,000 and total product sales revenues of $30,100,000, or $159,600,000 on a consolidated basis. Adjusted net income for 2025 was $3,400,000, and adjusted diluted EPS for 2025 was $0.10 per share. We generated 2025 adjusted EBITDA of $39,300,000 and adjusted free cash flow of $19,200,000. We completed our fourth acquisition in January 2025 since going public, and we were able to meaningfully reduce our net debt compared to the same period a year ago. This reflects our capital discipline and intentional focus on paying down debt. As the market softened throughout the year, we utilized our flexible CapEx model and pivoted to harvesting cash, which we then used to pay down over $11,000,000 of debt in 2025. We also returned a portion of our free cash flow to shareholders through our share buyback program. These actions reinforce our commitment to enhancing shareholder value and maintaining our solid financial position. Geographically, our Eastern Hemisphere operations experienced continued growth in 2025, and this expansion was a large contributor to the resilience of our results. Year over year, our Eastern Hemisphere revenue grew by 78% and contributed approximately 14% of our total revenue. The Eastern Hemisphere segment has continued to perform well, reflecting significant demand for our tools along with consistent execution and Drilling Tools International Corp.’s growing market presence. Western Hemisphere operations were impacted by soft North American drilling and completions activity in 2025 but managed to see only a low single-digit revenue decline when compared to 2024. As the situation evolves in the Middle East, we are focused on supporting our employees and clients. As of today, most all rigs are operating. Assuming this remains the same, we anticipate a positive baseline of activity with upside driven by oil capacity expansion and strategic gas development. This momentum sends an encouraging signal as we look to further expand our Eastern Hemisphere operations. Our strong alignment with local operators positions us well for continued expansion. And, again, assuming there are no major rig activity or infrastructure disruptions, we expect our customers to scale up their activities heading into 2026, and we expect growing market adoption of our tools to make us the service company of choice in the region. As evidence of the traction that our tools have gained in the Eastern Hemisphere today, our wellbore optimization product line offering continues to benefit from the significant increase in utilization of Drill-N-Ream tools and our ClearPath Stabilizer technology throughout the Eastern Hemisphere. We expect this constructive trend to continue as rig activity in Saudi Arabia stabilizes and selective programs are reactivated, creating incremental demand tailwinds for our Eastern Hemisphere segment. Over the past 24 months, we have completed several strategic acquisitions, and even as market conditions have tempered some of the near-term upside, we have remained focused on disciplined integration and realization of targeted synergies. This has allowed us to strengthen Drilling Tools International Corp.’s foundation and position the company for meaningful financial improvement as activity levels rebound. I am encouraged by our team’s ability to make the best out of a challenging environment, and I firmly believe that this will set us up for future success. David will now take you through our results in greater detail and introduce our 2026 outlook. David? David R. Johnson: Thanks, Wayne. In yesterday’s earnings release, we provided detailed year-end and fourth quarter financial tables, so I will use this time to offer further insight into specific financial metrics. Wayne gave an overview of our full-year results in his opening comments, so I will provide some additional color on our fourth quarter results. However, just to echo Wayne’s comments from earlier, we are pleased to have achieved another record year for adjusted free cash flow. Even with the general industry and typical Q4 seasonal softness, we prioritized generating and preserving cash flow by managing cost and CapEx. We intend to maintain our capital discipline strategy in 2026 by driving operational efficiency across the business. As of 12/31/2025, we had $3,600,000 of cash and cash equivalents, net debt of $42,200,000, and a net leverage ratio of 1.1x, which is down slightly from 1.2x a year ago, despite taking on additional debt to fund the Titan Tools acquisition in 2025. Now turning to our fourth quarter results. We generated consolidated Q4 revenue of $38,500,000. Fourth quarter tool rental revenue was $30,400,000, and product sales revenue totaled $8,100,000. Net income attributable to stockholders for the fourth quarter was $1,200,000 or $0.03 per share. Q4 adjusted net income was $1,500,000 or adjusted diluted EPS of $0.04 per share. Fourth quarter adjusted EBITDA was $10,100,000, and adjusted free cash flow was $6,100,000. Our capital expenditures in the fourth quarter were $4,000,000. Looking at maintenance CapEx for the fourth quarter, it was approximately 10% of total revenue. And just as a reminder, our maintenance capital is primarily funded by tool recovery revenue, which keeps our rental tool fleet relevant and sustainable regardless of market trends. CapEx is just one component of our capital discipline strategy. We take a disciplined approach to all capital deployment, prioritizing opportunities that align with our capital allocation framework and support long-term value creation for shareholders. For example, we paid down $5,500,000 in debt in the fourth quarter and overall approximately $11,000,000 in 2025, bringing down our net debt to EBITDA leverage ratio to 1.1x. We have also been active in our share buyback in 2025, where we purchased approximately $660,000 of common shares averaging $2.17 per share. We remain focused on maintaining a strong financial position and will thoughtfully use our capital allocation levers as attractive opportunities arise. Looking at our geographic segment mix, we continue to benefit from our diversified geographic footprint and customer base, with 14% of our total Q4 revenue coming from our Eastern Hemisphere segment. This growth reinforces the effectiveness of our strategy and commitment to delivering consistent, high-quality performance across our global footprint, especially as we look ahead to a market rebound. As we disclosed in yesterday’s earnings release, and as Wayne alluded to earlier, we have released our 2026 full-year guidance ranges that reflect year-over-year growth at the midpoint. 2026 revenue is expected to be in the range of $155,000,000 to $170,000,000. Adjusted EBITDA is expected to be within the range of $35,000,000 to $45,000,000. Capital expenditures are expected to be between $818,000,000 and $23,000,000. And finally, we expect our 2026 adjusted free cash flow to range between $17,000,000 to $22,000,000. We have constructed these ranges with the assumption that activity will remain relatively flat in 2026 and improve slightly in the second half of the year. Regardless, we continue to believe that our established geographical footprint will provide a meaningful runway for growth as market momentum returns. That concludes my financial review and outlook section. I will now turn the call back over to Wayne for closing comments. R. Wayne Prejean: Thank you, David. We continue to make substantial headway on our synergy program called OneDTI. We have been able to align our operating divisions into integrated systems and processes as well as onboard new business units into our Compass platform to manage assets and transactions from our customers. This represents an important milestone for the company’s growth potential, as it streamlines workflows, enhances accountability, and materially shortens the timeline for integrating future acquisitions into the Drilling Tools International Corp. platform. We also remain active in evaluating additional M&A opportunities that align with our strategic and financial objectives. As we continue to thoughtfully scale our current operations, we believe Drilling Tools International Corp. is the preferred provider for downhole tool rentals supporting wellbore construction and casing installation. Despite the near-term softness we expect to occur within the first half of the year, our outlook for 2026 reflects not only the solid foundation we have established, but also our forward-looking commitment to operational excellence and delivering consistent results. We believe there are several potential catalysts across multiple geographies that offer upside potential later in the year, including rig reactivations in Saudi Arabia, incremental tenders in the broader Middle East, and increased project activity in select international markets where we have recently expanded our presence, among others. These are not built into our guidance but may materialize into areas of outperformance. Looking forward, I am optimistic about the momentum we are building across the organization and the attractive opportunities we see on the horizon. The investments made to date are beginning to gain traction and are positioned to drive meaningful results. We are confident that elevated demand for complex wellbore solutions should further reinforce the need for our differentiated technology and the value-added solutions we deliver to customers around the world. Our ongoing focus on generating shareholder value is supported by the prospect of a more favorable market backdrop emerging later this year. Finally, I want to address the conflict in the Middle East as it pertains directly to Drilling Tools International Corp. As of yesterday, our Middle East personnel were all accounted for, have sheltered in place per local government requirements, and are maintaining continuity with customers’ needs and supporting our operations. We have experienced minimal disruption to our ongoing business thus far. We do not have any American expat employees in the conflict zone, but we do have numerous expat employees from other nationalities who are based in the Middle East. We are diligently monitoring the situation and have launched our crisis response plan, which is providing resources to support our team members in the area. We are conducting frequent meetings, obtaining regular operational updates, and are maintaining communications with our personnel in the region. I want to thank every member of the Drilling Tools International Corp. organization for their continued commitment to working in a safe, inspired, and productive manner, with special thanks to those personnel who are in the Middle East for their continued support of our operations. Our thoughts are with you every day. Our employees’ commitment has been essential in navigating a constantly evolving environment and essential to the success and future growth we are building together. With that, we will now take your questions. Operator? Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Thank you. Our first question comes from the line of Stephen Michael Ferazani with Sidoti. Stephen Michael Ferazani: Morning, everyone. Appreciate the detail and color on the call this morning. I also appreciate, Wayne, your message on Middle Eastern safety. I think that is certainly appreciated right now. Couple of really strong numbers that surprised me in the quarter. Wanted to get your thoughts and color around what drove it. First one, the big one was the EBITDA margin this quarter, highest in, it looks to us, like, in six quarters. Six quarters ago, the rig count was much better. What drove that really strong margin this quarter? You want to take that one, please? David R. Johnson: Yes. I think it was just a combination of, you know, we did not see all the Q4 typical seasonal softness in some of our numbers. Then we were further benefiting from some of the cost reductions that we did earlier in the year. So, kind of the combination of that, we had, you know, our product mix was a little bit different. Yes, just an overall good quarter compared to the rest of the year. Stephen Michael Ferazani: Anything specific one-quarter type mix here? Because your margin in the quarter was above the full-year guide for 2026 on the margin line. David R. Johnson: Yes. I think mainly it was a product sale impact. We had some additional product sale that is in a little bit better margin profile, especially on the lost-in-hole DVR type sales. That is driving improved margins there. So it helps support the overall quarter. But, generally, it was steady state, good performance overall. Stephen Michael Ferazani: Got it. And then all of your numbers came in at the, as you noted, very high end of your full-year ranges. The one that beat was adjusted free cash flow. It is a very strong free cash flow quarter. Anything driving that? And you put out really solid guidance for free cash flow again next year. David R. Johnson: Yes, Steve, I think that is a good point. We are definitely seeing kind of that durable free cash flow generation since going public. That was kind of our stated goal, focusing on the M&A front for growth and really demonstrating that we can generate that free cash flow. But typically, and we will see it kind of every year, where a lot of our CapEx is front-loaded in the year. So as we kind of cycle through those first couple of quarters, then I think we saw our third quarter was stronger than the first and second quarter, and then our fourth quarter was even stronger on the free cash flow side for that reason. Stephen Michael Ferazani: Got it. That is helpful. And speaking about free cash flow, your leverage now, I mean, you are barely above 1x. Great place to be. And if we are, theoretically, and I think you think that we are at a trough on your annual EBITDA or very close, by our model, your leverage goes under 1x next year. What is the thought here? What is M&A looking like? Are there opportunities? Would you still reduce debt further? Are you thinking about cash flow? R. Wayne Prejean: Well, we have stated in previous quarters and on previous calls, we have a healthy pipeline of M&A opportunities that we are constantly evaluating, and we will continue to look at the most accretive, most attractive strategic opportunities that are out there. Our use of funds as they flow will be debt service, M&A, some buybacks, but mostly, throughout 2025, we focused on integration and gaining efficiencies from what we acquired. So right now, we are probably looking at a number of opportunities, and they ebb and flow as the market dictates, but there are definitely still opportunities on the horizon. Stephen Michael Ferazani: Got it. That is helpful. And I saw, you know, just going through the new deck you put up, the guidance does show you expect Eastern Hemisphere share of revenue to be even higher next year if we have seen that steady growth. Can you talk about where the opportunities are in Eastern Hemisphere? Also particularly curious about your opportunities in APAC. R. Wayne Prejean: So, throughout, as we have integrated all of the product lines and all the business units and aligned our management team and sales team, they are all firing on all cylinders and doing a great job. So we are getting lots of opportunities throughout Africa with various products. We are moving products around many of the countries in the Middle East, and, despite the ongoing conflict in the Middle East, we are able to continue maintaining our customer support. Surprisingly, most everyone is still in operation. You have probably heard different news reports of different things and facilities and refineries, but drilling operations are still commencing without major disruptions to our knowledge. Then we also have our Malaysian entity up and running with our Asia-Pac focus. So that is starting to gain traction, and we are distributing a lot of our new technologies, such as our Drill-N-Ream, our deep casing products, and our ClearPath product lines, which was an acquisition of the ED Projects Group a year ago. So all of those things are starting to get traction in the Middle East and Asia-Pac. Stephen Michael Ferazani: Got it. That is helpful. What is implied in your guidance in terms of revenue per active rig in the U.S.? How are you thinking about that? I think a lot of us assume we are modeling in sort of a flat rig count January 1 to December 30. How are you thinking about that? Can you grow revenue per active rig in a flattish market? R. Wayne Prejean: We see it as, we model it as, a steady state with opportunistic realities where some of our new technology gains traction. Those things are evolving in different markets. So we think our opportunity to overachieve is as those new technologies gain more traction, that is where we will see our opportunity to increase over and above where we are today. But mostly, the market is a steady state environment. Stephen Michael Ferazani: Got it. That is helpful. Last one for me, and I know this is a totally unfair question, but I have to ask it anyway. In terms of, we are only a week in, but in terms of the Middle East developments we have seen so far, any thoughts? And we do not know how long or how this exactly plays out. How you are positioned one way or the other as this plays out, any thoughts? I know it is an unfair question. R. Wayne Prejean: Well, I will start with, if you will notice, our revenues are about 14%, as we have stated in here, and we hope that they will grow, but they are only—and the Middle East is a part of that 14% of Eastern Hemisphere. So it is still a smaller part of our overall revenue and earnings stream, but it is emerging and growing. It could be—how it is going to be affected is unknown today. All we know today is that things are still operating. I do not think anyone is sure of exactly what the impact might be. We do not have a lot of personnel scattered throughout. We have some personnel that are scattered throughout different parts of that area, and they are all safe and accounted for today and operating. So we are able to move tools about. We are able to support our customers’ operations. They are asking for support. So despite the noise and everything that is going on and the unknowns, what we know today, it feels like it is minimally disruptive. And I do not mean that to minimize the conflict and the impact of it, but, from a business point of view, so far, our team has performed just fantastic. We are operating off our COVID-style playbook of how to do crisis management and deal with remoteness and things like that. So a lot of lessons learned from that experience on how to operate remotely with our clients and coordinate logistics and things like that. All of our team is working well in that regard. Stephen Michael Ferazani: Got it. Okay. Thanks so much, Wayne. Appreciate it, David. R. Wayne Prejean: Thank you. Thank you, Steve. Operator: Our next question comes from the line of John Matthew Daniel with Daniel Energy Partners. Please proceed with your question. John Matthew Daniel: Hey, guys. Thanks for having me. Just three quick ones for you. Assuming this is a safe one here, but the revenue guidance you provided for 2026, I am assuming that was all created pre-Iran. Is that fair? David R. Johnson: Correct. John Matthew Daniel: Okay. And then, good job on paying down the $11,000,000 in 2025. Do you have an established goal for 2026? I mean, look at the free cash flow guidance, which is, say, $20,000,000 at the midpoint. Roughly, what would you envision as being allocated to debt reduction versus buybacks? R. Wayne Prejean: I think if you look at our historical paydown events, such as the one you just described, one could expect continued paydown, majority of the debt. Hopefully, we could probably accelerate that, but it will depend on the occurrences that are happening throughout the year. And as these events unfold, particularly the events in the Middle East, it will help us understand where we need to focus our efforts on investments. If the U.S. market picks up, we can dial that up. If we find that the conflict is less impactful and it returns to more normal, we can dial that up, and so on. So, as other parts of the world, the good news is we are spread out throughout and now established with infrastructure and capabilities in many parts of the world. We have a lot more diversification in how we can deploy our capital in meaningful ways across different geomarkets depending on where the needs are and the adjustments are made. John Matthew Daniel: Last one, and, again, recognizing we are like five days into this thing or whatever. But, yes, there is a little bit of turmoil, right? Just look at crude prices, market concerns, etcetera. R. Wayne Prejean: Sure. John Matthew Daniel: Wayne, the question would be, in a weird way, does this get you excited that there are going to be great opportunities to capitalize on the turmoil, or do you go more defensive? How do you think about just running the business the next few quarters as this is all playing out? R. Wayne Prejean: Well, John, it is a very dynamic and fluid situation because there are so many unknowns of how things will be impacted. Speculation is dangerous on my part, but we kind of feel like we are in a position to deal with the situation in multiple areas, as I just stated. So I think we are flexible with regard to the opportunity that may present itself as a result of this conflict. And when I mean that, I do not mean to diminish the impact of a war, but oil is a dynamic commodity. And so if there is a major supply disruption, someone else will fill that gap, and we are prepared to participate in where that activity may be. Our fleet is relevant and sustainable. We have the diverse geomarket exposure now with different technologies. So we are in a good position to deal with how this dynamically unfolds. John Matthew Daniel: Okay. Last one. I lied. I told you there were three; there are four. Just looking at the chart here at WTI, $88 right now. Brent, better. I mean, there has been a lot of pricing pressure for the service industry the last couple of years. I mean, things have changed. How do you even start thinking about how you are going to start your customer discussions given the backdrop where we are? R. Wayne Prejean: Sure. I mean, particularly in North America, there has been a meandering rig count, mostly meandering downward with capital discipline and the need for improved earnings. But our business has what we call a ceiling and a floor on pricing and how we participate in the market and how we provide our customers value. If the price is too low, no one will invest in it. If the price is too high, everybody will invest in it. So we feel like we are very efficient in the middle to upper tier of that range, participating with our clients. Now, how do we get OFS pricing up? I think it is just a matter of time, in my opinion, that people are going to have to reinvest in equipment, and that will drive the pushback on pricing reductions and get to a more neutral state and maybe upward in the future. And, of course, an activity increase will immediately create probably a stress point in the supply chain throughout the industry. I think we can all make that calculation. John Matthew Daniel: Thanks for having me, guys. Have a great weekend. R. Wayne Prejean: Thanks, John. Operator: We have reached the end of the question-and-answer session. Mr. Prejean, I would like to turn the floor back over to you for closing comments. R. Wayne Prejean: So, thank you, everyone. We had a good quarter and a good year, and we have a pretty positive outlook throughout 2026. But there are some challenges ahead of us, the conflict notwithstanding. We are prepared from a company point of view and our employee point of view, and we have a great customer base and good geographic diversity. We are executing well in all those markets. Thank you for your interest in Drilling Tools International Corp. We appreciate your time on the call. Operator: Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time, and have a wonderful day.
Operator: Hello and welcome to BCP Investment Corporation's Fourth Quarter and Full Year Ended December 31, 2025 Earnings Conference Call. An earnings press release was distributed yesterday, March 5, after market close. A copy of the release, along with an earnings presentation, is available on the company's website at www.bpinvestmentcorporation.com in the investor relations section and should be reviewed in conjunction with the company's Form 10-K filed yesterday with the SEC. As a reminder, this conference call is being recorded for replay purposes. Please note that today's conference call may contain forward-looking statements, which are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described in the company's filings with the SEC. BCP Investment Corporation assumes no obligation to update any such forward-looking statements unless required by law. Speaking on today's call will be Ted Goldthorpe, Chief Executive Officer, President, and Director of BCP Investment Corporation; Brandon Satoren, Chief Financial Officer; and Patrick Schafer, Chief Investment Officer. With that, I would now like to turn the call over to Ted Goldthorpe, Chief Executive Officer of BCP Investment Corporation. Please go ahead, Ted. Good morning. Ted Goldthorpe: Welcome to our fourth quarter and full year 2025 earnings call. I am joined today by our Chief Financial Officer, Brandon Satoren; our Chief Investment Officer, Patrick Schafer; and the rest of the team. Following my opening remarks on the company's performance and activities during the fourth quarter and full year, Patrick will provide commentary on our investment portfolio and our markets, and Brandon will discuss our operating results and financial condition in greater detail. I would like to start by discussing some highlights. 2025 was a transformational year for the company. In July, we completed our merger with Logan Ridge, and in August, we successfully completed a rebranding and name change. The merger meaningfully strengthened our platform, expanded our scale, and broadened our portfolio diversification. At the same time, our rebranding better reflects our affiliation with the broader BC Partners Credit platform and is a representation of our long-term vision as we position the company for its next phase of growth. In December, we completed our tender offer by purchasing roughly 558,000 shares at an aggregate cost of approximately $7,600,000, which was accretive to NAV by $0.18 per share. Consistent with our diligent capital markets management strategy, during the year, we also proactively extended and laddered our unsecured debt maturities, issuing $75,000,000 of 7.75% notes due October 2030 and $35,000,000 of 7.50% notes due October 2028, while also redeeming our 4.875% notes due 2026. These actions further diversified our funding base and provide us with enhanced financial flexibility. As a result of this year's performance and the successful execution of multiple strategic initiatives, the Board of Directors approved a quarterly base distribution of $0.32 per share for the quarter ended 03/31/2026. Additionally, the Board also approved the transition of the company's base dividend payment schedule from quarterly to monthly beginning in April 2026 while retaining the potential for quarterly supplemental distributions. We believe this change better aligns our distribution schedule with shareholder interests. The Board approved a regular monthly base distribution of $0.09 per share for each of the months of April, May, and June 2026. Also consistent with previous years, on 03/04/2026, the Board authorized a renewed stock purchase program of up to $10,000,000 for approximately a one-year period. All these initiatives I have discussed are designed to enhance shareholder value and reaffirm our commitment to shareholders. During the quarter, we generated net investment income of $7,400,000, or $0.57 per share, compared to $8,800,000, or $0.71 per share, in the prior quarter. For the year, we generated $25,100,000, or $2.28 per share, compared to $24,000,000, or $2.59 per share, for 2024. We remain focused on executing our strategic initiatives, managing expenses, optimizing portfolio positioning, and earnings and distribution coverage over time. Before handing the call over, I would like to take a moment to address recent developments in the broader credit markets, specifically regarding the software segment. Over the last several weeks, we have seen a notable risk-off move in public software valuations, driven largely by uncertainty and speculation around how quickly AI adoption might change competitive dynamics, rather than broad-based fundamental deterioration across the sector. As a reminder, BCP Investment Corporation remains broadly diversified, with investments across 34 industries, with software representing approximately 12.5% of the portfolio's fair market value. We have been proactive in evaluating our software-related exposure through an AI disruption lens. Based on our internal review, the overwhelming majority of software exposure we track is assessed as low to medium AI impact; only a small portion is viewed as high impact. We also believe the market will increasingly differentiate between companies that are mission-critical and embedded in customer workflows, often supported by proprietary data, higher switching costs, and customers operating in regulated industries, versus simpler point solutions that may be more vulnerable if they fail to incorporate AI into their products and operations. As a result, our focus remains on scale, activity, and credit quality, structure, underwriting, and monitoring that emphasizes revenue durability, retention, pricing power, and downside protection. Looking ahead, while macroeconomic headwinds persist, we believe current market dynamics continue to create compelling opportunities for our disciplined strategy. We anticipate that 2026 will bring increased activity in the M&A market and expect to capitalize on opportunities in our portfolio. With a larger, more diversified platform and a stronger balance sheet headed into the year, we believe we are well positioned to drive continued earnings growth and long-term value creation. With that, I will turn the call over to Patrick Schafer, our Chief Investment Officer, for a review of our investment activities. Patrick Schafer: Thanks, Ted. During the fourth quarter, we were intentionally prudent in new investment deployment as we executed on several key capital initiatives, including our debt refinancing and tender offer. We view this as disciplined capital management, and we are looking to deploy into attractive opportunities as conditions warrant. Competition remains elevated across sponsor-backed direct lending, particularly for higher-quality assets, and we continue to see lenders competing not only on spreads but also on terms and certainty of execution. In environments like these, we continue to stay disciplined, prioritizing transactions where we can achieve appropriate economics alongside strong documentation and downside protections. When pricing and returns are not compelling, we are comfortable stepping back and continuing to be selective from a credit quality perspective to focus on maximizing risk-adjusted returns for our shareholders. Turning to slide 10, originations for the fourth quarter were $9,600,000 and repayments and sales were $40,400,000, resulting in net repayments and sales of approximately $30,800,000. Overall yield on par value of new debt investments during the quarter was 11.8%. This compares to a 12.9% weighted average annualized yield excluding income from nonaccruals and collateralized loan obligations. As of 12/31/2025, our investment portfolio at year-end remained highly diversified. We ended the year with a debt investment portfolio, when excluding our investments in CLO funds, equities, and joint ventures, spread across 74 different portfolio companies and 34 different industries, with an average par balance of $3,500,000 per investment. Turning to slide 11, at the end of 2025, we had 13 investments on nonaccrual status, attributable to 10 portfolio companies, representing 47.1% of the portfolio at fair value and cost, respectively. This compares to 10 investments attributable to 8 portfolio companies on nonaccrual status as of 09/30/2025, representing 3.8% and 6.3% of the portfolio at fair value and cost, respectively. On slide 12, excluding our nonaccrual investments, we have an aggregate debt investment portfolio of $391,700,000 at fair value, which represents a blended price of 92.7% of par value and is 81.5% comprised of first lien loans at par value. Assuming a par recovery, our 12/31/2025 fair values reflect a potential of $30,900,000 of incremental net value, or a 14.8% increase to NAV. When applying an illustrative 10% default rate and 70% recovery rate, our debt portfolio would generate an incremental $1.46 per share of NAV, or an 8.7% increase as it rotates. I will now turn the call over to Brandon to further discuss our financial results for the period. Brandon Satoren: Thanks, Patrick. For the quarter ended 12/31/2025, the company generated $17,500,000 in investment income, a decrease of $1,400,000 as compared to $18,900,000 reported for the quarter ended 09/30/2025. The decrease in investment income was primarily driven by the distribution from our Great Lakes joint venture coming in $1,300,000 lower than the prior quarter and historical levels as a result of a nonrecurring item, as well as the impact of two additional investments on nonaccrual and decreases in base rates. For the year, total investment income was $61,200,000 compared to $62,400,000 in 2024. For the quarter ended 12/31/2025, total expenses were $10,100,000, which represents a $200,000 decrease as compared to $10,300,000 reported for the prior quarter. The decrease in expenses was primarily driven by lower incentive fees and general and administrative expenses, partially offset by higher financing costs associated with 30 days of duplicative interest expense associated with calling the company's April 2026 notes, which amounted to $500,000. For the year, total expenses were $36,200,000, or a $2,200,000 decrease as compared to $38,400,000 in 2024. The decrease in expenses compared to the prior year was primarily driven by lower incentive fees. Accordingly, our net investment income for the fourth quarter of 2025 was $7,400,000, or $0.57 per share, which constitutes a $1,000,000 decrease, or $0.14 per share, from $8,400,000, or $0.71 per share, reported for the prior quarter. Core net investment income for the fourth quarter was $4,100,000, or $0.32 per share, compared to $5,200,000, or $0.42 per share, in the third quarter of 2025. For the year, net investment income was $25,100,000, or $2.28 per share, compared to $24,000,000, or $2.59 per share, in 2024. As of 12/31/2025, our net asset value totaled $209,200,000, a decrease of $22,100,000, or 9.6%, from the prior quarter's NAV of $231,300,000. On a per share basis, NAV was $16.68 per share as of 12/31/2025, representing an $0.87 decrease, or 5%, as compared to the company's prior quarter NAV per share of $17.55. Notably, the difference between the 9.6% decrease and 5% is the accretive impact of the tender offer and our buyback program. Broadly speaking, the decline in NAV was due to $14,500,000 in net realized and change in unrealized losses on the portfolio, as well as core net NII not covering the dividend paid during the quarter by approximately $2,000,000. As it relates to the right side of our balance sheet, we ended the year with gross and net leverage ratios of 1.5x and 1.4x, respectively, which compares to gross and net leverage ratios of 1.4x and 1.3x, respectively, for the prior quarter. Specifically, as of 12/31/2025, we had a total of $312,300,000 of borrowings outstanding with a current weighted average contractual interest rate of 6.9%. This compares to $324,600,000 in borrowings outstanding as of the prior quarter with a weighted average contractual interest rate of 6.1%. The company finished the year with $124,700,000 of available borrowing capacity under the senior secured revolving credit facilities, which are subject to borrowing base restrictions. Finally, I am pleased to share that during the quarter, the company refinanced its $108,000,000 of unsecured notes maturing in April 2026 by issuing $75,000,000 of 7.75% notes due October 2030 and $35,000,000 of 7.50% notes due October 2028. These actions reduced near-term refinancing risk and better laddered the company's debt capital structure by staggering the company's maturities, which improves the company's balance sheet. With that, I will turn the call back over to Ted. Ted Goldthorpe: Thank you, Brandon. Ahead of questions, I would like to reemphasize our commitment to our shareholders. Our focus remains on disciplined capital allocation, maintaining a high-quality portfolio, and delivering attractive risk-adjusted returns. With a larger, more diversified platform and a strengthened balance sheet, we believe we are well positioned to drive continued earnings growth and value creation in the quarters ahead. Thank you once again to all our shareholders, employees, and partners for your ongoing support. This concludes our prepared remarks, and I will turn the call over for questions. Thank you. Operator: Quick reminder before we start the Q&A. If you would like to withdraw a question or your question has been answered, please press 1 again. Thank you. We will take our first question from Erik Zwick from Lucid Capital Markets. Please go ahead. Erik Zwick: Thanks. Good morning, everyone. You know, Ted, in your prepared comments, you mentioned the actions that you took in 2025 reflect the long-term vision as you position the company for its next phase of growth. I am curious, from your perspective, if you think about the next year or two, what do you think the mix of growth looks like from organic and acquisition mix? And I guess I am kind of curious on that latter potential source of growth, the acquisitions. What the pipeline looks like in terms of opportunities. And I guess if I add another piece in there, are there any other initiatives for growth that you are considering at this point as well? Ted Goldthorpe: Yes. It is a great question. I do not see us pursuing organic growth. I mean, anything, given where our stock trades, makes sense for us to continue to buy back stock. So the tender plus share buybacks obviously were a pretty nice tailwind to NAV for us. In terms of all this recent choppiness in the market, all the recent headlines, our M&A pipeline is probably bigger than it has ever been. So that includes both public entities and unlisted entities. So we expect to be able to grow our platform. We had to get Logan Ridge done, and that sets us up to do continued M&A. As you know, we have kind of rolled up a number of BDCs over the last couple of years, and it is a key part to our strategy to basically continue to do that, optimize the portfolios, and continue to buy back stock. Erik Zwick: That is helpful. And then, thinking about the pipeline, organic growth, and maybe the size of the portfolio, it sounds like you still consider the buyback a pretty attractive use of capital at this point. Is that the right read on your comments there? Ted Goldthorpe: Yes. I mean, you can see our originations. Our repayments and sales are way higher than originations. The reason for that is it is more accretive for us to basically take the liquidation and buy back stock. That is what we will be doing. On a go-forward basis, we are very, very, very cautious in terms of new deployment. We are really looking for areas where we can deploy capital at very wide spreads, and again, those opportunities are just few and far between. We think there is a little bit of a disconnect between actual risk and the way risk is being priced, and so we are being pretty judicious on deploying new capital. Erik Zwick: That is great color. Thanks. And last one, maybe for Brandon. Just looking at the dividend income that you recognized in the quarter, I think it was around $200,000 or something, $197,000, and that was quite a bit below the prior kind of four-quarter average, closer to, like, $1.9 million. So just curious if there is something noteworthy that changed in the fourth quarter and what the run rate of dividend income might look like going forward? Brandon Satoren: Yes, that is right, Erik. The decrease was driven by the much lower Great Lakes—our Great Lakes joint venture’s—distribution this quarter. There was a nonrecurring item associated with it. It is an evergreen product, and every three years it rolls into a new series. That occurred in the prior quarter, and that impacted the Great Lakes distribution this quarter. It is very much a nonrecurring item. The product is sensitive to rates, so where it was previously earning and distributing is probably higher than what we are modeling going forward, but it still should generate, call it, low-teens return on a near-term basis going forward. I would also make the distinction that the nonrecurring item was just the difference between ROC versus income, so it was not necessarily a cash distribution question; it was how we are supposed to recognize the cash in terms of ROC versus income. That is right. Erik Zwick: Great. Thank you for taking my questions this morning, guys. Operator: Thank you. Our next question comes from the line of Christopher Nolan from Ladenburg Thalmann. Please go ahead. Christopher Nolan: Hey, guys. Ted Goldthorpe: Hey, Chris. Christopher Nolan: The declining dividend, should we use that as a proxy for the earnings run rate going forward in the second half of the year? Brandon Satoren: No. That was the nonrecurring item that Erik had just asked about, Chris. So next quarter, we would expect that to return to more normalized historical levels. Christopher Nolan: Okay. And then the driver in the realized loss? Ted Goldthorpe: The largest driver on the realized was a portfolio company called CPFLEX. Patrick, do you want to give some color on that? Patrick Schafer: Yes. I mean, to be honest, Chris, it was a company that was going through a sale process. The sale process had been going on some time. We had a bid that was fully covering par plus accrued interest, and we were working towards the end. To be entirely honest, in the last couple of weeks of the transaction, there were some junior lenders in the capital structure that basically created a massive amount of hold-up value, and the lenders were forced into this discussion of whether we should file the company for a prepack and then get these guys out and move on. Again, we were a small part of the syndication, but there was just an overall view that, between the costs associated with the prepack and the risk that the buyer would move away from us, lenders were willing to accept what amounted to a good amount of hold-up value at the end of the day. The difference effectively between what we had it on the books at and what we ended up realizing was that last little bit of a couple folks holding us hostage. Christopher Nolan: Got it. And then, for unrealized depreciation, were there any particularly big drivers there? Patrick Schafer: Unrealized depreciation? Yes. Please. The biggest one is called HTC Hostway. Again, kind of a similar-ish story, but they were working through LOIs, and they have two different business units and were selling two different business units. They ultimately completed the sale of one of the business units, but the other one—effectively the buyer came back and retraded, like, a $0.50 discount or something like that, which obviously did not make any sense and we were not going to take. We said no. They came back at a higher valuation, but still not something that the company was comfortable with. There is a large lender that is leading the process there. Ultimately, the conclusion was to sell the first business where we got a reasonable cash offer and paid down some debt, and then we will take the second business back to market at some point this year would be my guess. But for valuation purposes, we are using that lower retraded valuation for purposes of that. So that is the driver of the unrealized depreciation. That is the biggest and the big needle-mover there. Christopher Nolan: Got it. And then I guess strategically, on your comments in terms of the growth drivers—acquisitions—are there a lot of potential BDC sellers out there, and is the pricing for these things going down? What sort of color can you provide? Ted Goldthorpe: I would say that there are a lot of permanent capital vehicles for sale. I think the choppiness is going to just exacerbate it. Scale matters. I think there are a lot of subscale vehicles that are going to have a hard time with originations, costs, and growth and fundraising. As I said, our pipeline is really robust, and it is a mix of both private and public entities. Actually, we are pretty excited about the M&A market. We think it is a really good way to create value for our shareholders. Christopher Nolan: Interesting. Okay. Great. Thanks, guys. Ted Goldthorpe: Thank you. Operator: Our next question comes from the line of Angelo Guarino, a Private Investor. Please go ahead. Angelo Guarino: Good morning. Thanks for taking my call. This is going to be a little bit of a tough talk—big picture tough talk. I am really trying to understand where you guys are focused on. So here are a couple data points. June 30, 2019, a couple quarters after you took KCAP, NAV per share, split-adjusted, $37 a share. Over that time, you have distributed $16 per share, split-adjusted, to shareholders, and now we are sitting $20 a share NAV below that. I have been a big supporter of you. I have been a big supporter of management, been a big supporter of the strategy, and have been growing. But you keep on using terms like risk-adjusted returns, shareholder value, continued growth, and shareholder value. I am trying to understand why it seems to me that quarter after quarter your hair is not on fire about the drip, drip, drip of the base value of our investment, which is NAV. You have to agree that BDCs are rarely going to trade at huge multiples of NAV, and why am I not seeing or hearing you talk about being—your hair on fire—about what has been happening to NAV ever since you took KCAP. Ted Goldthorpe: Okay. I will answer that question. I do not necessarily subscribe to everything you said, but the reality is we have probably bought back more stock than any BDC as a percentage of our business. When we say things like that, we are trying to be judicious about how we allocate capital. We have obviously inherited a series of portfolios that were at the relative tail end and are winding those down. If you look at a lot of the headwinds toward NAV, a lot of it has come from inherited positions. When we took those on, we have been working those out over the last—I cannot remember the start date you used—but it is still over the last seven years. In the meantime, we bought back stock, we refinanced the capital structure, and we have done a number of actions that we think are shareholder-friendly. I totally hear what you are saying, and the math is the math. But when you say our hair is on fire, I would not necessarily say that. I would say we have a good command for— Angelo Guarino: I guess what I am saying is I want your hair to be on fire. Ted Goldthorpe: I do not know if you will love to hear— Angelo Guarino: A lot of discussion about—I do not know what increasing shareholder value means if, quarter after quarter or year after year, NAV is just going down, down, down. I do not hear you addressing it in a way that is clear of where that turning point is going to be, where we are going to be seeing at least stable NAV. At the same time, sure, you did the stock buybacks. It was a good deal. But even in the face of stock buybacks, we had a decrease of NAV of $0.80 in just one quarter. That is not just a one-off. This has been going quarter after quarter after quarter. I am asking you as someone who is a supporter and has been very supportive of all—since you bought KCAP—because I was a KCAP holder. I have been here for this whole ride. Why am I not hearing what I think I need to hear that tells me when this is going to—when this drip is going to stop and this thing is going to turn? Just saying that I have bought back stock at a good deal—fine—but over six and a half years, I have lost $20 in NAV, and I have got $16 in distributions. I had to pay taxes on that distribution. It would have been better off to just liquidate KCAP and give it to me six and a half years ago and let me put them in Treasuries. I am trying to understand where this is going and when, and why I am not hearing you address in these conference calls where this turn is going to occur. Is that a better way of putting it? Ted Goldthorpe: Yes. I mean, listen, we are very open-minded to having a broad discussion. Maybe we should just take this offline, and we are happy to sit down with you and take you through it, and maybe optimize our communication next quarter. So why do we not take it offline? We are happy to listen to you, of course, and listen to all of our shareholders, and happy to have that conversation. Angelo Guarino: Okay. Ted Goldthorpe: Thank you. Operator: Our next question comes from the line of Paul Johnson from KBW. Please go ahead. Paul Johnson: Yes. Thanks for taking my questions. I just wanted to echo that a little bit. I just want to understand as well where you really can provide value for shareholders, just given where we are at. In my opinion, at least at this point, I do not think that you have necessarily demonstrated that the mergers have been positive for shareholders, that this has been—that any of these have worked out, and it is clear that buying some of these assets at NAV has not necessarily been a good deal. It sounds like that is still the consideration and the plan going forward, but to me, it has not been a great way to increase shareholder NAV for you guys. So what other ways can we stabilize what is in the portfolio today and you can provide shareholders, aside from trying to scale up through mergers going forward? Ted Goldthorpe: I mean, we used to provide a lot of disclosure about where we bought the assets versus where we monetized them, and we should put that back in the presentation and walk people through why we think a number of the actions we have taken were the right and prudent actions. We will provide additional—We have historically disclosed that in a lot of detail, and obviously, we should just continue to do that, and then lay out the roadmap for why we think that makes sense. Paul Johnson: Thank you. That is all for me. Operator: There are no further questions in the queue. I will now turn the call back over to our CEO, Ted Goldthorpe, for closing remarks. Ted Goldthorpe: Great. Well, thank you all for attending our call. As always, please feel free to reach out to us with any questions, which we are happy to discuss. We look forward to speaking with you again in May when we announce our first quarter 2026 results. Thank you. Operator: The meeting has now concluded. Thank you all for joining. You may now disconnect.
Operator: Good morning, and welcome, everyone, to Granite Ridge Resources, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. I will now turn the call over to James Masters, Vice President, Investor Relations. James Masters: Thank you, operator. Good morning, everyone. We appreciate your interest in Granite Ridge Resources, Inc. We will begin our call with comments from Tyler Parkinson, our President and Chief Executive Officer, who will review the quarter’s results and company strategy along with an overview of 2026 financial and operating guidance, and introduce our newly announced Chief Financial Officer, Kyle Kettler. He will then turn the call over to Kyle to review our financial results in greater detail. Tyler will then return to provide closing comments before we open the call for questions. Today’s conference call contains certain projections and other forward-looking statements within the meaning of federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ from those expressed or implied. We ask that you review the cautionary statement in our earnings release. Granite Ridge Resources, Inc. disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Accordingly, you should not place undue reliance on these statements. These and other risks are described in yesterday’s press release and our filings with the Securities and Exchange Commission. This call also includes references to certain non-GAAP financial measures. Information reconciling these measures to the most directly comparable GAAP measures is available in our earnings release on our website. Finally, this call is being recorded, and a replay will be available on our website following today’s call. With that, I will turn the call over to Tyler. Tyler Parkinson: Thank you, James, and good morning, everyone. We are proud to report results for our third full year as a public company. While much has changed since the company went public in 2022, our commitment to pursuing the highest risk-adjusted rate of return projects and creating durable shareholder value remains the same. It is that commitment that drove our evolution from a traditional nonoperated company pursuing a diversified investment strategy to a capital allocator focused on the Permian Basin, backing proven management teams to acquire and develop high-quality assets, a strategy shift that is the driving force behind our results. For the fourth quarter and full year 2025, average daily production increased 27% year over year to 35,100 barrels of oil equivalent per day. Total production for the year increased similarly to 32,000 barrels of oil equivalent per day. Adjusted EBITDAX for the quarter was approximately $70,000,000 and $315,000,000 for the full year. Capital expenditures for the fourth quarter were $127,500,000, split approximately half to development and half to inventory acquisitions. Our full year capital expenditures were $401,000,000. Finally, we maintained our quarterly dividend of $0.11 per share, which continues to demonstrate our commitment to return meaningful capital to shareholders. Since going public, we have significantly increased production while maintaining a conservative balance sheet. That capital-efficient growth is a result of consistently hitting our underwriting targets and increasing our capital allocation to operator projects thanks to a structural opportunity we identified in the market. Over the past decade, private capital retreated from the natural resources sector in a major way, fundamentally changing the landscape for energy development. Private equity fundraising declined dramatically, and the remaining capital focused on fewer teams chasing larger opportunities. This left a scarcity of capital and competition in the unit-by-unit operated segment. At the same time, proven operating teams who had built and sold successful companies increasingly lacked access to aligned capital partners. Granite Ridge Resources, Inc. recognized the opportunity and stepped into the gap by developing our operative partnership model. We first partnered with Admiral Permian Resources, a Midland-based operator with multiple successful exits and deep ties in the community. Central to our strategy was that the Delaware Basin, containing some of the highest quality shale resource in the world, is now controlled by a small number of large asset managers overseeing vast overlapping land positions. These land positions come with a variety of complications like lease expirations, fragmented working interest, and inventory management issues that can turn into high-return drilling opportunities for the right partner. Granite Ridge Resources, Inc., through Admiral, has become that partner. Over the past three years, we have executed over 50 transactions in the Permian Basin and have grown net production to nearly 10,000 BOE per day. Granite Ridge Resources, Inc. and Admiral have become preferred counterparties, and inventory additions continue to outpace our two-rig development program. We have also signed up three additional operator partners, each pursuing a different strategy in the Permian. We have been deliberate about limiting public disclosure of these partners to preserve their competitive positioning. Each team has successfully built and exited private equity-backed companies in the Permian and have significant personal capital invested alongside us, creating meaningful alignment. We look forward to sharing their progress and demonstrating the scalability of the operator partnership strategy. These partnerships greatly expanded our proprietary deal flow, which was already a competitive strength. Last year, we reviewed nearly 700 opportunities with a capture rate of just 15%. In 2025, we invested $122,000,000 across 107 transactions, securing approximately 20,500 net acres and 331 gross, or 77.2 net, locations, almost exclusively split between two buckets: nonoperated in the Utica Shale and operated partnerships in the Permian. Because we focus on short-cycle opportunities underwritten at strip pricing, our entry costs remain notably low relative to large-format transaction comps. In the Permian, our average acquisition cost per net location was just $1,400,000, far below recent public market transactions. This is a through-cycle strategy. We target 25% full-cycle returns at strip pricing, compound production and cash flow growth, and protect downside through disciplined leverage. Since our first operator partnership investment with At Home, we have fundamentally transformed our business from passive non-op to controlled capital with scale, growing production and high-quality near-term inventory, the results of which are becoming clear in our financials and outlook. Granite Ridge Resources, Inc. came public with cash on the balance sheet and no debt, but subscale. In the years since, we deliberately used leverage to achieve sufficient scale to support our next evolution: sustainable free cash flow. We are getting close. We see 2026 as a year of transition. Production growth is moderating, and development capital expenditures are aligning more closely with expected cash flow. At current strip prices, we expect to achieve free cash flow from operations in 2027. The midpoints of guidance for production and capital for this year are as follows. We expect annual production to average 35,000 barrels of oil equivalent per day, representing a 9% increase over 2025, and we expect our exit in 2026 to be essentially flat or modestly up from exit in 2025. We forecast oil volumes to be approximately 51% of total production. Development capital expenditures are projected at $315,000,000, with an additional $20,000,000 to $30,000,000 for acquisitions that we currently have in the pipeline. Approximately 90% of the capital invested in 2026 will be focused on operated projects. To summarize, we will spend roughly 15% less than last year to achieve production growth of approximately 9%. At current strip pricing, we anticipate a modest outspend in 2026. One of our expressed goals for the business is to generate alpha through the expansion of cash flow above maintenance capital. We currently estimate maintenance capital of approximately $250,000,000, which provides room for disciplined growth above that level. We have built our business for capital-efficient growth and free cash flow visibility at $60 oil. In response to the geopolitical shocks of the past week, we have added oil hedges and will continue to closely monitor the market. Recent events aside, we have been encouraged by the market resilience shown to date and remain bullish on the medium-term outlook. Should prices fall below $60 per barrel for a sustained period, we retain flexibility with our partners to adjust the development schedule and moderate capital deployment. Finally, let me expand on two recent announcements. Alongside Diamondback Energy, we partnered with Conduit Power to support the development of 200 megawatts of natural gas-fired power generation scheduled to come online fully in 2027. This transaction will effectively provide a synthetic hedge to our Permian gas realizations and is expected to enhance value by approximately $1 to $2 per Mcf on our gas exposed to this contract. We think similar opportunities may exist to further improve our gas realizations, and we will be diligent in pursuing them. Second, we recently announced the appointment of Kyle Kettler as our Chief Financial Officer after a six-month search. We went through a thoughtful, diligent process to find the right person that can help guide us through this next season of growth. Our business has matured, and the challenges and opportunities are much different than they were a few years ago. We were looking for an oil and gas professional with tremendous experience in capital markets, but also someone with creativity, a track record of creating value, somebody that could be a thought partner as we grow the business. We could not be happier that Kyle decided to join us. He brings significant capital markets expertise, an extensive network, and a keen strategic perspective that will be critical as we transition towards sustainable free cash flow, the next phase of Granite Ridge Resources, Inc.’s development. I am thrilled to welcome him to the team in his first earnings conference call. Kyle? Kyle Kettler: Thank you, Tyler, and good morning, everyone. It is my pleasure to join my first Granite Ridge Resources, Inc. earnings call, and I look forward to spending time with our analysts and investors in the months ahead. Granite Ridge Resources, Inc. is building something truly different, allocating capital and creating value from a platform that is unique in public and private E&P. I am excited to be here. Tyler covered the strategic highlights and 2026 outlook, so I will focus on the fourth quarter and full year financial results and our capital position. For the fourth quarter, oil and natural gas sales totaled $105,500,000. Revenue was essentially flat compared to the prior-year quarter because of commodity pricing; however, production grew an impressive 27% year over year. In the fourth quarter, our average realized oil price was $55.49 per barrel, compared to $65.53 per barrel in the same period last year. Natural gas averaged $1.81 per Mcf in the quarter, or 48% of Henry Hub. These weak realizations, particularly in the Permian Basin, had a meaningful impact on revenue and, by extension, EBITDAX and operating cash flow. As a result, adjusted EBITDAX for the quarter was $69,500,000, and operating cash flow totaled $64,500,000. For the full year, oil and natural gas sales totaled $450,300,000, with production increasing 28% year over year to 31,984 barrels equivalent per day. Full year adjusted EBITDAX was $315,000,000, and operating cash flow was $296,400,000. The takeaway is straightforward. Our asset base is scaling, oil remains roughly half of the mix, and volume growth is industry leading. Pricing, especially in the Permian Basin, was a swing factor in fourth quarter revenue and cash flow. That dynamic reinforces the importance of initiatives like the Conduit Power transaction Tyler mentioned, which we expect will help improve Permian gas realizations over time. On the cost side, lease operating expense in the fourth quarter was $7.72 per barrel equivalent. That is higher than last year, driven primarily by our increasing focus on the Permian Basin. Service costs, primarily saltwater disposal, increased, a dynamic that is structural in the basin. For the full year, LOE averaged $7.27 per barrel equivalent. Our 2026 guidance for LOE is $6.75 to $7.75 per barrel equivalent. Production and ad valorem taxes ran just under 6% of revenue in the quarter, and G&A was $8,000,000, including $1,400,000 of noncash stock compensation. On a full-year basis, cash G&A was what we expected. Annual guidance for these metrics is the same as last year: production taxes of 6% to 7% of revenue and cash G&A of $25,000,000 to $27,000,000. Turning to capital. This is where the strategic shift Tyler described really starts to show up in the numbers. We invested $127,500,000 in the fourth quarter, roughly half into development and half into acquisitions. For the full year, total capital was $401,000,000, including $279,000,000 of drilling and completion capital and $122,000,000 of property acquisitions. That acquisition capital was not large-format M&A. It was nimble, repetitive, unit-by-unit inventory capture, high-graded, and underwritten at strip. Our acquisition strategy gives us control over timing and capital intensity. We are not locking in multiyear development programs irrespective of commodity price. Operationally, we placed 67 gross wells online during the quarter and 322 gross wells for the year. That activity underpins the 28% annual production growth we delivered in 2025. Now onto the balance sheet. We exited the year with $350,000,000 outstanding on the 2029 senior notes and $50,000,000 drawn on the revolver. Liquidity totaled $339,500,000 at year end. Net debt to adjusted EBITDAX was 1.2 times, inside of our long-term range. Looking ahead to 2026, we are deliberately shifting gears. The plan is to grow production while reducing capital spending. 2026 production is expected to average 34,000 to 36,000 barrels equivalent per day, with oil just under half the mix. Development capital is projected at $300,000,000 to $330,000,000, and total capital is $320,000,000 to $360,000,000, including acquisitions. The key point is this: growth is moderating, capital intensity is coming down, and development spending is aligning much more closely with expected cash flow. That transition from scale-building to cash flow durability is the financial inflection point for the company. And through the transition, we are maintaining our $0.11 per share quarterly dividend. So, stepping back, the last three years have been about scaling the platform and capturing inventory, while 2026 is about capital efficiency and balance sheet discipline, positioning Granite Ridge Resources, Inc. to generate sustainable free cash flow. With that, I will turn it back to you, Tyler. Tyler Parkinson: Thanks, Kyle. Let me close with a few high-level points. First, 2025 was a transformational year for Granite Ridge Resources, Inc. We scaled the operator partnership model, expanded our controlled inventory in the Permian, and grew production 28% year over year. We leaned into an opportunity set that is structurally advantaged and difficult to replicate. Second, we are now shifting from outsized growth to durability. Our 2026 plan reflects a moderation in growth, tighter alignment of development capital with cash flow, and a clear path towards sustainable free cash flow generation in 2027. Third, our competitive advantage is our structure and business development engine. By underwriting unit by unit at strip pricing, partnering with proven operators, and maintaining capital flexibility, we consistently hit our investing underwriting targets, which has resulted in significant growth in production and asset value. Finally, we remain committed to balanced shareholder returns. The dividend remains a core component of our framework. As we cross into free cash flow, we will have increasing optionality around capital allocation. We appreciate the continued support of our shareholders, partners, and employees and look forward to the year ahead. Operator, we are ready to take questions. Operator: We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, please press 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Phillips Johnston with Capital One. Your line is open. Please proceed with your question. Phillips Johnston: Hey, thanks for the time. First, a question for Kyle. Your fourth quarter realized oil and gas prices as a percentage of NYMEX were a little bit lower than usual in the fourth quarter, especially on the gas side. I think in your comments, you alluded to weak Waha prices as the driver on the gas side, so that makes sense and is not surprising. But is there anything to call out on the oil side? And as a follow-up, what should we be thinking about for our models in 2026 in terms of both oil and gas differentials? Kyle Kettler: Yes, thanks. Yes, the fourth quarter was weak on natural gas realization, and that was driven by Waha pricing. We have a substantial portion of natural gas coming from the Permian Basin, and that Waha basis widened out during the quarter on us. Going forward, we have modeled that. You can see the strip. We are utilizing that as a way to predict what Waha prices will be over the next year, and those prices are pretty low early in the year, and they tighten up a little bit towards the back end of the year, and then 2027 going forward. The strip is much better but still negative around a dollar or so. On the oil side of the equation, there is not anything particularly that sticks out. There is a bit of a negative difference between realized and benchmark prices, but we have that in our model going forward as well. Phillips Johnston: Okay. Sounds good. And then could you maybe give us a sense of how many net wells are planned for 2026 relative to the 38 that you brought online last year? And would you expect any significant change in the mix for this year? I think last year’s mix was close to 85% in the Permian, with most of the balance in Appalachia, Haynesville, and the DJ. I just wanted to get some color there. Kyle Kettler: You bet. So last year was 38 net wells turned online. Towards the end of the year, it got a little gassier with some Haynesville wells coming on. We see 2026 being about 29 net wells coming online, and the relative mix of gas and oil should tilt back towards oil as the year goes on with more Permian Basin activity. Tyler Parkinson: Yes, Phillips, on that point, on the oil point, if you look at oil production growth from 2025 to 2026, we see 12% growth there, so a little more oil growth from 2025 to 2026 versus gas. Phillips Johnston: Yes, and that, I guess, implies your oil mix ticks back up to 51% from 49% in Q4 here. Alright. Great. Thanks. Operator: Your next question comes from the line of Derek Whitfield with TPH&Co. Your line is open. Please proceed with your question. Derek Whitfield: Good morning, and congrats on the acquisition success you had in 2025. I wanted to start on slide 14. As you think about the business’ transition to sustainable free cash flow in 2027, are you outlining that this morning as a business objective for 2027 based on your desire to lower leverage, or is it based on your current view of the opportunities ahead of you? I am not trying to pin you down as we live in a dynamic environment, just trying to understand the driver and how firm the message is. Tyler Parkinson: It is not an opportunity set driver. It is a leverage driver. We have been very consistent about wanting to run the business to about one to one and a quarter leverage just to execute the base business plan. We have said that we would go north of that for something more strategic, but to operate the base business plan, think of that as one and a quarter. We have planned this year and next year in a more than $60 oil environment. That is the lens we are looking through when we are thinking about 2027 free cash flow. Obviously, with higher prices, there is going to be some additional capacity that we could take in 2026 and 2027 to continue to prosecute additional capture or additional development drilling and still be able to deliver some free cash flow. Derek Whitfield: Great. And as my follow-up, I wanted to focus on your operated partnerships. We appreciate what you are highlighting with Admiral in today’s presentation, but could you offer some color on general activity and inventory levels across your other operated partnerships? Tyler Parkinson: I would love to fill in some blanks there. We have spoken publicly about our first two. Admiral had the benefit of getting a head start on our other three partners, so they are the most secure and steady state of the four partners. I think the Admiral story is pretty clear to everyone in the public domain. They are focused on Delaware Basin, unit-by-unit inventory capture from some of the larger asset managers in the basin. That story has been successful. We are running a couple of rigs there. We are adding inventory faster than the development base there, so we hope to be able to replicate this same evolution with the other three partners. Partner two is actually PetroLegacy. We have mentioned that before, former EnCap-backed. That team is focused on the northern Midland Basin Dean play. They have captured a position there in the Dean play. We will probably get started on some selective development of that position this year. That market has gotten extremely competitive, as everyone knows, so I am not sure how much additional running room we will have there. The PetroLegacy team is looking at some other opportunities in the basin and also potentially outside of the basin. We hope to have some drilling results from them this year. Our third team, we have not disclosed who that is, but I can tell you what they are doing. They are another successful team that has exited private equity. They are focused on some of the emerging plays in the Permian Basin—think Woodford, Barnett. Those transactions will probably look a little more blocky from an acreage perspective—larger chunks of acreage. They will come with some appraisal to figure out what exactly we have, but if that is successful, that will add a lot of medium-term inventory for us and start to fill in some of the development drilling in 2028 and beyond. Team four is our newest team. They are also a Midland-based team, an exit from private equity. They look a lot like the Admiral team, mainly focused on Midland Basin opportunities. I think they will be sourcing opportunity from the larger asset managers out there on a unit-by-unit basis. We are about six months into that one, so that is very new, but they have already started to capture inventory. Typically, it takes us maybe 12 to 18 months to get enough inventory to have about 18 months to two years of inventory in front of the team in order for us to justify picking up a rig. I probably would not expect a whole lot of development activity from that team this year, but as we move into 2027, I think we will see them start to fill in some development. Operator: Your next question comes from the line of Jerry Giroux with Stephens. Your line is open. Please proceed with your question. Jerry Giroux: Good morning, and thanks for taking my question. My first question is in regards to the move to generating free cash flow in 2027. First, continuing at the same growth rate you have been doing the last couple of years, how did you decide to generate free cash flow versus growing? And the second part is, I know it is early, but if this free cash flow will be returned to shareholders, and if so, in what form are you thinking? Or will this just be cash that goes on the balance sheet for maybe a good opportunity? Tyler Parkinson: It is probably to be determined on the second part. We have a lot of options there, and when we get there, we will see what the best option is at that time. On the first part, we want to transition the business into something that is more durable and long term. We think we have done a good job of gaining some scale over the past handful of years, maturing the business and the strategy. We still see a ton of opportunity in front of us from an inventory capture standpoint, but being able to show some free cash flow and keep our leverage around our target, which is still very conservative at one and a quarter times, will still give us a lot of opportunity to pursue additional inventory capture if we wanted to accelerate some. Kyle Kettler: I would just add, the growth rates were pretty significant over the last couple of years, and it will still be high single digits going into next year. So it will still be pretty good growth. A lot of the capital spending is through operated partnerships, and that is based on a development plan we have coordinated with them. That puts us in this modeling position where we think we can see into 2026 and 2027 and turn into free cash flow in the 2027 time period. Jerry Giroux: That is perfect. Thanks for the color. And then one more question about slide nine. Could you give a little more color on that slide? You talked about Granite Ridge Resources, Inc. retains 92% of the ten-year projected cash flows, then also that the Hamburglar wells or pads achieved the hurdle reversion. Could you give a few more details on this case study? Kyle Kettler: You bet. What we did here was just to give you an example of the economics between us and our operated partners. We had some questions from investors over time on this one. The thrust of it is to show that while we do have some reversions in the reserve database, they are effectively not very punitive at all. They are relatively very small on a multiple-of-capital basis, and that is really what we are trying to achieve with this end-of-slide. Jerry Giroux: That is perfect. Thank you. Operator: Your next question comes from the line of Noah Hungness with Bank of America. Your line is open. Please proceed with your question. Noah Hungness: Morning. For my first question, I was hoping you could touch on the opportunity set and the competitiveness you are seeing to add inventory. In 2025, you were able to add locations well below what we saw from going market price. How do you see those dynamics today? Tyler Parkinson: Good question. That opportunity still exists for us. Our operator teams are still executing on transactions that look exactly like that. We have roughly $25,000,000 of acquisition capital expenditures scheduled right now. That is basically what we have captured or have line of sight to now. If we wanted to continue to add inventory and increase that budget, that opportunity is still available to us. As I said in the remarks, that has been a very good opportunity for us over the past couple of years, and we see the operated partnership inventory captures having a number of years out in front of us. As far as the rest of deal flow, we have seen still very strong deal flow. I think we had a record last year on deal flow that we screened, and that is continuing. The distributed wellbore market is still very strong. We do not participate in that market very much. Returns there are not something that we would underwrite to, but that is a very strong market. The larger marketed packages are still out there with lots of divestiture targets from a lot of the consolidation. Again, we do not participate in that market either. Lastly, on some of the smaller marketed processes for non-op, we are seeing probably the least amount of deal flow and trending down. That has been a little bit weak, but that is not an area that we typically source opportunity from. Finally, in the Appalachia Utica Shale Basin, we are still seeing a ton of opportunity there. That is a traditional non-op play for us. We have been very successful over the past year and a half leasing there. We added probably another couple thousand net acres in the Utica play in Q4, and we are continuing to see lots of opportunity there. Noah Hungness: That is helpful color. And then for my second question, Tyler, could you talk about how we can think about the oil cadence through 2026? And then what does exit-to-exit production growth look like for oil? Tyler Parkinson: Sure. Exit-to-exit oil production growth is 12%. That is Q4 2025 to Q4 2026. Oil growth over the year will be down a little bit in the first half—low single-digit decline in Q1 and Q2—and then increasing in the second half. From Q4 to Q4, we expect 12% growth. Operator: There are no further questions at this time. That concludes the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day.
Operator: Greetings, and welcome to the Mammoth Energy Services, Inc. fourth quarter and full year 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Mohammed Topiwala with Visara Advisors Investor Relations. Thank you. You may begin. Mohammed Topiwala: Thank you, operator. Good morning, everyone. We appreciate you joining us for Mammoth Energy Services, Inc.’s fourth quarter and full year 2025 earnings conference call. Joining us on the call today are Mark Layton, Chief Financial Officer, and Bernard Lancaster, Chief Operating Officer. We will start today with our prepared remarks and then open it up for questions. I want to remind everyone that some of today’s comments include forward-looking statements. These statements are subject to many risks and uncertainties that could cause our actual results to differ materially from any expectation expressed herein. Please refer to our latest Securities and Exchange Commission filings for risk factors and caution regarding forward-looking statements. Our comments today also include non-GAAP financial measures. The underlying details and a reconciliation of GAAP to non-GAAP financial measures are included in our fourth quarter earnings press release, which can be found on our website. As a reminder, today’s call is being webcast, and a recorded version will be available on the Investor Relations section of Mammoth Energy Services, Inc.’s website following the conclusion of this call. With that, I will turn the call over to Mark. Mark Layton: Thank you, Mohammed, and good morning, everyone. I will start with a brief review of 2025 as a whole, cover fourth quarter results, and then turn it over to Bernard Lancaster, our Chief Operating Officer, to walk through operational performance by segment. I will then come back to cover the financials and our outlook for 2026, after which we will open the line for questions. With that, let me start with 2025. Over the course of the year, we executed four major transactions that meaningfully reshaped the company. Collectively, these transactions generated approximately $150,000,000 of proceeds, and they reflect two things. First, the value embedded in assets we built and operated well. And second, our willingness to monetize businesses that no longer fit our long-term return objectives. We sold our transmission and distribution and our engineering businesses at valuations we believe were attractive. Those were good businesses, and the prices we achieved reflect that. We think those outcomes are a direct signal of the value that exists inside this company, value that in our view is not reflected in where the stock currently trades. We also exited two businesses that were not meeting our return standards. First, we sold our pressure pumping equipment, which lacked scale, was capital intensive, and increasingly challenged from a cycle and return standpoint. Second, we divested a sand mine that had become a drag on performance and did not warrant continued investment based on logistical challenges with that particular mine and processing plant. Those were the right exits, and we are a leaner, more focused company because of them. At the same time, 2025 was the year we initiated a meaningful expansion of our platform in aviation rentals. We deployed more than $65,000,000 of capital with the goal of creating a more stable, recurring revenue stream with strong cash flow characteristics. Aviation started the year with limited scale, and it ended the year with real operating scale and a clear path to becoming a core earnings contributor as utilization ramps. Put simply, 2025 was a deliberate pivot: exit assets without a clear path to sustainable returns and redeploy capital into areas where we see a better return profile. Now turning to the fourth quarter. Revenue was $9,500,000 compared to $10,900,000 in the third quarter of 2025 and $10,000,000 in the fourth quarter of 2024, a year-over-year decline of approximately 6%. For the full year, revenue was $44,300,000 versus $45,600,000 in 2024, down approximately 3%, which we view as a reasonable outcome given the amount of portfolio change we executed throughout the year. Within the quarter, there were areas that performed well. Rentals, infrastructure, and accommodations all came in ahead of our internal revenue expectations. Aviation revenue continued its upward trajectory relative to continued deployment of aviation assets on lease. Infrastructure showed solid demand across grid- and broadband-related project work. Accommodations continued to improve on both occupancy and cost efficiency. I want to be direct about where we fell short. EBITDA in Q4 was below our expectations and below our standard. This was not a demand problem; it was an execution and cost control issue, and we own it. We have already started taking action. In infrastructure, we made additional management changes within the fiber business to address the performance issues that surfaced during the quarter. Across the rest of the portfolio, we are making targeted investments to address cost structure and improve the conversion of revenue to EBITDA. Bernard will walk through the specifics by segment. With that, I will turn the call over to Bernard Lancaster. Bernard Lancaster: Thanks, Mark. Q4 was a mixed quarter operationally with some pockets of real strength, which we will build upon in 2026. In our rental segment, we continued to build on our aviation business with another full quarter of revenue contribution. We exited the third quarter with approximately 15 aviation assets and added another 11 assets during the fourth quarter. A total of 16 of the 26 aviation assets were on lease at quarter-end, and we expect the remaining assets to go on lease during 2026, subject to maintenance schedules and customer delivery timing. There is still meaningful runway here. Non-aviation rentals showed good top-line momentum; assets on rent increased 15% sequentially to approximately 328 pieces. Profitability was pressured by higher equipment rental costs and insurance premiums. Our non-aviation rentals have lost some of the advantages previously realized from economies of scale. As a result, we have identified additional opportunities to be more strategic with our customer and fleet mix in an effort to reduce overall coverage requirements and expect to work through this process as we move into 2026. Investing in the non-aviation rental business is a priority in 2026, as we see strong demand and a tightening equipment market. Turning to infrastructure. Revenue came in ahead of our expectations, which speaks to the demand environment across network hardening, broadband expansion, and data center-related work. EBITDA, however, was not acceptable. Execution challenges in our fiber operations drove significant cost overruns and margin compression. We have already acted and made top-down management changes within the fiber business and tightened project oversight to improve accountability, schedule discipline, and cost control. These are meaningful changes, and our focus is on restoring consistent execution so the business can convert demand into profitable growth in 2026. Accommodations revenue was up, driven by a 25% increase in occupancy. This segment has been improving quarter after quarter, and the team deserves considerable credit for their consistent execution and excellent safety record. Sand and drilling were challenged in the quarter. In sand, pricing and volume pressure continued to significantly constrain the team’s results. We are focused on positioning ourselves to obtain more consistent volumes while also reducing the lease expense burden from parts of our railcar fleet that are no longer needed. In drilling, fourth quarter 2025 stepped down from a very strong third quarter performance as customer timing worked against our team. One of our priorities in 2026 is to invest back into our drilling business and improve performance through high-grading the asset base, where we see a clear path to better utilization and profitability. We believe that adding motor and MWD capacity to reduce rental expense and upgrading our power sections to improve customer marketability during the first half of the year will lead to material improvement in 2026. Overall, revenue performance in the fourth quarter showed that demand is there in several parts of our portfolio, but our execution and cost management did not meet our expectations. We are not making excuses; we are making changes, and I am confident the actions underway will drive a better trajectory in 2026. Thank you to our employees for the hard work through a demanding quarter. With that, I will hand it back to Mark. Mark Layton: Thanks, Bernard. Let me walk through our segment results for the fourth quarter of 2025, and then I will cover consolidated results, the balance sheet, and our outlook. Rental segment revenue was $3,300,000, up 19% sequentially and 179% year over year, mainly driven by the 23% sequential increase in aviation rentals in line with our commercial expectations. Non-aviation rental revenue increased 18% during the quarter, reflecting improved asset utilization. Our rental segment faced cost overruns driven by insurance costs and equipment rental expense due to equipment needed to support our operations and customer demands, although stronger equipment utilization and favorable aviation rental mix helped offset some of these pressures. The sequential rise in operating costs reduced overall segment profitability. Infrastructure segment revenue was $1,200,000, up 44% sequentially and 231% year over year. Profitability was impacted by fiber execution as Bernard described. Management and oversight changes we have made are focused on ensuring revenue performance flows through to the bottom line going forward. While we expect that there will be an EBITDA overhang on this business through 2026, we are encouraged by the early steps taken by the new leadership team. Accommodations revenue was $2,800,000, up 24% sequentially and up 19% year over year, reflecting higher occupancy. Sand segment revenue was $1,700,000, down 37% sequentially and down 67% year over year. Drilling segment revenue was $500,000, down 80% sequentially and down 38% year over year. Turning to consolidated results. For the fourth quarter of 2025, total revenue was $9,500,000, down 13% sequentially and 6% year over year. For the full year 2025, total revenue was $44,300,000 compared to $45,600,000 in 2024, a year-over-year decline of 3%. Net loss from continuing operations for the fourth quarter was $12,300,000, or $0.26 per diluted share, compared to $0.20 in the fourth quarter of 2024. Adjusted EBITDA from continuing operations was a loss of $6,800,000 in the fourth quarter of 2025 compared to a loss of $6,000,000 in the prior-year period. The underperformance relative to our plan was operationally driven, and we are taking targeted actions across each segment to address it. In our Sand and Drilling segments, cost of services decreased at a significantly lower rate than activity levels, resulting in margin compression driven by reduced utilization and lower fixed cost absorption during the winter slowdown typical in the oil and gas industry. In the Other segment, fully idled operations led to no revenue and only partial cost reductions, creating an unavoidable drag on profitability. SG&A expense during the quarter was $5,700,000, down from $6,900,000 in 2024, a reduction of approximately 17% year over year. On a fully normalized basis, excluding the bad debt expense related to PREPA in 2024, SG&A declined approximately 22%. We have more work to do on the cost structure as we continue to right-size the company for the portfolio we have today, and that remains a priority heading into 2026. Capital expenditures during the quarter were $25,900,000, nearly all directed toward aviation. Eight APUs, two engines, and one small aircraft were acquired during the quarter to bolster capacity and support future contracted deployment. For the full year, aviation accounted for the vast majority of our approximately $70,000,000 in total 2025 CapEx, reflecting our conviction in the return profile and scalability of that platform. Very little capital was allocated to drilling, sand, accommodations, or infrastructure during the year, and we expect that to change meaningfully in 2026 as we high-grade assets, pursue equipment acquisitions that reduce costs, and invest in the operational improvements needed to drive profitability across those segments. At quarter-end, we had $121,600,000 of unrestricted cash, cash equivalents, and marketable securities, and total liquidity of approximately $158,300,000 including our undrawn credit facility. Mammoth Energy Services, Inc. remains debt free. This gives us the flexibility to invest across the portfolio, pursue accretive opportunities, and absorb near-term volatility without any balance sheet pressure. Subsequent to quarter-end, we closed the sale of a property in Ohio that previously supported our pressure pumping operations, generating net proceeds of $4,600,000. The asset was no longer in use following our exit from that business, and converting it to cash was the logical next step. We flagged this because we think it is representative of a broader dynamic. There are assets on our balance sheet, some obvious and some less so, that carry value not reflected in where the stock trades. We will continue to identify and monetize positions where we are not generating an adequate return, and we expect to surface additional value through that process over time. Entering 2026, we are constructive on the path ahead, seeing a path to greater than 50% revenue growth in 2026 versus 2025, primarily driven by two main things: a full year of aviation contribution at higher utilization and improved asset utilization across our oil and gas-exposed businesses. To add some detail regarding our aviation portfolio, we nearly doubled the monthly revenue out of the portfolio from $600,000 in December to $1,000,000 in January. Once fully utilized, we believe this portfolio can generate monthly revenue of approximately $1,600,000 per month. On capital allocation, we expect non-aviation CapEx of approximately $11,000,000 in 2026, a mix of maintenance and targeted growth investments across our oil and gas and infrastructure segments. To be direct, we have underinvested in these businesses for several years, and that has been one of the contributors to the cost and performance issues. The investments are going into an existing asset base to address specific inefficiencies with identifiable paybacks. We expect the returns to be meaningful and relatively quick to materialize. We expect 2026 to be a year of inflection for Mammoth Energy Services, Inc.: revenue growth accelerating and positive EBITDA back within reach. We want to be clear on that last point. The current asset base, operated better and supported by the right level of investment, is capable of delivering positive EBITDA. From that foundation, our sights are set on mid-teens EBITDA margins and positive free cash flow as we move into 2027. The path is clear; the work is to execute against it. The macro backdrop in both areas is favorable. Oil and gas demand fundamentals are solid. Activity in our core basins is steady, and we see specific investment opportunities we are actively evaluating. In aviation, leasing demand in the regional market is holding up, and we have capacity coming available as the fleet continues to ramp. Revenue growth is only part of the equation. The priority in 2026 is ensuring that growth converts into EBITDA and cash flow, and we are working to improve operational execution along with deploying additional capital to help improve returns. On behalf of the entire Mammoth Energy Services, Inc. team, thank you to our employees for their continued commitment and to our shareholders for their support. That concludes our prepared remarks. We will now open for questions. Operator, please open the line for questions. Operator: Thank you. And at this time, we will be conducting our question-and-answer session. Ladies and gentlemen, there are no questions at this time. We will now hand the floor to Mark Layton for closing remarks. Mark Layton: Thank you again for joining us on the call today. 2025 was a year of real change for this company—in the portfolio, in the asset base, and in how we are positioned going forward. Q4 was a reminder that the work is not finished; we take that seriously. The setup heading into 2026 is straightforward. Demand is there, aviation is ramping, and the balance sheet gives us room to invest. The job is to execute. We look forward to updating you next quarter. Operator: Thank you. And with that, we conclude today’s call. All parties may disconnect. Have a good day.
Operator: Good morning. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Methanex Corporation fourth quarter 2025 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the conference call over to the Vice President of Investor Relations at Methanex Corporation, Mr. Robert Winslow. Please go ahead, Mr. Winslow. Robert Winslow: Good morning, everyone. My name is Robert Winslow, and I recently joined Methanex Corporation as Vice President, Investor Relations. Welcome to Methanex Corporation’s fourth quarter 2025 results conference call. Our fourth quarter 2025 news release and 2025 annual report were posted yesterday, and can be accessed through our website at methanex.com. I would like to remind listeners that our comments today may contain forward-looking information, which by its nature is subject to risks and uncertainties that may cause the stated outcome to differ materially from actual results. We may also refer to non-GAAP financial measures and ratios that do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Any references made on today’s call reflect our 63.1% economic interest in the Atlas facility, our 50% economic interest in the Egypt facility, our 50% interest in the Natgasoline facility, and our 60% interest in Waterfront Shipping. To review the cautionary language regarding forward-looking statements, and definitions and reconciliations of the non-GAAP measures, please refer to our most recent news release, MD&A, annual report, and investor presentation, all of which are posted on our website under the Investor Relations tab. I will now turn the call over to Methanex Corporation’s President and CEO, Rich Sumner, for his comments, followed by a question and answer period. Rich Sumner: Thank you, Robert, and good morning, everyone. We appreciate you joining us today to discuss our fourth quarter 2025 results. I would like to start the call by thanking all our global team members for their continued commitment to Responsible Care and safety, which remains at the core of our company’s culture. Over 2024 and 2025, we have had the best two years’ safety performance in our company’s history, even as we navigated significant changes to our asset portfolio and supply chain. As a demonstration of these results, we have had zero Tier 1 process safety incidents over the past two years, and recorded only 0.09 and 0.12 recordable injuries per 200,000 hours worked in 2024 and 2025, respectively, compared with the chemical industry average of 0.59 in 2024. These outstanding achievements are a testament to our employees’ and contractors’ continued focus on strong planning, hazard awareness, and reliable behaviors. Turning now to a financial and operational review of the company. Our fourth quarter average realized price of $331 per tonne and produced sales of approximately 2,400,000 tonnes generated adjusted EBITDA of $180,000,000 and an adjusted net loss of $11,000,000. Adjusted EBITDA was lower compared to 2025, as higher sales of produced methanol were offset by a lower average realized price and the impact of immediate fixed cost recognition related to plant outages in the fourth quarter. Turning now to industry fundamentals. We are closely monitoring the current events in the Middle East region, its impact on global markets, and our business. Looking back on the fourth quarter, we estimate that global demand increased in China by about 4% while demand outside of China was relatively flat. Increased demand in China in the fourth quarter compared to the third quarter was driven by increased demand for methanol into energy applications and higher operating rates by methanol-to-olefin producers, the latter also being supported by high operating rates and import supply availability from Iran. Steady imports from Iran, particularly through October and November, also led to higher coastal inventories in China, which pushed pricing towards the $250 per metric tonne range. Towards the end of the fourth quarter, we believe seasonal gas constraints significantly reduced Iranian output, leading to MTO producers’ reduced operating rates in response to decreasing supply. Through 2026 up until current market escalations, our average realized pricing has been quite stable, with some small increases on slightly tighter supply conditions. After considering first quarter posted prices and factoring in higher customer discounts through recontracting for 2026, our first quarter average realized price is estimated to be $330 to $340 per tonne. Current escalation in the Middle East brings significant risk to reliability of methanol supply to the market from this region. We continue to see significantly reduced methanol supply from Iran, and we believe it is also impacting operations and trade flows from other producers. This has led to an increase in spot methanol pricing in Asia Pacific and Europe, with Chinese methanol prices now trading above $300 per metric tonne and European spot prices now trading close to $400 per tonne. Now turning to our operations where our methanol production was higher in the fourth quarter compared to the third quarter. Starting with our newly acquired assets in Texas, we produced 216,000 tonnes at Beaumont and 186,000 tonnes from our equity share of Natgasoline. During the fourth quarter, Beaumont experienced a short unplanned outage, and Natgasoline took a planned 10-day outage to replace a catalyst that is important to environmental compliance. We have been actively working with both of these manufacturing sites on integration plans, completing detailed reviews of systems and technical findings, and are pleased with the progress to date. In Geismar, production was slightly higher in the fourth quarter as all three plants operated reasonably well, although we did experience some minor unplanned outages. In Chile, after completing a planned turnaround in September, we operated both plants at full rates for most of the fourth quarter, utilizing gas supply from Chile and Argentina. During December, a third-party pipeline failure caused a temporary restriction on gas supply to our facilities, and this resulted in approximately 75,000 tonnes of lost production. The gas supplier developed a resolution to this issue in early 2026. We are now operating both plants at full rates, which we expect to sustain through April. In Egypt, we had higher production in the fourth quarter as the third quarter was partially impacted by seasonal gas availability constraints. There has been stabilization of gas balances in the region, but some continued limitations on supply to industrial plants are expected going forward, particularly in the summer. The plant is currently operating at full rates. We are closely monitoring the regional situation for any potential impact on gas supply to the plant. In New Zealand, we produced 171,000 tonnes as increased gas supply was available in the non-winter season. Notwithstanding the short-term dynamic, structural gas supply availability in New Zealand continues to be challenging, and we are working with our gas suppliers and the government to optimize our operations in the country. Our expected equity production for 2026 is approximately 9,000,000 tonnes of methanol. Actual production may vary by quarter based on timing of turnarounds, gas availability, unplanned outages, and unanticipated events. Now turning to our current financial position and outlook. During the fourth quarter, solid cash flows from operations allowed us to repay $75,000,000 of the Term Loan A facility, and end the year in a strong cash position with $425,000,000 on the balance sheet. Since the start of 2026, we have repaid a further $50,000,000, and the balance of the Term Loan A facility is currently $300,000,000. Our priorities for 2026 are to safely and reliably operate our business and continue to deliver on our integration plan. We remain focused on maintaining a strong balance sheet and ensuring financial flexibility, and our near-term capital allocation priority is to direct all free cash flow to the repayment of the Term Loan A facility. Based on a forecasted first quarter average realized price between $330 and $340 per tonne, and similar produced sales, we expect slightly higher adjusted EBITDA in the first quarter compared to the fourth quarter. We will now open for questions. Operator: At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We encourage everyone to limit yourself to one question and one follow-up. You are welcome to requeue for additional questions. Your first question comes from the line of Joel Jackson with BMO Capital Markets. Your line is open. Joel Jackson: Thanks, everyone. Welcome aboard, Rob. Nice to hear from you again. Rich, team, can you talk about costs? So if you look at Q4 and we think of costs, not gas cost, but other cost, logistics, other things going on, can you talk about what does that look like into the first half of this year in Q1? Seems like costs have really elevated. What is going on? Are there any artifacts, some of things going on with the OCI, taking over the OCI asset? Thanks. And then my second question is, obviously, you all know what is going on in the world. And there is a lot of methanol sitting in Iran and Saudi and around the Middle East. You obviously set your contract prices, your posted prices for March just on the onset of this. It is early, but what do you think is going to happen here in the market? If this continues, can you talk about what will we see in the short term, the medium term, as you see your business potentially changing from what is going on? Rich Sumner: Joel, a couple of points I would make on cost is we did see the unabsorbed cost come through. That is really about how the assets ran through December. We saw some outages there that result in immediate recognition of those costs to the P&L. As we think into where we were, our fixed costs, we would expect those to come down. Our ocean freight was probably a longer supply chain in the third and fourth quarter. As we said, we do have probably a higher percentage of sales coming through in the last few quarters, higher than we expect as we move into the new year with our contracted position. And then we are not yet all the way through the OCI transaction. So right now, we are spending costs as we move through to create the synergies post-deal, and that will happen through 2026 and when we get into 2027. We are not all the way there, obviously, and what we need to do is to continue the integration plans, and as we move through, we would expect beginning in 2027 that our fixed cost structure also adjusts down to the new base of the business. For your second question, I think for us, our first priority here is our supply to customers. This is where our reliability of supply and our global supply chain really demonstrates its value. Where we are today, that is our first commitment. Pricing has increased in all regions with anticipation of tightness coming out because the amount of tonnes on the internationally traded market here is quite meaningful that is currently impacted. So our first commitments are to our customers, and as of right now, we will see some benefits because of the tightness on pricing through March, but the real reset will come through into the second quarter. I think we are talking about around 15 to 20 million tonnes of the globally internationally traded methanol market here, so it is a significant impact which will ultimately impact all global markets, and we have seen pricing come up around the world. We are watching things really closely here, obviously, with our customers, trying to make sure we keep them whole while also looking at the risks on the global market and potentially some demand destruction that could come out of the market as well. So we are watching things very closely, and we are really talking to all our customers about how we can keep them supplied through this. Operator: Your next question comes from the line of Ben Isaacson with Scotiabank. Your line is open. Ben Isaacson: Thank you very much, and good morning. I have a question and a follow-up. Rich, can you remind us how opportunistic are you able to be when we have price spikes? I know most of your volume is contracted. Can you just talk about how you can take advantage of short-term price spikes, and is there some kind of lag in that recognition? And my follow-up is in the Middle East. I know things are moving very quickly. Are you aware factually of any damage to methanol assets or export or port infrastructure in Iran? And are you seeing a slowdown in gas flow from Israel to Egypt? Rich Sumner: Thanks, Ben. We are a term contract supplier, so our first priority is our commitment to our customers, and we reset price monthly. Right now, we are selling based on our March contract price, and we would expect, under current conditions, that we would be resetting into April to be reflective of the market. Our first priority today is the security of supply to our customers globally. Of course, there are certain mechanisms in our contracts which may adjust up slightly, and that is built into our forecast, so you could see that there could be a little bit of a push up in our guidance on where pricing is for the first quarter, but generally, it will reset into April. Our first commitment is really about how we make sure we keep the industry operating for our customers and really help them take care of their business. On your follow-up, no, we are not aware of any damage to any methanol facilities. We are monitoring the situation really closely. As far as it relates to the gas supply from Israel into Egypt, our understanding is that gas is not flowing, that they have all but shut down the gas imports from Israel today. We are working really closely with our gas suppliers in Egypt. Our plant continues to operate. It is the low season in terms of demand on the gas grid in Egypt, and the Egyptian government has been getting more supply through LNG imports. So far, we have sustainable operations there, but we are watching things and monitoring them really closely. Operator: Your next question comes from the line of Hamir Patel with CIBC Capital Markets. Your line is open. Hamir Patel: Hi. Good morning. Rich, in your price guidance for Q1, you referenced new customer discounts for 2026. So how should we think about how much, maybe on an annual basis, those have shifted, and will that largely be apparent in Q1, or will it adjust over the year? And with respect to 2026, the 9,000,000 production guide, can you give us some color on some of the regional puts and takes embedded in that? I imagine the Egypt piece is probably the most fluid. Rich Sumner: I think Q1 is the reset, Hamir. When we think about where our realized pricing is for Q1, if you go region by region, China is going to be up because we saw that the supply built in China through Q4. The European contract settlement actually results in slightly lower pricing for Q1 compared to Q4. And then when we look at where North America, Latin America, and Asia Pacific are, they are relatively flat on a realized basis. So that should be a resetting. The discount for Q1 should be a good guide for the rest of the year, and then on an average realized basis, we are expecting to be up a little bit. This is all pre the current developments. Prior to the current situation, we were going to be slightly up mainly because of China and factoring in those other considerations. On your production question, you can think of it in terms of a little over 6,000,000 tonnes in North America, about 1,300,000 to 1,400,000 tonnes for Chile, which is consistent with where we were last year, around 0.5 to 0.6 million tonnes for Egypt, which is obviously less than around an 80% operating rate, and then Trinidad would be one plant, really the Titan plant, around 800,000 tonnes. For New Zealand, our guide is less than half a million tonnes, and that is because of the situation we face with gas supply. Those are rough numbers to help you break that out by plant. Operator: Your next question comes from the line of Steve Hansen with Raymond James. Your line is open. Steve Hansen: Good morning, and thanks for the time. I want to go back to the discount issue, or perhaps even the weighted average global price, just as we think about the shifting dynamics there. It did strike me that the realized price came in lower, but not just because of the discount, because of that global weighted average. Has there been a material shift in the sales mix here in the last two quarters relative to prior? It does seem that the formulas we used in the past are becoming outdated. And just on the operational rhythm or cadence at the new facility in Geismar, it sounds like things are running well now. But just to give us a sense for that cadence, is it running to plan, and you think you suggested even full rate? Is there anything else in the tempo that we should expect to change over the balance of the year, whether it be turnarounds or other major pickups? Rich Sumner: I think what we do is give guidance in terms of percentages in regional allocations, Steve, so you can use those as a good guide. The proportion of China was higher as we moved through Q4 for sure, and that is partly because when we acquired the assets, we did inherit a fairly large uncontracted position from the OCI business. We contracted into Q1 now, and I think if you work the percentages and the pricing, you would get close to our ARP, but we can help you with that offline if, for some reason, it is not adding up. On Geismar, we are pleased with the operation. We have gotten through the ATR challenges that we had, and we feel really good about the way the asset is running. In a lot of ways, it is about just continuing to ensure safe, reliable operations in Geismar, and the team is doing a fantastic job there. We have put those issues behind us, and right now, we have really good stable production coming out of Geismar. Operator: Your next question comes from the line of Jeff Zekauskas with JPMorgan. Your line is open. Jeff Zekauskas: I remember that you were less hedged on gas at Beaumont and Natgasoline. Is your hedging now consistent with your other North American plants, and when there was that gas spike in January, was that something that you felt, or you were hedged against it? And in Trinidad, do you expect your operating rates to rise relative to the fourth quarter or fall in the first quarter? Rich Sumner: Thanks, Jeff. Our hedging today, what we are guiding towards, is about 50% hedged for our North American assets, and that is across the whole portfolio. We did see gas pricing, as we always do, come up through the winter period, and then we did hit the gas spike. We will talk more about our operations when we get to our first quarter results, but we would normally expect gas prices to come up, and we have different ways to manage that. We would have had some open exposure, but we would have been managing that. We will talk more about that in our first quarter. We do expect the gas pricing, and that is part of the guide—really, when we look at slightly higher earnings, part of the reason that it is slightly higher and not higher is because there is a bit higher gas cost coming through in the first quarter compared to the fourth quarter, which we will give more information on when we disclose that in the coming weeks. In Trinidad, we are running the one plant, the smaller Titan plant, based on our gas contract for the plant. We expect that operation to be very consistent, and we will operate that plant. Our main focus is going to be on gas contract renewals for the Titan facility. That contract comes up at the end of the September timeframe, and we would expect to have good operations from that plant up until that timeframe. We are already looking at the contract renewal. Most producers are already in discussions for their feedstock recontracting in Trinidad, and we are making sure we are in discussions as ours comes up later in the year. I would anticipate that we are running that plant at similar rates to last year until that time. Operator: Your next question comes from the line of Josh Spector with UBS. Your line is open. Chris Perilla: Hi. Good morning. It is Chris Perilla on for Josh. As you had lower production out of the OCI, the acquired assets sequentially, can you give us an update on the integration there and what the cost puts and takes over the course of 2026 are, or what you are budgeting for the spend to get the synergies? Is there a step-up in the spend there in the year, or is that cost now kind of baked in on a go-forward basis at least through the end of the year? And then could you just update if the gas supply situation in Trinidad, absent contract, has improved since the events in Venezuela? Rich Sumner: The first thing I would say about the assets is we are pleased with the way the operations are going there. When we modeled the acquisition, we used operating rates of around 85% to 90%, and we have definitely achieved over and above that since we have owned the assets. We are really impressed with the teams that we are working with, and we are working collaboratively together to bring our global expertise and work with the expertise at both sites to create value from the asset. We did have some downtime in Natgasoline, and that was partly getting ahead of environmental compliance and taking a proactive outage, and then we did have some minor downtime at the Beaumont plant as well. On the other parts of the integration, we said about $30,000,000 in synergies that we were targeting to realize by the end of 2026. We have realized some of those, but you also have to take on higher costs when you are integrating systems and integrating teams during that phase. We are in the middle of that right now, and we would expect to complete that as we move through 2026 and then have realized the $30,000,000 in synergies as we move into 2027. To your spend question, no, when we did the modeling around the deal, we set assumptions around operating rates and an assumption around CapEx spend on average per year. The plants have been operating above our assumptions on the deal, and both of the assets have come off turnarounds in 2024 and 2025, so the CapEx spend relative to where we had deal assumptions, which would have been an average, is much lower in the early phase of the asset, which is good for us because we are in a deleveraging period. On your question regarding Venezuela, there are announcements about fields being developed there and for import into Trinidad. That is a longer term. When we look at the Dragon field that has recently been announced, the things I would say are: the size of these fields relative to the demand-supply gap suggests more than just the Dragon field needs to be developed; there are other fields also being developed, but that is going to take time and a lot of progress; and ultimately, we will also need to ensure that the commercial agreements and pricing for that gas allow that to make sense long term for methanol. There is a lot to be done there. Our focus is really on the short term right now—how we are operating our plants in Trinidad with a contract renewal ahead of us, before any of this gas could come on. Operator: Your next question comes from the line of Nelson Ng with RBC Capital Markets. Your line is open. Nelson Ng: Great, thanks, and good morning. Quick question on the supply-demand dynamics. Rich, you talked about potential demand destruction. I think you talked about in the past how MTO facilities’ economics are somewhat challenged. Do you expect a large reduction in MTO demand, and from your customer perspective, do you have a sense of how price sensitive they are? And then in terms of your production in New Zealand, it is staying relatively low in 2026. I presume that facility is marginally profitable. What are some of the key factors you look at in terms of making a decision to potentially mothball that last plant? Rich Sumner: Thanks, Nelson. There are a lot of dynamics going on right now. Just in terms of MTO and MTO affordability, to your point, the price in methanol is rising, but so is the price downstream in the olefins market, and that is because it is not just methanol that is constrained, but so is naphtha, and so are all the oil derivatives that come out of the Middle East, which means that pricing has gone up. Olefins pricing has gone up, which makes methanol more affordable. So there are a lot of dynamics at play right now. That is what is uplifting China price, but their pricing in the downstream has gone up too, so the affordability dynamics are changing as well. What is going to happen here, depending on the restriction on supply, is how that supply gets directed into which markets, and then what that does to price. We are watching things really closely. Right now, all energy and energy derivatives are lifting up because the demand-supply gap continues to grow every day that there is disruption in that region and not a lot of product flowing out. We are going to monitor this really closely. Our commitments are to work with our customers on security of supply, and we certainly see that there will be pressure until some relief comes into the market. On New Zealand, it really comes down to gas development and production out of the fields. These are very mature fields, and outside of the existing fields, there is not a lot of new exploration going on. Our concern would be that we have seen the forecast continue to decline. In that industry, you have to see capital going in and development consistently happening for operations to be sustained. Today, we have a profitable operation, but even when there is peak gas available, we are operating one plant at less than full rates, which is not ideal. We are watching things really closely and working with gas suppliers as well as the government to sustain operations, but it is a tough outlook right now. Operator: Your next question comes from the line of Matthew Blair with TPH. Your line is open. Matthew Blair: Great, thanks for taking the question. Could you talk about whether you are truly realizing the benefits of the OCI acquisition that closed in mid-2025? I am just looking at the total company EBITDA in Q3 and Q4. It is roughly flat to Q2, even though global spot methanol prices are also about flat, and I think the OCI acquisition should have provided at least $150,000,000 to $200,000,000 in EBITDA. Is this just a function of Q3 had some accounting headwinds, Q4 sounds like some unplanned outages, but are you getting the benefits of that OCI deal rolling through? And what percent of your North American methanol production is exported, and should we think about applying spot U.S. prices to those export volumes, or is that really still on a contract basis? Rich Sumner: I think maybe the way to answer this is to look at the numbers that we had on the deal. At a $350 methanol price, we said it was slightly over $1 billion in EBITDA. Methanol prices today are not at $350 per tonne. That is $20 lower across an asset base that is 9,000,000 tonnes. So the big thing is price. We are also pre-synergies on the deal, so we have not realized the synergies, and there are some other things on cost structure that are slightly above what our assumptions would have been on the deal. Some of those cost issues are transitionary, and I think we can get back to those numbers, but we certainly need the market to be a little tighter and methanol prices to be at the $350 level to hit the numbers that we disclosed. In today’s environment, we would be looking, at least in the short term, at going above $350. On your exports question, we run our global supply chain. Our assets feed our global supply chain. We give our regional sales percentages, and then you can see where our assets are located. Our product is not assigned to any particular region. It is a flexible supply chain where our main priority is to keep our customers full in the most cost-effective manner. We do have some cross-basin flows from the Atlantic over into Asia Pacific, but mostly the product stays within the Atlantic Basin. Operator: Your next question comes from the line of Laurence Alexander with Jefferies. Your line is open. Laurence Alexander: Good morning. First, can you help parse what the current situation means for the market in terms of the near term? How much of the near-term disruption is shipping being rerouted, and how long do you think it will take for you to start seeing customers shutting capacity in response to a tighter market? Can you help me parse the near-term supply chain adjustment versus how you are thinking about the demand adjustment? And secondly, on your shipping fleet, given that you can reroute tankers more quickly than somebody who is using shipments that might be contracted to ship other products rather than being committed to methanol, will you be seeing a benefit in Q2 or Q3 from that, and can you help size it? Rich Sumner: Thanks, Laurence. When we look at what supply is impacted today, Iran puts into the market around 9 to 10 million tonnes a year, and when you combine Saudi Arabia, Oman, Qatar, Bahrain, and other countries that are going to be impacted, it is probably another 9 to 10 million tonnes. Of a 100 million tonne market, but really a globally internationally traded market of 55 million tonnes, this is a pretty big impact. Of course, Iranian supply goes only into China, so that is a direct impact to the China market, and then the other product services mainly the Asia Pacific region, as well as some into Europe. Those trade flows today have stopped. How long this lasts, how quickly you are going to first work off inventories, and how long people have on inventory will ultimately determine how long people can operate. Our first commitment here is to our contract customers and the security of supply that we provide through our contracts, and that is our number one commitment. We will continue to monitor this as it evolves because it is certainly hitting methanol and a lot of other downstream oil and energy products as this develops. On shipping, our time charters certainly give us that security within our supply chain, and we have very little spot exposure in our fleet. We have seen shipping rates double on a lot of the lanes that we run. It is more about what it does to our competitors versus what it does to us. To the extent that pricing has to go up to help our competitors cover costs to meet security of supply, that is going to be baked into the pricing, which we can benefit from. It is not an immediate, instant hit to our cost structure because ours are fixed in, but we do think that is partially compensated through increasing price that is required to get other product into market. Again, that is another factor that we will be watching, and this demonstrates the value of our Waterfront Shipping company and having dedicated ships to our business. Operator: The last question comes from the line of Steve Hansen with Raymond James. Your line is open. Steve Hansen: Thanks. Just in the event that this conflict does last longer than planned or longer than some people might expect, how do you think about the incremental excess cash flow coming in the door? Is it just going to accelerate the paydown of Term Loan A? You have been at that a fairly rapid pace thus far anyways, but is that how we should think about that excess flow that comes in the door? Rich Sumner: Our first commitment is to our balance sheet right now. We have, as I said in the remarks, $300,000,000 left on the Term Loan A, and that is our first priority for cash. Of course, we are going to monitor things really closely here. Volatility is important. You can have fly-ups, and then you can have reversals depending on how quickly things change. But our first priority and commitment is to the balance sheet post-deal, and right now, this pricing environment is very supportive of that. Steve Hansen: Appreciate your time. Thanks. Rich Sumner: Thanks, Steve. Operator: There are no further questions at this time. I will now turn the call over to Mr. Rich Sumner. Rich Sumner: Thank you for your questions and interest in our company. We hope you will join us in April when we update you on our first quarter results. Operator: This concludes today’s conference call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q1 2026 Quanex Building Products Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question-and-answer session. To ask a question, please press 11 on your telephone, and wait for your name to be announced. To withdraw your question, please press 11 again. I would now like to hand the conference over to your speaker today, Scott Zuehlke, Senior Vice President, CFO and Treasurer. Thanks for joining the call this morning. Scott Zuehlke: On the call with me today is George Wilson, our Chairman, President and CEO. This conference call will contain forward-looking statements and some discussion of non-GAAP measures. Forward-looking statements and guidance discussed on this call and in our earnings release are based on current expectations. Actual results or events may differ materially from such statements and guidance, and Quanex Building Products Corporation undertakes no obligation to update or revise any forward-looking statement to reflect new information or events. For a more detailed description of our forward-looking statement disclaimer and a reconciliation of non-GAAP measures to the most directly comparable GAAP measures, please see our earnings release issued yesterday and posted to our website. I will now turn the call over to George for his prepared remarks. George Wilson: Thanks, Scott, and good morning to everyone on the call. Before beginning my commentary on our first quarter results, I would like to take a moment to recognize and thank Susan Davis for her many years of dedicated service as a Board member to Quanex Building Products Corporation and its shareholders. Her commitment, insight, and guidance have been invaluable to our organization. Susan consistently served as a steadfast voice for shareholders during our transformation from a metals company to a pure-play building products company and through three CEO transitions and several acquisitions. Her perspective and presence in the boardroom made a meaningful impact, and she will be greatly missed. On behalf of the board and the entire organization, we wish her all the best in her retirement. Turning now to our fiscal first quarter, market conditions remained soft and company performance was in line with our expectations. As is typical given the seasonality of our business, the first quarter is our most challenging from a volume standpoint. The holidays, coupled with the onset of winter weather, consistently create headwinds in our Q1, and this year was no exception. From a broader perspective, challenges in the global macroeconomic environment and the markets we serve continued to impact results. The most significant challenge continues to be end consumer confidence. While inflationary pressures, labor costs, and certain raw material costs have started to moderate, energy prices have risen. In addition, heightened geopolitical tensions, particularly in recent days, are contributing to a more cautious consumer environment worldwide. Despite the near-term headwinds, the longer-term underlying fundamentals for the residential housing sector remain constructive. In addition, inflation appears to be stabilizing, and there is an increasing expectation of additional rate cuts from the Federal Reserve this year. We continue to believe the structural drivers supporting both new construction and the repair and replacement markets remain intact. At this time, we do not anticipate a deeper downturn in the end markets we serve. In Europe, economic data from third-party sources point to early signs of stabilization and gradual recovery across most countries, which we view as an encouraging development as we look ahead. Now turning to our performance in 2026. In the Hardware Solutions segment, our focus is centered on two key priorities: stabilizing operational performance and strengthening our commercial organization, including the finalization of go-to-market strategies across our international markets. As previously disclosed last year, we identified an operational issue at our hardware facility in Monterrey, Mexico that required some incremental capital to remediate. We are pleased to report that our efforts have advanced to the point where we believe the plant is now stable, and we do not expect to provide updates on this matter going forward. Within the Extruded Solutions segment, our focus has been on advancing new product development initiatives, evaluating adjacent market opportunities, and relaunching and repositioning our Schlagel product lines. We are very encouraged by the progress being made across each of these areas as they are central to achieving our profitable growth objectives. These initiatives are expected to strengthen our competitive positioning and expand our addressable market over time. I anticipate being able to share additional details on new product launches and commercialization milestones later in the year. In the Custom Solutions segment, we continue to advance several initiatives designed to support future growth. More specifically, in our cabinet components operation, the primary focus has been on driving operational efficiencies to successfully integrate recent market share gains and ensure that we scale effectively. Within our access solutions operations, efforts have centered on optimizing operating methods to enhance process consistency, quality, and on-time delivery. And in our mixing and compounding operations, we remain focused on new products and chemistry development. These initiatives are enabling us to expand into adjacent markets that demand highly engineered solutions supported by strong technical expertise and service. Together, these efforts position the Custom Solutions segment to deliver improved performance while building a stronger foundation for sustainable growth. Looking at our corporate functions, our newly created commercial and operational excellence teams are now focused on new market development, the creation of global pricing strategies, logistics and sourcing projects to drive savings, ongoing ERP rationalization, and AI-led process improvements. We believe these efforts will produce the results needed for revenue growth, margin expansion, cash flow generation, and improved return on invested capital. From a capital allocation perspective, we will continue to focus on maintaining a healthy balance sheet through disciplined debt reduction. And looking ahead from a growth standpoint, we will focus on driving organic initiatives while pursuing targeted small bolt-on acquisitions, if available, that complement our existing platforms and capabilities. The outcome of these actions will be a stronger, more flexible balance sheet that is well positioned to support our long-term growth opportunities and strategic objectives. I will now turn the call over to Scott, who will discuss our financial results in more detail. Scott Zuehlke: Thanks, George. On a consolidated basis, we reported net sales of $409,100,000 during the first quarter of 2026, which represents an increase of approximately 2.3% compared to $400,000,000 for the same period of 2025. The increase was mainly due to foreign exchange translation and the pass-through of tariffs. We reported a net loss of $4,100,000, or $0.09 per diluted share, during the three months ended 01/31/2026, compared to a net loss of $14,900,000, or $0.32 per diluted share, during the three months ended 01/31/2025. On an adjusted basis, we reported a net loss of $300,000, or $0.01 per diluted share, during 2026, compared to net income of $9,000,000, or $0.19 per diluted share, during 2025. Adjustments being made to EPS are primarily for transaction and advisory fees, amortization of the step-up for purchase price adjustments on inventory, restructuring charges, amortization expense related to intangible assets, and foreign currency impact. On an adjusted basis, EBITDA for the quarter was $27,400,000, compared to $38,500,000 during the same period of last year. The decrease in adjusted earnings for 2026 compared to 2025 was mainly due to reduced operating leverage from lower volumes related to ongoing macroeconomic uncertainty coupled with low consumer confidence and higher but temporary operational costs related to our hardware plant in Monterrey, Mexico. Now for results by operating segment. We generated net sales of $189,100,000 in our Hardware Solutions segment for 2026, an increase of 2.4% compared to $184,700,000 in 2025. We estimate that volumes were down 3.6%, pricing was up 0.5%, the tariff impact was about 3.2%, and foreign exchange translation was a benefit of about 2.3%. Adjusted EBITDA was $4,500,000 in this segment for the first quarter, compared to $8,200,000 in the same period of last year, mainly due to decreased operating leverage related to lower volume, general inflation, and approximately $3,000,000 of incremental costs related to our hardware plant in Monterrey, Mexico. As George mentioned, we believe this plant is now stable. Our Extruded Solutions segment generated revenue of $139,000,000 in the first quarter, essentially flat compared to $139,600,000 in 2025. We estimate that volumes were down 2.6% year over year in this segment for the quarter, with pricing up slightly by 0.3%, and a positive foreign exchange translation impact of about 2.4%. Adjusted EBITDA declined to $20,900,000 in this segment for the quarter, versus $24,000,000 during the same period of last year, mainly due to decreased operating leverage related to lower volumes and general inflationary pressure. We reported net sales of $89,100,000 in our Custom Solutions segment during the quarter, which represented growth of 4.8% compared to prior year. We estimate that volumes were up 2.4%, pricing decreased by 2% in this segment for the quarter, and foreign exchange translation coupled with the pass-through of tariffs was a benefit of approximately 0.5%. Adjusted EBITDA declined to $4,600,000 from $6,300,000 in this segment for the quarter, mostly due to general inflation and higher SG&A. Moving on to the cash flow and the balance sheet, cash used by operating activities was $20,200,000 for 2026, which compares to $12,500,000 for 2025. Free cash flow was negative $31,500,000 in 2026 compared to negative $24,100,000 in 2025. Keep in mind that the first quarter of our fiscal year is usually the low watermark for the year due to the seasonality of our business. On a related note, we have historically been a net borrower in the first quarter of our fiscal year, but with the addition of Tyman and their longer cash conversion cycle, we now expect to be a net borrower during the first half of each fiscal year, with the majority of our cash flow generated in the second half. Our liquidity was $331,600,000 as of 01/31/2026, consisting of $62,300,000 in cash on hand plus availability under our senior secured revolving credit facility due 2029, less letters of credit outstanding. As of 01/31/2026, our leverage ratio of net debt to last twelve months adjusted EBITDA was 2.8 times. We do expect our leverage ratio to increase slightly in Q2, but we also believe we will exit 2026 with a net leverage ratio closer to 2.0 times as we generate cash and repay debt in the second half. As George mentioned in our earnings release, our long-term view continues to be favorable as the underlying fundamentals for the residential housing market remain positive. While we entered fiscal 2026 with a cautious outlook due to the ongoing macroeconomic challenges, we remain somewhat cautious in light of the geopolitical events now occurring. We are optimistic that demand for our products will improve as consumer confidence is restored over time. We are monitoring the situation in the Middle East, which could have an impact on customer demand, raw materials pricing, and shipping rates for our international hardware business, but as of now, we are comfortable with providing guidance for fiscal 2026. During our last earnings call in December, we mentioned that fiscal 2026 could be somewhat flat compared to fiscal 2025, with puts and takes, but that the first half of 2026 may be more challenged than 2025, implying a somewhat improved second half year over year. Our current views remain consistent with that message. Overall, on a consolidated basis for fiscal 2026, we estimate that we will generate net sales of $1,840,000,000 to $1,870,000,000, which we expect will yield approximately $240,000,000 to $245,000,000 in adjusted EBITDA. In addition, the following modeling assumptions should be reasonable for the full year 2026: gross margin of 28% to 28.5%; SG&A of $295,000,000 to $300,000,000, which reflects bonus accrual at target; D&A of $105,000,000 to $110,000,000; adjusted D&A, excluding intangible amortization, of $65,000,000 to $70,000,000, which should be used to calculate adjusted EPS; interest expense of $50,000,000; a tax rate of about 24%; CapEx of $70,000,000 to $75,000,000; and free cash flow of approximately $100,000,000. As always, we will stay focused throughout the year on the things that we can control, with an emphasis on generating cash to continue paying down debt. Please use the following cadence for fiscal 2026 versus fiscal 2025: on a consolidated basis, we expect revenue to be up 12% to 14% in 2026 compared to 2025. Adjusted EBITDA margin, again on a consolidated basis, is expected to be up 500 to 550 basis points in 2026 compared to 2025. Operator, we are now ready to take questions. Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. George Wilson: One moment for questions. Operator: And our first question comes from Kevin Gainey with Thompson Davis and Company. You may proceed. Kevin Gainey: Hey, George, Scott. Good morning. It is Kevin. Morning. For Adam. Yep. Maybe to start, if you could break out how the Extruded Solutions segment did. Margins in that segment were much higher than what we expected. Maybe you can talk about what drove the margin improvement there? Scott Zuehlke: Well, in general, I would say that the Extruded Solutions segment, the products that are included in that segment, have historically been our most profitable products. So you have things like the IG spacer, you have our vinyl profile business in the UK, which is called Liniar. Those have historically been very profitable businesses for us and continue to be. George Wilson: I think you would see the operating model within that segment too tends to revolve around larger, more levered plants. So, you know, fewer sites, tends to be less fixed cost, which drives margin in that product line. Again, I think part of the reasoning for the resegmenting too is to give our investor base a little more clear look into each of these different segments and what product lines are actually contributing what. So, you know, we know that this is new, a new perspective for you and others, but this has been very consistent for us throughout our whole period of having these products. Kevin Gainey: Sounds good. Appreciate the color on that. And then maybe if you could talk on the Custom Solutions segment as well and maybe what drove the strongest year-over-year revenue growth in that. George Wilson: You know, one of the bright spots with tariffs and just some of the macroeconomic environment has been in our cabinet components and our wood components business. We have been able to secure some new market share as people have insourced product from overseas, consolidated their facilities, and have outsourced that product, and our team has done a very good job of being able to show the value that we can create for our base in providing a wide array of products just in time as they need it, minimizing their working capital needs, and allowing us to do what we do well. So that really drove some revenue growth in what has really been a soft market, but that has been a bright spot for us on revenue. And our focus in that segment now is actually we are kind of in hiring mode in some of those plants to be able to make sure that we have the capacity and the ability to satisfy demand once the seasonal uptick does occur. But we have been very happy with the performance and what our team is doing there to show our value to our customers. Kevin Gainey: That sounds good. And then maybe, I know recently the builder show was done recently. Is there any takeaways that you could have from that? What maybe the sentiment was or optimism going into the year? George Wilson: You know, the show was well attended, which I think everyone would agree on. I think that there is guarded optimism. You know, there are a lot of moving pieces in everything in the world right now. You have now the geopolitical issues in Iran, and what is going on there, the potential push on inflation. You have the political climate in the US. Just a lot of moving pieces. So I think what we have heard is that, without a fault, everyone believes in the long-term view and the optimism that exists in the housing market, like we mentioned in this earnings call, that the indicators are there that housing is in demand, and there is pent-up demand that will be released at some point. It is just, I think, the feel of the show is when is that going to happen and what needs to make it happen to give the end consumer some confidence, whether it is a relief on some energy pricing, whether it is Fed movement, whether it is a couple more data points on inflation, or all of the above. So long answer to what should have been: guarded optimism. Kevin Gainey: Sounds good, George. Thank you, guys. Thanks. I will turn it over. Thank you. Operator: Our next question comes from Julio Romero with Sidoti and Company. You may proceed. Julio Romero: Good morning, George. Good morning. Your guidance implies the remaining nine months of the year is going to see flattish sales year over year but see some year-over-year margin expansion, about 70 to 80 basis points across the remaining nine months. Based on that Q2 cadence you stated earlier, that definitely implies it will be back-half weighted. If you could just talk about the cadence of that margin expansion between the third and fourth quarters, the expected? And then secondly, maybe just where across the portfolio you would see that margin lift? Scott Zuehlke: Good question. I think the main driver for the second half of 2026 versus the second half of 2025, if you recall, the issues we had in Monterrey impacted EBITDA by, I think, $13,000,000 in the second half of last year. We consider that plant stable; we should not see that impact in the second half of this year. So that alone is going to drive most of the margin expansion. George Wilson: That is obviously in our Hardware segment. Julio Romero: Yep. Good reminder, and congrats on completing that Monterrey issue. My second question is just on trying to better understand how much longer Tyman legacy Tyman extends the cash conversion cycle versus legacy Quanex, and then related to that, you mentioned capital allocation remains debt repurchase remains your key priority there. Just how are you thinking about debt pay down in the back half? Thank you. Scott Zuehlke: From a cash conversion standpoint, historically, Quanex was 45 to 60 days cash conversion. Tyman, legacy Tyman, was double that. So while we have made some progress in getting Tyman more towards the made-to-order versus a made-to-stock, that takes time. And there are certain pieces of that business that will never move to a made-to-order because it is more distribution. But I think what you will see from us really over the next probably two to three years is a significant improvement in getting that cash conversion cycle for the legacy Tyman business down, which will obviously impact cash flow positively. George Wilson: There are obviously multiple projects that we have identified to make that change, and I feel very comfortable where we are at in that progress, and more to come. But I think the softness in the market has allowed us to focus on the things that we need to do integration-wise and that we knew we needed to do, and I am very pleased with where we are at at that point. Scott Zuehlke: And then as far as the debt pay down, clearly it is our priority, especially given the macro backdrop here. We do feel like there is shareholder value creation if we can get that leverage or net ratio down closer to 2 and even below 2 over the next couple years for sure. So that is our focus. George Wilson: Makes sense. Julio Romero: Thanks very much. Operator: And as a reminder, to ask a— Our next question comes from Steven Ramsey with Thompson Research Group. You may proceed. Steven Ramsey: Hey. Good morning, everyone, and thanks for taking my questions. I wanted to look at spacers within the Extruded segment. Solid double-digit growth in the quarter and a good product category for quite some time. A couple of questions there. What were the drivers of growth within the quarter? And do you think spacers is a growth product in FY 2026? And then can you talk about the margin profile of that product relative to the segment in 2026? George Wilson: I will split my answers. I think the driver in the growth of all spacer markets, but especially our product lines that Quanex Building Products Corporation offers, is definitely being driven by the demand, and some of it code-related, on the performance, the thermal performance of windows. So as energy costs go up, you are able to justify the replacement of windows with higher-performing thermal windows, whether it is keeping warm air in the northern climates or better keeping the cold air in where we air condition. As we see migration from single-pane to double-pane windows, double-pane to triple-pane in some areas, that is driving an increase in volume demand, which lends itself well. And as codes and standards change to demand higher-performing, thermally performing windows, that falls right in line with the products that we offer at Quanex Building Products Corporation. So we do believe it has the potential to be a growth driver in 2026 and, to be honest, further years as that continues to take hold. Consumers are changing, energy costs are becoming a bigger part of the world, and these types of products are going to be demanded more, and we feel very good about that as a leading product in our portfolio. In terms of the breakout of profitability within the segment or even getting into any more granularity, we have not and cannot, for obvious reasons, provide any breakout there. We just have not provided that publicly. Steven Ramsey: Okay. Fair enough, and good color. You have talked about bundling being an opportunity for you over time with the Tyman integration going to market. In a tough backdrop, can you talk about if this is happening in any product sets or segments right now, or do you need a better demand backdrop to really see bundling become an opportunity? George Wilson: It is a great question. I think we are seeing it. We have started the development of that. It has been slow to take hold for two reasons. One is the macro backdrop. Obviously, volume helps any sort of bundling or incentive package regardless of what you are doing. The second one is, it is really hard to go to your customers and try to offer advantages of bundling when you have a product line that was not performing because of some operational issues. It is just a core fundamental for us that I have to have my house in order before I can offer those types of incentives as a valuable supplier. So I am not going to insult my customer base by trying to push incentives when I need to better improve operational performance. We are at that point. I feel really good at what we have done to protect our customers in something that was unforeseen. There will be a time and a place in the near future where we can have those conversations and give our customers opportunity to share in the benefits of what we provide. We were not there a year ago, and we are just getting to that point now. Steven Ramsey: Okay. That is helpful to hear. Last one for me. Cabinet wood components being a good story right now, and this was a segment that I pondered would potentially be a strategic value to someone else and maybe not core to Quanex Building Products Corporation. With the recent success, does this change the potential of this segment staying within the company and being a profit driver in the next couple of years? George Wilson: We are happy with what the segment is doing. We operate under a philosophy that, as a public company, I think everyone is this way. We are going to drive our product lines and our segments to perform the best they can to create as much shareholder value as we can, whether they are in the portfolio. The reality is every segment is potentially for sale every day. So you never say never, but we are extremely happy with what that group has done. I think that they are driving value for us, and I am pleased with their performance. I cannot give you any more of a clear answer because everything every day is always a negotiation. Steven Ramsey: Sure. Thanks for the color. Operator: I would now like to turn the call back over to George Wilson for any closing remarks. George Wilson: Thanks for joining the call today, and we look forward to providing our update in June. Thank you very much. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Greetings. Welcome to Nutex Health's Fourth Quarter and Full Year 2025 10-K Earnings Call. [Operator Instructions] Please note this conference is being recorded. At this time, I'll now turn the conference over to Jennifer Rodriguez, Investor Relations Manager. Thank you, Jennifer. You may now begin. Jennifer Rodriguez: Good morning, everyone, and welcome to Nutex Health, Inc. Fourth Quarter and Full Year 2025 Earnings Call. My name is Jennifer Rodriguez, and I'm happy to serve as your moderator today. We're truly grateful for your participation and your continued interest in our company as we share the highlights of another exceptional year. Please note that this call is being recorded for future reference. Joining me this morning are some of the key leaders driving Nutex Health Forward, our Chairman and CEO, Dr. Tom Vo; our Chief Financial Officer, Jon Bates; our President, Dr. Warren Hosseinion; and our Chief Operating Officer, Wes Bamburg. Together, they'll provide prepared remarks to give you a comprehensive view of our performance, strategies and vision, after which we'll open the floor for your questions. Before I turn this over to Dr. Vo, I'd like to take a moment to address a few important points. Today's discussion may include forward-looking statements, which reflect management's current expectations about our future performance. These statements are based on what we know today, but they are subject to risks, uncertainties and other factors that could cause our actual results to differ from mobile share. For a deeper dive into these forward-looking statements and the factors that might influence them, I encourage you to review the press release and Form 10-K filed earlier this week as well as our various SEC filings. You'll find all the details there. Additionally, we may reference non-GAAP financial measures such as adjusted EBITDA during the call. For those interested in how these metrics reconcile to GAAP standards. Please refer to the press release and Form 10-K, where we've included that information. With those housekeeping items out of the way, it's my pleasure to hand the call over to Dr. Tom Vo, our Founder and Chief Executive Officer. Dr. Vo, the floor is yours. Thomas Vo: Thank you, Jennifer, and good morning, everyone. Thank you for joining us today. It's a pleasure to meet with you as we review Nutex Health's fourth quarter and full year 2025 results. This past year has been one of exceptional growth, operational discipline and continued innovation as we advance our mission of delivering high-quality, concierge level accessible health care to the communities we serve. Our organization remains deeply committed to a patient-first culture and I'm really excited to walk you through the accomplishments, strategies and opportunities that shape our year. First, let's discuss the full year 2025 financial and operational performance. Total revenue reached $875.3 million, an 82% increase from $479.9 million in 2024. Net income increased to $7.8 million to $52.1 million during '24. Note that this includes a noncash expense of $117 million for stock-based compensation for 2025 in the form of a onetime obligations of earnout shares issuable to qualifying under construction and ramping hospitals. This expense would decrease drastically in future years as most of the under construction facilities from 2022 have already vested. Adjusted EBITDA, which includes the add-back of the stock-based compensation rose $25.6 million, up 152.6% from $102.8 million in the prior year. On the volume side, our hospitals recorded a 188,300 total patient visits up 11.8% from 168,400 in 2024. 1.3% of that growth came from mature facilities, demonstrating their resilience and continued relevance in their markets. On the balance sheet, even with 3 new hospitals opening in 2025 and early 2026, the current portion of long-term debt decreased slightly to $14.4 million to $13.2 million. Net long-term debt increased from $22.5 million to $29.2 million, still very low relative to our revenue and expansion pace. Net cash from operating activities of $248.1 million for the 12 months ended December 25, 2025. And cash on hand grew dramatically to $186 million as of 12/31 2025, up from $41 million a year earlier. Next, I'd like to touch on the fourth quarter financial [indiscernible] During the fourth quarter, we did recognize a onetime $55 million revenue reduction related to the cumulative true-up of 18, 950 arbitration claims that were deemed ineligible by our traders under the IDR process. The periods involved for July 2024, and we first started through an arbitration and IDR through the end of December 2025. 18-month reconciliation resulted from a mid-2025 CMS directive instruction IDRs to resolve and clear the existing backlog of disputes. Fortunately, this process was very slow. On the inefficient side, and involve a lot other providers, including itself. This catch-up period reduced the number of active disputes compared to the same period last year and consequently lower reported net revenue for the quarter. It's important to emphasize that this was a onetime reconciliation driven by CMS mandate. So to put this number into perspective, approximately 18,950 cars deemed ineligible equate to an average of roughly 1,050 cards per month. And according to Halo MD, our IDR consultant, an ineligible rate for Nutex Health is roughly 8%, all the charts that we submit. This is significantly better than the national average of approximately 19%, indicating that our processes are performing well above industry norms. Additionally, Halo MD is continuing to challenge the ineligibility determinations for a portion of these charts. Should any of these disputes be resolved in our favor associated revenues will be added to future monthly and quarterly financial results. The good news, though, is that excluding the impact of this adjustment, our Q4 2025 adjusted revenue would be approximately $206.7 million, just consistent and in line with revenue levels from previous quarters However, even with a slight decrease in accrual revenue, operating cash flow remained very strong. Net cash provided by operating activities was $70.4 million in the fourth quarter compared to only $100,000 in the same quarter last year, demonstrating that cash collection continues to perform very well. We encourage investors seeking a deeper financial understanding of our business to focus on the full period from 2024 and through December 2026. Quarterly results can appear lumpy to the natural rate constraints of accrual-based accounting, which can shift the timing of revenue and expense recognition. Jon will provide additional insights into these dynamics later in the presentation. In terms of arbitration and IDR process performance, we continue to perform well within the IDR framework. It is now a normal part of our revenue cycle process. 50% to 60% of our claims are submitted through the IDR process. When a determination is issued eval in over 85% of those cases, demonstrating that insurers are still underpaying in 85% of the cases that we sent to arbitration. We are also currently realizing an average cash collection rate of more than 85% and our legal determination wins. We are actively monitoring the forthcoming IDR final rules from the office of management and budget and other federal agencies. At this time, we do not expect any material changes to the current process and remain optimistic that the final rule will further strengthen and streamline the IDR process with additional end dates for insurers to comply. An example of a more efficient IDR system would be avoidance such as the 18-month true-up that we just experienced for the fourth quarter in the future. On the regulatory and legislative outlook front, we are closely watching the progress of the No Surprises Act -- I'm sorry, no Surprises Enforcement Act, also known as the Murphy Act. It is designated as HR 4710 in the house and S-2420 in the Senate. These mills are currently under review in the following committees in the house, the energy and on commerce, education and workforce and ways and means. And in the Senate, it is currently being reviewed in the health, education, labor and pension it otherwise known as helped. Our 2025 financial and operational results demonstrate the strength of our model, the scalability of our platform and our disability focused on 3 core metrics: ER visit growth inpatient volume growth and revenue per patient. Many of you know, Nutex Health has operated since 2010. More than a decade as a private company, our micro hospital model built on concierge level, high-accessible care, deliver consistent and respectable profitability. After going public in 2022, we faced challenges, primarily driven by the faulty implementation of the No Surprises Act or the NSA which materially reduced reimbursement across our industry. The authors of No Surprises Act are credit anticipated that insurers might use the payment process to underpay smaller providers like us. That reason, Congress included the independent dispute resolution IDR process as an essential safeguard, giving providers a meaningful avenue challenge unfair reimbursement. Now this mechanism insurers would have the unchecked ability to dictate payments unilaterally, effectively determining winners and losers in the marketplace and undermining fair competition resulting imbalance with Stifel free trade, in small operators and distort the health care ecosystem. In many ways, this is truly a David and Goliath [indiscernible]. As we enter the next phase for our growth, we are fortunate to have strong liquidity and adequate cash on hand. This financial position allows us to remain disciplined and highly return focused. Our capital allocation strategy continues to center on 4 priority areas: number one, share repurchases. Share repurchases activity underscore our conviction in the intrinsic value of new Excel, launched a $25 million repurchase program in late 2025 and completed it in early 2026. Earlier, we authorized an additional $25 million for further repurchases. These programs reflect our commitment to delivering shareholder value, prudent accretive capital deployment. For two, growth at existing hospitals, our existing micro hospital footprint remains a powerful engine for organic growth. We are heavily investing in both the ER and inpatient volume initiatives to expand capacity on service lines and enhanced revenue quality. In terms of ER volume initiative, we are strengthening community engagement, expanding referral pathways and diversifying service offerings. Targeted investment including services such as medical detach programs favor health services, outpatient imaging or patient procedures, personal injury services. These initiatives are in addition to our normal ER volume and will help expand patient access and improve the overall revenue mix. On the inpatient volume initiative, and to capture more high acuity cases and reduce unnecessary transfers, we are enhancing specialized equipment. We are very excited because with advances such as AI, medical device, biopharma, there are more cases that we could treat at our micro hospital than ever before. We have also expanded inpatient nursing and ancillary capacity. And to top it off, we are adding a tele specialist, I'm sorry, tell a hospitalist and tell a specialist coverage for all of our hospitals in the coming year. These upgrades allow us to manage high-acuity patients within our own facilities, increased retention and strengthening contribution markets. Wes, our COO, will discuss more on this operational part later. Early expansion of our IPA and published and Health division. Our independent physician Association currently operating in Los Angeles, Phoenix, Houston and South Florida continue to be a strategic advantage, strengthen our relationship with PV physicians enhanced care coordination and support by directional referrals and to expand our IP footprint into markets surrounding our hospitals, enabling more efficient care pathways, stronger physician alignment and by direction referrals between IPAs and the Nutex Hospital. This expansion also position us more effectively within the risk-based and value-based reimbursement models and our goal will be to operate as many IPAs around our existing hospitals as possible. Warren will discuss this more in detail when he speaks later. Lastly, real estate development strategy. We are evaluating opportunities to develop micro hospitals using a capital-efficient real estate model. Will we develop and own the facilities during the stabilization period build both operational and real estate value and possibly eventually execute a sale-leaseback transaction to recycle capital into future. This approach preserves strategic control of early-stage operations while enabling accelerated expansion without over leveraging the balance sheet. Today, Nutex Health operates 27 hospital facilities across 12 states. In 2025 and early 2026, we opened new hospitals in Sherman, Texas, St. Louis, Missouri and Amble, Texas. We are actively building a pipeline of new hospitals for later in 2026, 2027, 2028, starting in 2029. Each facility is designed around the same principles. [indiscernible] level care little to no emergency wait times and tailored inpatient and outpatient services that meet the needs of the local community and remains very strong. Physicians and community leaders across the country continue to approach us weekly using new facilities in their markets. We're trying to keep up with demand. In addition, we are in ongoing communication with payers and continually reviewing their in-network contracts to evaluate whether the terms are offered are fair and reason. Good news is that we are now receiving better offers than we have in the past. In closing, it has taken approximately 2.5 years to recalibrate our operational and reimbursement strategies. I am very pleased to share that in 2025, return to the level of profitability that our model has historically produced. Over the years, we have operated 4 different administrations, navigated the complexities of the Affordable Care Act drive through COVID, overcame the challenges of the No Surprises Act and are now actively optimizing our approaches to the IDR process. While no one can predict the future, our longevity and experience across multiple health care cycle give me confidence that Nutex can continue to pivot effectively against any geopolitical or regulatory headwinds. We are very excited while the trajectory of Nutex Health as we enter 2026. We are carrying significant momentum and we believe we are very well positioned to continue our disciplined, profitable growth. So with that, I'll turn it over to Jon Bates, our CFO, walk through the financials in more detail. Jon? Jon Bates: Thanks, Tom. Appreciate that, and good morning, everyone. I'm very excited to break down the financials for Nutex Health's fourth quarter and full year 2025, a year where we didn't just grow, but we continue to improve our business model while delivering on a record year for the company. Tom has given you some of the big picture, and I will zoom in a little more detail, beginning with the full year of 2025 results, and then we'll discuss the fourth quarter of '25 as well. So starting with the 12 months ended December 31, '25 compared to the same period in 2024. I wanted to start by highlighting the fact that the company worked very hard in 2025 to continue to improve our overall controls environment and that effort enabled us to remediate all previously disclosed material weaknesses in internal controls over financial reporting in 2025. It's a huge accomplishment that shows our commitment to having a solid control environment that can be relied upon by our shareholder base and the investment community. Now on to some of the numbers. Total revenue for the full year of 2025, as Tom indicated earlier, increased by 82.4% or $39.5 million, up to $875.3 million versus $479.9 million for the full year of 24% with the hospital division revenue being $844.2 million in 2025. Of the $844.2 million in the hospital revenue $7.8 million or approximately 63% related to a combination of both higher acuity claims as well as success through the IDR process. For some perspective, we reduced this 7% from the third quarter of 2025 when we were closer to 70%. Regarding arbitration-related revenue, we have submitted between 50% to 60% of our claims through the RDR process, which came down approximately 10% from the third quarter as well. And when an award determination is made, we currently prevail in over 85% of those determinations, and we currently have an average collection rate of over 85% of those determination wins. From an arbitration cost perspective, it's approximately about 26% of that arbitration related revenue. And of the total revenue increase mature hospitals increased their revenue by 73.4% for the year of 25% versus the same period in '24. Hospital visits, as Tom indicated earlier, increased by 11.8% or 19,891 visits to 188,279 visits in 2025, and versus 168,388 visits in the same period in '24, with those mature hospitals growing at 1.3% over the same period. Additionally, the Population Health division had a slight revenue growth of 0.7% to $31 million for the year of 2025 versus 30.9% for the same period in '24. So in addition to the revenue and visit growth note and above, facility and corporate costs also showed improvement for the year of '25 relative to '24. Total facility level operating costs and expenses increased $147.3 million during the period but only represented 49.2% or $431 million of total revenues for 2025 versus 59.1% or $283.7 million for the same period in so effective decrease of just under 10%. Of the $147 million increase for the period, $138.3 million related to the arbitration costs for the arbitration -- additional arbitrational revenue booked during this period. Total stock compensation expense for the 12 months ended December 31, 2025, was $117 million compared to only $16.6 million in the same period of $24 million, which is $100.4 million increase in '25 and just so you know, almost all of this increase was related to the 3 hospitals that completed their earn-out periods during the third quarter of '25. Now we do have 3 more facilities currently in the earn-out period with one of them completing the earn-out period in the first quarter of '26 in the remaining 2 completing their periods earn-out periods in the fourth quarter of '26. The gross profit for the 12 months in 2025, was $444.3 million or 50.8% of total revenue as compared to $196.3 million or only 40.9% of total revenue in the same period in again, just under 10% increase for the 12-month period ended December '24 versus 2025. From a corporate and other cost perspective, general and administrative expenses as a percentage of total revenue for the 12 months ended '25 decreased to 5.9% or $51.7 million from 8.7% or $41.9 million for the same period in 2024. Operating income for the 12 months ended December 2025 was $275.6 million compared to $130.7 million for the 12 months ended 2024, which is an increase of $144.9 million. Net income attributable to new tax was $70.8 million for 2025 compared to net income of $52.1 million for the 2024 period, an increase of $18.7 million. Adjusted EBITDA attributable to Nutex increased $156.8 million or 152.6% from $102.8 million in 2024 and to $259.6 million in 2025. So now let's move on to discuss more the fourth quarter of December 2025 and compare those results to the fourth quarter in December 31, 2024. And Tom indicated some of this on his earlier discussion. But for the fourth quarter of 2025, our total revenue did technically decrease by 41.1% or $105.9 million to $151.7 million versus $257.6 million for the fourth quarter of 2024. With a little more context, the company attributes $105 million decrease primarily to 2 items that we disclosed in our press release. Number one, was the onetime $55 million cumulative true-up of 8,950 arbitration claims that arbitrator is determined to be ineligible for the in the fourth quarter of 2025 under the independent dispute resolution process. These claims were submitted for the period from July '24 through all through December '25. So cumulatively, we believe the onetime cumulative arbitration true-up resulted from a mid-2025 CMS directed instructing the certified independent dispute resolution entities to address and clear any backlog they had of their disputes. The associated kit up reduced the number of active disputes compared to the same period in '24 and contributed to lower net revenue for the quarter. Now we believe the backlog has been materially addressed, but we'll continue to watch the process very closely. The second item was arbitration revenues of $69 million, and this is for the previous year 2024, that related to submissions that were in that related to the third quarter of 2024 that were recorded in Avenue in the fourth quarter of 2024. As you probably recall, prior to September 30 of 2024, the company did not have any sufficient historical data to determine the likelihood of a prevailing determination of potential award amount or the collectibility of such awards. But after considering the impact of the adjustments above, including that $69 million, our 2025 4th quarter revenue would be $206.7 million and the 2024 4th quarter revenue would be $188.6 million, which would result in a revenue increase of $18.1 million period-to-period, primarily driven by higher patient business in the fourth quarter of 2025 compared to the fourth quarter of 2024. So I just want to take a step back on how we accrue revenue for the company for those that maybe aren't as familiar with it, which hopefully will explain some of this situation and its impact as we move forward. So if you look at it, as the company has been predominantly out of network for over a decade with the billing process. Therefore, we have to negotiate most of the claims that are sent to payers based on what we believe we should be paid using market industry payment data. In our accrual process, there were 3 key items that we use in this process, and it is all based upon the historical results we have regarding payments by 3 items, payments by each specific payer, by each specific physical location of the visit and thirdly, by the specific acuity level of that visit. And the averages of those results over the recent past, let's say, 1 to 2 years of activity. And then we take those averages at that specific detail and then they're attached to a current period visit with similar characteristics of those averages, which then sets our accrual of realizable AR and revenue in the month of the visit. And then as payments come in, we adjust the accruals up and down, up or down based upon the results with the net impact being recorded to revenue in the period when the payment is ultimately received. So these numbers and the history we're talking about here are continually updated as each payment is made and our updated averages will affect the new current period visits as we move forward. And this is exactly how we've been doing it. since inception. So in the case of the arbitration activity, we added a layer to our standard revenue accrual process that is very similar to our baseline process. But because the process has been new to us since we began the process in July of 2024, we have continued to build this additional layer as we have more and more data. And in the case of the ineligible claim write-down or claims write-down in the fourth quarter of 2025, there had been a nominal number of items like that, small, nominal that we had seen and accounted for in our normal accruals up through the third quarter of 2025. But certainly, there was nothing material in there. And so we were not aware of any material indications in this area that ultimately led to the onetime true-up of outstanding disputes in the fourth quarter of 2025 that the RDR had in backlog until the fourth quarter of 2025. So that's the first time we understood what was going on. And so we're continuing to work to better understand the overall situation as it is so recent to that process. And now we believe we have a much better understanding of this and we'll monitor it as we go forward. Now as we have gotten this recent information and continue to fine-tune our accrual process, we believe that this situation did resolve a majority of their backlog of claims that would be deemed ultimately ineligible, but anticipate this will continue to be a part of the process as we move forward, but just at a much more nominal consistent rate. Now the industry data that we have seen indicates that ineligible claims within the entire IDR process have been closer to 19% of submissions. While our current data that we have through now, Nutex shows were cumulatively showing less than an 8% ineligible claims submission rate since we started the process in July of 2025. So we realize this is part of the overall arbitration process now, and we haven't included within the way we do our accrual process as we move forward. Now we'll finish with the rest of the fourth quarter 2025 discussion. For hospital division visits, we saw an increase during the quarter of 6.1% or 2,761 visits to 48,205 visits in the fourth quarter of 2025 versus 45,444 in the same period of 24 with mature hospitals slightly decreasing 0.3% in the fourth quarter of '25 compared to 2024. Additionally, the Population Health division revenue increased by $0.1 million or 1% to $8 million in the fourth quarter of 2025 from $7.9 million in the similar period of '24. Now we discussed the growth in the hospital revenue visits that we've seen in the fourth quarter. And now let's discuss the overall facility and corporate costs. Total facility level operating costs and expenses increased $10.5 million for the fourth quarter of '25 versus the fourth quarter of '24 to $105 million from $116 million for the same period in 2024. Total stock-based compensation for the 3 months ended December 31, 2025, was a credit of $2.6 million compared to an expense of $14.6 million for the same period in '24. Operating income for the fourth quarter of 2025 was $30.9 million compared to $114 million in the fourth quarter of '24, representing a decrease of $83.4 million quarter-to-quarter. Net income attributable to new tax was $11.8 million in the fourth quarter of '25. The comparable net income attributable to new tax was $61.6 million for the fourth quarter of in showing a $49.6 million decrease quarter-to-quarter. Adjusted EBITDA attributable to Nutex decreased $70.1 million from $86.7 million in the fourth quarter of $24 million to $16.6 million in the fourth quarter of '25. But as discussed above, we believe that the fourth quarter numbers aren't necessarily representative of a typical quarter because of the effect of the onetime cumulative arbitration true-up discussed previously. We believe that looking at the year-to-date numbers represents a much better picture of the company's strength as we continue to grow in visits and volume, and our cash flow continues to be extremely strong, with over $207 million in a hospital receipts collected in the fourth quarter of 2025 alone. Looking at our balance sheet, it remains very strong with cash and cash equivalents at December 31 of '25 at $185.6 million. It's up $144.9 million or 356.6% from just $40 million -- $40.6 million at the end of December '24. The other size will increase at the end of 2025 is the accounts receivable balance, which was a $319.4 million compared to $232.4 million at the end of '24 and our consistent strong collections throughout the year provides us continued confidence in this increase. Regarding cash flow. Net cash from operating activities increased by $225 million for the 12 months ended December of 2025 to $248.1 million as compared to only $23.2 million for the same period in 2024. On the liability side, as Tom indicated, our total bank debt increased by $2.1 million to $43.5 million at December '25 from $41.4 million at December of 2024, with the majority of this debt really just relating to equipment loans at our hospitals for such items as MRIs, x-rays, ultrasound and CTs, the main equipment that runs our facilities. So this is a very slight increase in 2024 with the overall balance being a relatively small amount of true operating debt for a company of our size, especially with opening 2 new facilities in 2025 and with another one in the early part of 2026. With all this said, our balance sheet remains very solid, and we have provided our company the flexibility to execute on our growth plan in 2026 and beyond. Now on to Warren Hosseinion, our President for a population health update. Warren? Warren Hosseinion: Thank you, Jon, and good morning, everyone. It's great to be with you today to discuss how Nutex Health is advancing population health management, an important piece of our mission to deliver sustainable, impactful health care. In 2025, we made strides in this area, and I'm excited to share the progress, the strategies driving it and our plans to keep pushing forward. Let's start with where we are today. Our Population Health Management division now oversees a diverse group of approximately 40,000 members across our platform including a mix of Medicare Advantage, commercial and Medicaid managed care members. That's a broad reach, and it's growing because of the trust we've built through our independent physician associations or IPA I am happy to report that each of our 4 operational IPAs were profitable in 2025. Our strategy revolves around physician networks our IPAs are comprised of networks of contracted and credentialed primary care physicians and specialists located around our facilities building strong partnerships with local doctors is critical. By forming these IPAs, we are building awareness of our hospitals among the local community doctors and their patients. Why do the physicians join our IPA. We offer these physicians ownership in our IPAs, they can also participate in the Board and committees of the ITA, we offer them to get on the staff of our hospitals so they can admit and follow patients we also incentivize the physicians to achieve high-quality metrics. We believe that over time, these relationships will not only increase the volume of patients to our hospital but also create a web of care that's seamless for patients. Our vision is that our hospitals and IP will work hand-in-hand to amplify our reach and effectiveness. We are fostering collaboration, sharing best practices and ensuring every provider is aligned with our patient-first culture. We're growing our IP strategically focusing on areas near our hospitals to leverage existing relationships and infrastructure. In 2025, we launched the new IP in Phoenix. In 2026, we plan on launching 2 IPAs, one in Dallas and one in San Antonio. Going forward, our strategy focuses on 3 areas: provider network expansion by partnering with physicians in high-value markets value-based contract growth by increasing the number of covered lives under management and technology scaling by enhancing our analytics and care management platform. With that, I'll turn it over to Wes Bamburg, our Chief Operating Officer. Wesley Bamburg: Thank you, Warren, and good morning, everyone. As mentioned earlier, volume is up. For the year 2025, total patient visits were up 11.8% from 2024, with mature hospital visits growing at 1.3% over the same period. This performance highlights solid demand and the disciplined execution behind our ER and inpatient initiatives. From an operational standpoint, our focus throughout the year has been ensuring that our investments translate into consistent execution across every facility as we broaden our service offerings ranging from medical detox and behavioral health to advanced outpatient imaging and procedures, we have been building the operational infrastructure required to support higher throughput and a more diversified patient mix. That includes standardizing workflows, strengthening our intake in triage processes and enhancing staffing models to seamlessly accommodate increased ER demand while protecting the patient experience. On the inpatient side, the expansion of specialized equipment and tele specialist capabilities has allowed us to manage more complex patients safely and effectively within our hospitals. Operationally, we've paired these enhancements with stronger clinical governance, upgraded care pathways and expanded training to ensure that higher acuity care is delivered with consistency and quality across the enterprise. These efforts are already improving patient retention, reducing avoidable transfers and supporting stronger contribution margins. From a cost management perspective, 2025 was a transformative year, driven largely by the ongoing advancement of our corporate purchasing and supply chain teams. Excluding arbitration expenses, operational costs were 33.4% of total revenue for 2025, down from 47.1% in 2024. Over the past year, this function has become far more centralized disciplined and data-driven giving us greater ability to engage more effectively with key vendors. As a result, we secured significantly better pricing on major imaging equipment, including MRI and CT scanners as well as improved rates on lab instruments and reagents. These categories have historically been among our highest cost items, so the impact on margins is meaningful. Lastly, during 2025, Nutex received more than 8,700 patient reviews averaging an enterprise rating of 4.8 out of 5, a level of satisfaction that continues to set us apart in the health care industry. This performance reflects the strength of our model and mission, which are built around delivering concierge-level service, little to no ER wait times and a highly personalized patient experience. As we scale, we are advancing system-wide standardization, both in how we engage with patients and in the care we deliver, ensuring that every Nutex facility delivers consistent outcomes, service and a best-in-class experience. These foundational elements continue to differentiate Nutex in a sector where patient satisfaction and reliability are critical drivers of long-term value. Across the organization, our teams remain deeply focused on reliability, scalability and disciplined execution. As we grow, we are firmly committed to ensuring that every new tech facility delivers the same high-quality patient-centered care that defines our brand and supports our long-term growth. Thank you, everyone, for your time, and back to you, Jen. Jennifer Rodriguez: Thank you, Wes and team for those updates. I will now turn it over to our operator, Rob, who will begin the Q&A portion of the call. Operator: [Operator Instructions] And our first question will be coming from the line of Thomas McGovern from Maxim Group. Thomas McGovern: I want to start with some high DR-related questions, right? So historically, and on today's call, you've discussed IDR submission rates in the range of 60% to 70% with historical collection rates hovering around 80%. If we look at the press release, it actually says that the submission rates were 50% to 60% with that with an improved collection of around 85%. So I just wanted to see if you guys could help us reconcile the shift, is this a reflection of maybe higher quality, fewer submissions but higher quality and that's leading to an improved collection? And how should we look at this dynamic moving forward? Unknown Executive: Jon, do you want to get -- yes, go ahead, Jon. Jon Bates: No, I was just going to say -- no, you're right, Thomas. Obviously, we've seen -- and the whole goal here in the independent dispute resolution is, ultimately, if we can get to a situation where we're able to get these claims resolved prior to it, that's a win. So of course, up through now to the third quarter, we were submitting a higher percentage. And actually, historically, it was around that 60% to 70%. But what we saw I've seen in the last quarter, now cumulatively sort of the impact is a little bit less in which we hope that will be the trend with the trend being that ultimately that would go down and we'd still be able to get what we believe to be fair and reasonable payments. And we believe that's still happening. And as we look to try to get in contracts with payers, which we're always looking to try to do, if we can find one that's reasonable, we'll continue to do that. So I think it's partly some of that going on for sure, and it's something we're going to watch real closely as we look and continue to watch reimbursement rates, which have stayed very strong throughout the year, as you've probably seen. And as you can tell, even the collection piece as you referenced was where we were kind of close on in the second and third quarter. Now we're collecting it 85-plus, continuing to have a strong legal determination wins of high -- mid- to high 80s. And so all of that, we anticipate hopefully even improving and we'll watch it as we go, but it's been a consistent pattern of an improvement there. So I think that's what we're seeing is that we're able to resolve more either with contracts or in open negotiations earlier on. It's still a smaller percentage, right, that we want there to be more of that on the front end. But for now, I think the trend is actually positive and the more watch reimbursement is affected with that. And as you know, and you and I have talked about this before, even if we are able to settle some of these earlier in the process was in open negotiations specifically open negotiations if they don't pay us well at the beginning, even if it's slightly less than even though we feel that we're getting is paid fair and reasonable, if it's slightly less than that, when you remove the cost component, from a net perspective, it ends up being similar or maybe even more positive. So we don't view it as negative at all, I just view it as kind of the opportunity as we move forward to watch this with our goal, ultimately, of getting everything resolved more timely, quickly and if we can have contracts across the board, we would do that. We just have not been able to successfully execute those and find reasonable fair payments yet from many of the payers. Tom, you might have more to add. Thomas Vo: No, that's correct, Thomas. And in essence, as you know, health care is all about ebb and flow. Some quarters higher, some quarters lower. But to Jon's point, it is definitely moving in the right direction with less submissions, which may mean that the payers are paying better and more correctly,first time. So we will continue to monitor that progress. Thomas McGovern: It sounds like solid improvement with open negotiations. And obviously, you don't have to do a whole drawn out arbitration process. That's great for you guys. Great. So next question for me. You guys recently reopened a hospital in Texas is back in January. First part of this question is, what led to that decision? What are you seeing in that market now that leads you to believe this is the right time to do so? And then a follow-up to that is, do you believe that you're on track -- you remain on track rather to open the 5 to 6 facilities you've discussed in the past in 2026. And maybe if you could -- Tom, you mentioned a new real estate strategy at [indiscernible]. So maybe if you could touch on that and how that might impact your planned openings in the year. Thomas Vo: Yes. No, thank you, Thomas. So the first question, our Ambo Hospital, we did have to close it. when we were going through the No Surprises Act issue. And after we established the IDR process, reimbursement get better. And so when that happened, it became a correct move to reopen it simply because we knew that there was volume there. And so the volume that we saw prior to the IDR was maybe not enough make it a profitable operation. But with the IDR process and better collection, better fair and reasonable collection that business made sense. And on top of that, as you know, we've essentially focus on more of an inpatient side. And so we became much better at it when we weren't as good at it back then. And so now that we're much better at the inpatient side, opening a slightly bigger hospital with more inpatient bed just made better sets and made a better business sense with a better projection. Does that answer the first question, Thomas? Thomas McGovern: Yes, yes. And then just a reminder, the second part of that question is, do you believe you remain on track for the 5 to 6 openings in '26 that we've discussed in the past? And then just how your new real estate strategy might influence the timing or the scope of these openings? Thomas Vo: Yes. So the 5 to 6 locations are both for '26 and '27. So in 2026, the 3 locations that are on track to be open are Jacksonville, West Little Rock and San Antonio. And so those are the 3 for sure this year that are essentially will be finished with construction, I would say, probably by third quarter. And then on top of that, we're already working on '27 and '28 and so we protect probably another 4 hospitals to open in '27 and probably another 4 after that. And then in terms of the real estate strategy, yes, now that we're fortunate enough to have some cash in the bank, the idea is to explore ways where new tax could essentially start the development on the new hospitals. And once the hospital has stabilized and convert it to a REIT or sell it to a real estate investor and take that cash out and we invest in the 3 to 4 new projects going forward. So essentially to recycle the cash. The idea is that, that cash would essentially be accrual, and it would be essentially profitable for the company, whenever we cycle that cash again. The initial investment is that cost but hopefully, when we do a sale leaseback, we would make a small profit on it and then use that to recycle the cash to continue with the pipeline. And by the way, we have not formalized anything yet, but that is under discussion as an additional way to maximize our cash and return some investor maximal shareholder returns. Operator: The next question is from the line of Gene Mannheimer with Freedom Capital. Eugene Mannheimer: So Tom, Jon, when did you -- when exactly did you learn about the true-up adjustments? And have you given any thought to preannouncing? Jon Bates: Yes, I can talk to that. Thomas Vo: Go ahead, Jon. Jon Bates: Yes. So the earliest indication we were getting was in and that was just information we were seeing on the early ineligible information was the middle part of the fourth quarter, and it was very, very new to us trying to understand it. In fact, a lot of it is it comes to us, we look at it and say, there we might even, in a lot of cases, disagree with it being deemed ineligible and there's a process we didn't talk about here, but that we're going back on some of these and saying, hey, there's -- we disagree with that. But long story short is we were getting information in the middle part of the quarter, but it was very, very new. So then us trying to understand exactly the impact, understand exactly the legitimacy of it has taken us a couple of months to go through and analyze it. So that's the reason we -- there was nothing -- we didn't know what to report because it was new. And as quickly as we got our clarity on it, then we had to -- we started to roll it through our numbers, which was as we were finishing out the year. And then from a timing perspective, this was the best opportunity based on the data we have. to when we would communicate it because we didn't really know much sooner than this exactly that impact. Eugene Mannheimer: Got you. That makes sense, Jon. And when we think about those 19,000 or so claims that were deemed ineligible, you do the math on that. I think it's about $2,900 a claim. So is it safe that these were mostly confined to ER visits and not any inpatient volumes? Jon Bates: Yes. That's good insight. So yes, a majority of those would be more. It was a little bit of the lower we call it, tier or acuity. And so yes, most were more relative to our -- what you call more and more standard ER-type visit, maybe with blending to maybe one step forward, maybe an observation or a couple inpatient, but majority of them were EOR-related. Eugene Mannheimer: Got you. And one more for me. In terms of any future true-ups that might happen, should there be any -- would those also likely to be reserved in the fourth quarter like what you had yesterday? Or could they be trued up anytime? Jon Bates: Absolutely. I mean it's -- we don't control that, but I can tell you that as we see the information, if we see any activity that shows and there's going to be, as I mentioned, there's going to be ineligibles in this process. I think a year ago, they were talking about it being a much higher percentage even what the industry says they finished with recently, which was 19-ish percent of every claim going through is deemed to be an eligible and we're significantly less than that as we're seeing, but we just became known in a material nature of it in the fourth quarter. There were smaller ones that came to us earlier in the period, not material and we addressed those and they went through our natural accrual process. And then this sort of sprung up on us in the fourth quarter was a big surprise, but now with more knowledge and more understanding of the communication from, say, CMS to a lot of those independent dispute resolution and user arbitrators I think they were almost threatening them to say, you guys don't catch up if you're behind, then we're going to find someone else to do it. And as a result, I think they got caught up. They also have added more arbitrators, certified arbitrators at this point as well. So we believe that the backlog concept is probably something more of the past. There will be some at all times. And then more importantly, we'll find out if there is something sooner in the process, and then we certainly will account for that as soon as we know it. But also, as we talked about in that whole description of how we accrue for revenue, the more data we have like this, now we incorporate that into our model, so there will even be some level of ineligible assumption in a current day visit based on what we're finding out now based on our percentages. So -- and then we'll adjust that like everything else every single month, which is a complex process, but I think we have a really phenomenal team that has been doing this for 3 or 4 years now in [indiscernible] and many auditors and banks have spent a ton of time analyzing our process, and they've all come away saying, what you guys are doing seems very solid. So it's just new. It's a new process, and I think we're getting better at this for the IDR side and who knows what's going to be next, but this looks to be the latest, newest situation that's happened, and we feel like we've addressed it and don't feel like it will be a material issue going forward, but we'll watch it and see. And to your point, we don't wait to record it at some later point as soon as we know it or see any indication of it happening, we're going to do our best to try to reflect it within the current numbers that we have so that we're properly recording our revenue costs and keeping in line with the accrual-based approach. Good question. Operator: At this time, I'll hand the floor back to Jennifer Rodriguez for closing comments. Jennifer Rodriguez: Thank you all for those valuable questions and answers. For all those joining us today, if you have more questions, please email us at investors@nutexhealth.com, and we'll get back to you promptly. On behalf of the Nutex management team, thank you all for joining us for our fourth quarter and full year 2025 earnings call. We've covered a lot, growth, strategy, challenges and our vision, and we appreciate your time and interest. A recording of this call will be available on our website for a limited time. So feel free to revisit it. Take care, everyone, and we look forward to keeping you updated on our journey. Operator: Thank you. You may now disconnect your lines at this time, and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the Evaxion Business Update and Full Year 2025 Financial Results Webcast and 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, Helen Tayton-Martin, CEO. Please go ahead. Unknown Executive: Thank you, and good morning, everyone. Thank you for joining us for Evaxion's business update following the reporting of our 2025 full year financial results yesterday. And apologies that this call is 24 hours later than we anticipated for technical reasons, we are delighted to be here today. My name is Helen Tayton-Martin, and I am honored to be leading this call for the first time as Evaxion's CEO. We move to the first slide. Okay. So on today's call, we will review the achievements of 2025 and touch on the milestones we anticipate for 2026. Our Chief Scientific Officer, Birgitte Rono, will then walk through our key R&D updates for the year, including the latest innovations from our AI immunology platform, after which our CFO, Tom Schmidt, will walk through our 2025 financial results before we close with a few concluding remarks and take questions. Right. Moving to the next slide. And of course, our comments and presentation today may contain forward-looking statements and all references on today's call, I'll refer to our filed SEC statements and specifically, our most recent 20th annual report for 2025 -- 2025 filed yesterday. So moving to the next slide. I will start with our 2025 achievements and our 2026 milestones. In 2025, we were very pleased to report tremendous progress across all pillars of the company. First of all, in business development, we were delighted with the progress in our collaboration with MSD and our infectious disease portfolio, with the decision by Merck to exercise its option over our EVX-B3 program candidate. Whilst the target for this program is not disclosed, we are very proud that this represents the first in-licensing to our knowledge of an infectious disease vaccine candidate identified and validated to an AI discovery platform. Whilst MSD chose not to exercise its option over our EVX-B2 candidate in gonorrhea, we remain very excited about the data and the prospects for this program, over which we have retained full rights and have seen significant interest. We were also pleased to enter into a collaboration with the Gates Foundation on the design of a new polio vaccine and are also seeing significant interest in our platform and pipeline programs more broadly from a number of parties. In R&D, we were very pleased to be able to present very positive [ to ] Phase II data at ESMO on our EVX-01 program with a personalized neoantigen-directed cancer vaccine in advanced melanoma patients. We also presented preclinical data at ASH on our first cancer vaccine we shared [ at antigen directed ] to a conserved endogenous retroviral EBR elements that we have identified in AML patients with our EVX-04 program. In our infectious disease portfolio, we were also able to move forward a new program with candidates identified from our AI immunology platform against [ Group A strep Coke ]. On the platform itself, the team has continued to innovate and use platform to not only identify optimal vaccine candidates, but improve their design biology for product delivery for us in our new automated module. And Birgitte will touch on all of these achievements shortly. We were also honored by the recognition of our AI immunology platform by the Galien Foundation for AI advances in human health. And finally, we were very pleased to see the capital influx of the business last year through financing, business development and the use of our ATM, which now gives us action a cash runway to the second half of 2027. And Thomas will talk more to this later. So moving to the next slide. Just as a reminder, our action has built a broad novel product basis pipeline of assets from its unique AI immunology platform. clinically validated with the cancer vaccine space with our EVX-01 [ peptide ] base vaccine in advanced melanoma that's supported by assets and data on DNA and RNA platforms and together with a preclinical pipeline of infectious disease vaccine candidate, focused on challenging targets remaining intractable with conventional approaches and subject to significant medical need. On to the next slide. This unique capability with AI immunology is something that we have also begun to investigate within the autoimmune field, given a wider range of diseases driven by autoimmune attack and the direct applicability of our platform to focus on immune mechanisms in disease. Autoimmune diseases affected over 14 million patients annually in the U.S. and are characterized by chronic debilitating conditions with treatment options focused primarily on the symptoms rather than the underlying cause of disease. Moving on to the next slide. This is why we believe our AI immunology platform is strongly positioned to focus on underlying disease mechanisms with greater specificity to identify autoimmune disease targets, which can be approached in different ways. There will be more to come on this later in the year. So finally, in the next slide, turning to our 2026 milestones. This year, we will be updating on our EVX-01 program with additional biomarkers and immunogenicity data, AACR and then the clinical data, 3-year data towards the [ later ] towards the end of the year. Well, we will be talking more about the autoimmune applications of our AI immunology platform and bringing forward data on our new EVX-B4 candidate in Group B [ rubric ] in the second half of the year. And finally, be ready to submit a regulatory application for our next EVX-04 candidate vaccine candidate for the shared her antigens in AML by the end of the year. And throughout, we remain committed to driving value from both our platform and our pipeline assets to partnership for our shareholders and patients. I'll now hand over to Birgitte to update you further on our R&D achievements. Birgitte Rono: Thank you, Helen. So 2025 marked a turning point with significant advancement across our R&D pipeline and also and our AI platform. And additionally, as Helen alluded to, we also entered into the in-licensing agreement with MSD on the EVX-03 program. So our 2025 focus has been on strengthening our platforms predictive power, maturing key R&D assets and are building the foundation for future partnerships. So the 2025 achievements position us well as we move towards the data with milestones in 2026, that Helen just presented. So with that, I will begin by walking through individual key programs and platform development. So next slide, please. [ EVX-01 ], our personalized peptide-based cancer vaccine in advanced melanoma continues to deliver strong clinical data. So our 2-year Phase II data presented at an oral session at ESMO in October showed strong clinical outcomes, including a high objective response rate of 75% and complete response rate of 25%. Notably, 92% of the responders remained in response at this 2-year mark. Key biomarker data included the very high [ immunogenicities ] rate with 81% of all the individual new antigen administered across patients, giving rise to a specific T-cell response. So this very impressive heat rate outcompete data from similar programs conducted by others. And this truly underlines the precision of our AI immunology platform, to identify better than vaccine targets. Two key milestones are expected for this program, as Helen also alluded to, additional biomarker and [ genicity ] data expected in the first half of '26, and we also plan to communicate the 3-year data from a subset of patients that are currently in expansion part of the Phase II study, and that will be reported in the second half of '26. So importantly, we aim to conduct future trials in partnership ensuring the broadest possible impacts for patients. So moving to the next slide and EVX-04, our after-shelf therapeutic vaccine for acute myeloid leukemia or e-mail, we have generated a compelling preclinical base evidence supporting its development. In this program, we are focusing on a completely novel class of tumor antigens, so-called endogenous retroviruses or ERVs that are selectively and highly expressed in AML blast, making them attractive as therapeutic targets. So with AI immunology, we have identified millions of shortages from patient sequencing tumor data and designed the [ EVX-04 ] vaccines with 16 optimal ERV [ anti fragment ] selected based on craft patients [ pellets ] and also on the immunological potential. So key data include invite vaccination studies, demonstrating that all of these 16 fragments in the vaccine induced a strong specific immune response and further that EVX-04 prevents tumor growth in several of our tumor [ virus ] and induce strong T-cell responses. So again, these findings reinforces the power of our platform. And here, we have expanded it to uncover unique tumor antigens that are not accessible through traditional discovery methods. Next slide, please. As we progress towards clinical business for EVX-04, we have completed key steps, including antigen selection and lead development we have conducted preclinical efficacy studies and are currently conducted further human cell-based translational assays. CMC work and GMP manufacturing are advancing according to plan. And the next major milestone for this program is the submission of the clinical trial application in the second half of '26, which enabled first in human system. So this program is a prime example of how AI immunology accelerates vaccine design from concept to clinic. So next slide, please. Now turning to our key indexes disease programs. So after retaining the full global rights to EVX-B2 late last year, we are now fully in control of the development of this highly differentiated vaccine candidate targeting -- gonorrhea. So our preclinical data package is strong and comprehensive demonstrating significant protection in a mouse infectious model. We have demonstrated broad efficacy against 50 clinically relevant -- dates reflecting coverage across diverse strengths and further induction of significant [ una ] and cellular responses in mice, and we have also demonstrated a well-established mechanism of actions supported by potent antibody-dependent complement-mediated killing. So collectively, these results position EVX-B2 as one of the most advanced and differentiated infectious disease preclinical gonorrhea vaccine candidates in an area of high unmet need where no approved vaccine exists today. So given the strength of our data, we see a clear opportunity to engage with potential partners to progress the program towards clinical development. So next slide, please. So a number of our key infectious disease vaccine program is EVX-B1. In this program, we are developing a margin target vaccine against cytomegalovirus or CMV and instead of relying on a single glycoprotein or limited set of glycoproteins, the program integrates both these well-described glycoprotein and novel antigens to target the prior -- from multiple complementary angles. So this broad multicomponent strategy is designed to enhanced vaccine efficacy and also to reduce the risk of viral escape. So we have applied AI immunology for both antigen optimization of the known glycoproteins and for identification of 2 novel antigens. So first, we improved these established CMV antigens that are essential for virus neutralization. And as part of this, we have engineered the glycoprotein B antigen, by locking in a prefusion state. And this AI analogy designed a construct has demonstrated a superior neutralization capacity compared to the native program. And secondly, we are identifying and validating entirely novel antigens and several of these -- they have already demonstrated the ability to inhibit [ Vinten ] further, we are characterizing them at the moment. So supported by this strong preclinical data, EVX-B1 represents a highly promising program for continued development and for future partnership discussions. Next slide, please. So now turning to the recent development of our AI-Immunology platform. So our AI-Immunology platform continues to expand capability. So the platform integrates [ multiomic ] data sets to generate ranked antigen lifts within 24 hours. So in October last year, we launched a an automated vaccine design module enabling sequence and structural optimization directly from this short-listed engines. At this end-to-end automation significantly reduced cost development time and also this. So next slide, please. So more specifically, the automated module enhances design of [ Sage ] antigen constructs, enabling higher expression, better formulation and improved manufacturability. So this capability directs the design of [ salable ] antigen constructs and also stabilizing antigens using in various posing producing more reliable antigen construct vendor, wire side variance. There is a faster and more cost-effective design cycle fully integrated into our antigen discovery and vaccine optimization workflow. So this strengthened the foundation for all of our programs across oncology and infectious diseases. So in conclusion, we have seen strong progress across our platform and our R&D pipeline, and we are encouraged by the momentum and we look forward to keeping you updated as we advanced to 2026. And with that, I will now hand over to Thomas, who will go us through our financial business. Thomas Schmidt: Yes. Thank you, Birgitte. And also a warm welcome from my side to our call today. And I will now walk you through the financial results for 2025. So turning to the next page. We have, throughout 2025, been really successful in expanding on our cash runway and also strengthening on our equity side. This has happened throughout the year through public offering and the use of ATM we did in January, followed by the MSD exercise fee and the ATM used in September. And furthermore, the exercise of investor warrants from our January offering in October and November, all summing up to a cash inflow of USD 32 million. Furthermore, as also shown on this slide, our EIB debt-to-equity conversion done in July of USD 4.1 [ billion ]. We've reduced certainly our cash -- future cash out and thereby certainly also expanding and extending our cash runway. And finally, with our filing in December of our prospectus supplement regarding our ATM. It has now created us with further flexibility ability and options as we move forward with expanding our pipeline and platform also. So really, really underlines the strong execution throughout the year. And turning to the next slide. that also leads into the highlights of 2025, where we really have delivered on all the targets that we set and we are progressing towards our aim of becoming a sustainable self-funding business. Both revenue and costs have improved while at the same time, we are continuing to invest in our platform and in our pipeline programs. As just mentioned on the previous slide, activities and execution of the MSD deal, the EIB debt conversion, our ATM and capital market activities have not only improved our cash position and runway, but has also significantly strengthened our equity. And with improved cash runway and equity -- equity we have created more stability and certainly have also reduced uncertainty. So I think that is really, really also a highlight for '25. And again, with the update of [ F3 ] and ATM, we have removed the constraints of baby shelf and also provides us far better flexibility and options in support of our long-term strategic initiatives and also the long-term plans we do have. Next slide. is on our profit and loss statement. As I just mentioned, revenue has improved, but also we've improved on our operational costs. So we've actually been successful in long in our operational spend whilst at the same time delivering on the quality that we would want to do from a pipeline and platform perspective. revenue certainly stems from our NST option exercises, but also important to mention, we also had a grant from the Gates Foundation that also has come in 2025 -- apologies. Net financial position of [ $4.6 million ] is driven by a premium that we received from -- our debt conversion -- debt-to-equity conversion from [ EIB ] and against that goes remeasurement of a derivative liability as some of our warrants or our [ launch ] from the public offering in January were in a different exchange setting, so the USD versus our reporting of DKK. Net loss for the year, [ $7.7 million ], certainly a better in compared to last year. And as I said before, also a good step on the way of becoming a sales funding and profitable business. Next slide, on the balance sheet. since we ended the year with a cash position of USD 23 million with a runway that now is extended into half year 2 of 2027 in certainly also a significant improvement compared to last year. And this, of course, will be used for operations expenses and investing into our platform and pipeline. We currently have an outstanding -- we have a total outstanding ADS of $8.3 million when assuming that all shares have been converted into ADSs. We've also, through the investor warrants exercise has been reducing the outstanding warrants in terms of ADSs by $1 million. which leaves another [ 2.8 million warrants ] outstanding. So also an improvement in that and really drives in the right direction. So in summary, from a financial position, we have during 2025, established a far better foundation that really makes us puts us in a good position to continue our execution of strategy and business for '26 and the years beyond. With that, I hand it back to Helen for some final concluding remarks. Unknown Executive: Thanks, Thomas. And just moving to the last slide. In summary, 2025 was a year of strong operational momentum for Evaxion, in which we achieved several key milestones. Overall, we strengthened the business considerably to the validation of our strategy with our AI-Immunology platform, delivering on both data and partnerships. This, in turn, has enabled us to both strengthen our financial position and consolidate our position as a leader in AI-based of discovery, design and early development. With a number of potential partnership discussions ongoing, we are already funded into the second half of 2027 through the financial milestones achieved in 2025. So we're in a good position to move forward through 2026. With that, I'll hand over to the operator for questions. Operator: [Operator Instructions]. Our first question today comes from the line of Thomas Flaten from Lake Street Capital Markets. Thomas Flaten: Maybe to start broadly, Helen, you've been in the seat now for a few months. I'm just curious if you could provide some overarching commentary on what you have implemented or are going to implement -- any changes in strategy? And any bigger picture notes like that, that could help us with the context of your tenure? Unknown Executive: Sure. Thanks. Thanks for the question. Yes, I joined at the end of November last year. So the last 3 months have flown by. But I already have a strong impression from my prior seat on the Evaxion Board. In terms of bigger picture, changes. I think the fundamental action remains really strong. And in fact, I think they have only got stronger through 2025. So the ability to have an AI platform that is built up over many years, many iterations, grounded in data and testing for that data in the lab, and ultimately in the clinic has really strengthened the core offering. So I remain really excited about the power of the platform in the oncology space and also in the infectious disease space. And I think we're sort of seeing a lot more traction around what we can do with the platform now from external engagement. So I think the fundamental strengths and core of what Evaxion has to offer is even stronger now than potentially before. And I think in a world of AI, everything, actually getting to products, actually producing candidates that can generate vaccines that generate a biological response and the clinical response is meaningful and is becoming recognized as meaningful, certainly in our partnering conversations, et cetera. So I think that, that is core. So clear observation I had before coming into the company and certainly strengthened by all my observations within it. and even more impressed by the team that's in place that can deliver on this. I think in terms of the overall strategy, what have Evaxion has done well is that early discovery, the early validation, that deep scientific and informatic embedded expertise, and we can certainly bring things forward into early clinical development, late preclinical, early clinical. And I think what we're going through at the moment is a process of really optimizing where we see the most value in the near term, both in terms of our oncology assets, but also within the infectious disease area. I think we are not positioned to take too much further forward into the clinic. So we've been very cautious about that but we certainly see strength in getting interest from external parties around the assets that we've already got. And actually, the capability of the platform. So there's not a fundamental change to strategy, but I think a sharpening and the deepening of focus around the assets that will have the most value. I hope that's helpful. Thomas Flaten: Yes, that's great. And just keying off of your last comment there about taking products into the clinic. You mentioned with EVX-04 in Birgitte's presentation that you would be looking to submit regulatory paperwork. Is that a product that you think you have to take into Phase I given that herbs are a bit new, a bit different in order to attract a partner interest? Unknown Executive: I think that's a very good question. We are certainly preparing to take it into the clinic, and we believe that we can do that to gain some initial proof of concept. There's a lot of interest around the platform at that particular metacandidate antigens in the vaccine. I think we're doing some further validation, which I think will continue to strengthen it. So the answer in short is not necessarily, but clearly, the more critical validating data that we can add to the package. The stronger the value proposition to an external partner, and that's obviously what we're all about is maintaining the -- building the value for as long as we can to strengthen our position. And I think we're very confident about what we can do with it preclinically and potentially clinically. Operator: Our next question today comes from the line of Michael Okunewitch from Maxim Group. Michael Okunewitch: Congrats on all the great progress you made. I guess to start off, I'd just like to see if you could comment a little bit on the partnering efforts for EVX-01. And in particular, if there's anything that you've heard either in your feedback from partners that you think you're still would be particularly important for us to watch for from the upcoming data releases, whether that's the 3-year data or the biomarker immunogenicity. Is there anything in particular you think is key for driving these partnering discussions? Unknown Executive: So that's a really good question. And I mean, clearly, the cancer vaccine space has had something of a checker passed -- way back, but more renaissance, I think, in the checkpoint era. And I think our data is certainly resonating with companies who are interested in the cancer vaccine area, understand the nuances around getting, I think, strong cancer -- antigens, [ presliced ] cancer antigens for not just immune recognition but for clinical benefit. So the -- it is a complex therapy to administer, but it is also potentially an effective therapy. And I think the sorts of things that gain interest of the -- not just the response rate that we've seen in 2 years, 1 year than 2 years at ESMO, but also the recognition of the antigens, the numbers that the [indiscernible], and I'll ask you to add comment to this as well. So I think the -- we're in a strong position with that updated clinical data package that we have, the translational data, I think it's going to be interesting. It continues to -- so why and how the immune response is happening in parallel to the clinical response. So that is, I think, a differentiator and also in the population, the advanced population rather than adjuvant melanoma population. And clearly, I think we're also seeing interest in this whole approach in other high mutational burden cancers too. So beyond melanoma knows of it. I think those are the differentiators thinking about where else this is applicable accolading the different biological parameters, the translational insights that we're seeing that's somewhat different to how others have reported on this with similar approaches. So quite a bit of interest. I think the number -- to be honest, a number of companies are on the fence, but we're looking with interest and very interested in the shared approach -- the share approach that our EVX-04 program offered. Birgitte, do you want to add some further comments? Birgitte Rono: So there's no doubt that the ability of our AI immunology platform to identify the relevant targets and is getting a lot of interest from potential partners and also from the academic community. And with this 81% hit rate, as we call it, I think this is very impressive. We have, of course, looked at other similar programs and seen that most of them are reporting hit rates way below 60%, meaning that the antigens that they are including in their vaccines are not all able to induce a specific T cell response. And this is, of course, a testament to the position of our platform. So that's one of the key elements. And another point that I would like to make is that we do see EVX-01 as not just a therapy for advanced melanoma. We believe that the same concept can be very useful in other occasions where there are a high mutational burden, meaning that there are several antigens to choose from. That includes many of the high prevalent cancer indications. It could be non-small cell lung cancer and also some of the colorectal cancers. Michael Okunewitch: Thank you. I appreciate that additional color on that. And then as a follow-up, I wanted to ask if you could provide a bit more color on how you're applying the AI immunology platform to autoimmune disease. You identified this as a new area of interest. And do you expect that this would be more focused on allergies? Or would you focus more on the major large autoimmune and inflammatory diseases. Any additional color you could provide on that would be helpful? Unknown Executive: Sure. I think the first thing to say is it's early in terms of our prioritization of the indications, but we've certainly done some work around that based on parameters, which I'll -- Birgitte you're happy to comment on that, I think, high level in terms of what's guiding where we focus will be -- that would be good. Birgitte Rono: Yes. So we have done a lot of analysis on most prevalent autoimmune diseases, and we do see a clear fit for our platform. I mean, we, of course, need to further improve it and build a few additional smaller unit that allows us to apply the immunology. But we do have many things in place that can be directly applied in this area. So we will, of course, share more when we have done both analysis on which key indications we will pursue and also when we have done a little bit more work on adjusting AI-immunology, so it fits these diseases. But we should remember to say that there's a lot of these smaller units we call them building blocks that we can directly apply for these tax of diseases. So not only for autoimmune diseases but also for other diseases where there is a strong immunological component. So of course, we need to build a little bit, but the majority is already in AI-Immunology. Operator: Our next question today will come from the line of RK from H.C. Wainwright. Swayampakula Ramakanth: Thank you. This is RK from H.C. Wainwright. Just to start off, Helen, a quick question for you. You have basically, we've been an architect and multibillion dollar balances at that [ immune ] especially the large deal that was transacted with GSK. And also, you have heard a lot of experience in transactions. And while Evaxion is technically a very strong company, they have always had a difficulty in translating that language into meaningful transactions. Of course, Merck is a pretty strong partner. Based on your experiences, and how you manage to translate that. What sort of discussions could you have at this point? especially when talking with large-cap pharma, I'm convinced them that an AI tools predictability is as good as a physical assay and get them to start looking into some of the products that Evaxion is generating. Unknown Executive: Thanks for the question. I think there are probably multiple dimensions to answer that question to the extent that it is possible to answer it at this point. One is that A lot of this is to do with timing. It's to do with data that validates that it's more than a sort of an AI platform. And I think actually, the fact that we have the scope to validate and iterate candidates target discovery with candidate development with cancer validation is something really novel that we're generally out there. And when I said timing -- there are obviously many of the large pharma, most of them will all have in-house AI platforms running in one form or another. But I don't think there are many that have got this sort of integrated long sort of longitudinal depth of expertise that actually has. So really, is that this is about crystallizing the offering through the validation of the cannabis we have and sort of being in dialogue with the right people. And you mentioned my background was a long time, 17 years in my precise company, building relationships establishing contact, understanding and listening to strategy, looking at the wider picture. These are all things that are very much part of how deals get done. And ultimately, it's down to relationships and credibility and really having something that fits the need. And all I can say at this point is we're reworking up some of those approaches and some of those themes in terms of how we are approaching potential partnering interaction, I have to say that the action team is well known with quite a few of these groups, but we're building and expanding that profile. And I think that's critical to the future success in partnering conversations. So it's being what you say you are in front of the right... Swayampakula Ramakanth: Perfect. Then going into relationships with Merck, especially regarding EVX-B2, Merck decided to extend the evaluation of the molecule rather than exercise the option at this point. Is this a function of them trying to do additional experiments or functional assets? Or are they requesting from new additional work so that they can come to a conclusion? Unknown Executive: Sorry, are you referring to the extension that they had last year before the opt decision there? Swayampakula Ramakanth: Yes, yes. Unknown Executive: I mean we can't really comment on, obviously, the combination nature of the interactions. All I can say is that sometimes is sort of R&D programs when they are back and forth and shared between organizations don't always run to plan. And so sometimes that requires looking at things again. But ultimately, then there are time frames around things, which have to follow through. So I think there are reasons for not taking sort of obviously, their reasons not multidimensional. All I can say is that we remain really excited about the data. We actually continue to build data on the program internally throughout that period of time as well. So we feel very, very bullish and strong about the data package but how and why I wanted to do that work? Or is it something we probably we can't really add any more commentary on. Swayampakula Ramakanth: Okay. On the EVX-01 durability, Birgitte, so you have shown 92% of the responders showing sustainability, be it 24 months. As we are looking forward to the 3-year durability what sort of exhaustion markers are you going to be tracking so that we understand how well the durability is. Birgitte Rono: Yes. Thank you for that question,. So it's correct that 92% of the responders remained in response with this 2 year mark. And I guess your question was related to the T-cell extortion -- as yes, we do a deep scar profiling, looking at activation marker, extortion markers and also at different phenotypes of the T-cells, so including CD4, CD8, but also looking into whether there are regulatory T-cells coming up. And so far, we have demonstrated that -- the profile of the T-cells are very favorable. So in more of the activation or effective type of sales and not too many that are having exhaustion markers. We also see that there's a like dominance of CD4 T-cells and with some patients are also mounting a CD8 T-cell by time. So we have -- during this extension phase of the study, we have been collecting additional blood samples that are currently being analyzed in our lab. So not to comment on that, but it's very exciting. And since EVX-01 is giving us a immunotherapy in this extension phase, we're also very curious of understanding what EVX-01 can drive on its own without having the background of the checkpoint inhibitors. Swayampakula Ramakanth: Okay. One last question from me. This is on the EVX-04... Operator: In the interest of time, we will move to our next question. And our next question comes from the line of Daniel Ben Hill from Jones. Unknown Analyst: On the autoimmune disease program, can you provide more detail on your strategy for validating early candidates? Unknown Executive: Thanks for the question. I mean it's early, and we probably cannot provide more details. But, Birgitte, do you want to comment on how we think about it. Birgitte Rono: Yes. So the first step is to settle on an indication. So we have done landscaping. We've done dianalysis on looking at the top 10 most prevalent ultimate diseases, and we are now narrowing down which one could be the most, I would say, interesting from a -- from our perspective, where there is a nice fit for AI-Immunology. And so that work is ongoing. We've almost completed it. And next step is to focused on building the additional smaller units that we will be needing in AI immunology to enable us to develop therapies for these diseases. And in parallel, we are also sitting on mouse models in our lab, so ensuring that we can also test the candidates that AI-Immunology is designing. So that is the current plan. So pretty traditional way of analyzing our existing the candidates that AI immunology is designing. Operator: Thank you. This concludes today's question-and-answer session. I will now hand the call back to Helen Tayton-Martin, CEO, for closing remarks. Unknown Executive: Thank you very much for everyone participating on the call today. It's been a great year of 2025 of transforming the company for Evaxion delivering on multiple milestones, leaving us in a stronger financial position than for some time, where we hope we can take the company forward and deliver on our 2026 milestones and continue to strengthen the value that comes from the platform and the asset. So thank you for your questions and your engagement, and we look forward to our next update. Thank you. Bye-bye. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Greetings, and welcome to the Methode Electronics Third Quarter Fiscal 2026 Results Conference Call. And please note, this conference is being recorded. I will now turn the conference over to your host, Joni Konstantelos, Managing Director of Riveron. Ma'am, the floor is yours. Unknown Executive: Good morning, and welcome to Methode Electronics Fiscal 2026 Third Quarter Earnings Conference Call. Our fiscal 2026 third quarter financial results, including a press release and presentation can be found on the Methode Investor Relations website. I'm joined today by John DeGaynor, President and Chief Executive Officer; and Laura Kawaltick, Chief Financial Officer. Please turn to Slide 2 for our safe harbor statements. This conference call contains certain forward-looking statements, which reflect management's expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements are subject to the safe harbor protection provided under the securities laws. Methode undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in Methode's expectations on a quarterly basis or otherwise. The forward-looking statements in this conference call involve a number of risks and uncertainties. We will also be discussing non-GAAP information and performance measures, which we believe are useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures can be found in the conference call materials. The factors that could cause actual results to differ materially from our expectations are detailed in Methode's filings with the SEC, such as the 10-K and 10-Q. Please turn to Slide 3, and I will now turn the call over to John DeGayner. Jonathan DeGaynor: Thanks, Jonny, and good morning. Welcome to Methode's Third Quarter 2026 Earnings Call. I want to begin by recognizing our global team for their continued focus on serving our customers in the face of a challenging and rapidly evolving environment while driving forward our multiyear transformation journey. Across our manufacturing sites and corporate functions, our teams have demonstrated resilience as we work through industry headwinds and advance our transformation initiatives. Your discipline, collaboration and commitment to continuous improvement are strengthening our foundation and positioning us for better long-term performance. Thank you. Moving to our third quarter results. We generated $234 million in sales and $7.3 million in adjusted EBITDA. While profitability was pressured year-over-year, we delivered positive free cash flow of $10 million in the quarter and approximately $17 million in year-to-date cash flow as we remain on track to achieve our fiscal '26 free cash flow targets. Importantly, our Industrial segment sales increased 9.5% year-over-year, reflecting continued strength in off-road lighting and power distribution solutions supporting data center applications. That performance demonstrates the benefit of our growing exposure to higher-growth industrial power markets and helps offset some of the headwinds we are seeing in North American automotive and in commercial vehicle lighting. Generating cash while navigating a volatile revenue environment is a clear reflection of the operational discipline we are building into this organization. Please turn to Slide 4. Our transformation journey continues. As I've said before, progress will not be linear and is not something that could be measured in a single quarter or even a few quarters. Our transformation is a multiyear effort focused on strengthening the foundation of the company, utilizing our resources as efficiently as possible and finding new sources of value. Along the way, we must refine our portfolio, align our business structure, optimize our footprint and embed operational discipline into everything we do. At the same time, there are factors outside of our near-term control, commercial vehicle market softness, EV program delays and macro volatility, particularly in North American automotive that will impact our improvement trajectory. We are addressing those realities directly with our teams and with our customers, but we are not allowing them to distract us from executing our priorities. Let me briefly recap these priorities. First, stabilize and improve our operational execution. When we started this journey, we had 2 facilities that were extremely challenged, Egypt and Mexico. We continue to see positive trends in Egypt as a result of the changes we have made there. The transformation of our Mexico facility is not as far along. We're making progress in upgrading the team and improving execution on both existing programs and new programs. However, we have not seen the productivity improvements as quickly as we initially expected, which has been exacerbated by commercial vehicle volume reductions and program delays from multiple North American customers. These external factors were the primary driver of our EBITDA guidance revision that Laura will talk about later in the call. We've built an entirely new leadership team in Mexico, and we are supplementing that team with both corporate and specialist external resources. Our new leadership team is getting fully up to speed and working hard to tackle the challenges in our 2 Mexico facilities, understanding root causes, driving accountability and resetting expectations. Naturally, when you're transforming an operation, there's a cleanup involved. You have to surface issues before you can permanently fix them. This is part of the process. It is not comfortable, but it is necessary. We are taking focused actions to improve execution, efficiency and cost control, and we expect performance to strengthen as those actions take hold. Second, we are refining and simplifying the portfolio. A clear example is the completed sale of the Dataamate business, which I'll talk about more in a minute. Third, align our cost structure and footprint. We completed the move of our headquarters from Chicago and sublease that facility. We've signed a purchase agreement on our Howard Heights facility in Illinois, a facility that formally housed our Dataamate business. So we are making good progress in reducing our overall footprint. And fourth, position the company to capitalize on secular growth opportunities, particularly in Power Solutions. We are actively capitalizing on the data center and vehicle electrification megatrends, reallocating resources toward the areas where the strongest long-term return potential. These are deliberate, measurable actions, and we are doing what we said we would do. These are not concepts, they are actions. Turning to Slide 5. For background, Datamate is a supplier of copper transceivers for enterprise and telecom networks. While it was a solid business, it was not aligned with our long-term power solutions strategy. Divesting it allows us to redeploy capital and management toward higher growth, higher return opportunities, particularly in our Industrial Power Solutions business. We are concentrating our capital management -- capital and management attention and engineering resources on the areas that can generate the greatest long-term returns. The proceeds from this sale and the Harvard Heights facility sale will be used primarily to repay debt and further strengthen our balance sheet, consistent with our disciplined capital allocation approach. Turning to Slide 6. Power Solutions has been part of the Methode DNA for more than 60 years. We are now leveraging that deep expertise to serve today's most demanding applications across EV, industrial and data center markets. We're expanding our customer base. We are adding experienced industry veterans into the industrial power business, and we are rotating engineering and commercial resources toward higher growth opportunities. This is not a short-term pivot. It is a structural reallocation of talent and capital, and we expect this to pay dividends over time, but we are still early in this journey. Let me spend a minute on data centers. Based on Q4 order patterns, we now have line of sight toward $120 million annualized run rate. This represents a significant increase in run rate year-over-year. Importantly, this run rate reflects current end customers through various contract manufacturers. It does not assume incremental wins from new accounts. Our actions regarding additional commercial and engineering resources and our investment in items like vendor-managed inventory are enabling us to react much more quickly to customers. We are seeing increasing momentum as a result of these actions. We are expanding our customer base, but our current run rate is supported solely by existing relationships. As momentum builds, the trajectory suggests a 50% increase in run rate year-over-year in the near term. This is a meaningful growth driver for Methode both for today and the future. Turning to Slide 7. Transformation is not linear. There will be turbulence, particularly in North American automotive, and we are seeing that today. But we are building a stronger operational foundation underneath the business. At the same time, we are executing every day. We're shipping product. We're supporting launches, and we are managing working capital. This dual focus of transformation while operating is critical. -- transformation does not happen in isolation. We remain encouraged by opportunities in our Industrial segment, especially in power distribution solutions supporting data center infrastructure. Those align directly with our core competencies while there is more work ahead, we are making measurable progress, strengthening execution, simplifying the organization, improving the balance sheet and positioning method for performance over time. I'll now turn it over to Laura to go through the financials. Laura Kowalchik: Thanks, John. And turning to Slide 8. Third quarter net sales were $233.7 million compared to $239.9 million in fiscal 2025, a decrease of 3%. The year-over-year decrease in sales reflected lower sales volumes in the automotive segment related to a reduction in North American electric vehicle volumes and the interface segment related to a previously announced appliance program roll off. Results were partially offset by a higher sales volumes in the Industrial segment, particularly for off-road lighting and power products as well as positive foreign currency translation which had a favorable impact of approximately $12 million in the quarter. As a reminder, the third quarter is also historically our weakest quarter for sales as it covers the year-end holidays. Gross profit was $38.8 million, down from $41.3 million in the prior fiscal year quarter, primarily a result of lower sales volume and product mix in the Automotive segment and interface cement. Selling and administrative expenses increased by $1.4 million to $39.1 million in the quarter. Restructuring and asset impairment charges included within selling and administrative expenses were $400,000. Income tax expense for the quarter was $2.8 million, down from $6.2 million in the prior fiscal year quarter. In the quarter, we realized a lower valuation allowance for U.S. deferred tax assets of $2.4 million compared to $6.5 million in the prior fiscal year quarter. Third quarter adjusted EBITDA was $7.3 million, down $5 million from the same period last fiscal year. Third quarter adjusted net loss was $13.1 million a $5.9 million change from the third quarter of fiscal 2025 attributable to the decrease in gross profit and increase in selling and administrative expenses, partially offset by a lower income tax expense. Third quarter adjusted loss per diluted share was $0.37 compared to a loss of $0.21 in the prior fiscal year third quarter. Please turn to Slide 9, where I will discuss the progress made with our disciplined capital allocation strategy. We ended the quarter with $133.7 million in cash, which was up $30.1 million compared to the end of fiscal 2025. Operating cash generation in the third quarter was $15.4 million. Third quarter free cash flow was $10.1 million compared to $19.6 million in the fiscal third quarter 2025. Although down year-over-year, we continue to generate robust free cash flow amidst a challenging operating environment with a free cash flow of $16.5 million year-to-date as we continue to operate with strong capital discipline. Net debt was down $16.9 million compared to the same period last year. Moving forward, we remain committed to driving strong cash flow generation to further pursue our capital allocation priorities of net debt reduction, selective high-growth investments, business improvements, portfolio alignment as well as returning value to our shareholders through dividends. Turning to Slide 10. Again, please note that fiscal 2025 was a 53-week fiscal year in fiscal 2026 is a 52-week fiscal year. Our guidance also does not reflect the sale of Data Mate or our Howard Hites, Illinois facility. For fiscal 2026, we have narrowed our net sales guidance, raising the low end of the range by $50 million to now be $950 million to $1 billion. The increase primarily reflects the benefit of foreign currency translation, which totaled approximately $25 million through the first 9 months of fiscal 2026. For the full year, we anticipate foreign exchange to provide an approximate $30 million benefit relative to our prior assumptions, which is largely driving the increase in our midpoint. In addition, we have lowered our adjusted EBITDA outlook to be in the range of $58 million to $62 million compared to our prior range of $70 million to $80 million. The reduction is primarily concentrated in North American auto and reflects updated cost assumptions related to multiple customer program delays and higher expenses associated with the transformation of our Mexico facility, including wages and professional fees. For fiscal year 2026, we continue to expect positive free cash flow in the fourth quarter and for the full year compared to an outflow of $15 million in the previous fiscal year. With that, I will hand it back to Jon for closing remarks. Jonathan DeGaynor: Thanks, Laura. To close, while the near-term environment remains dynamic and our improvement trajectory is not linear, we are taking deliberate actions to strengthen the company. We are stabilizing operations, refining the portfolio, aligning our footprint and cost structure and reallocating resources towards higher-growth power solutions opportunities. There is more work ahead, particularly in Mexico and within North American automotive. But the foundation we are building is real. At the same time, we are maintaining a sharp focus on cash generation and balance sheet discipline. We believe the actions we are taking today position method for improved performance and more consistent value creation over the long term. With that, operator, please open the line for questions. Operator: [Operator Instructions] Our first question is coming from John Franzreb with Sidoti & Company. John Franzreb: I would like to start with Mexico. Can you just kind of review what's going on there? And how far along are you on the process and maybe time line when you think it will be completed. . Jonathan DeGaynor: Yes. So John, a couple of things. Thanks for your question, and Laura will chime in here as well. As we said on previous calls, the transformation in Mexico is probably about 6 months behind where we are with Egypt. And we are making progress there. But one of the challenges that we have is in Egypt, we have year-over-year revenue growth on top of performance improvement whereas in Mexico, we have continued -- we have year-over-year revenue shrinkage. Most of the roll off of our past programs is in Mexico and the primary impact of program delays is also in Mexico. So the -- what we're spending to prepare and launch new programs as well as the transformation there isn't getting any benefit from tailwinds of increased revenue. We're seeing -- we're spending the money to get the launches ready and we're seeing the delays. The team has been completely rebuilt over the last 6 months, and I'm really pleased with the progress that we're making on our day-to-day execution. But we're 6 months behind where we were with regard to Egypt. Laura Kowalchik: Yes. And as Jon mentioned, the decrease year-over-year in revenue, which results in the bottom line decreases as well as under absorption. We have some additional S&A expenses related to changing out the management team and wages as well as additional resources that we brought in to help with the operational performance. But despite this, we are seeing improvements in scrap and direct material costs as a percent of sales through our supply chain initiatives. John Franzreb: Now we had 3 great months of commercial truck orders. I'm curious, have you seen that flow through your P&L yet or any purchasing orders or anything? And also, does that impact the Mexico facility at all? Can you just maybe talk to that? Jonathan DeGaynor: So John, it does impact the Mexico facility and it's the impact of -- we're actually still seeing it as a headwind with regard to orders. Both what we've seen from DTA and PACCAR in is more of second half of calendar '26 as to where the volumes start to come back. And what we're seeing the impact, and we talk a little bit about it, is the trade-off between commercial vehicle volumes in our in lighting and some of the North American automotive programs. So we have a mix impact as well as volume impact. We do see some future growth later in this quarter and probably more into early of our fiscal 2027, but we aren't yet seeing it. John Franzreb: And one last question on Data made. How much in revenue or annualized revenue did that business contribute? And was it profitable? Or maybe you can give us maybe the scale profitability? . Jonathan DeGaynor: So it's roughly $18 million worth of revenue. It was profitable. But what I can say is in roughly $3 million worth of profitability. But what we can say, John, is the ability to pay down debt, the ability to exit an underutilized facility and to continue just our overall rationalization of structural cost, we believe we can largely offset that profitability. So we think overall, it's an accretive decision. Operator: Our next question is coming from Luke Junk with Baird. Luke Junk: I'll jump off there. Jon, can you just remind us of some of the key products and applications for that data made business? And I guess 1 of the obvious questions strategically is just why it wasn't too complementary with the core power business in data center? . Jonathan DeGaynor: So this is more of a data over copper. -- system. It's a small electronic data over copper product. It's not complementary with our data center activity whatsoever. And really, the judgment for this look was it's a good business. But as you think about the opportunities that we have, and you and I have talked many times about return on effort, what it would take to make that grow materially because it's been relatively flat in the $15 million to $18 million for revenue for a long period of time. As we looked at it, it was a good business -- it is a good business. But in order for us to make it grow versus putting more effort into our base data center business or some of the other areas where we can drive growth and really return for the shareholders, our decision was that probably is a better open for the business than method. Luke Junk: Sticking with data center, if I look at the chart that you guys provided, which is helpful. Just trying to extrapolate the data center piece in fiscal '26 specifically. It seems like it's trending fairly flat this year. Now I understand some of the reasons for that. I know you were implementing the VMI. There's some other things going on in the hood there. But just trying to understand, certainly, there's been a lot of CapEx growth this year. Should we perceive that there's been effectively like a little bit of a growth bubble because I'm just trying to get comfortable then stepping into, I think you said in the $120 million run rate on a go-forward basis given the clarification. Jonathan DeGaynor: So look, -- what we've said to you is -- and said to the investors is that as we move to an EDI-based sales forecast versus just a, if you will, a contract-by-contract sales forecast that we would give you transparency as soon as we knew it. This run rate that we're talking about is that transparency. This is backed with EDI. So you're right that on a total year basis, it looks like it's relatively flat. Part of that was due to some of the sales gap that we had moving from where we recognize the sale when the parts leave the boat in Shanghai to moving to vendor-managed inventory, which created a 6- to 8-week revenue gap. So -- the most important thing here is a flat -- relatively flat year-over-year, but Q4 run rate of $120 million with EDI that gives us great confidence in what we see on year-over-year growth and what we see into the future. The other aspect is I think you made a comment about CapEx growth. We have not had significant CapEx growth. It's actually down year-over-year. And there's been no material CapEx that's been invested for the data center business whatsoever. As a matter of fact, we're using some core competencies and some capabilities from other investments as we rotate into Mexico. So we have really use our capabilities. We rotated with this VMI and it is creating the momentum that we said it would and the $120 million run rate reinforces that. Laura Kowalchik: Yes. Our CapEx, just to jump in here. Our CapEx was $42 million for FY '25, and we're at 16.5% right under 17% approximately this year. Luke Junk: Yes. That $120 million, you also mentioned, Jon, that you have a line of sight to 50% kind of growth in the medium term. I think if I try to extrapolate what you're implying in the targets maybe about $85 million of data center this year. Is that -- what kind of base numbers should we use for that 50% opportunity? . Jonathan DeGaynor: And that's what we have said pretty consistently is $80 million to $85 million as a basis in our guidance. And as we talked about on the last earnings calls, that considered the impact of VMI. But what we're seeing here is a run rate that's actually higher, much of which will be setting us up into 2027 -- fiscal 2027. Luke Junk: And then last question for me, a Mexico, understand some of the challenges there. I think you had some initial improvements, but obviously, things that are cutting against you as well. It feels like maybe there's been some things that have cropped up that you weren't anticipating? I guess, is this some more contagion across launchings and the fact that just -- I know you had whatever is something in the range of 20 launches this year. Just that as you're spending to those that Silensys was pretty visible, but are there more launches that are becoming problematic at the margin? . Jonathan DeGaynor: Yes. So I think the way to think about this is as you bring new people in with fresh eyes, we do see some things from a performance perspective. But as Laura said, our scrap rates and our premium freight and other items that are really controllable performance-based items are better year-over-year. We -- what we have seen with regard to the new launches is we've spent the money both from a capital standpoint and from an engineering standpoint to prepare for the launches and we've had further delays even from what we said in the last quarter. So because those launches were primarily EV-based power application launches for North America, and many of our customers have further delayed their programs. That's where the challenge is. So we just don't have the revenue that we would expect as these launches -- as these programs start and ramp up, we're not seeing those. So as we've talked about we're dealing with it from a class standpoint. We're also dealing with it with going back to customers for recoveries on where we have those delays. Operator: Our next question is coming from Gary Prestopino with Barrington Research. Gary Prestopino: Jon, Laura. I just want to follow up on this EV issue. These are delayed programs. Is there any programs that have been outright canceled? . Jonathan DeGaynor: Yes, you okay. So as we -- Gary, just to answer that, as we've talked about there, we have talked about some Stellantis program cancellations as well as other programs that are delayed. And we've mentioned what we've done with regard to previously about going back to customers and particularly Stellantis with regard to dealing with cancellation claims. So those are ongoing. None of the customer negotiations are in our -- in this guide. I think it's important to note that neither the data make transaction nor the Hardwood Height transaction nor any customer recoveries are in this guide. Gary Prestopino: Let me ask the question another way just so I can get an idea. In the programs that you have right now that you're actually producing for and you're actually having take rates, was -- were the take rates less than you had anticipated and that has been causing you to channel down your expectations for the EV market this year? I'm just trying to get a handle on it, how this is all shaping out. Jonathan DeGaynor: Yes. So here's -- the answer is yes. And it's primarily in North America. So if you think about it, auto is 45% of method. EVs are 41% of auto. So as a total, EVs as a percentage of method through this year, through this fiscal year is 18%, where now take it to the next level, which is exposure to EVs -- of that 41% of auto that is EVs, only 14% of that is North America. If we were going back, and I don't have the number at my fingertips, if we've gone back when we originally set guidance, that number should have been much, much higher based on the assumption of launches from multiple programs. So the -- what we're seeing is expenses launch expenses, CapEx, building inventory, all those sort of things in Mexico, in a place where you have big programs rolling off that we've talked about across multiple quarters and none of the revenue coming from the EV programs. Gary Prestopino: What about what you're doing outside of North America, how would the take rate spend there? Jonathan DeGaynor: Those take rates are relatively on track. The growth on a year-over-year basis in Egypt, the top line growth we have bottom line that's driven by performance. We have top line growth that's basically driven by ramp-up of programs, particularly the EV programs that we launched there, and China is stable. So this is -- it's why we refer to it specifically as a North American automotive challenge and as an EV program cancellation or delay challenge. Gary Prestopino: Are the products that you guys produce the EVs, are they applicable to plug-in hybrids and hybrids. I mean can you bid on those new models that are coming out because it seems that that's the way the market's really rolling now. Jonathan DeGaynor: Yes. And our pipeline of bids has our quoting and cost estimating team is very busy. Operator: We have another question from John Franzreb with Sidoti. John Franzreb: I stick to the launch topic here. How many programs have you launched on so far in fiscal '26 and how many remain for this year -- and how does that compare to your expectations at the beginning of the year? I'm just trying to contextualize what kind of magnitude we're talking here. Jonathan DeGaynor: John, I don't I don't have the exact split between what we plan to launch and what we have launched versus cancellations. Our number was programs in this fiscal year. It was 56% over fiscal 2025 and fiscal '26. And because of the timing -- because of the timing of some of these delays, we spent the money on the launches before we ended up with either a delay or cancellation. So the number is still the same. It's just a question of whether we got the revenue from it. John Franzreb: And when looking at the product portfolio, where does that stand? I mean, is Data made the first of many? Or are you still like looking at everything you're trying to decide. I'm pretty sure at 1 point, you said there was some unprofitable businesses that you may want to exit. But can you just kind of give us an update on what -- how that process looks at this point? Jonathan DeGaynor: What we would say is that data mate was an important first step. It reinforces what we have said to the shareholders that we will continue to refine our portfolio as well as refine our overhead structure. The portfolio review is ongoing, and you can expect more to come in the future. Operator: Thanks, Jon. Thank you, everybody. Thank you, ladies and gentlemen. As we have reached the end of our Q&A session. This will conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.
Jens Breu: So good morning, everyone, and thank you for joining us today for presenting the annual report of 2025. The following presentation of the 2025 annual results can be found on our website at www.sfs.com, under the Downloads section. Now it's not moving to the next slide. Somehow it's not moving to the next slide. Can you -- someone is on the braking pedal, most probably you. Sorry for that. Volker Dostmann and I are pleased to present the SFS Group results for the financial year 2025. It was yet another year characterized by a demanding market environment, geopolitical uncertainty and continued currency headwinds. Despite this, SFS delivered solid results. Our diversified positioning across end markets and regions once again proved to be a strength. At the same time, we initiated important structural measures that will strengthen our competitiveness for the years ahead. So next slide, I have to say. Let me briefly guide you through today's agenda. In the next roughly 45 minutes, Volker and myself will actively walk you through the highlights of the year. I will start with a short reminder of how SFS is positioned and how we create value for our customers. After that, I will summarize the key takeaways of 2025. Volker will then walk you through the key financial figures in more detail, and then I will return with a short overview of the segment developments before we conclude with our outlook for 2026, and open the floor for questions for the remainder until noon. Now we got kicked out. Okay. I'll start with the positioning of the SFS Group. SFS as a company is people throughout everyday life, often unnoticed 24 hours a day, 7 days a week. Our mission-critical precision components, fastening systems and quality tools are embedded in the products and processes of our customers. While our products are often small components within larger systems, they play an essential role in ensuring reliability, safety and performance by focusing on mission-critical applications. We help customers achieve efficiency and cost effectiveness across a wide range of applications. This positioning is built on a long-term customer relationship, engineering expertise and a deep understanding of our customers' applications. Our guiding principle is simple, inventing success together. In many cases, the direct cost of our products represents only a very small share of the overall cost of our customer products. The real value lies in optimizing the overall process. Through value engineering, we improved product performance, simplify installation processes and reduce supply chain complexity for our customers. This is where we, as value creators, create measurable gains. Our activities are structured in 3 segments. Engineered Components focuses on highly precise customer-specific components and assemblies. Fastening Systems develops and markets application-specific fastening solutions for the construction industry. And Distribution & Logistics provide tools, fasteners and C-part management solutions for industrial manufacturing customers. Optimizing the product. Let's now take a look at the specific end market with an aerospace application. This example illustrates how value engineering works in practice. Instead of simply supplying a standard component, SFS engineers analyze the entire application and redesign a new solution. By replacing the conventional bracket solution on the left side with a hybrid insulated pin fixation with bolts on the right side, we can reduce weight and operating cost. At the same time, customers benefit from easier installation and lower procurement complexity. The next success story as well in aerospace shows the engineering capabilities of our Engineered Components segment in the aerospace industry. From the initial customer idea to first flight, the development took only 16 months, which is very short for aerospace projects. The solution combines advanced plastics and metal processing technologies to create an ultra high-strength composite overhead compartment hinge for the refurbishment of existing aircraft cabins. It provides more space for passenger luggage, improves boarding and deboarding and contributes to both sustainability and cost efficiency for airlines. To give another example from the aerospace market. Many of the solutions developed by SFS are not visible to the passenger, yet they are essential for the performance and safety of the aircraft. Typical examples include cabin assemblies, assembled solutions, injection molding components and new also aerospace fasteners. These solutions require a very high precision and close cooperation with the customers already during the design phase. SFS supports customers from engineering and prototyping all the way to serial production, creating strong and long-term partnership. In the Fastening Systems segment, SFS combines products, tools and digital engineering solutions into integrated fastening systems. Our approach is not only to supply fasteners itself, but to optimize the entire fastening process. This includes specialized insulation tools and calculation software that ensures the correct application of the fastening solution. By combining these elements, we improve reliability, productivity and efficiency for our construction customers. In Distribution & Logistics, SFS focuses on optimizing the supply and the management of tools and C-parts for industrial customers. Through smart tool storage and digital issuing system, employees have immediate access to tools and consumables at any time. This improves availability while reducing inventory levels and administrative effort. At the same time, the generated data enables further optimization of procurement and production processes. Payback for the customer is usually less than 5 years. The concept can also be compared to a razorblade model. The system itself is the infrastructure, while the tools and consumables represent the continuously used blades. Through this system, we not only supply the tools but also generate transparency on consumption and usage patterns. This allows us to provide additional services such as cost optimization, inventory reduction and process improvements for our customers. To act as a true value engineering partner, it is essential for SFS to have a clear focus on specific end markets and customer applications. For this reason, the SFS Group implemented several organizational changes to sharpen its end market exposure and strengthen collaboration across the segments. As of January 1, 2026, the Engineered Components divisions were reorganized around applications, and the new region, Asia was created to further develop the important Asian growth markets. Urs Langenauer was appointed as Head of EC segment; Martin Reichenecker to go with the leadership of Region Asia; and Iso Raunjak became Head of D&L segment; while Christina Burri joined the Group Executive Board as Head of Corporate HR, Communications and ESG. These changes also reflect the generational transition in leadership and ensure continuity in the execution of our strategy. I'll start with the key takeaways of 2025 at a glance, resilience in turbulent times. The year 2025 proved to be another intense year against the backdrop of an adverse market environment. SFS realized solid results, thanks to its broad positioning across different end markets and regions. A program to streamline the global production and distribution network was proactively introduced with the goal of realigning production capacities with partially reduced customer demand and strengthening focus on core activities. Third party sales of CHF 3 billion was generated, plus 0.6% versus prior year. Organic sales growth of 2.9% demonstrates strong market positioning, currency effects again had a significant impact with minus 2.9%. And adjusted operating profit EBIT of CHF 371 million, in the prior year CHF 350.2 million was achieved, which resulted in an adjusted EBIT margin of 12.2%, in the prior year 11.6%. Reduced earnings per share of CHF 5.63, in the prior year CHF 6.21 were caused by the economic environment and the nonrecurring effects from our program to streamline global production and distribution network. Expenditure on plant equipment, hardware and software declined considerably to CHF 103.7 million, in the prior year CHF 148.9 due to the completion of several major projects. Organizational adjustments, as mentioned, were completed to support the generational transition and to strengthen customer focus. The key takeaways are clear. Consistent progress was achieved. In 2025, SFS achieved total sales growth of 0.6%, while organic growth reached 2.9%, demonstrating the solid underlying performance of the business. Currency effects had a negative impact on the reported figures. The main growth driver during the year was the electronics end market, which showed particularly strong demand. As a result, sales in electronics increased from around CHF 400 million to CHF 422 million, confirming the strong positioning of SFS in the targeted electronics applications. On the environmental side, interim targets were exceeded. Sustainability remains an important pillar of SFS' long-term strategy. In 2025, we made further progress in reducing our environmental footprint. Compared to the 2020 baseline, Scope 1 and Scope 2 emissions were reduced by 77.1% measured as CO2 emissions in metric tons relative to net sales. At the same time, we continue to increase the use of renewable energy, 81.5% of our total electricity demand is now covered by renewable sources, reflecting our continued efforts to decarbonize operations and move towards our long-term climate targets. On the social side, dual education goals were secured, progress in accident rate finally achieved. Alongside environmental progress, SFS has also made further advancements in the social dimension of sustainability. Our training and development targets were successfully confirmed, reflecting our strong commitment to education and continuous employee development. A significant number of employees are engaged in education and training programs, reinforcing the importance we place on developing skills and future talents. At the same time, we achieved a significant improvement in workplace safety. The accident rate measured as the number of accidents per million hours worked, declined noticeably, reflecting the continued focus on safety initiatives across the group. With that, I'm now handing over to Volker for the presentation of the key financials. Volker Dostmann: Thank you very much, Jens, and a warm welcome also from my side. The financial year 2025, as said, was to be seen in the front of a backdrop mixed with geopolitical and economic challenges, distinct FX development and instability of international trade. We may report good results and satisfactory development in such difficult environment. The team showed great dedication to their end markets to their customers and found opportunities despite all of that. We thank all of the 30,646 employees for their dedication. And I summarize the performance as a consistent progress. We grow, we optimize ourselves, namely the production and distribution network. We drive profitability and we generate with that significant levels of cash. But let me go into the details, starting with sales. We show sales of CHF 3.056 billion, which is 0.6% growth adversely affected, as you see, by the FX environment, CHF 88 million up to the tune of 2.9% that is lost against the appreciation of the Swiss francs. Sales dynamics during 2025 have been challenging, as said, but after a muted first half year by geopolitics and hesitations in order patterns globally, we report a pickup in Q4 especially versus prior year, and our organic growth is despite the adverse conditions at 2.9%, just shy of our midterm guidance. This is largely based on the positive developments in Engineered Components where we see, especially in the electronics end market, replacement cycles in mobile phones. Additionally, the increase of stamped parts that we deliver to the respective customers successfully support our top line. In parallel, we continue to ramp up the known brake systems in the automotive end market. That's happening in Switzerland, in China, in India and in the U.S. We are on track to see good progress there. Distribution & Logistics shows very solid development in an end market where especially machine builders and manufacturers restricted their demand painfully and kept their priorities on operational necessities. Still, the team has managed to achieve organic growth of 2.4%. With construction activities in Central Europe being very sluggish versus a more dynamic North American market, the segment Fastening Systems saw headwinds from the weakening of the U.S. dollar. Gradual improvements during the year were dampened towards year-end again. Overall, we see a slight negative performance throughout the year for the Fastening Systems segment. As said, FX development, again, mainly against Swiss franc, dollar, euro, Swiss franc, melted off a significant portion of the locally made progress 29% up to the tune of CHF 88 million. Looking into breakdown by geography and industries. I would like to highlight that we stay very solid in Europe at 56.8% and the share. But also we'd like to point out the shift in North America and Asia, where we gradually gain footprint to Asia 14.3%, and the Americas 17.8%. Sales breakdown by industry shows a stable situation as well. Industrial manufacturing at 27%, just losing a wee bit in an extremely competitive market environment. We managed to keep the footprint almost stable. Construction and automotive, both at the 20% reach. Our local for local approach remains a strategic pillar. And with that setup, we see ourselves well positioned against tariffs and customs discussed. And also the unilateral measures taken by the respective countries. The uncertainty and the volatility from the end market demand is more of a concern to us at these days as the tariffs itself. Operating profitability is at the CHF 371 million or 12.2% or EBITDA, CHF 505.8 million, 16.6%, which is a normalized figure. Reported, we are at CHF 324.3 million, 10.6% or EBITDA of CHF 466.6 million, 15.3% of sales. We adjusted to CHF 46.7 million one-time nonrecurring cost in the program of streamlining our production and distribution footprint, and this shows the results. We have managed to lower our personnel expense quota by 0.5 percentage points, and OpEx by 0.4 percentage points in a sustainable way. Based on a stronger second half year top line versus prior year and the improved performance, we record an emphasized pickup in profitability towards year-end. As mentioned before, we tie that to significant part to the favorable economic environment in electronics, where we see this replacement -- the replacement cycle and also to the dynamics as such. We expect that to flatten out slightly during the coming months. And 2026 should not be such a distinct difference between first half year, second half year. Being on an adjusted basis back in the target of 12% to 15% EBIT range was possible due to the progress in the streamlining of the footprint of production and distribution networks. And I would like to give a bit more detail on what we are doing at the moment and where we are on the next slide. We said that we are going to reduce top line by CHF 110 million, phasing out technologies and legacy products. We are, at this point of time, at the range of 20% that we actually phased out. Individual discussions with customers are ongoing, and we are confident to reach the target. As a nature of the topic, this is going to take longer. 650 FTEs were announced that we want to reduce overall. We implemented actions affecting more than 330 FTEs by year-end. 50% of the workforce is therefore roughly targeted. And again, this is a topic where we take our time in order to find the best possible solution for the businesses, but also for the individuals. And we are working towards finishing all these measures by end of 2027. Reducing these 650 FTEs does and will involve closing as well as selling of individual sites. Divestiture is clearly there in the realm, and we would, in any case, prefer that as we can grant these people in the future in a different environment. Should you be looking at the overall FTEs on the group level, you will not find the 650. We have 2 counter effects that we would like to mention here, which have absolutely nothing to do with the streamlining of the profit -- of the production footprint. But you see the distinct workforce up in electronics, which usually is a temporary workforce, that is temporarily higher, as well as the ramp-up in India where we are expanding our product portfolio. The total cost for the adaptation program was targeted at CHF 75 million, which still is our total target. At the moment, we are more than 60% through the measures from a cost perspective, one-time cost perspective, as I said, the CHF 46.7 million. We are striving to improve 0.8 percentage points on EBIT. We've seen first minor effect in 2025. We'll see roughly shy half of that in 2026. So we are here on good track. If we look at what we did in a chronological order, then you see these different sites that are and will be affected. And I'll summarize as follows. We have places where we are through, sites where we are through like Brunn am Gebirge in Austria, like Olpe in Germany or Mocksville in the U.S. These sites are closed. The measures are fully implemented. On the other hand, we have sold Allchemet to the management in Emmenbrücke. That is one of these divestitures I mentioned. And we are lastly in implementation in Torbali in Turkey, in Turnov in Czech and also in Flawil, in Switzerland, where we are on track. And all measures as said shall be implemented by year-end of 2027, which brings me to earnings per share. And as already mentioned, we have earnings per share of CHF 5.63, which is CHF 0.58 down versus prior year. We have impact from the streamlining program and the one-time cost, which obviously are reflected in our earnings per share. On the other hand, we have a pickup in profitability and mix, which works counter this. We have no or minor impacts from the financial result this year. And we have a bit of a pickup as we pay nominally less taxes in the year 2025. Based on that result, the Board of Directors will propose to the general assembly of 22nd of April, a dividend of CHF 2.5. As in prior year, we will distribute part of that CHF 0.50 out of privileged capital reserves, which is an advantage to the individual shareholders in Switzerland. The rest, the CHF 2.0 will be distributed as a genuine dividend. With that, we stay in a payout ratio of below 50%, which is a clear signal that we will continue to deleverage our balance sheet. Dividend yield is at 2.3% measured with the share price end of the year. Net working capital development remained flat, which was quite of a challenge in a situation where we had tariffs and uncertainty from a logistics point of view. We managed to keep that flat, especially focusing on inventories. Overall, we stay at 28%. Clearly, it remains a topic to come down on these levels again. Brings me to capital expenditure, where we say with 3.4% of sales, we are reaching a historical low which is clearly down and below D&A ratio of 4.7%. This is clearly the outcome of the streamlining of the production floor print and the increase of utilization of existed installed capacity. Additionally, of course, we have the trends from the ending of the investments in Heerbrugg, which were large. And in China, in Nantong, where we had larger investment cycles during the last 2 years. We keep the rigid view on CapEx, and we will reconfirm here the bracket of 4% to 6% of sales going forward in investment into CapEx as we take the positive cash flow from that element. We go to the operation free cash flow, which is a very strong signal at CHF 274 million. And therefore, at 57% of EBITDA or 124% of net income, which we deem as a strong signal and a clear document of the good ability to generate cash. As I said, whilst we optimize ourselves whilst we grow and therefore, also deleverage our balance sheet, and we will strive for that further. Net working capital management, diligent CapEx decisions and profitable growth are cornerstones in our decision-making. We see ourselves positioned to keep the cash generation up and reconfirm the target bandwidth of [ 40 to 50 ] of EBITDA going forward. As said, balance sheet ratios come back steadily and the equity ratio that we lowered deliberately in 2022, acquiring Hoffmann Group and expanding distribution and logistics has come back to 64.4%. Meanwhile, good, in the range and above the targeted 60% threshold. Our first outstanding bond has been reimbursed against the revolving credit facility and we strive, as said, to go that path further as we go along. Return on capital is fluctuating or moving exactly in parallel with our profitability and comparable levels to prior year along those performance indicators. Effective tax rate, to our dismay, did raise again. We were aiming to reverse the trend and fighting against it, but we have some elements to line out here. One is the closure of sites made us write-off deferred tax assets as we lose them, which drives the tax rate. Secondly, we have a distinct hunger of the economies to generate tax income and the creativity in Germany, France, Italy and Hungary, with new taxes drives our tax rate and our ability to counter react was somewhat limited. And lastly, the continued moving out of our tax shield in the U.S. is counter affecting our other measure. If we look at tax rate on strict statutory rate, we would end up at 23% as we are positioned today. So there is a potential, and we will implement measures to drive that down and/or keep it flat. That brings me to the KPI summary. I conclude my detailing on the performance. Thank you very much for your attention, and hand back to Jens. Jens Breu: Thank you very much, Volker, and I'm happy to continue with the presentation of the segment development. I'll start as usual with the headlines of the Engineered Components segment. The Engineered Components segment delivered good growth in both sales and profitability supported by several end markets and application areas. Within this segment, the electronics division was a key growth driver, particularly through stamped components used in mobile devices and components for nearline HDD applications. The aerospace business showed a very encouraging performance throughout the entire year, reflecting strong demand and successful project execution has proven through the introduction. In contrast, demand in the medical device industry developed somewhat below expectation during the year. Despite excess capacity in the European market, the automotive division achieved solid results, demonstrating the competitiveness of its product portfolio. In addition, several ramp-up projects in Switzerland, China, India and the United States are progressing. Finally, George Poh and Walter Kobler retired from the Group Executive Board, and Urs Langenauer assumed the role of Head of Engineered Components segment. The Fastening Systems segment was impacted by the economic environment, particularly in Europe. In the context or in this context, the segment recorded a slightly negative sales development and weakening currencies further reduced operating profit in this sluggish market environment. At the same time, the North American construction industry proved more dynamic than its European counterpart. In addition, regionally cold and unusually long winter conditions at the beginning and the end of 2025 had a temporary negative effect on construction activities. Nevertheless, demand recovered slightly over the course of the financial year. And finally, market access in North America was further expanded through the acquisition of DB Building Fasteners in the United States on August 1, 2025. The Distribution & Logistics segment showed subdued market momentum during the year. Nevertheless, the segment delivered solid results in this challenging environment, supported by prudent cost management, the onboarding of partners and a comprehensive range of products and services. The planned acquisitions of the partner companies, Gödde, Oltrogge and Perschmann will further strengthen the platform. These acquisitions will enable the further internationalization of the trading business. They will also allow us to pull resources and realize advantages in terms of expertise and costs. Furthermore, the purchase of a 51% stake of the 3D-printing platform, Jellypipe AG now renamed Hoffmann Additive Manufacturing expands our technology offering. Since January 1, 2026, Iso Raunjak has been leading the Distribution & Logistics segment. Looking ahead to the financial year 2026. The outlook is still characterized by considerable uncertainty. Against this backdrop, the group will continue to focus on its rigorous customer orientation, pushing ahead with innovation projects and ensuring efficient and profitable business processes. We will steadfastly continue to pursue and implement the global production and distribution network, streamlining programs introduced in the year 2025. For the 2026 financial year, the SFS Group is focusing on the midterm guidance and expect organic growth of 3% to 6% in local currencies as well as in our adjusted EBIT margin of 12% to 15%. Looking ahead, we continue to focus on our main strengths and opportunities with a clear emphasis on disciplined strategy execution, our key priority is building a fit-for-purpose global manufacturing and disposition network that reflects the current economic environment and includes targeted site-specific optimization measures. At the same time, we remain committed to maintaining a strong financial foundation supported by operational cost discipline in response to the challenging market conditions. In addition, we'll continue to pursue selective bolt-on M&A opportunities that strengthen our technology portfolio, market access and distribution capabilities. Alongside these initiatives, we aim to further increase the equity ratio, ensuring that SFS remains financially robust and well positioned for sustainable long-term growth. At this point, I would like to thank all employees of the SFS Group for their commitment, expertise and innovative energy, which were essential for the good results and development achieved during the year. I also extend my sincere thanks to our customers, business partners and shareholders for their trust, loyalty and constructive collaborations, which supports the long-term success of SFS. Thank you for your attention. And now Volker and myself are happy to answer your questions you may have. We'll start first here in the room. [Operator Instructions] Alessandro Foletti: Alessandro Foletti from Octavian. I have a couple. Maybe starting with the top line guidance for 2026. You had 2.9% organic in '25, and now you're guiding for a little bit less than that for '26. So I wonder what was special in '25 that is not repeating and what are the risks and chances for '26? Jens Breu: Last year, we also guided 3% to 6% in local currency, same as we do. This year, Volker will give us a little bit of the breakdown then in detail on where we expect this growth happening. Overall, I think when we go back a year from now, at that time, we also clearly said we have innovation projects and in general, initiatives in the organization to grow 3% to 4%. And this is roughly where we also ended up. And so also this year, we have a range of initiatives, which we are implementing as we discussed, so ramp-ups, which we expect to have in the year '26, also probably in that range of around 3% to 4% overall. I don't know whether you want to? Volker Dostmann: Maybe it's important, in that mix, we will see roughly CHF 50 million that go out as we streamline our production and distribution network, right? So from this CHF 110 million that we overall target, we expect roughly CHF 50 million in 2026 to materialize. So that is a headwind that you need to factor into your calculation. Alessandro Foletti: Right. But then you have -- I don't know if this works, but then you have about CHF 100 million plus/minus, if I calculate correctly from M&A, right? And this is 3%. So you have CHF 50 million going out, that's 1.5%. So you have a 1.5% tailwind only from M&A or scope of consolidation, right? So looking at organic, it doesn't seem to be very dynamic, what you are indicating, at least the bottom of the range. So I wonder what are the moving parts? And where are the challenges? Volker Dostmann: I mean moving is -- the volatility, I think we mentioned earlier, we do not see yet a clear trend of recovery, right? We do see first sparks. We do see good months in some end markets. We see lower months in the same end markets. It's not a consistent trend that we have at the moment that signals recovery. That's the volatility that we alluded to, right? And yes, we are, from that point of view, we take our reservations. I think that's clear. Jens Breu: And I think if we go back to the numbers, as you mentioned, the Gödde, Perschmann, Oltrogge is around 3%. Then we had other acquisitions last year, smaller ones, which will give us an additional 0.3% to 0.5% effect on that one. And then we expect roughly around 1% to 2% from projects. And when we go through the segments and take a look at the opportunities and start with the Engineered Components segment, we have a ramp-up ahead of us in aerospace fasteners that's one specific direction we take. Secondly, we have new programs also in the electronics area, where we add and increase value-added on the smartphone side. Then in automotive, we still have ramp-ups ahead of us with braking systems. These are more or less the main growth drivers broadly in Engineered Components, especially in China and India, we see that automotive demand is good and solid. We have roughly around 70% market share in China with ABS Valve components and see new customers coming. And we're also working on ball screw drive technology customers in China. Besides that, we also have ball screw drive technology customer in India, which we acquired, low volume, low momentum, not a large market, only 6 million cars being produced in India. So maybe that's to be taken a little bit more on the cautious side. Then we have also to realize that most of the ramp-up projects, which we have seen over the last 2 years have not yielded yet the full top line impact as we expected. This is naturally given because the market environment has been a little bit more challenging. And we have also seen that some of the customers overestimated the change in technology. But sooner or later, we also expect that this will be happening and maybe this will take a little bit more time, and that's growth opportunity which we have in the back end. Then in the segment Fastening Systems, we have seen that we had good organic growth in North America, a little bit challenging environment in Europe. And here, we have to say that in North America, we are gaining new customers. Our competitors have supply chain issues. So we expect here to also make further inroads on the construction market side. And then in Europe, it's more or less, it's a matter of recovery of confidence because the mega trend is clear. There are not enough apartments. There are not enough buildings out there. We have seen a substantial better performance against our competitors in Europe with our numbers as we have shown. So also we believe, we gained market share in general in Fastening Systems. And then in Distribution & Logistics, which is mainly the industry environment in which we are. We have seen, I would say, a sharp correction over the last 2 years in Europe. We believe this correction is almost through. And we should see slightly improvement in the European environment. We see new applications like defense, for instance, is giving momentum to the industry in Europe and the general industry, the automotive is maybe more challenged on that side. But we also see that, I would say, the adjustment cycle, we believe, is gone, is through. And now the demand cycle will slowly start to build up, not quickly but slowly. Volker Dostmann: Just one small addition to that. Acquisition of the partners in D&L will yield only 3 quarters of the year. That might affect your... Alessandro Foletti: Okay. 130 times 3 divided by 4. Volker Dostmann: Yes, it's still, given on the CHF 3 billion, it's still an impact. Alessandro Foletti: One question then I'll pass on the mic. Maybe can you give a little bit more precise guidance on the CapEx? Because we really hit historic lows. Volker Dostmann: We're not going to be consistently below depreciation, right? I mean we are not going to stay consistently for a longer period below depreciation. We said 4% to 6%, we'll stay for this year rather to the lower end. But we will see, we will see eventually other expansion projects coming. We are, at the moment, building out India. We will have -- during this year, we will have machinery being added there. That's not going to change it significantly, but we will see that figure coming up. That's why we say 4% to 6%. For 2026, you can expect us to the lower of that range. But we will not stay consistently below this 4%. That's not going to fly. Alessandro Foletti: Well, what I wonder is, we look at the past, you had very often like sort of normal CapEx and then a couple of bursts where it really went above the 6%, et cetera. Is it just not possible to keep it less volatile and more sort of kind of preparing today, future ramps? Or you really have to do it this way? And you will always have this sort of big chunks? Jens Breu: The big chunks, as you write out properly has a lot to do with technology and changes, shifts usually require that. Then as we know, I mean, positions are usually occupied on the supply side within applications. I mean a door is opening, you need to go in full force. And this is where we usually then see a peak. We have seen quite a few peaks in automotive due to the braking systems, for instance, then also in electronics due to stamped products and such things. So that's very much a characteristic of the Engineered Components segment. In FS and D&L, it's more as we go. We need initial CapEx on a smaller basis. So we cannot promise it depends more or less on bigger opportunities. And the profile of SFS is clear. We need to go in early when the technology is new and fresh and form and shape, then the design so that we are specified in then for the rest of lifetime. And that usually requires that we do a leap forward. Otherwise, we leave the room and the space to others, and following usually is not as attractive on the margin side. Operator: Christian Bader from Zürcher Kantonalbank. I have a question regarding your capital allocation. Now that your equity ratio is so high and net gearing is lower than everybody was expecting. So can we expect an acceleration of M&A activity in the short term? Or will it take a breath now having done a few deals in Europe? Jens Breu: Overall, we are not afraid of heavy cash around us, and it gives us an opportunity then to maybe also be a little bit more flexible and a little bit more constructive in -- on the M&A side, what we do with it. So I believe first priority for us is that we take a look at the quality of the M&A opportunities, which are out there in the market. That's key besides adhering to our strategy on the M&A side. Secondly, having more firing power is usually not a disadvantage. So we will be patient. And I think when we go back in history in time, SFS, we had quite a few years where we got asked a lot. When do you do a step forward, and we were patient to wait and then do the right move forward, for instance, with the Hoffmann Group or with Tegra Medical later on. Same as we speak now. We certainly see more opportunities in the market. You see every year, we do usually 2 to 3 acquisitions. But once again, we are patient. We are in there for the mid and the long term and quality is key. We do not want to distract ourselves, management and the operations from customers and innovation by having to solve problems, which we cause by rushing into maybe M&As, which are not beneficial maybe there on that side. Christian Bader: And maybe a question on your supply chain. I mean given what's ongoing with the war in Iran. Are you affected at all by any supply chain constraint or maybe increase in the freight cost? Jens Breu: The questions are mounting as soon as it started, the telephones are running hot, everyone is calling and asking this question. And as we have experienced also from the past, when you know early on, the ships get rerouted and maybe it takes 2 weeks longer. And in terms of inventory management, that's not much of a challenge. So we expect that we deliver to our customers on time and as promised. We do not expect that this will leave a mark on the top and on the bottom line. Besides that, we have, I would say, in terms of total sales, on the marginal volumes, which we ship from Asia to Europe, it's specific products. Usually, we source locally very strongly. And from that point of view, we do not expect an impact. We expect an impact that this is a further dampening of the sentiment overall that maybe consumers but also industrial customers will probably remain more on the cautious side and maybe on the opportunistic and aggressive side, that's probably the effect we will be seeing. On the capital allocation side, the M&A side, certainly high focus on Fastening Systems, construction market. That's the key. But we have also seen that when there are opportunities around in the D&L segment, that will also act there. If we could wish probably, we would ask for more opportunities maybe in the Americas and Asia. But that's on the wish list. Then we had a question here. Tobias Fahrenholz: Tobias Fahrenholz from ODDO BHF. Can we speak a little bit about Germany? I mean it's an important region for you. Do you see some signs of improvement there? When would you see at the earliest some benefits from the bigger programs there? So thinking about D&L then maybe a little bit later cyclical, the Fastening Systems business. And how is your expansion of the product portfolio with the new fastening high runners going on? Volker Dostmann: I mean, alluding a bit to that, that we are all waiting for these big investment programs to happen, right? I said it before, until it drizzles through the supply chain and really creates orders at our sites, we mentioned we expect 24 months. What we would have hoped for was increase in sentiment, improvement in sentiment in the respective end markets, and that would kick in much faster than we would see the genuine money distributed to come our way. We don't see that sentiment changing significantly. The pessimistic view in the market is persisting and that keeps that sluggish situation in construction, in Distribution & Logistics. And I think in the general industries, automotive area, it's widely discussed. So from that point of view, we see there a pocket of improvement. But as I said before, not a consistent trend where we say the market as such is showing maybe signs of one or the other direction. Jens Breu: And I think the pocket is the key. As you mentioned, the opportunities are out there as we talk defense and aerospace, for instance, is on the positive side and general machine building, mainly companies which had a major export to India, China, those are challenged overall. But I think fast key besides understanding the market key is then what is the need in the market. And there, we deliver good solutions. Everyone needs improvements on the cost side, needs to become competitive, needs to have a partner at the site, which we believe we are, who tells him there is room for improvement for potential to become more efficient. And I believe that's the opportunity now. We lay the groundwork for the next leap in growth. Now you specify yourself into situations with new tools, new solutions, which then scale later on when the environment will improve again. Tobias Fahrenholz: Maybe one more on the outlook, especially the profit margin. I mean we managed to get to the 12% at the lower end. As you said, well, you expect some savings from the program, let's say, maybe 30, 40 basis points. So you mentioned the wide range was 12% to 15%. Is this year's range somewhere between 12.5% and 13% or? Volker Dostmann: If that's your calculation. I'm not going to counter that one. I mean we said we want to see roughly half of the improvements until end of 2026, and that would go into that direction, yes. The range is rather wide. But we stick to it with our with our capital tied in and with our end markets and the respective risk. We belong into a bracket of 12% to 15%. And we just wanted to signal also that is where we are committed to be. Jens Breu: So next question. Yes. Right here. Unknown Analyst: I would have a question on the big topic of AI. There will be potentially a big improvement in labor productivity, especially the white collar labor productivity. Have you tried to quantify that? Or can you give us a kind of tangible forecast, what that means for you? What you do in order to implement these new technologies in the company? Jens Breu: Yes, yes. That's a very good topic. And I think we are full force on the AI side, committed to use it as a tool to improve productivity, but also to develop new solutions for our customers, increase efficiency. Last year, we had our international management conference exactly under the theme of AI, the next step opportunity. We have around 100 use cases in the organization on AI, where we work on to be implemented besides that we have many opportunities already implemented. So if we start in the operations, we have a tool in place, which we call [indiscernible], that's our own developed manufacturing visualization and improvement system where year-by-year, we expect to improve productivity just by the system, 2% to 3%. The system captures data from all the working centers and brings them up, visualized in a good way so that the operator understands what are the main levers he or she has to improve productivity. In the background, we collect all the data, analyze it and also further improve. So from that point of view, if we go back 5 years when we had an issue on an operating center, maybe it took you 3 to 5 days to fix the problem and solve it. Today, it's a matter of half a day because you have the data, and you can, from there, derive the root cause of the problem. So that's maybe on the operational side. And certainly, we have also on the white collar side, as you say, expectation is when you go out there and take a look at white papers that you can improve productivity by around 15%. Our ambition is that we said we want to improve productivity annually between 3% to 5% on the white collar side. So that's a clear ambition we have given to the organization and we budget year-by-year, the main initiatives and improvements going forward. And thirdly, also on the market side, use AI tools and the e-shop, for instance, to lead customers easier, better and faster to their specific needs and products, which we have available to them. So overall, holistically, we clearly see this as a big opportunity. It's innovative. It's increasing productivity. And especially us, we see ourselves between the customer and usually a hardware product. But in between, it's all about digitization. That's the main enabler. And maybe on the IT side. Volker Dostmann: I mean we have formed a dedicated team that is administrating and realizing implementing selected initiatives out of this funnel of 100-plus initiatives, which gives also the organization tools at hand and environments where they can safely test their options. We deem it as very important that employees start working with the tools, right? And we felt like it was also -- there was a hesitation around in respect of security, of what am I allowed to do, how can I, right? We gave there, meanwhile, a very good platform that is heavily used. And we see adoption is being really fast. And it sparks new ideas. And I think that is not to be underestimating the element in the AI environment is that you have dynamic from areas you never would have targeted before, right, because we have spread it out now. And that is working very well. And we'll look forward to realize some major steps where we also have then actually a reduction in workforce at certain process steps. Tobias Fahrenholz: Okay. Maybe a second one. If I look at volume-wise, I mean you don't report the numbers, but given the organic growth that you report volume-wise, the group hasn't really grown that much in the last years. This year again with FX against you reported growth going to be flat, most probably you're closing or divesting 8 sites in these 3 years. So basically in front of this backdrop of sideways or shrinking kind of overall development. There are two other big topics out there. One is defense. Second one is robotics. I understand that your exposure to these 2 sectors is not significant or not that great at this point in time. What do you do in order to jump on this bandwagon, so to speak, in order to capture part of the growth that is probably coming from the 2 sectors? Jens Breu: We are certainly exposed to those areas. Defense has been quiet for many decades, we can say, in Europe mainly. But we are certainly active in North America where we have specific applications for instance. But it never has been truly a focus area where we say we want to set the future strategy and group on per se because when you take a look at the SFS Group, we have a sharp focus for consumables. And in defense, it's the cycles that can be quite intensive. And in consumables, like ammunition, we do not want to go. That's not our expertise. That's not our focus. So we are mainly with the indirect enablement in defense. That means if new production is opening up, if someone is producing specific defense products and solutions, then we help this organization in equipping a manufacturing site with the needed tools and the needed infrastructure to do so, but we are not spacing ourselves into specific defense applications. So from that side, we have seen good growth. I think, top of my head, around 20% growth in the defense applications we are focusing on. Last year, this has been some of the pockets and niches where we have seen growth also in Germany, in the DACH region, for instance, that's essential to us. And secondly, I believe also part of the DNA of the SFS Group is that its consumables so that we have a steady continuous ongoing growth and not too much variation because, especially us with our DNA of automation and CapEx and investment, it always provides then the risk that you are maybe underutilized for quite a few years and maybe invested in specific applications you then cannot take to other end markets. That's the challenge. So the nature also of our Engineered Components business and D&L business is very much that we go into applications where we are flexible and reallocate and reuse the investments into maybe new applications, and that's somewhat limited in defense, in aerospace also somewhat limited. So we need to make sure we stay close to our DNA, and that's the path going forward. Torsten Sauter: Torsten Sauter from Kepler Cheuvreux. I'm not quite sure I understood your comments on the tax development, which is kind of higher than the statutory tax rate 26% versus 23% or something. Can I take the 23% as an indication of some sort of a guidance for the medium term? And what sort of tax can we expect for the year ahead? Volker Dostmann: Okay. So I was a bit fast on that, rather imprecise. 23% would be if we are in each and every jurisdiction optimally structured, right, which you never are, as you have adverse effects. And we need to work on that delta, number one, right, between 23% and 26.5%. But that's number one. Number two, we need to squeeze out the 1x effect from giving up legal entities, namely that's going to be the case in Turkey, and in Czech, right? And we need to dampen that out. And lastly, the question is how we work on our legal structure and how we, within the given jurisdictions, kind of optimize the overall flow of values. Now your question is towards where do we go? We would like to bring that towards '23, of course, not being in a position to give you precise date by when. But I would say we should see a first step this and next year, right? We must work on that. Yes. Torsten Sauter: Can I have a follow-up? Totally different topic. I understand that the European Commission has recently proposed this Made in EU framework. With your current setup and the products and verticals that you're shipping to, to what extent do you see SFS affected? Volker Dostmann: As we said and with local for local, we -- let's -- your shift of topic, let's come back with a completely different view on that. When we looked at tariffs and trade, we looked at streams that we really have crossing countries and delivering of one country to another, we ended up at roughly CHF 50 million for the group, right? So it is very limited where we really produce out of another country for a respective end market. From that point of view, I'm not very alarmed. I was alarmed when Switzerland was considered non-EU, which seems not to be the case anymore. That would have affected our trade between Switzerland and Europe in the long term, right? And that would have been a headache, but that's gone by now. Jens Breu: I believe it's even a huge opportunity since we -- on the D&L side source around 90% of the products within Europe, which we distribute in Europe. We are certainly one of the partners to be with, especially when we then talk about, for instance, on the defense side, 70% of the value added needs to come from within Europe in such applications we can support, we can be a partner, we can help to achieve that. So since there are no more questions in the room, we -- there's a question. Yes, last one, and then we go to the questions on -- that side, yes. Unknown Analyst: The question is actually quite simple. I've seen 2 multiyear trends. One of them is the ForEx, which everybody in the room knows. And the second one is your share of Swiss sales is also a multiyear decline. My question is you talked about Americas and Asia as a source of M&A. Have you ever looked at Switzerland with generational changes in small to medium companies that you would do acquisitions in Switzerland because you would no longer have the currency problem? Jens Breu: Absolutely. We do not exclude Switzerland as an M&A market. As a matter of fact, especially on the construction side, we have the clear intention to become stronger in Switzerland. We believe we are not well represented with our Fastening Systems segment in Switzerland. And so if there are opportunities, we would certainly go after that and take a close look at it. So now we have the questions from online, yes. Unknown Executive: So we start now with questions from the chat. We will unmute Jörn Iffert for questions. Joern Iffert: A couple of questions, if I may. The first one is, please, on the EBIT margin, on the core EBIT margin development in the second half 2025, which was, I think, a very strong improvement in D&L. Can you please tell us what exactly were the key moving parts here? Why it was so strong in the second half versus the first half? Because I think in absolute terms, revenues are not too different. And then the same for Engineered Components, if this was mainly product mix with HCV and smartphones? This would be the first question. If it's okay, I would take them one by one. Volker Dostmann: Yes. Thanks for the question. So the distinct shift in D&L and Engineered Components, Engineered Components, pickup in electronics. So really mix and dynamics in the end market underpinned there the EBIT margin. Second effect within the Engineered Components is also the phase of the ramp-up. The ramp-up as they continue reaped more on better profitability as in the first year. So both of that plays into Engineered Components. When you look at D&L, it is truly not a shift in dynamic from a top line point of view. But there, we see clearly effects from the distribution network adaptations that we did and which kicked in, in the second half year. So there, we see really, I would say, a productivity improvement sales per employee. That would be the factors. If that helps you with your question, Jörn. Joern Iffert: Yes. And then maybe to follow up on the second question then on the margin outlook for 2026. First of all, to clarify, did you say organic sales growth, 3% plus? Or is this including these complementary M&A to double check on the operating leverage? But then additionally, I mean, like my colleague was stripping out, you have the efficiency gains on the margins from the [indiscernible] you are doing overall having contributions on total EBITDA, which I think is quite profitable from recent M&A. If I set this into context to the revenues, you have some operating leverage. So isn't this 13% run rate you have achieved in the second half the starting point to think about 2026? And if not, what are really in absence of macro risk, et cetera, the cost blocks we need to consider or reinvestments we need to consider on the margin bridge? Volker Dostmann: Okay. I think first, the question on the guidance. The guidance is clearly in local currencies, including scope effect, right? That's what we -- that's how we used to state it and how we keep it up, right? So no change from that point of view. And your question about the margin dynamics going into 2026. Now electronics replacement cycle that we saw -- we've seen in Q4 2025 as well as the ramp-up in automotive and engineered components. As I said, we expect to flatten out slightly, right? So we do not -- I mean you said, is that now at the beginning of the new level. It will come down slightly as we see electronics in its seasonality coming down, and it will also volume-wise kind of be a more muted situation quarter 1, quarter 2, 2026 as today, right? I would see no considerable cost blocks that we are adding. At the moment, we're working more or less to the other side. Of course, we are building up capacity here and there, but this is capacity that is mainly utilized and engaged already. So from a profitability point of view, not a game changer. And on the other hand, our streamlining of the production footprint will continue. As I said, adding a bit to the EBIT first half, we would expect to see by end of 2026 in the margin, right? Joern Iffert: Okay. And the last question, just a technical one. Sorry when I missed this. You talked about your defense exposure was growing 20%, if I understood this correctly. Can you tell us what is the absolute amount you think you have as exposure to the defense sector when you were able to quantify the growth to it? Jens Breu: Yes, yes. Internally, we have a number which we usually say it's around CHF 30 million to CHF 36 million in defense. But question is always what do you count into defense and whatnot. It's somewhat not a black and white and a little bit of grayish area. That's roughly the basis. Unknown Executive: Good. Then we continue with another question from the chat from Vitushan Vijayakumar from Baader Helvea. Vitushan Vijayakumar: So I would just have a question on -- so the growth drivers that are coming for '26 and even ahead. So I heard that there was a good momentum for the electronic markets with replacement cycles in mobile phones, as you mentioned. I wanted to know if this was rather a one-off effect? Or is it something that would be sustained in the future? And also, if you can just touch a word on -- about the footprint gaining in Americas and Asia as well, it would be good, yes. Jens Breu: First off, in electronics, that's unusual development replacement cycle we have seen in '25 for '26. We do not bet on it in the same amount and the same development, '26 is more about new value-added, meaning new components, new designs where we are able to participate and specify or being specified into new devices and solutions, which come to the market in '26. So we expect that the current base will continue in '26 with a number of smartphones and solutions being sold. And secondly, we expect them to have more value added in there. Then to the question on the footprint expansion we have seen in the United States that we, in the Fastening Systems segment, acquired DB Fasteners. So our ambition is clear to continue that also in the year '26 that we maybe have smaller bolt-on acquisitions on the construction-related or end market related smaller companies with that growing geographically in the United States and gaining access to new customers, which we do not have. Same in distribution on logistics and engineered components probably in the Americas and Asia, we would wish for -- so that means on the M&A side, strategically, we look sharper, more focused on Americas and Asia since we believe the opportunities are there. That's part of the strategy going into 2026. Also with Martin Reichenecker having now the Region Asia more in the focus, we also expect to hopefully create there more momentum. I hope this did I answer your question. Vitushan Vijayakumar: Just another one on the competition and the pricing one. So I just wanted to know if you see any changes compared to 2025 or 2026 in terms of competition, but also in terms of pricing? Jens Breu: Yes. The competitive environment is fairly stable, we have to say in the end markets, some of the applications in which we are. I would need to think very, very hard to give you even a name of a new entrant, usually in our core applications, very steady, very stable overall. Clearly, in an environment like we have seen in '25, prices become more flexible, maybe a little bit more aggressive to defend market. So we usually then have the strategy to defend our pricing levels and secondly, go in with new solutions, innovations, maybe new product lines to offset and not needing -- need to give too much away and rather focus on new solutions, which then yield a good margin profile. That's usually our strategy as we are not the one to go to focus on commodities, for instance, and a low price strategy. We are more on the innovation side, on the solution side, on educating the customer what to do and giving strong advice. That's our position. So life maybe became a little bit more challenging in '25, a little bit more on the defensive side. '26, we expect not too much change to that. We expect that the environment remains, I would say, with a high focus on cost and efficiency improvement on the customer side, and this is what we need to deliver. Good. Since there are no more questions online and are there any more questions. Yes here. Yes. Sure. Always. Alessandro Foletti: Just yesterday, there were [indiscernible] reporting numbers, sort of similar, maybe a tick lower than you, but in general, comparable. What I kind of liked -- one of the things that I like about what they said was their strategy to follow their global clients, right, where they supply them like you do with [indiscernible] in Switzerland, but these clients are global, and they're really -- can you do the same? Are you doing the same? Should be a big opportunity for D&L? Jens Breu: Yes, yes, absolutely. That's the big opportunity. And historically, as the Hoffmann and D&L segment, is focused very much, I would say, on customers in Germany, Austria, but also rest of Europe. We see that they have very strong key account management, which we are also expanding to our Swiss customer base, and this key account management exactly does that strategically. We focus following customers as customers shift value added to different countries and regions maybe for various reasons. We are clearly there to their site to help them and support them. That's initiative number one, which is a given. Initiative number two is that we also are progressing in defining more local assortments, meaning that besides the global need and the global support, having them in China, Chinese assortment, which is more tailored to the Chinese needs and demands and characteristics, same we do in India and the same we do in the U.S. So we go into the future with a twofolded strategy following customers, but also local enablement with local solutions, which is key. Alessandro Foletti: And is this kind of sort of already baked in, in what you're doing in the current growth rate of the company? Or is that, at some point, a change in the trend towards the upside? Volker Dostmann: That is baked in. Alessandro Foletti: For '26, I imagine it is. Volker Dostmann: But also going forward because we see -- we must not underestimate, we see also the other way around. We also see global manufacturers building their automotive manufacturing sites or other manufacturing sites in Eastern Europe, in Mexico, in the U.S. And what they're doing, they bring their customer and they bring their supply chain with them wherever they come from, right? So we see also there quite a fierce environment. And as we showed last year once in a presentation, this switching costs for the relevant customer to switch between their current D&L provider and us as incumbent, that needs quite a bit of power and sales force until we can enter a new ground. Jens Breu: I think that's a very good point you make. In Engineered Components, we are already a little bit further there. We have customers we pick up in China, and they now come here to Hungary, for instance, or Serbia, and have a demand which we cover here even though we picked them up in China. In D&L, that would be the wish to be also at that point in the future. Not yet there. I believe that this local assortment initiative is starting and developing. We need to build it out more solidly. Good. And we are right on time, 12:00. That's great. So Swiss precision also on your end with your questions you had right on time. So thank you all, and we wish you a good lunch and happy to invite you for lunch. Thank you. All the best to you.
Operator: Good afternoon. Thank you for joining Tetragon's 2025 Annual Report Investor Call. [Operator Instructions]. The call will be accompanied by a live presentation, which can be viewed online by registering at the link provided in the company's conference call press release. This press release can be found on the shareholder page of the company's website, www.tetragoninv.com/shareholders. [Operator Instructions]. As a reminder, this call is being recorded. I will now turn you over to Paddy Dear to commence the presentation. Patrick Giles Dear: As one of the principals and founders of the Investment Manager of Tetragon Financial Group Limited, I'd like to welcome you to our investor call, which we will focus on the company's 2025 annual results. Paul Gannon, our CFO and COO, will review the company's financial performance for the period. Steve Prince and I will talk through some of the detail of the portfolio and performance. And as usual, we will conclude with questions, those taken electronically via our web-based system at the end of the presentation as well as those received since the last update. The PDF of the slides are now available to download on our website. And if you are on the webcast, directly from the webcast portal. Before I go into the presentation, some reminders. First, Tetragon's shares are subject to restrictions on ownership by U.S. persons and are not intended for European retail investors. These are described in detail on our website. Tetragon anticipates that its typical investors will be institutional and professional investors who wish to invest for the long term and who have experience in investing in financial markets and collective investment undertakings who are capable themselves of evaluating the merits and risks of Tetragon shares and who have sufficient resources both to invest in potentially illiquid securities and to be able to bear any losses that may result from the investment, which may equal the whole amount invested. I would like to remind everyone that the following may contain forward-looking comments, including statements regarding the intentions, beliefs or current expectations concerning performance and financial condition on the products and markets in which Tetragon invests. Our performance may change materially as a result of various possible events or factors. So with that introduction, let me hand over to Paul. Thank you, Paddy. Paul Gannon: Tetragon continues to focus on 3 key metrics when assessing how value is being created for and delivered to Tetragon shareholders. Firstly, how value is being created by an NAV per share total return. Secondly, how investment returns are contributing to value creation measured as a return on equity or ROE. And finally, how value is being returned to shareholders through distributions, mainly in the form of dividends. The fully diluted NAV per share was $41.88 at the 31st of December '25. NAV per share total return was 19.6% for the year. And since the IPO in 2007, Tetragon has now achieved an annualized NAV per share total return of 11.2%. For monitoring investment returns, we use an ROE calculation. This was 23.4% for 2025 full year, net of all fees and expenses. The average annual ROE achieved since IPO is now standing at 12.1%, which is within the target range of 10% to 15%. On to the final key metric, Tetragon declared a dividend of $0.12 for the fourth quarter 2025. That's an increase from $0.11 in Q3 and represents a dividend of $0.45 for the full year. Based on the year-end share price of $17.35, the last 4 quarters dividend represents a yield of approximately 2.6%. This next slide shows a NAV bridge breaking down into its component parts, the change in Tetragon's fully diluted NAV per share, starting at $35.43 at the end of 2024 to $41.88 per share at the end of 2025. Investment income increased NAV per share by $11.24 per share. Operating expenses, management and incentive fees reduced NAV per share by $2.78 with a further $0.29 per share reduction due to interest expense incurred on the revolving credit facility. On the capital side, gross dividends reduced NAV per share by $0.44. There was a net dilution of $1.28 per share, which is labeled as other share dilution in the bridge. This bucket primarily reflects the impact of dilution from stock dividends plus the additional recognition of equity-based compensation shares. I will now hand it back over to Paddy. Patrick Giles Dear: Thanks, Paul. As on previous calls, before we delve into the details of our performance for the year, I'd like to put the company's performance in the context of the long term. Tetragon began trading in 2005 and became a public company in April 2007. So the fund has almost 21 years of trading history. What this chart does is show the NAV per share total return, which is that thick green line and the share price total return, which is the dash green line and shows them since IPO. The chart also includes equity indices, the MSCI, ACWI and the [ FTSE ] all share and also includes the Tetragon hurdle rate, which is SOFR plus 2.75% approximately. As you can see in the graph, over the time that Tetragon has been trading as a publicly listed company, our NAV per share total return is 631%. We believe that our somewhat idiosyncratic structure of a listed fund owning alternative assets and a diversified alternative asset management platform has enabled us to create an alpha-driven ecosystem of ideas, expertise, insights and connections that helps us to generate investment returns. Continuing the theme of looking at the long term, here are some more performance metrics. Our ROE or investment return for the year, as Paul said, is plus 23.4%. Our target is 10% to 15% per year over the cycles, and our average since IPO is 12.1% per annum. So to date, we are achieving that target. Thus, this year's performance is an outlier, but on the positive side. The table also shows that over 39% of the public shares are owned by principals of the investment manager and employees of Tetragon Partners. We believe this is very important as it demonstrates a strong belief in what we do as well as a strong alignment of interest between the manager, our employees and Tetragon's shareholders. This next slide shows the breakdown of the $3.9 billion of net asset value by asset class. Now over the year, we've reorganized the asset classes from prior reporting periods, and it reflects the current mix of our portfolio based on the underlying assets and fund structures. So to give you some color on that, Westbourne River Event fund and other funds have been reclassified to equity funds from event-driven equities. Acasta funds have been reclassified to credit funds previously under the event-driven equities, convertible bonds and other hedge funds. U.S. CLOs and Tetragon Credit Partners funds have been reclassified to credit funds, and that's from previously bank loans. Contingency capital funds have been reclassified to credit funds from legal assets. Hawke's Point funds have been reclassified to equity funds from private equity and venture capital. And lastly, the new Tetragon Life Sciences Fund has been classified to equity funds from other equities. So these colored disks show the percentage breakdown of the asset classes and strategies as at year-end 2025, and that is on the left and compares them with where they were the previous year at the end of 2024 on the right. So a couple of points to highlight. Tetragon's investment in private equity stakes in asset management companies, so this is collectively known as Tetragon Partners, is now 45% -- sorry, 42%, down from 45%, and that is mainly driven by the partial sale of Equitix during the year. Private equity and venture capital grew to 21% from 17%, and that is mainly driven by the gains in Ripple. Equity funds, which comprise investments managed by Hawke's Point, Westbourne River, Tetragon Life Sciences, et cetera, are at 22% from 20%, and that's driven by gains primarily in Hawke's Point. And the credit funds, which now comprise investments managed by contingency and Acasta as well as CLOs are 5% of NAV versus 9% in the previous year, and that is driven predominantly by declines in CLOs, but also a redemption in Acasta. It's worth a slight pause to reiterate that last point. Many people have thought of Tetragon as a CLO business, but to reiterate, bank loans in total as an asset class are now down to less than 5% of the portfolio. And so I think those of you who have long memories will remember the IPO nearly 20 years ago, and we were probably about 96% in CLOs. So a dramatic change over the years in terms of our portfolio allocation. Now let's move on to discuss the performance in more detail. The NAV bridge that Paul showed was a high-level overview of NAV per share. And this table shows a breakdown of the composition of Tetragon's NAV at the end of 2024 versus the end of 2025 by asset classes and the factors contributing to the changes in NAV. Thus this table shows the investment performance plus capital flows and so tying back to that change in NAV. As you can see from the bottom row of the table, the aggregate investment performance during 2025 was mainly driven by the same 3 investments, which were the strongest performance in 2024. First, Tetragon Partners ownership or GP stake in Equitix. Equitix is a leading international investor, developer and fund manager in infrastructure, and it was the strongest positive contributor in 2025 with a gain of $432 million. During the year, Hunter Point Capital, HPC, acquired a 16.1% stake in Equitix at an enterprise value of GBP 1.3 billion, excluding net debt. Post transaction, Equitix remains Tetragon's largest position. Equitix is a leader in a sector where we continue to see significant runway for innovation and growth. Second, Tetragon's investment in Ripple Labs contributed $333 million of gains in 2025. Ripple Labs is a top U.S. enterprise blockchain company, underpinned by the XRP token and XRPL cryptocurrency ledger. In 2025, the company benefited from various tailwinds, including the final resolution of the SEC's lawsuit, significant platform expansion, U.S. cryptocurrency policy developments. And the shares also benefited from multiple share tender offers. In the fourth quarter, Ripple followed a tender offer, valuing the company at $40 billion with a strategic investment round at the same valuation backed by Citadel, Fortress, Brevan Howard and Galaxy. And the third big mover, investments in funds managed by Hawke's Point which is Tetragon Partners resource finance business. These generated gains of $260 million, led by their largest strategic investment, Ora Banda Mining Limited, an Australian gold mining exploration and development company. On the negative side, investments with exposure to bank loans via collateralized loan obligations or CLOs, led losses in 2025. This includes $117 million decline in LCM, our CLO manager, owned within Tetragon Partners, where AUM continued to fall through the year. Indeed, separate equity investments in older vintage CLOs contributed an additional $32 million to losses, including vehicles managed by Tetragon Credit Partners. As I've said before, but I'm very happy to reiterate, it's hard to imagine 3 less intrinsically correlated investments. These 3 investments exemplify our diversified approach, our focus on identifying attractive alternative investment strategies that may be hopefully more likely to have low correlation to markets and indeed to each other. Now to take you through the asset classes in more detail. Firstly, our private equity holdings and asset management companies had gains of $355 million. And these asset management businesses continue to grow and perform well, and this was the best performing segment and obviously includes Equitix that I've mentioned. Secondly, equity funds gained $296 million on the year. And again, as I've mentioned, that includes the Hawke's Point funds. Thirdly, the credit funds had losses of $19 million, the losses mainly generated through CLOs -- and through CLOs. Real estate had a loss of $10 million. And lastly -- sorry, and private equity and venture capital had a gain of $342 million, and this includes Ripple as a direct private equity investment. Lastly, other equities and credit had a gain of $63 million. So now what we're going to do is go through more detail on each category. And to do that, we'll start at the top with Tetragon Partners, our private equity investments business in asset management companies, and I'll pass over to Steve. Stephen Prince: Thanks, Paddy. Before I review the performance of the constituent businesses of Tetragon Partners, I wanted to discuss the renaming of the business from TFG Asset Management that occurred at year-end. Over the last several months, we have been taking steps to simplify the way we present Tetragon Financial Group, both on our website and in our annual report, refining the description of the company's investment strategy and the ways that we invest. Initially, as Paddy mentioned earlier, Tetragon focused on CLO equity and invested exclusively with external managers. However, even during its initial public offering in 2007, Tetragon was built with the capability to invest in alternative assets and strategies, both partnering with asset managers who offer differentiated expertise and by making direct idiosyncratic investments. Beginning in 2010, when we acquired Loan Manager LTM, Tetragon began that journey of building asset management businesses. This first transaction was followed by our real estate joint venture, GreenOak, which eventually became BentallGreenOak or BGO. That was followed by the acquisitions of hedge fund specialist Polygon and our infrastructure manager, Equitix. More recently, we launched Hawke's Point and Banyan Square and Contingency Capital. Our asset management businesses give Tetragon the capability to invest as an LP in the underlying strategies and to benefit from the growth in the value of our GP stakes. In renaming our asset management platform, Tetragon Partners, we have sought to emphasize that an important part of Tetragon's growth has been our success in Tetragon Financial Group and TFG Asset Management, now Tetragon Partners, partnering with asset managers who offer us this differentiated expertise. Through the combination of these partnerships and Tetragon's direct idiosyncratic investing, the diversification of our exposure now ranges from event-driven arbitrage to legal assets from life sciences to AI and machine learning from GP stakes in asset management businesses to digital assets and from mining and resource finance to infrastructure, venture capital co-investments and beyond. I would now like to move on to the performance of the Tetragon Partners segment during 2025. Our private equity investments in asset management companies through this group, Tetragon Partners, recorded an investment gain of $355 million during 2025 driven by our investment in Equitix. Equitix is a leading international investor, developer and fund manager in infrastructure. Tetragon's investment in Equitix was the strongest positive contributor in the portfolio for the year. Tetragon's investment made a gain of $432.2 million in 2025, driven by a combination of: a, a higher valuation as the valuation approaches were calibrated towards the transaction that I will talk about in a moment, where we sold a minority stake, foreign exchange gains as the pound gained 8% against the U.S. dollar, approximately 50% of the value of Equitix is hedged; and lastly, dividend income of $9.4 million received from Equitix during the year. So let me spend a moment on the minority stake transaction we consummated with Hunter Point. In October 2025, Tetragon completed a sale of a minority stake in Equitix to Hunter Point or HPC, an independent investment firm providing capital solutions and strategic support to alternative asset managers. HPC acquired a 16.1% stake in the business at an implied enterprise value of GBP 1.3 billion before accounting for net debt. HPC's stake was acquired from existing investors, approximately 14.6% from us, Tetragon Partners and 1.5% from Equitix Management. Today, Tetragon holds 66.4% of Equitix. Our investment in BGO, a real estate-focused principal investing lending and advisory firm generated an investment gain in 2025 of GBP 54.8 million. Distributions to Tetragon from BGO totaled $19.9 million during the year, reflecting a combination of fixed quarterly contractual payments and variable payments. The valuation of BGO, I should point out, is on a discounted cash flow basis with an assumed exit upon the exercise of the call option in 2026, which I'll talk about in a moment. The exercise price is determined based on the average EBITDA of BGO during the 2 years prior to the exercise of that option. So the main driver of the gain in BGO during the year was an increase in the value of the put/call option due to a higher EBITDA achieved than was previously forecast and an unwinding of the discount at which we hold that -- the value of that option as we got closer to the exercise date. As discussed previously, as I have been discussing, the put call is exercisable in 2026, 2027. And that was put in place in 2018 when Sun Life Financial acquired GreenOak and formed BGL. So I now want to talk about a subsequent events after the year-end. In February '27, Sun Life Financial exercised its option to call our position in BGO, and that transaction is settling in this month in March. Tetragon Partners also agreed as part of that transaction to relinquish certain ongoing rights it has held in the business. We will be retaining -- Tetragon Partners will be retaining its ownership of carried interest in all existing GreenOak and BGO real estate funds as well as its LP interest in a number of those funds. However, going forward, given that Tetragon Partners has monetized its 13% stake in BGO, we will no longer be including BGO as one of our partners on the platform. Moving on to LCM. LCM is a bank loan asset management company that manages loans through collateralized loan obligations, or CLOs. That business generated a loss of $116.5 million during the year as the valuation of LCM decreased for the following reasons: First of all, LCM's AUM fell to $6.6 billion at the end of 2025, which was 25% lower than the prior year's AUM of $8.8 billion. That was due both to the amortization of LCM's existing deals and the fact that LCM did not issue any new deals during 2025. Due to the current issuance volumes that we're seeing from LCM, the future capital raising assumptions in the model were reduced by the valuation agent, which lowered the value of the business. These factors also led to lower EBITDA and the market multiple approach, lower cash flows used in the DCF valuation and a lower discount rate by about 150 points and a lower EBITDA multiple in valuing the business. The EBITDA multiple was reduced from 12.5x to 10.9x. Tetragon Partners' other asset managers consist of 8 diversified alternative asset managers, Westbourne River Partners, Acasta Partners, Tetragon Global Equities, Tetragon Credit Partners, Hawke's Point, Banyan Square, Contingency Capital and Tetragon Life Sciences. Details of each of those businesses can be found in Tetragon's annual report and most of them on Tetragon's website. The collective loss on Tetragon's investments in these managers and the platform was $15.3 million during the year. That's primarily owed to the working capital support that we're providing to these relatively nascent businesses. Paddy is now going to go over our fund investments. Patrick Giles Dear: Thanks, Steve. Tetragon invests in equities, primarily through funds managed by Hawke's Point, Westbourne River Partners, Tetragon Life Sciences and Tetragon Global Equities, so all part of Tetragon Partners. These investments generated a gain of approximately $300 million for the year of 2025, and that was driven by gains in Hawke's Point funds and co-investments that we've discussed. But a little bit more color. Tetragon's resource finance investments managed by Hawke's Point generated a gain of $260 million during '25, primarily driven by the investment in Ora Banda Mining Limited, an Australian gold mining project. This company had a strong 2025 with positive developments in a number of its mines, leading to its stock performing well. In addition, its shares were added to the ASX 300, the ASX 200 and the MVIS Global Junior Miners Index. Tetragon invested an additional $15.1 million into Hawke's Point as it added an investment in an Australian copper producer and increased its investments in another Australian gold mining project. A partial liquidation of investments in Ora Banda produced distributions of $108.4 million during the year. And additionally, Tetragon committed $9.9 million to Hawke's Point Critical Metals Fund. Our investments in Westbourne River European event-driven strategies were flat in 2025. For context, the net performance for the fund was plus 10.3% for its [indiscernible] share class and down 1.6% in its low net share class. Gains in M&A and corporate restructuring trades were offset by weakness in dislocation names and in the no net class, the portfolio hedge. The new Tetragon Life Sciences Fund invests in both public and private equities, targeting opportunities throughout the drug development cycle. The investment strategy is focused on high-impact therapeutic areas such as immune-mediated diseases, cardiometabolic and renal conditions, neurological disorders, rare diseases and precision oncology. In 2025, Tetragon invested just over $100 million of capital and received $62.6 million from sales and had a gain to the NAV of $30.5 million. Other equity funds, investments in other equity funds had a gain of $6.1 million during 2025. Now moving on to credit funds. Tetragon invests in credit primarily through contingency capital funds, Acasta Partner funds, Tetragon Credit Partners funds and LCM managed CLOs. This segment in aggregate had a loss of $18.5 million. First, contingency capital. These funds combine credit structuring and legal underwriting to create pools of legal assets and lend against them in a manner consistent with how a traditional asset-based lender would lend against receivables or inventory. Tetragon has committed capital of $74.5 million to contingency capital vehicles, [ 55.2 ] million of which has been called to date, and a gain of $5.5 million was generated from this investment during the year. Second, Acasta Partner Funds. The Acasta Global Fund invests opportunistically across the credit universe with a particular emphasis on convertible securities, distressed instruments, metals and mining and volatility-driven strategies. Acasta Partners also manages the Acasta Energy Evolution Fund for portfolio targeted opportunities driven by the transition of energy to renewable resources. Tetragon's investment in Acasta funds generated a gain of $8.3 million during the year, and Tetragon reduced its holding in Acasta Global Fund by $50 million during the year. Thirdly, Tetragon Credit Partners Funds. Tetragon invests in bank loans indirectly through Tetragon Credit Partners Funds, TCI II, TCI II, TCI IV and TCI V, a CLO investment vehicles established by Tetragon Credit Partners. During 2025, Tetragon's investment in funds generated $26.3 million in cash distributions and had a P&L loss of $8.7 million. Performance was negatively impacted by both realized and unrealized losses on older vintage loan exposures. And finally, U.S. CLOs. Tetragon invests in bank loans through CLOs managed by LCM, primarily by taking the majority positions in the equity tranches. Directly owned U.S. CLOs generated a loss of $23.6 million in 2025, and this performance was driven by realized and unrealized losses. During the year, investments in this segment generated $24.7 million in cash proceeds. Next is real estate. Tetragon's real estate investments are primarily through principal investment vehicles managed by BGO. And these investments are geographically focused and include investments in the U.S., Canada, Europe and Asia and generally take an opportunistic private equity style investment. BGO funds and co-investments had a net loss of $13.6 million in 2025 and due to losses mainly in the U.S. investments. And as Steve mentioned earlier, we will continue to hold these investments to fruition. Other real estate, Tetragon holds investments in commercial farmland in Paraguay, managed by a specialist third-party manager in South American farmland. And this investment generated an unrealized gain of $3.4 million after third-party revaluation in 2025. And with that, let me hand back to Steve. Stephen Prince: Thanks, Paddy. Tetragon's private equity and venture capital investments were a significant driver of performance during the year, generating gains of over $340 million. Investments in this category are split into the following subcategories: the largest contributor to investment gains was in the direct private equity bucket, which produced a gain of $326 million during the year. This related to Tetragon's investment in the Series A and Series B preferred stock of Ripple Labs. Paddy touched on this investment earlier, but as a reminder, Ripple is a U.S. enterprise blockchain company underpinned by the XRP token and the XRPL cryptocurrency ledger. The gain in this investment was driven by an increase in the price of Ripple shares observed in the private market from $64.50 at the end of 2024 to $150 per share by the end of 2025. During the year, Ripple conducted 3 tender offers, one at a price of $125 a share, one at $175 a share; and lastly, one at $250 per share. Tetragon participated in these tender offers and received $65.7 million in cash receipts during the year. Secondly, I'll cover PE investments in externally managed private equity funds and co-investment vehicles. Those investments are in Europe and North America. They're spread across 41 different positions, and they generated gains of $11 million during the year. Lastly, investments in Banyan Square's portfolio companies generated a gain of $5 million. Banyan Square has 17 positions across its 2 funds, and those investments are across application software, infrastructure software and cybersecurity. Now I'm going to cover our other equity and credit segments. We make direct investments from our balance sheet, and they target idiosyncratic opportunities. And they're typically single strategy ideas, they're opportunistic and they're catalyst-driven. These investments range from listed instruments to private investments, and they cover a broad range of assets. The breadth and diversity of our LP investments in managed funds, including through Tetragon Partners managers and our relationships with the managers on and off the Tetragon Partners platform create co-investment opportunities and ideas, which we may develop in as direct investments. This segment generated a gain of $63 million during the year and at the end of the year, comprised 15 positions. Over half the value of these positions is in shares of UiPath, which is an equity position and is our seventh largest holding at the end of the year. UiPath is a global leader in Agentic automation, which -- and they focus on helping enterprises harness the full potential of AI agents to autonomously execute and optimize complex business processes. I want to lastly cover Tetragon's cash. At the end of the year, cash at the bank was $27.1 million. The net cash balance, let me go through, however, $27 million cash at the bank, $350 million drawn on our credit facility, $0.6 million net due to brokers, $7.1 million positive in receivables and payables gives us a net cash position of $316.4 million negative -- negative $316.4 million. During the year, Tetragon increased the size of its credit facility from $500 million -- or to $500 million, I'm sorry, from $400 million, and we extended the maturity date out to 2034. At the end of the year, as I just mentioned, going through the net cash position, $350 million of our facility was drawn. And of course, this liability is incorporated into the net cash balance calculation. We actively manage our cash to cover future commitments and enable us to capitalize on opportunistic investments and new business opportunities. During the year, Tetragon used $380.8 million of cash to make investments $23.7 million to pay dividends. We received $711.6 million of cash from distributions and proceeds from the sale of investments. And finally, our future cash commitments are just under $100 million, $99.9 million. Those include investment commitments to private equity funds of $35 million, a commitment to contingency capital of $19.3 million, BGO funds of $20.7 million, a commitment to Tetragon Partners, their latest fund of $15 million and a commitment to Hawke's Point of $9.9 million. I now want to hand the call back to Paddy. Patrick Giles Dear: Most of the questions actually fit into 3 very specific areas. So rather than read each question, which might get a little dull, I've decided to amalgamate them. Apologies if I don't read out your questions word for word, therefore. But the 3 areas are, first, lots of questions about the discount to NAV and what management are doing about it. Second theme is several questions about buybacks and what we're doing and what we might be likely to do. And the third on a thematic basis is questions surrounding the sale of BGO and just asking for more clarity in various different ways. So what I'd like to do is start by answering the third question first because it does have impact on the others. And that is BentallGreenOak. So the relevance of this is it's an update post year-end. So the annual report stands for the year-end, but the very detailed minded amongst you will have seen on Page 87 of the annual report, and there is a line item for subsequent events. It's a small item, so easily missed, but an important one to refer to. And so although Steve and Paul have given you some detail, I'd like to give you a little bit more detail on that. So on the 27th of February this year, the call to buy Tetragon's stake in BGO was exercised by Sun Life of Canada. And that call will settle in March, so this month. And what it means, just to reiterate what Steve was saying, is that Tetragon has sold its total ownership in the BGO management entities and any associated ongoing rights that Tetragon had. Tetragon remains an investor in several BGO funds as an LP, and Tetragon still retains its existing participation and carried interest in the [indiscernible], GreenOak and BGO funds. So that is no change. But Tetragon no longer has any financial interest in the equity of the management companies. And thus, BGO will no longer be referred or referenced as a line item within Tetragon Partners. So I think the important point or mediacy is what does that mean for the effect on the NAV for Tetragon and Tetragon's cash. So let's start with the first of those. In addition to the call exercise, Tetragon agreed to relinquish all its ongoing rights for a payment of $155 million. This $155 million is accretive to the year-end NAV, and we expect that to be reflected in the February NAV when that is released. Separately, the call proceeds net of tax are expected to be in line to a little bit above what was in the December NAV. So just to reiterate, the $155 million, we believe will be accretive to the year-end NAV and the call proceeds will be in line with our December NAV or possibly a little bit above. Second theme here is cash. So when these transactions settle in March, we will receive approximately $475 million gross in proceeds in cash, but we will need to pay tax on some of this. So really, that brings me to the second question, which is about the cash position and how that leads into dividends and buybacks. So to update on cash, which is a little bit of an update from year-end, I'm going to start with the January fact sheet that everyone has hopefully seen. The cash position for the company at the end of January was minus $413 million. As Steve says, we have a capacity on a revolver of $500 million. And we also have capacity from lending from our prime brokers on liquid securities. So that is how the $413 million is funded is a combination of those 2. So when we receive $475 million from the sale, we will put that cash first to pay taxes. We're unsure the exact amount right at the moment. The second thing, as we've announced this morning, is we plan to spend $50 million on buying back Tetragon shares in the market. And then the immediate use for the others will be to pay down the existing debt. So that's the immediate use. It's worth just reiterating that longer-term cash usage remains a continued balance between investments, buybacks and dividends. And I would say that if we're looking at the balance between just buybacks and dividends, we currently have a preference for buybacks rather than dividends. The reason for that is partly the noncash flowing nature of the portfolio. And therefore, it's easier to spend lump sums of cash rather than dividends, which are an ongoing source of cash. And secondly, we have a preference for buybacks when there's a large discount to NAV because obviously, a large discount to NAV means that buybacks are accretive to NAV per share. And indeed, at the current share price, we believe this buyback that we are talking about today will be accretive to the NAV per share. So the third theme here is a very important one. It's a common theme, and that is what our management doing about the discount to NAV. And I'm afraid there is no simple answer to the solution. And everyone within the industry is aware of that fact. There's certainly no silver bullet. And I think followers of the U.K. closed-end market will know that this, in particular, is a market-wide issue currently. That's not a reason not to address it, but it's an important one to take into account. And forgive me if some of you or many of you have heard me on this topic before, but I don't think the answers are different. In fact, they remain the same and probably will broadly remain the same for anyone in the closed-end fund industry. And that is if one starts at the most sort of simplistic approach to address the issue, you need to find more buyers and sellers of the shares. And we believe the single most important objective to achieve that is performance. And over the years, it's compounding that performance. So driving value through increase in the NAV per share. But also, I think we have to come to a point where shareholders believe in the future performance because obviously, that is what drives the NAV going forward. So to that end, and we alluded to this in the presentation, it's not only the performance that we try and focus on, but what we think of as, call it, the engine that drives that performance. And what do I mean by that, but really is the -- our ability to generate future performance. So it's improving idea sourcing, idea generation, how we underwrite those ideas, how we risk manage those ideas, et cetera. Now if we're good at that, we then need to get people to understand what we do. We need to explain why. We need to give people confidence in the process. And sometimes that's difficult given the complex nature of some of our investments, whether it be crypto or technology or legal assets, structured credit. A lot of these are not mainstream investment assets or strategies. So we look to educate the market, and we look to our joint brokers or JPMorgan and Jefferies to help in that process, but -- and others. We're always looking to improve the quality and transparency of our reporting. I think you'll see a lot of changes in the annual report, hopefully, for the better. And indeed, that goes to monthly and websites, et cetera. We've talked a bit about dividends and buybacks, but I think they are the most tangible results of performance. If we are generating good returns and cash, that gives us the ability not only to pay ongoing dividends, but also to do one-off buybacks that can help returning capital to shareholders. But I would stress on this last point, our belief is that whilst buybacks can be very accretive to NAV per share, they don't solve the issue of a persistent discount. Indeed, there's evidence not only from the 20 years of observing the performance of our shares, there are plenty of other closed-end funds that have wide discounts that have not been affected by buybacks either. So it's not just our own information on that point. And to put some numbers to that, Tetragon's buybacks to date, not including today's announcement, we've spent $860 million on buybacks, and that's in addition to just under $1 billion in dividends. And as we're all painfully aware, that has had minimal impact on the discount. So to sum up there, we believe those buybacks are accretive. We like doing them, but we don't think they solve the problem of the discount. So those are the sort of 3 large thematic questions we received. There is one rather more specific question, and that is on Ripple. And the question is, can you tell us a bit more about how you value your investment in Ripple Labs. And for that, I'm just going to hand over to Paul, as CFO. Paul Gannon: Thanks, Paddy. So as a reminder, Tetragon holds approximately 3.4 million of the Series A and B preferred stock. This is unlisted, but does trade on private platforms, and we have access to more than one of these. In addition, we also have direct relationships with some brokers who trade the stock. And so in arriving at a valuation, we're looking to both of these sources. At the 31st of December, the position was valued at $150 per share. And we also utilized the services of an independent valuation agent who determined a fair value range for the stock and $150 per share was within that range. Back over to you, Paddy. Patrick Giles Dear: Great. Thanks, Paul. That completes the Q&A session. So just leaves me to thank you once again for participating and wishing you all a very good weekend. Thank you. Operator: This now concludes your presentation. Thank you all for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Badger Infrastructure Solutions Fourth Quarter 2025 Results Call. [Operator Instructions] As a reminder, this event is being recorded today, March 6, 2026, and will be made available on the Investors section of Badger's website. I would now like to turn the call over to Anne Plaster, Director of Investor Relations. Anne Plaster: Good morning, everyone, and welcome to our fourth quarter 2025 earnings call. Joining me on the call this morning are Badger's President and CEO, Rob Blackadar; and our CFO, Rob Dawson. Badger's 2025 fourth quarter earnings release, MD&A and financial statements were released after market close yesterday and are available on the Investor Relations section of Badger's website and on SEDAR+. We are required to note that some of the statements today may contain forward-looking information. In fact, all statements made today, which are not statements of historical facts are considered to be forward-looking statements. We make these forward-looking statements based on certain assumptions that we consider to be reasonable. However, forward-looking statements are always subject to certain risks and uncertainties, and undue reliance should not be placed on them as actual results may differ materially from those expressed or implied. For more information about material assumptions, risks and uncertainties that may be relevant to such forward-looking statements, please refer to Badger's 2025 MD&A along with the 2025 AIF. I will now turn the call over to Rob Blackadar. Robert Blackadar: Thank you, Anne. Good morning, everyone, and thank you for joining our 2025 fourth quarter and full year earnings call. As we always do here at Badger, we'd like to start off with a brief safety moment. We launched our Make Safety Personal campaign again this year in the first quarter. This will be the third consecutive year we've leveraged this program, and we continue to see our safety results improving across the entire organization. This campaign embodies the team's personal commitment to continuous safety improvement. Badger believes having a safe workplace is critical to our people and to our success, and we remain committed to building on this momentum. Over the past 5 years, Badger has doubled the size of the company entirely through organic growth. We launched a strong, successful and well-performing commercial strategy anchored by an industry-leading national accounts program. We are beginning to fully leverage our internal manufacturing facility in Red Deer, Alberta, which is producing world-class hydrovacs and has been able to flex up to support our current strong customer demand. Our sales and management leaders across the entire organization continue to deliver one of the most efficient, safest and most reliable hydrovac service offerings in the market today. This has allowed Badger to continue to expand our competitive moat across North America. We look forward to continuing this growth journey for the next 5 years and beyond. Now on to our 2025 results. Our record top line revenue of over $830 million grew by 12% year-over-year, reflecting the strength in Badger's core end markets and customer demand. We were able to fulfill this demand through increased utilization and continued year-over-year growth in our fleet. We continue to see this trend into 2026. Adjusted EBITDA outpaced revenue growth, up 13% year-over-year. These results highlight Badger's strong operating efficiencies and the optimization of our overhead support functions. Our adjusted EBITDA margin increased to 23.8% compared to 23.6% in 2024. We achieved RPT or revenue per truck per month of $41,672 in 2025, up 5% compared to last year, largely due to improvements in our fleet utilization. Badger ended the year with 1,723 hydrovacs, growing the fleet by 5% overall in 2025. The Red Deer manufacturing plant manufactured 210 hydrovacs. We refurbished 35 hydrovacs, and we retired 130 units during the year at the high end of our revised build and retirement guidance. As we look ahead into 2026, we see extraordinary demand and opportunities across almost all of our end markets. To capture this demand, we plan to build between 270 and 310 new hydrovac units, a record build rate for Badger manufacturing. Our fleet plan also includes refurbishing between 30 to 50 hydrovacs and retiring between 130 to 150 units. This plan allows us to grow our fleet in 2026 by 7% to 10% net of retirements and spend between $198 million to $230 million in capital. Included in this capital range are investments of $15 million to $25 million with the launch of 2 additional service lines that are intended to complement our existing hydrovac businesses. While the revenue and adjusted EBITDA contributions from these initiatives are not expected to be material in 2026, we believe these additional service lines will support Badger's long-range strategic growth plans into the future. I'll now turn the call over to Rob Dawson to discuss our Q4 financial results in more detail. Robert Dawson: Thanks, Rob. As you saw in our fourth quarter release, the team delivered a solid performance with record revenue and strong operational performance. Fourth quarter revenue grew 14% compared to 2024, driven by continued fleet investments to capitalize on strong demand across our U.S. operations. Our adjusted EBITDA improved to $44.9 million, an increase of 2% over the prior year, while adjusted EBITDA margin was 21.5%. As we have discussed, with the ramp-up in our growth rate in the second half of 2025, we are making investments to position Badger for sustained long-term growth in both our scale and our profitability. These investments include new additional branches to further capture market growth and densify our position in core markets. We are also adding certain operational and commercial leadership positions to ensure capacity for continued growth and scale. The initial launch of our Operational Excellence program expected to drive efficiencies across all of our field locations and the accelerated hiring and training of operators to meet our increased truck build rate. Again, these investments will build capacity for longer-term scale and profitability, but have initially impacted near-term margins. We have continued to invest in systems and processes to ensure that our functional support and general and administration spending grow scalably at a lower rate than our revenue. We are seeing the sustained value of these investments. G&A expenses were $10.9 million or 5% of revenue in the fourth quarter of 2025, 100 basis points lower than the prior year at $11.3 million or 6% of revenue. And finally, our adjusted earnings per share was $11.6 million in the quarter compared to $12.7 million in the prior year. Turning to the balance sheet. We continue to maintain a disciplined approach to capital management, preserving financial strength while supporting strategic investments. Our compliance leverage ended the year at 1.3x debt to EBITDA in the bottom half of our 1.0 to 2.0 targeted range. Looking ahead to 2026, our intention is to continue returning capital to our shareholders through both the NCIB and through dividends. We do expect to remain within our 1.0 to 2.0x total debt to compliance EBITDA target range throughout 2026. With this ample balance sheet capacity, we have plenty of flexibility to continue investing in our organic growth strategy to support initial investments in new service lines and to continue to return capital to shareholders. To that end, we were pleased to announce that the Board of Directors has approved a 4% increase to the quarterly cash dividend. This will be effective for the first quarter of 2026 with payments to be made on or about April 15, 2026, to all shareholders of record at the close of business on the last day of the quarter. In total, during 2025, we returned $31 million to our shareholders, $18 million in dividends and $13 million towards the repurchase of 492,800 common shares for an average price of CAD 37.78. Before concluding, I can provide a brief update on the current tariff environment. Badger's manufactured units remain compliant with the Canada-United States-Mexico Agreement or CUSMA. And in 2025, we did not incur any direct tariffs on our units delivered to the United States. In the fourth quarter, heavy-duty truck tariffs were announced by the U.S. administration and subsequent guidance was released in early 2026. This indicates that a 25% tariff will be payable on non-U.S. content for trucks and components crossing from Canada to the United States. If we assume a 25% tariff on the non-U.S. content of our units, Badger's tariff exposure could be in the range of an additional $18 million to $30 million for 2026. We are considering a number of alternatives and options that can mitigate the impact of these tariffs on Badger's manufacturing costs. As the long-term impacts of this tariff environment continue to evolve, we will be prepared to respond accordingly. I will now turn things back over to Rob Blackadar for some final comments. Rob? Robert Blackadar: Thanks, Rob. So before we open it up for questions, I would like to share a few last thoughts regarding our outlook. Looking ahead to 2026, we expect a continuation of the strong growth in our end markets and customer demand we experienced in the second half of 2025. Badger's industry-leading footprint, well-established commercial and pricing strategies and plans for continued investments to expand our branch network in key strategic markets leave the company well positioned to support our customers' growing needs. While we are pleased with our full year 2025 guidance -- I'm sorry, 2025 performance, we believe Badger is set up for even more success in 2026. Our branch market coverage continues to be the best by far in the industry and growing. We are able to support our customers across 44 states and 6 Canadian provinces. We have the largest fleet of hydrovacs in North America with one of the youngest fleets in the industry. Badger's dedicated national accounts program is an industry-first and industry-leading customer service offering to serve North America's largest contractors, public utilities and infrastructure customers. Our vertical integration in which we manufacture our own trucks provides substantial cost and fleet flexibility advantages. Additionally, our unrivaled fleet and workforce fungibility allows Badger to support customers at every level within local, regional and national markets. All of these capabilities position Badger to capitalize on various strategic key industries, including power generation, transmission and distribution resiliency improvements, water-related infrastructure projects, reshoring of manufacturing plants back in the United States, various transportation projects and also data center projects, just to name a few. These projects are incremental to the ongoing maintenance and renewal of aged infrastructure in many of our more mature markets. Overall, we believe the long-term fundamentals of our business remain strong, supported by favorable tailwinds and sustained infrastructure and construction investments across our major markets for the years to come. So with those comments, let's turn it back to the operator for questions. Operator? Operator: [Operator Instructions] Our first question is from Yuri Lynk from Canaccord Genuity. Yuri Lynk: Robert, just looking for some additional clarity on the CapEx spend. I mean the $170 million to $200 million, I understand that there's about $20 million in there for the new service lines. Even if I take that out, it kind of implies the cost per truck much higher than what you experienced in 2025. So is there anything else in there? Like what explains the elevated capital spend in there, if it's not the truck builds? Robert Blackadar: Rob, do you want to grab it and then I'll pick up after you. Robert Dawson: Yes. That sounds good, Rob. Yuri, a good question. We spent $125 million on CapEx in 2025. And we've given guidance of pre-tariff of $170 million to $200 million. And so we roughly increased our spending outlook by about $50 million. And as you mentioned, $20 million of that, the midpoint of the range we provided is investing in new service lines. And then the other $30 million is simply an increase in our truck build rate. Recall that while at the plant truck cost is in that $415 to $420 per unit, if you factor in transportation and delivery, licensing and probably most materially FET, the landed cost of a truck into our operations is $450,000 per unit. And that cost is not expected to change appreciably over the next year. So $30 million for new trucks and $20 million for strategic initiatives and the rest of the spending is largely in line with where we have been. What are those amounts? We do spend a little bit on ancillary equipment every year. Think about the trucks that can support our operations like combo trucks, rock swingers, dump trucks, those sorts of things. We are continuing to invest in IT and process improvements in that $5 million to $10 million range each year. And then we do make modest investments in our manufacturing plant each year as well. So largely in line with our current trends with the 2 big items as the uptick. Yuri Lynk: Okay. I understand that the tariff situation is fluid. But the build rate guidance is at the high end, kind of pushing up against the -- I think it's 350 units per annum of capacity at Red Deer, the top end is 310. So when do we start thinking about a potential U.S. manufacturing footprint? Robert Blackadar: Yes. So I'll grab that one, Yuri. We have always had the concept of as the company continues to grow and scale, at some point, we would need a second facility, a second manufacturing facility. And we've had that in our long-range planning for a pretty good while since I've been here at the company. As we started to scale the business, we're starting to realize that we need to be accelerating that decision-making. And so even at our most recent Board meeting, we just recently wrapped up, that discussion of let's start looking into what it would look like, the timing and how we would start to move toward that second facility, we're actually underway with getting some of that information and pulling that together. We do have a lot of additional reasons other than just scaling. It allows us to have redundancy from a risk standpoint. So instead of having all of our manufacturing only in one facility, obviously, if we have a secondary facility, we would probably do a manufacturing plant in the United States. I don't think that would be a surprise for anyone. And if we were to do that manufacturing plant in the United States, it would probably give us a little bit more efficiency because of the amount of volume we do in the U.S. as well as a secondary benefit would be probably even more relief from a tariff standpoint. And so there's a lot of benefits for us to get going after a second manufacturing strategy. It's something that we're going to be working closely with our Board of Directors on. And at the right time, we're going to -- we'll have some movement on that. And obviously, once that is more solidified, we'll be happy to report that out. Operator: Our next question comes from Ian Gillies from Stifel. Ian Gillies: As you think about 2026 and growing the fleet on average by 8.5% this year, do you think there's enough other items, i.e., pricing and utilization that could perhaps get revenue growth above the, call it, long-term average of 12% to 14% this year? Robert Blackadar: We believe that the markets -- and I shared this at a recent investor conference that Rob and I were at in January, but we believe the markets are so strong, Ian, that there is potential for upside to our plan and to what we're looking at in 2026. I've been in the construction equipment rental space and the exact same end markets that Badger services has been the business I've been in for -- over 32, 33 years. And I've never seen the end markets be as strong as they are right now and the runway ahead of us for the next 3 to 4 years, maybe even longer than that. We don't normally start to prognosticate beyond about the 4-year mark because it just gets so much more opaque and gray out there. But for the next 3 to 4 years, very, very robust end markets and the amount of projects coming at us would really lend us to believe that we should have a pretty solid 2026 and beyond. Ian Gillies: Understood. And maybe as you went through your work to think about this capital investment, putting more trucks in the field, new service lines, et cetera. Can you maybe talk about how you think it impacts where you could potentially end up in the future in the EBITDA margin guidance range or business plan range of 25% to 30%. I know that depends on cycles and how good a different year is, but maybe articulating how this helps put you in that range and whereabouts would, I think, be useful. Robert Blackadar: Yes. I'll start with that, and then I'll let Rob kind of add his thoughts on that. So certainly, as we continue to scale up the business, we believe that -- and the market demand is out there, we believe that on the incremental revenue and the growth revenue, we should start to see more and more profitability, I think in terms of flow-through and operating margin. The -- one of the catalysts that we see as an opportunity is we've kept our overhead and our G&A and everything at very reasonable levels. And for a little bit there, we were actually probably somewhat high a few years ago, and we got a lot more efficient in those areas of the business. And since we've been layering on growth, we haven't had to add a lot. Rob even mentioned that in his commentary. And so we should start to see some incremental dollars start to flow through. Right now, we're in this a bit of just a very short transitionary phase where we've loaded in some short-term overhead to hire up additional operators. But we believe when all those operators are fully trained, and remember, we're a 90- to 100-day onboarding process that you'll start to see us moving back into our more traditional kind of range that we're aiming for. In addition to all of that, the Operational Excellence program that the business is underway with, and we launched it company-wide in January 2 months ago, very excited about what that's already showing from some pilots at the end of last year and what that's going to start to bear fruit on. So that alongside of the business growth and us keeping our cost under control is what's going to really propel us into the range. And then, Rob, if you want to add anything to that. Robert Dawson: I think the final leg of that stool is the data platform that we set up and have matured over the last year. So we have a very timely and robust data set available to us. And in the coming year to 2 years and going forward, we are starting to leverage that data set not only for more timely and better targeted decision-making, but also bringing in the power of some of these large language models to help us to get to broad-based decisions in a more intuitive and quick way. So automation and data performance, I think, is going to be the third leg of driving our margin forward. Ian Gillies: That's helpful. And if I could just maybe sneak in one last one. Are you seeing anything in any of your key markets in the U.S. on the supply and demand side, whether it be from competitors or other types of excavation that are negatively impacting margins in any way, shape or form? Or is this purely just we're investing in the business and it's going to turn at a later date? Robert Blackadar: Yes. So we're not seeing anything material. I mean, certainly, there's inflationary cost and not in any particular market, but just in general across all markets that everyone is burdened by. So obviously, you have your labor, your wages, cost of fuel, even though we did implement a fuel recovery fee post-COVID. And as fuel fluctuates, it becomes less of an issue here at Badger. But I do believe some competitors have some headwinds with that who don't have that floating fuel recovery fee -- fee recovery. The -- but there's nothing in particular that I see either Badger having some disadvantage on our margins or competitors having an advantage or disadvantage as well. I think we're all in the same markets. And right now, with what's in front of us, for Badger, if we were not to invest and continue to scale up, we would run the potential to start not growing and keeping our market share and growing our market share. And we're just determined to be and remain #1 and just have long-term long tail of growth and performance. And so that's my thoughts on that. And Rob, if you want to add anything to that? Robert Dawson: I don't have anything to add to that comment, Rob. I mean we are seeing -- I'd say inflation in construction industry is ahead of the CPI number. But as Rob mentioned, we've got already existing things to be very flexible. We don't have to spend a lot of time to get at systems that we already have in place to capture things like price, fuel recovery and those sorts of things. So we've been quite adaptable to the environment that we're in, and we'll continue to be. Operator: Our next question is from Tim James of TD Cowen. Tim James: My first question, just looking at the fleet plan for 2026, the manufacturing is going up fairly significantly. And at the same time, the retirements are going up fairly significantly. Is there anything that's going on that causes that mix? I mean the fleet growth, again, in that 7% to 10% range. But I'm just wondering in terms of sort of useful life or the economics of newer units versus older ones. Can you talk about any shifts there just given the increases in both sides of the fleet growth equation? Robert Blackadar: Yes. There's nothing really material changing as far as is the fleet aging differently? Are we seeing more engine failures or any problems? We're not. In fact, I would suggest that what Rob was talking about on the previous answer in reference to data and leveraging systems and processes and a little bit of AI, but leveraging that with our fleet management tools, we're actually seeing solid efficiency there. What's happening, though, Tim, is we are scaling the business. And if you think about it, when I joined the business in July of '21, we had roughly 1,200-plus hydrovacs. And today, we just announced we ended the year at 1,725 (sic) [ 1,723 ]. And we're continuing to scale and grow. And as you can imagine, as we grow, we are going to continue to grow our build rate and you're also going to have a certain level of retirements that are commensurate with that. We are continuing to age our fleet the exact same. We're not trying to accelerate retirements nor are we trying to delay them. We're running the company in the same manner as we have. Probably the biggest nuance though, is the refurbishment. If you think about the refurbishments, it's just something we introduced a couple of years ago, and we've seen good benefit to that. And we're going to continue on that process as well. So that's the kind of a clear answer, but we're not changing our fleet management model. Tim James: Okay. My second question, I'm just wondering if you could take a minute and sort of review the specific kind of ground level initiatives that are involved in the Operational Excellence program. Robert Blackadar: Yes, sure. So what we have done, and this is where some of the investments and the -- when we say investments, like we put some overhead into the business, but it's very similar to Operational Excellence programs I've seen at different companies I've worked at in the past. And we go in and we evaluate every aspect of a branch in our location. So if you think about it, Tim, we have 140 locations. And historically, they've been somewhat operated like independent businesses. There were no consistent constant processes and flows across the branches, et cetera. And what we're starting to realize is there's a lot of efficiency to be had just in how we operate. So for example, just a couple of easy examples, but we have a whole list of these we can go through with you after the call or at any time. But for example, how we dispatch our trucks. Not every branch dispatches the same way and having a common dispatch system. And so we believe there's operational efficiency of 15% to 20% to get even more efficient in how our trucks are routed and the projects they go on and starting to stack and load jobs, which will drive a lot of labor efficiency and utilization. And if you think about the lift on that, that's massive amounts across 1,700-plus trucks. Second thing, second example that may be helpful is even as basic as how we fuel our trucks. So running Class 8 trucks, we run a tremendous amount of diesel that goes through. But some of our branches will actually do their fueling in the morning. Some of our branches will do their fueling in the evening. Some of the branches have on-site fueling. Some of the branches use truck stops or et cetera. And what we've realized is there is a much more efficient way for us to start fueling all of our trucks across the entire organization. And by doing it in a more efficient, consistent way, we can actually start to leverage our fuel spends and start to control our programs to where all the fueling is happening the same way, and it drives a lot of efficiency because if someone is fueling a truck at the end of the day, sometimes there will be in an overtime situation, and we're paying someone 1.5 to 2x their wage to sit there and fuel a truck. And as you know, our trucks take several couple of hundred gallons of diesel each truck. So it takes time to get the fuel in the truck. If there's a way for us to avoid having to pay overtime, you start to drive efficiency. That's just one little glimpse along with dispatch, along with the branch flow, along with how we get our drivers out in the morning and what's the most efficient way, that's being standardized across the entire organization. And as Rob and I have shared, we believe once we have about a year -- a full year of that rollout happening across the organization, we're going to start seeing it becoming more material in our margins and move us from the lower end of our range to more toward the middle part of our range of 25% to 30% adjusted EBITDA. All that, though, takes people, and that's the investment. So it takes people to actually go and roll this out at every single branch. It takes a team to coach and teach our local branches how to do it and then make sure it sticks and it's consistent and then following up. So that's the investment we're making now, but we think it will have great returns longer term. So hopefully, that gives you a little bit of a peek behind the kimono there. Operator: Our next question is from Krista Friesen from CIBC. Krista Friesen: Maybe just to dig into that last question a little bit more. Is there anything that we should be thinking about in terms of the cadence of your spending over the next several quarters here? And will it be kind of linear over the quarters? Or how should we think about that? Robert Blackadar: Yes. So I'll start, and I'll let Rob pick up where I leave off. So as far as from a perspective of branch expansion, we're going to continue to expand in key strategic markets. It's something we've been talking about the last few years, and it's starting to accelerate where if we have a branch that is in a larger metro area, think in terms of top 12 MSAs in the United States. The -- we believe that by having more than just one single location in a very dense but broad geography, we can start to grow our market share. We've realized a few years ago that some of our competitors are just out of reach of where Badger services. And so by us adding a second, third, sometimes even a fourth location, we can start to capture and not lose share, but we can actually grow our share and our profitability in those markets. And so we'll continue with that. We're actually slated to have about half a dozen branch expansions in 2026. Regarding us ramping up our operator hiring, which we started much heavier and earlier than we normally would in Q4, and it's continued a little bit into Q1, we just see the amount of demand, Krista, that was happening in the marketplace and much earlier. There really wasn't a lot of seasonality. That's why you saw the revenue pop like it did in Q4. But we realized if we don't have the operators and in place trained halfway through toward the end of Q1, we have the risk of missing out on some of the market and the opportunity to grow. And so that's why we front-loaded some of the operator hiring. That's not going to continue in that fashion. So that's something that really was a phenomenon for Q4 and a little bit into Q1 here because we'll have normal operator kind of an employee base rather than this front-loading of a lot of operator hiring. And then the last part is on the Operational Excellence, which I just laid out. We're going to -- the cost that we put into the business, that is going to -- it's about an 18- to 24-month process. And then that cost will start to just be normalized as part of the business. Operational Excellence will go on somewhat in perpetuity because there's always opportunities to improve your efficiency, but you don't need as much overhead cost as far as the rollout. At that point, it becomes more of a what are some new efficiencies we can start to drive across the whole organization. So you don't need as many people to roll it out. So that will start to sunset after that 12-, 18-month period. So that's kind of our perspective on some of the overhead investments we've made. And Rob, if you want to add anything to that? Robert Dawson: Krista, it's Rob here. I think really the only lumpiness in our capital is when we're ordering third-party equipment. And depending on lead times and the delivery dates of those is when we would pay for those items. So for instance, we mentioned hiring some ancillary -- buying some ancillary equipment as well as equipping some of the new service lines that we mentioned in this quarter's release. There will be some lumpiness to that. But overall, everything else is a steady drip on our capital spend. So the vast majority of this is going to be pretty stable. Krista Friesen: Okay. Great. And then maybe just to follow on that. Should we assume relative stability in the RPT? I mean, taking into account normal seasonality, just wondering if you think there will be certain quarters of maybe a mismatch between your heightened truck build and then opening these new branches and deploying those trucks. Robert Blackadar: Yes. I don't really see our RPT moving materially because of our fleet growth. Because what we're finding, Krista, is as we've started to ramp up the fleet builds, the RPT has been able to hold in steady. We've been very fortunate that there's enough demand in the market that our onboarding of new trucks into a market or into a branch, they go to work very, very quickly now and start producing revenue very quickly. So I just don't see that as being some big headwind Rob has shared a few times at investor conferences, et cetera, that utilization, while we've made a lot of improvements across the organization, we continue to see some utilization opportunities, and that's exciting, and that will continue to keep RPT strong. And if you want to add anything to that, Rob? Robert Dawson: I think this is overall consolidated, Rob's comments are very true. We don't see significant changes in our RPT over the next while as we're scaling to grow. In each of the individual markets, when you open a new branch, obviously, RPT is going to dilute out a little bit as that branch starts from 0 and gets up to a same-store sales kind of concept to utilization. But over the entire network and fleet, those impacts will be a lot more diluted out and more difficult to see. Operator: We have another question from Frederic Bastien from Raymond James. Frederic Bastien: I was wondering if you could provide more information on the expansion that you're contemplating into adjacent service lines, please? Robert Blackadar: Sure. So we -- every year, the company does a strategic -- or strategy session rather, with our Board of Directors and the leadership team, and we go off for 1 day to 1.5 days, and we will evaluate kind of our long-range plan for the company and how we view where the company can grow and expand and look for new opportunities to just drive improvement across the organization for the long term. And as part of that process, we are always evaluating our core business, and we're always evaluating additional businesses and service lines that may be complementary to Badger and our core business. And one of the things that's come up in the last few years and our customers are asking for it is us to start doing more work inside the fence or behind the fence at various industrial type plants. And so one of our strategic initiatives that we're underway with is industrial services, industrial cleaning services. And we did a somewhat of a soft quiet launch later in the back half of 2025 this last year, and we ended the year with 4 locations doing industrial services that are dedicated we found we're very pleased with early results. But as we said in our -- I think it's in our press release and the script, it's not material at this time. And so because of that, we're not really reporting or promoting the heck out of it, but we felt that we should disclose that some of the CapEx spend that we're spending in that to get that business ramped up. It's extremely complementary to our current business. It also provides us some a little bit of offset to our seasonality because a lot of the industrial work will be happening when some of our hydrovac work starts to slow down in the winter time. So it's pretty exciting that way. The other service line we're looking to get launched in 2026 here is the concept of trench safety is how we're branding it, but it truly is trench shoring and road plate. And it is to service because a lot of our customers are calling us after we dig the hole, they're calling us and saying, do you guys rent or could you provide trench shoring. So think in terms of a trench box, et cetera. it's a very accretive service line that we can offer. We're not looking to go compete head-to-head against a large trench shoring company or anything like that. We believe it's a value add to our existing customers. And so we're going to be launching a few branches with that, and that's what the CapEx is involved with. But more to come on that as well. They're just very, very early on in the launches of those 2 additional business lines, but we believe our customers, it makes Badger a lot more sticky and by us having those service lines available. Operator: Thank you so much. We certainly appreciate all your questions. I will go ahead and turn it back to Rob. Robert Blackadar: Thank you, operator. So on behalf of all of us here at Badger, we want to thank our customers, employees, shareholders and suppliers for your ongoing support that drives all of Badger's success. Operator, you may now end the call. Operator: Thank you. This concludes today's event. Thank you for your time and participation today.
Operator: Thank you for standing by, ladies and gentlemen, and welcome to Tsakos Energy Navigation Conference Call on the Fourth Quarter 2025 financial results. We have with us Mr. Takis Arapoglou, Chairman of the Board; Mr. Nikolas Tsakos, Founder and CEO; Mr. George Saroglou, President and Chief Operating Officer; and Mr. Harrys Kosmatos, Co-CFO of the company. [Operator Instructions]. I must advise that this conference is being recorded today. And now I'll pass the floor to Mr. Nicolas Bornozis, President of Capital Link and Investor Relations Adviser to Tsakos Energy Navigation Limited. Please go ahead, sir. Nicolas Bornozis: Thank you very much, and good morning to all of our participants. I am Nicolas Bornozis, President of Capital Link and Investor Relations Adviser to Tsakos Energy Navigation. This morning, the company publicly released its financial results for the 12 months and fourth quarter ended December 31, 2025. In case you do not have a copy of today's earnings release, please call us at (212) 661-7566 or e-mail at ten@capitallink.com, and we will have a copy for you e-mailed right away. . Now please note that parallel to today's conference call, there is also a live audio and slide webcast, which can be accessed on the company's website on the front page at www.tenn.gr. The conference call will follow the presentation slides, so please, we urge you to access the presentation slides on the company's website. Now please note that the slides of the webcast presentation will be available and archived on the website of the company after the conference call. Also, please note that the slides of the webcast presentation are user controlled, and that means that by clicking on the proper button, you can move to the next or to the previous slide on your own. Now at this time, I would like to read the safe harbor statement. This conference call and slide presentation of the webcast contains certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, which may affect TEN's business prospects and results of operations. And at this moment, I would like to pass the floor to Mr. Arapoglou, the Chairman of Tsakos Energy Navigation. Mr. Arapoglou, please go ahead, sir. Efstratios-Georgios Arapoglou: Thank you, Nicolas. Good morning, good afternoon to everyone. Thanks for joining our call today. I have really nothing to add on the brilliant financial performance and the usual quality operating performance for TEN. Just 4 points from me worth noting. All of our 19 new buildings under construction, including the 2 recent VLCCs and the LNG are already in the money. The second point is that we sold the 10-year-old VLCC generating $82 million of free cash to be added to the $300 million already existing cash cushion that we traditionally keep. The third point is that the locked-in contracted future revenue has now gone over the $4 billion mark, excluding profit shares. And lastly, which is very important, 22 of our vessels are taking full advantage of the high rates in the spot markets through profit share as we speak. So all the above, I believe, guarantee a continued strong performance going forward. And with this, I give the floor to Nikolas Tsakos. Nikolas Tsakos: Thank you, Chairman. Good morning, good afternoon to everybody here from Athens -- from peaceful Athens, Greece. We just reported a very strong year, a year that has been a milestone period for TEN, a year in which we concluded significant strategic transactions for the future growth of the company and in very specific segments as the shuttle tanker and the dual fleet segment. The last quarter of 2025 has been a very strong quarter, and that was before the geopolitical events that started early in January, with the changes and the opening up of Venezuela, one of the largest traditional exporters of sweet crude to the west that has been lagging behind due to political reasons. The opening of Venezuela to the mainstream fleet like ours, we were the first vessel under a several charter to transport the first, let's call it, legal export to the United States after the change of the political environment there. And soon after that, of course, we have the issues in the Red Sea and the Gulf of Aden that have made it even further -- have even further strengthened spot rates to levels that at least our generation has never seen before. And I think these are the highest levels ever recorded in recent times. In this environment, TEN has been able to conclude very successfully 2025 and is taking advantage of the very strong rates that we are facing since the beginning of the year. In the meantime, we were able to disinvest some of our older tankers, putting aside in excess of $100 million to our cash reserves and reducing significantly our debt. And we were, I would say, lucky enough with a very good timely orders of our VLCCs at what today look -- our 3 VLCCs at what look today to be at very, very significant discount to today's market and also recently to our LNG orders. We maintain our moat of modernizing our fleet according to our clients' requests. We are looking to -- we have already a significant dividend policy. Our last dividend was in the later part of February and we're looking forward as we're following day-to-day, and I think we have -- we are following the developments, the geopolitical developments in the Middle East in order to, first of all, to secure the safety of our seafarers, the crew and the cargoes on board and take advantage of this very strong market environment. So all in all, I would say, as far as the market is concerned, good news. Good news, perhaps not for the right reasons because none of us -- I think nobody in the world is happy to have good news under war circumstances, but we have to run a tight and safe ship and this is what we have been doing. And with that, I will ask George, if you -- Mr. Saroglou, our President, to give us a more detailed analysis of what happened in 2025 and we'll be happy to answer your questions later. George Saroglou: Thank you, Nikolas. We are pleased to report today on another profitable quarter and year. Before reflecting on the company's performance of last year, a few words for the current events unfolding in the Middle East and the Arabian Gulf. Shipping faces another geopolitical event in the Arabian Gulf and the Strait of Hormuz. The Strait of Hormuz sits on one of the world's busiest shipping routes, acting as a gateway to the oil and gas fields, refineries and terminals of the Arabian Gulf. 1/5 of the world's oil and liquefied natural gas passes through this narrow strait. It's a vital shipping lane for dry bulk commodities as well. Spot rates across all tanker vessel classes have spiked at levels far above the already strong rates in existence prior to the start of operation, Epic Fury. Substitute barrels from the U.S.A., Venezuela, Brazil, Guyana and West Africa are expected to benefit tanker rates and ton-mile demand. When the conflict started last Saturday, we had 3 vessels under time charter approaching the Arabian Gulf. We monitor 24/7 and follow the advice and updates of maritime security centers, flag, state, P&I and insurance underwriters. In coordination with our charterers, we assess the risk associated with any potential assets through this high-risk area. None of our vessels have entered for now this area, and they are kept outside the Strait of Hormuz. Charterers consider diverting some or all of them to other loading areas outside of the Arabian Gulf. Our foremost concern remains the safety and well-being of our seafarers on board these vessels and all those vessels that are in proximity and the structural integrity of our assets. Even without the latest geopolitical events, tanker markets have remained healthy during the course of last year. Energy majors continue to approach our company for time charter business. Since the start of the fourth quarter of 2025, we concluded 20 new time charter fixtures and extensions of existing time charters. Today, we have a backlog of approximately over $4 billion as minimum fleet contracted revenue. We have 33 years history as a public company. We have started with 4 vessels in 1993, and we have turned every crisis the world and shipping have faced through the years into a growth opportunity. If we move to Slide #4, we see that today, we have managed to have TEN as one of the largest energy transported in the world with a very young, diversified, versatile pro forma fleet of 83 vessels. In Slide 4, we list the pro forma fleet of all conventional tankers, both crude and product carriers. The red color shows the vessels that trade in the spot market, and we have 9 as we speak, 2 more from our last call and our new buildings under construction. With light blue, we have the vessels that are on time charter with profit sharing, 13 vessels, and with dark blue, the vessels that are on fixed rate time charters, 42 vessels. In the next slide, we leased the pro forma diversified fleet, which consists of our 3 LNG vessels, including the new order we announced today and our 16 vessel shuttle tanker fleet. We are one of the largest shuttle tanker operators in the world with a very young and technologically advanced fleet after the tender we won last year in Brazil to build 9 shuttle tankers in South Korea. We have 6 shuttle tankers in full operations after taking delivery of both Athens 04 and Paris 24 last year, which commenced long time charters to an energy major. If we combine the 2 slides and account only for the current operating fleet of 64 vessels, 22 vessels or 34% of the operating fleet has market exposure spot and time charter with profit sharing, while 55 vessels or 86% of the fleet is in secured revenue contracts, time charters and time charters with profit sharing. The next slide lists our clients with whom we do repeat business through the years, thanks to our industrial model. ExxonMobil is the largest revenue client. Equinor, Shell, Chevron, TotalEnergies and BP follow. We believe that over the years, we have become the carrier of choice to energy majors, thanks to the fleet that we have built, the operational and safety record, the disciplined financial approach, the strong balance sheet and good financial performance. The left side of Slide 7 presents the all-in breakeven costs for the various vessel types we operate in the company. Our operating model is simple. We try to have our time charter vessels generate revenue to cover the company's cash expenses that is paying for vessel operating and finance expenses for overheads, chartering costs and commissions and we let the revenue from the spot and profit-sharing trading vessels to make contributions to the profitability of the company. Thanks to the profit-sharing elements, for every $1,000 per day increase in spot rates, we have a positive $0.11 impact on the annual earnings per share based on the number of TEN vessels that currently have exposure to spot rates, 22 vessels. We have a solid balance sheet with strong cash reserves. The fair market value of the operating fleet exceeds today $4 billion against $1.9 billion debt and net debt to cap of around 47%. Fleet renewal and investing in eco-friendly greener vessel has been key to our operating model. Since January 1, 2023, we have further upgraded the quality of the fleet by divesting from our first-generation conventional tankers, replacing them with more energy-efficient new buildings and modern secondhand tankers, including dual fuel vessels. In summary, we sold 18 vessels with an average age of 17 years and capacity of 1.7 million deadweight ton and replaced them with 34 contracted and modern acquired vessels with an average age of 0.5 years and 4.7 million deadweight capacity. We continue to transition our fleet to greener and dual fuel vessels. We are currently one of the largest owners of dual-fuel, LNG-powered Aframax tankers with 6 vessels in the water. Global oil demand continues to grow year after year. OPEC+ accelerated their voluntary production cuts, wars, economic sanctions, sanctions lifted tankers and geopolitical events positively affect the tanker market and freight rates while the tanker order book remains at healthy levels as a big part of the global tanker fleet is over 20 years and will need to be replaced gradually. And with that, I will pass the floor to Harrys Kosmatos, who will walk us through the financial performance for the fourth quarter and last year. Efstratios-Georgios Arapoglou: Thank you, George. Harrys? Harrys Kosmatos: Thank you, George. So let's start with a review of the year 2025. So with 2025 starting on the whim with an avalanche of global tariffs and tit-for-tat actions by China on U.S. proposed port fees, measures that were subsequently revised or suspended, all in the backdrop of ever-growing geopolitical turmoil, the tanker markets remained elevated and oil majors increased their long-term cargo requirements. To this effect, TEN through to its tried and tested operating model of seeking long-term cover provided the vessels required for its blue-chip clientele to meet its needs. This operational tweak, however, did not hinder the fleet from taking advantage of the equally strong but more erratic spot market as it had a good complement of vessels benefiting from trading spot. In particular, with the fleet in the water averaging 62 vessels identical to 2024, days under secure revenue employment, that is vessels on time charters and time charters with profit sharing provisions increased by 12.6%, while days on spot declined by 33%. Of interest, during 2025, days on profit sharing contracts alone increased by 12.4% from 2024, highlighting TEN's commitment to adding another layer of employment to benefit from the very lucrative spot market. Today, 1/3 of our fleet, that is 22 vessels, 9 on pure spot and 13 on profit sharing contracts are directly impacted by the historical strong spot market. As a result of this employment shift, during 2025, TEN generated close to $800 million in gross revenues and $252 million in operating income, which incorporated $12.5 million of capital gains from the sale of 4 older vessels. Capital gains during the equivalent 2024 12 months were up $49 million from the sale of 5 vessels. In line with the above employment pattern and fewer vessels on dry dock compared to 2024, 10 in '25 from 15 last year in '24, fleet utilization increased to 96.6% from 92.5% in 2024. The time charter equivalent rate the fleet attained during 2025 was a healthy $32,130, similar to 2024 levels. Reflecting the reduction of the fleet's spot exposure mentioned above, voyage expenses declined from $153 million in 2024 to $122 million in 2025, a saving of $30 million. A saving of $4.4 million was also incurred by a reduction in charter hire expenses whilst vessel operating expenses increased by just under $13 million from the year prior to settle at $211 million. The introduction of larger and more specialized vessels in the fleet like Suezmax and shuttle tankers in place of Handysize and Aframax vessels that were sold contributed to that increase. As a result, operating expenses ship seat per day for 2025 average a competitive $9,990, about 1/3 of the time charter equivalent rate mentioned above. Depreciation and amortization came in at $170 million for 2025 from $160 million reflecting the introduction of 4 newbuilding vessels. General and administrative expenses in 2025 were at $42 million from $45 million in 2024, to a large extent, the result of the amortization of stock compensation awarded in July 2024 and scheduled to fully vest by July 2026. A decline was also experienced in our cost of interest as a result of lower interest rates, which despite $174 million increase in the company's debt obligations from 2024 due to new loans for TEN's newbuilding program came in at $98 million compared to $112 million in 2024, another saving of $14 million. Interest income came in at $10.5 million which was another meaningful contribution. At the end of 2025 with just 62 vessels on average in the water and 20 vessels -- and a 20-vessel newbuilding program, TEN's total debt obligations were at $1.9 billion with net debt to cap -- while net debt-to-cap stood at a comfortable 46.7%. TEN's loan-to-value at the end of 2025 was a conservative 48%. As a result of all the above, the company during 2025 generated a healthy net income of $161 million or $4.45 in earnings per share. Adjusted EBITDA for the year came in at $416 million, while cash at hand as at the end of December 2025 stood at $298 million. After having paid $148 million in scheduled principal payments, $190 million in yard predelivery installments and capitalized costs and $27 million in preferred share coupons. And now let's go over the quarter 4 summary results. The fourth quarter of 2025 experienced similar fleet employment patterns, which had fleet utilization reaching 97.7% from 93.3% during the 2024 fourth quarter. During the 2025 fourth quarter, 2 vessels underwent scheduled dry dockings compared to 4 in the 2024 fourth quarter, which naturally contributed to this improvement. With an identical number of vessels in the water with the 2024 fourth quarter, albeit of greater deadweight, the fleet generated $222 million of gross revenues and $81 million in operating income which similarly to the 2024 fourth quarter did not have any gains or losses from vessel sales. The result in time charter equivalent per ship per day, reflecting the ever-increasing strength in rates was at $36,300, 21% higher than the 2024 fourth quarter level. Voyage expenses during this year's fourth quarter were lower compared to last year's fourth quarter, experiencing a $7.6 million drop to settle at $26.8 million. Operating expenses, on the other hand, increased to $56 million from $51 million in the fourth quarter of '24 due to some extent by operating larger vessels. The result in operating expenses per ship per day for the fourth quarter of 2025 came in at $10,558. Again, 1/3 of the fleet average TCE and still competitive, thanks to the efficient and proactive management performed by TEN's technical managers. Depreciation and amortization were a little higher from the 2024 fourth quarter at $44.4 million. General and administrative expenses were at $6.2 million lower from last year's third quarter at $9.2 million. Interest came in at -- interest costs came in at $25 million, similar to the 2024 fourth quarter, while interest income contributed about $3 million to the bottom line. As a result of all the above, TEN during the fourth quarter of 2025 reported $58 million of net income or $1.70 in earnings per share, a 200% increase from the 2024 fourth quarter. The adjusted EBITDA during the fourth quarter of 2025 settled at $128 million, $42 million here from the 2024 fourth quarter number. And with that, I'll pass it back to Nikolas. Thank you. Nikolas Tsakos: Thank you, Harrys, for having so many positive numbers. I will allow you to make long presentations as long as the numbers are positive because -- well, as we said, the fourth quarter was only the beginning of the end, I would say, of a very fruitful year for 2025, a year that we have been able to establish a renewal -- a significant renewal of the fleet. We have been able to take and absorb the new acquisitions of the Viken fleet, which we did earlier fully in the company. And we were able to have an increase of our utilization to close to 98%, which I think this is really something that we want to congratulate also the operation department of Tsakos Shipping and Trading for keeping the ships -- the propellers earning almost 100% of the day. And this figure includes dry dockings and special surveys. So it's really, I think, the highest utilization in the company's history. And the beginning of '26, we had, I would say, surprises mainly on the geopolitical front. We have the change and the lifting of sanctions from Venezuela, which has allowed companies like ourselves to be able to participate even more in that -- in those trades. And of course, recently, the events in the Persian Gulf which have created spot rates or have led to spot rates and prices of oil that we have not seen for a generation. The company is very well prepared to navigate such a tremulous environment. And as Mr. Saroglou showed us in our earlier slide, I think the company comes stronger out of every crisis. I think most of you listening are too young to remember most of the crisis that we have been -- that we have gone through in the last -- 7 crisis in the last 30-odd years, but the company has been able to build and build further. And I think this graph is very evident that the Harrys, next time don't forget you have 12.5% growth that we usually have to show that the company has been growing year after year regardless of difficult markets. Another important factor we have increased the dividend. We paid the last part of our dividend in February and we're looking to reward shareholders accordingly as we move forward. A lot of question marks. We're actually focusing on the safety of our seafarers, as Mr. Saroglou said and also protecting our assets and the cargoes in our assets. We are going through situations that we have not seen in a generation. But we are well prepared to be able to take advantage of that. And with that, I would like to open the floor and also to thank the Chairman for his good words earlier to any questions. Thank you. Operator: [Operator Instructions] Our first question comes from the line of Climent Molins with Value Investor's Edge. Climent Molins: I wanted to start by asking about the 2 LNG carrier orders you announced today. Could you talk a bit about whether you're already in discussions for long-term charter employment. And if so, what duration are you targeting? Nikolas Tsakos: Yes. I mean, there is -- as I said, the LNG segment is a segment that we have been participating from a very early stage back in 2007. However, I think for good reasons, we have never overextended ourselves in investing in that segment. We always want to participate in new ships and new technologies, and that's what we have done. And with these ships, it's too early to charter long term, but there is a lot of appetite going forward. So I think this is more as a long-term investment for this growing segment of the business rather than something that we have done with a charter in mind. Climent Molins: All right. Makes sense. I also wanted to ask about the [indiscernible]. Could you talk about how the index-linked portion is calculated? Is it benefiting from the surge in spot rates we've seen in recent days? Nikolas Tsakos: The [indiscernible] on a profit sharing arrangement based on trading routes of the Far East, end of Transatlantic. So of course, it's participating in this situation and the current employment ends in about 8 months. And of course, there is a significant appetite for such a [ prong ] ship going forward. Climent Molins: That's helpful. As I understand it, you very recently fixed 2 MR2 new builds that were delivered earlier this year. Are they employed at fixed rates or at variable hire? And if it's the former, at what rate are they employed? Nikolas Tsakos: We cannot tell you all the secrets. You have to call Mr. Kosmatos. When you see him in New York, you can ask Mr. Kosmatos. He's only allowed to write this in a piece of paper and secretly hand it to you under the table. But they are -- I would say, they are fixed rates, and they're very, very accretive in the mid- to high 20s. That's all I can say. And I think these are the highest that those ships have been fixed -- these type of ships have been fixed in the recent months or at least this is what our chartering department tells us. Climent Molins: Makes sense. Harrys, we definitely need to catch up soon. Harrys Kosmatos: Looking forward to it, gentleman. Climent Molins: Yes. I also have a question on the shuttle tanker newbuilds. We've seen some of your peers getting very good financing terms and support from the Korean export agency. Is this something we should kind of expect on your shuttle tanker orders as well? Nikolas Tsakos: Of course. Of course, I mean, we are one of the biggest supporters of South Korean yards and all the -- we try to keep all -- we are currently to the Herculean task of our newbuilding department. We had site offices in all the major South Korean yards. So we have a very big site office in Samsung as big in Hanwha, the ex Daewoo, and of course, a big one in Hyundai, which we never stopped having versus perhaps if you recall, we just took delivery of our last vessel there in October. So we keep on maintaining very hands-on site offices in this -- in all of them. And of course, we get the appreciation from the Korean banking system. And I think our team has concluded one of the largest syndications for the finance of those vessels at very, very competitive terms. Climent Molins: That's good to hear. And final question from me. Big picture, 2026 has started very strongly for you and both earnings and free cash flow are set to rise very significantly. Could you talk a bit about how you think about your capital allocation priorities? How do you plan to balance deleveraging fleet renewal and increase shareholder returns going forward? Nikolas Tsakos: Well, I think, as we said, our -- we make sure that we are securing the well-being of the company long term. And as we speak, I think as we see today, [indiscernible] accounted, I think that by the end of the first and second quarter, we might be in excess of $0.5 billion in liquidity, which means that our priority is the reward of our shareholders, which we are the largest ones as the management. And then, of course, we would be allocating our newbuilding program is almost fully financed, as I said, with the recent syndication. So rewarding our shareholders, reducing debt significantly. And we might be looking at next year, April next year to actually repurchasing some of our very, very usual preferreds. Operator: Our next question comes from the line of Poe Fratt with Alliance Global Partners. Charles Fratt: Yes. I was trying to isolate the impact of the profit sharing agreements that you had in the spot market exposure on the increase in voyage revenue in the fourth quarter versus the third quarter. Can you quantify the impact of the increase in the TCE rate. What was the exposure to the spot market versus the contribution from profit sharing? Harrys Kosmatos: Well, we did see a lot of profit sharing coming in later -- well, throughout '25, and we are beginning to see recently. And actually, a number of our vessels have been rechartered on higher elevated floor rates to what they were previously. Just to give you an idea, over and above the fixed rate that I mentioned earlier in the fourth quarter of '25, we got an additional $27 million from the profit sharing income that came in. So obviously, we did have some benefit. It seems that the numbers will -- I mean they look that we are moving in the right direction and perhaps to recall the similar amounts of additional income going forward. So again, $27 million over and above the flow rate on those profit sharing vessels in the fourth quarter. Nikolas Tsakos: Yes. That's a significant amount. I mean, this is almost like 50% of the profitability of the fourth quarter. So it's not -- it's -- the profit arrangements have huge contribution being $27 million on $58 million of profit. Charles Fratt: Yes, that's exactly what I was looking for. And so there were some -- there was a positive increase on some of rechartering or recontracting the time charters that you had. And when you look at the first quarter and looking maybe at the first half of the year, my sense is that rates started to move in the fourth quarter, but the really significant move is more in the February time frame. And obviously, it's a little early just because of what's going on in the Middle East. But is there an additional step-up that we should see in the first quarter in profit sharing? Nikolas Tsakos: Yes. I mean, the way things are today, I think the profit sharing has gone off the chart because of -- and as Harrys said, I mean, for example, we had the categories of ships that we would profit share for anything above $20,000 a day. And the next fixture was anything about $35,000 a day. So you understand that we made sure that we pushed the fixed part of the profit sharing as high as possible for as long as possible and then the profit sharing goes. So yes, I think the first quarter, it's going to be another step up from where we left the fourth quarter. Harrys Kosmatos: And I think of interest, Poe, is that from the 13 vessels that we currently have on profit sharing, 7 are Suezmaxes and 2 are VLs. Nikolas Tsakos: Yes. So they're actually the big boys of profit sharing. Charles Fratt: Yes. I was going to say and that's where you're seeing the meaningful increases. Maybe it will still [ flip ] down to the smaller sizes, but at this point in time, your exposure to the larger segments is -- or larger sectors is really good. When you look at the decision to sell the [ B ], what -- how did you -- was this an inquiry from somebody as far as trying to -- there's been a big acquirer out there, was there an inquiry that came in that led you to hit the bid? Or was this part of your strategic fleet renewal? And then if you could talk about what other potential assets are on the block that we could see sold in 2026, that would be helpful. Nikolas Tsakos: Yes. I mean there's always -- it takes 2 to tango. So it was not that we were out. I mean, our philosophy has always been that we're looking to sell any vessel which is between 10 and 15 years old. As you very well know, there have been people who have been buying these assets at prices that make a huge sense. I think we were, I would call it, lucky enough in November to order 3 VLs of Hanwha at prices of today. And just to put it in perspective, the newbuilding, so we show -- we ordered those ships. I think it has been reported at $128 million. And we sold the 10-year-old ship, which if you equate, it's a newbuilding price, it's in excess of $170 million. So it doesn't -- it's always good to take advantage of these possibilities. And the good thing is that we are going to be using the ship up to almost the middle of the year since we're taking advantage right now in a huge way of the big market -- of the spot market. And we're going to be selling here and delivering here back to the new owners sometime in June, end of May, June. So in a sense, we were able to have our [indiscernible] for the first 6 months. Charles Fratt: Yes, that was a pretty timely rollover as far as just the [ issues ] went open in the, I guess, December time frame. Just go back to, if you wouldn't mind, the chartering strategy, profit sharings kicked in, you see a step-up in the first quarter, probably the second quarter too. Where do you get more aggressive in trying to lock in the higher rates? Nikolas Tsakos: We are always -- I mean, we have set an evident step-up in all categories of the vessels. And as long as we are able to have the profit sharing arrangement, which is something that very few others do, we should keep it that way. You've seen on Slide #7 on Page 7, you see our breakevens, which I think are very, very competitive. I mean, we have an all-in breakeven for VLs up to $28,000. Today, they're averaging above $100,000, including the profit sharing. So there's a little profit to make there. Suezmax is breakeven of everything at $25,000. I think we're closer to $80,000. Aframax is $21,000 -- well, Aframax and LR2s, if you put them together, about $22,500. Again, we're in the $70,000s and $80,000s there. our Panamaxes, which are our oldest segment in the $18,000 and I think that's where we got the $30,000-plus profit share arrangements. So those are in the money. Our Handysizes are down to $10,000, which means there are actually operating expenses and some interest since they're very, very well amortized. The LNGs -- and our shuttle tankers are also very much into the money at $34,000 time charter. So when we can make sure that we get covering our minimum significantly, then we do the profit share. I think Page #7 portrays, Mr. George, what Mr. -- our President has put up on the board. Charles Fratt: Yes, that's helpful. And if I may, one more question. Obviously, the turmoil in the Middle East just had an impact on rates. But the other side of the question is, right now, and I know you don't have any tankers in Hormuz way. But what are you expecting on the insurance expense side? And then also how much exposure do you have to higher fuel costs as we look at the rest of 2026? Nikolas Tsakos: This is actually a very good point. I think we have had in the last week a 500% increase on insurance on war risk insurance. I think from what we used to do it at $0.15 per deadweight ton, we're up to close to $1 now or $0.75 to a $1. So that's a huge increase. It's 500%. Of course, all this is paid directly by the charter. So it does not really influence -- it's not -- it's a pass-through cost for us. But it shows how the market rates this risk. As far as our fuel costs, I mean, we have -- first of all, we have close to 25% of our existing requirements covered, George, for the next couple of years at very competitive rates. But also being mainly on a time charter basis, all the fuel cost surges or not affects our clients. So we do not have that. I mean we have a huge fleet, but being on time charter, the risk of the surge or drop of the bunker costs are taken up by the charters in a very big way. Charles Fratt: Great. And I'm sorry, if I may squeeze one last one in. What's your dry docking schedule for the rest of the year? Harrys Kosmatos: Okay. We are starting quite live for the first quarter. We only have 2 vessels, 2 Suezmaxes for Q1. We have 5 vessels in the second quarter, 7 vessels in the third quarter and 3 vessels in the fourth quarter. Nikolas Tsakos: Hopefully, we will be able to see you in New York next week. Operator: And we have reached the end of the question-and-answer session. Now I'd like to turn the floor back to CEO, Mr. Nikolas Tsakos for closing remarks. Nikolas Tsakos: Well, thank you for participating and listening in to our 2025 end of the year results. It has been a productive year. Your support has been appreciated. We have seen significant, I think, close to 60% increase of share price in the last year, which shows the trust that the public markets are putting on TEN. And hopefully, this is only the beginning. We have seen, again, a very steady trading and a very positive trading of our preferreds. The company would maintain its distribution policy of keeping shareholders -- of rewarding shareholders. We are going through a period of uncertainty in the world. And what we try to do with them is to take as much of this uncertainty possibly out through our chartering policy, which is always to the most blue-chip end users out there. And with that, we want again to thank you. Wish you a good weekend. And hopefully, we'll see you in New York next week. Thank you. Operator: Thank you. And this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation. Have a great day.
Eduardo De Nardi Ros: [Audio Gap] Webcast for our results, the fourth Q for this year. It's a pleasure to be with you. This event will be presented in Portuguese with simultaneous translation into English. And the links to both languages can be found on our website, the Investor Relations website. I'd also like to say that all participants will be able to watch the broadcast online as listeners. And after the introduction, there will be a Q&A session as usual and you can send your questions to our e-mail. With us today, we have Magda Chambriard the President of Petrobras, Álvaro Tupiassu, the President of Gas and Energy on behalf of Angelica Laureano, our Executive Director of Energy Transition and Sustainability; Clarice Coppetti, Executive Director of Corporate Subjects, Claudio Schlosser, Director of Logistics. Fernando Melgarejo, the Financial Executive Director of Investor Relationships, Renata Baruzzi, Director of Engineering, Technology and Innovation and Ricardo Wagner, Director of Governance and Compliance; Sylvia Anjos, Executive Director of Exploration and Production; and William França, Director of Industrial Processes and Products. So now I will give the floor to our President, Magda Chambriard for her initial considerations. Magda de Regina Chambriard: Ladies and gentlemen, good morning. It's a pleasure to be with you to present our results for 2025. And for the fourth Q of the same year. We are extremely proud of our results, and that's why I say, and I repeat that if you place your bets against Petrobras, you're going to lose and we keep saying that. Having said that, let's now start up by saying that at 2025, as you saw, was an unprecedented year in terms of the production growth in Petrobras. As you could see, over the course of the quarters, there was a constant increase in production, which is the result of a technical, secure, well-executed job done by our teams which work in an absolutely integrated manner, guaranteeing efficiency and the best possible use of our ore in our facilities of, our beds in our facilities. First, I'd like to remind you that the brand did not help us. The oil prices had -- they plummeted, but it was the growth of our production. That allowed us to mitigate this drop in production. That was a big drop in the oil prices, but we delivered an additional 11% in terms of production in 2025 when compared to 2024, achieving and surpassing our goals has been a constant thing in the company. In terms of refining capacity, platform production and oil exploration goals or goals around the allocation of new products to new markets. So I want to highlight a few of our records. The Buzios field platforms surpassed the operated production milestone of 1 million barrels per day in October 2025. And therefore, it's a goal that was surpassed before the deadline, the Atapu, and Sépia fields also reached 1 million barrels per day, and we are proud to say that this happened on December 31, 2025, showing that the Petrobras team is heads on 24/7. We're repeating into in Atapu, and Sépia, the historical milestone we reached in 2019. When it comes to nonrenewable energy, we should pay attention to this field, it was a declining field, a huge field that have been declining since 2019 that was able to go back to production levels making Petrobras proud to have 2 oil fields that produce more than 1 million barrels per day in the pre-salt sector and more oil means more cash flow, more investment capacity, more taxes and more dividends. We are proud of having surpassed these goals. We've been working hard to achieve them and to surpass other goals, and we'll move forward, accelerating deliveries whenever we have the opportunity with a full focus on safety, operational excellence and capital discipline. A recent example of this efficient approach was the conclusion, the completion of the anchoring of P-79. P-79 was the latest platform to arrive in Brazil in the last few days of this year. And after arriving, it was anchored and a record-breaking period of 12 days with 26 anchoring systems connected once again proving that we operate with excellence, planning, integration across the teams in everything we do. P-79 is already moored. And soon, it will start to operate. If we look at 2025, I need to highlight that we delivered our facilities before the deadlines. We delivered the contracts for refineries below the intended price and with that, we've been -- every day, we've been producing more. We've been producing better with fewer resources. And this is Petrobras' constant search for excellence. We used to say that tomorrow needs to be better than today. And today, undoubtedly has been better than yesterday. We also had great news about our oil and gas reserves. In 2025, we incorporated 1.7 billion oil barrels, which allowed us to achieve the highest number of proven reserves at the company for the last 10 years. We're proud of this milestone especially because last year, we achieved a record-breaking production levels, record-breaking exporting levels. And nonetheless, we guarantee a record-breaking level of reserve replacement. Our reserve replacement level and our generation of proven reserves and production have been much higher than those of our peers across the industry. In 2025, as I said, in terms of oil exportation -- exporting, it was 675,000 barrels exported per day in a year. In the last quarter of the year, the average was of almost 1 million barrels per day, which is the result of our logistic efficiency in relieving our platforms and a continuous work towards developing new markets. When I referred to almost 1 million barrels exported in the fourth quarter of 2025. I'm proud to say that it was almost because it was 999,000 barrels per day. We almost hit the 1 million mark, developing new markets, logistic efficiency to allow for these exporting levels, new high-quality products sent to the market refineries achieving a utilization factor of 92% with almost 70% of the production being comprised by diesel gasoline and QAV, which are our highest added value by products, which contributed hugely to value generation and to our sales. You can see that in spite of the drop in the oil prices, we delivered robust results with the production -- with the drop in production mitigated by the increased production and by the excellent performance of our refineries and by the expansion of the markets that our most valuable products. As I said, we sold 1,747,000 barrels per day worth of byproducts in the internal market, 1.43% higher than the same year -- the same period of the previous year, and that was fostered by gasoline and QAV that accounted for 74% of our sales. The sales of QAV aviation fuel saw an increase of 6% in the year, reaching the best performance level of the last 6 years. We keep on expanding the S10 diesel production, a high value-added diesel, and we've been advancing in the production of renewable content fuels. Our diesel containing 5% to 10% of renewable content is a reality that's being increasingly accepted by our market. We started by producing a sustainable aviation fuel SAF at the Duque de Caixas and Henrique Lage Refinery. At President Bernandes, we started the contracts for the construction of this first plant dedicated to the production of SAF and green diesel. In addition to that, we, for the first time, delivered in 2025, a bunker with renewable content to the Asian market. I've had the possibility to tell you that in the previous quarter, but we're making good money by offering bunker or navigation fuel with a 24% content of renewable fuel in the Asian market. It's a good amount of money with all of the batches having been sold quickly at high levels. In the gas market, we also had great news. The second module of the Boaventura Complex unit for processing natural gas started to operate last year, increasing the total processing capacity of the unit to 21 million cubic meters per day. We reached the milestone of 6.6 million cubic meters per day in terms of gas volume contracted in the inflexible modality. This is what a free market looks like, doubling the client database of Petrobras while still keeping our excellent service levels. This means that Brazilian companies keep on believing and betting that Petrobras is their main natural gas provider in Brazil. We will still have big growth opportunities with value generation moving forward. We've been able to combine a high-quality portfolio with high returns with an administration strategy based on discipline and capital increased operational efficiency. Petrobras is imbued with a strong purpose, which is to make this company increasingly bigger, growing along with Brazil, delivering to a Brazilian society and its investors, be they state-owned or private, the best the company has to offer. We are building a company that is profitable, increasingly diversified and prepared to lead a just energy transition as well as prepared to fight the volatility of such an unstable oil market as the one that we are now facing, generating return for our shareholders and wealth and development for Brazil. I want to thank you all for your trust, and I reiterate that Petrobras' commitment is towards an even better future for the company and for Brazil. Before wrapping up, I want to say it again, if you place your bets against Petrobras, you're certainly going to lose. I'm proud to say that. Thank you for your presence. And now I'll give the floor to our CFO, Fernando Melgarejo, who will have the honor to disclose on our behalf the financial results, which we're all very proud of. Thank you. Fernando Melgarejo: Thank you, Magda, for your introduction. I want to greet all of the directors and everybody that's watching us on this webcast, which discloses the results of the fourth Q of 2025 and the yearend closing for 2025. As President Magda said, we had an unprecedented growth in the oil and gas production in the company, which reinforces the quality of our assets as well as our capacity to have a strong cash flow generation even in face of challenging scenarios. Let's see how this reflected in our financial results in the next slide. First, let's talk about the external environment. The average Brent in 2025 was $69 per barrel, a 14% drop compared to 2024 and well below our expectations. These are factors that, by their nature, are outside of our control. What we can and should manage is our resilience in the most diverse scenarios. For that, we demonstrated the company's management capacity to extract the maximum potential from our assets. Later, we'll talk about the management levers and projects that boosted production. Our adjusted EBITDA reached $42.5 billion without considering exclusive events. The amount is $43.8 billion, which is in line with the previous year. Net income reached $19.6 billion without exclusive events, it's at $18.1 billion. Here, we left out gains from exchange rate variations and other factors that do not have a cash effect. In other quarters, exchange rate variation negatively impacted the balance sheet. This time, the impact was positive on the corporate result, reflecting the appreciation of the real against the dollar. Finally, in terms of operating cash flow, even though we are facing a scenario of a plummet in the Brent, we generated $36 billion in operating cash during the year, maintaining the results at the same level as last year, challenged by a 14% drop in Brent, which demonstrates that our result is robust, sustained by quality assets with high returns and rapid cash generation. This slide shows how we delivered these results even though there was this drop in Brent. In 2025, we recorded a growth in the sales of derivatives in the domestic market of totaling 1.7 million barrels per day. I wish to highlight the 5.2% increase in diesel sales, a result that reinforces our competitiveness and capacity to meet the demand of the Brazilian market with profitability. We achieved a refinery utilization factor of 91% with 68% of the production being comprised of higher value-added derivatives such as diesel, gasoline and QAV. Another important aspect is that 70% of the oil processed in our refineries came from the pre-salt, which contributed to the generation of higher value derivatives, reduction of emissions and to our logistical optimization. This result is aligned with our commitment to sustainability and environmental responsibility. A key factor for the offsetting Brent falls is what we achieved in 2025. We exceeded our target. So we have an x-ray of this 11% increase of our production in 2025 and the new production of the pre-salt had a vital role in these results. Buzios still delivers more than expected with productivity levels that are very high. In October 2025, [indiscernible] platforms reached a record of 1 million barrels of oil a day. In the Tamandaré, as you know, is now the platform with the highest production in Brazil with over [ 240,000 ] barrels a day. The platform reached a record of instant flow rate of 270,000 barrels a day. We have no records of a similar level -- production level worldwide. In Mero, we hit another record, [ 650,000 ] barrels, and we increased our operating efficiency everywhere between 2024 and 2025, we reached an increase in efficiency of about 4 percentage points, and this represents additional production of 100,000 barrels of oil a day. This efficiency gains is equivalent to a startup of a new production like the Maria Quiteria and the Jubarte oil field. In other words, we're delivering a new platform -- production platform with just this efficiency increase. So that means more oil with the same assets. And with that result, we want more. We are committed to doing more with less. So -- and that is for everyone here, all the officers here, our employees. That's why we have programs for operating efficiency and also to reduce losses that can be avoided. This shows our teams have reached a new efficient operating efficiency level at Petrobras. Next, please. From the beginning of our management, we have put efforts into changing the behavior of what was found in our investment in the previous years. Until 2023, we invested about 70% of our CapEx. And now recently changed in 2024 and 2025, our focus was on a profitable production increase. Our investment impacts much more than the deliveries of 2025. And that means our long-term commitment. For example, the tie-in of 77 oil wells. That was a historical milestone before the top number was 57. So we over -- more than doubled what we had before. We also reduced the risk of delays and increased the likelihood of anticipation, and this is something we've already discussed before about anticipations and forecast of anticipations. This is crucial for us to reach our production growth on our business plan. Next, please. This is why 84% of our investment was allocated in exploration and production, as we can see. So 11% in RTM and 2% in low carbon energy. In other words, [ $17 billion ] in E&P with the best portfolio in the world. We'd also like to stress that the cost of our execution projects are in -- we're in control of that. We should know that all these anticipation of projects that is something we always work for. We've always avoided as we can see on the table, a full life CapEx of our current business plan projects are slightly lower than the same period in 2025,'29. Next, on this slide, we have great news that we announced at the beginning of the year about our reserves. We added [ 1.7 billion ] additional reserve barrels, and that led us to have the highest reserves volume in the last 10 years. So -- and that's between December 21, 2025. And the replacement rate was 175%, even considering a record production in 2025. And the ratio between probable reserve and the production is below -- above what we expect, above what our peers are. So we have low cost, and this will be our -- remain our priority. Between December -- on December 31, 2025, we had $69.8 billion that our gross debt. We should highlight that over 60% of our debt, in fact, 62% comes from leasing, the platforms also ships and probes that's part of our debt. In 2025, the Almirante Tamandare recorded $2.6 billion in debt and the Alexandre de Gusmao, another $0.4 billion -- sorry, $1.1 billion. So on our webcast, we should remind you that these new leasing installments lead to production-generating assets. In other words, it generates income. The 2 additional platforms added 270,000 barrels a day in capacity only for Petrobras. When you look at our financial debt, we're still working on our debt management. Along 2025, we want the lowest debt profile. And I'd also like to highlight very successful market -- capital market operations that took place in December with our bonds that became more attractive and also liability management operations in quarter 4 with some pre-banking prepayments in banking. So we had reductions in our debt from 2025 to 2026 and our -- next, please. This quarter, the Board of Directors approved a detailed report for the payout of BRL 8.1 billion, BRL 0.62 per share that were paid in 2 similar installments in May and June. This strategy is to generate value and to conciliate investment in high-yield projects. And then we can remunerate shareholders in a competitive fashion. With regard to what Petrobras is giving back to society, it cannot be held in a single slide. Everything that is produced in this company, every platform, refinery, power plant, laboratory for every social project generates consequences for many layers of society. We want a short summary that can cascade down our Brazilian economy. So we start with investment. In 2025, as we mentioned, we invested over [ $20 billion ], increasing -- an increase of 22% with regard to 2024. We're committed to speeding up everything that we can to generate return to our investors and to society. This investment led to over 300 jobs -- 300,000 jobs. That's about 5% of Brazilian investment. Another example is BRL 277 billion. That's what we paid, including tax royalties and special interest to government, state and local governments. We also distributed BRL 45 billion in dividends, BRL 17.6 billion for the controlling group, and we also allocated BRL 2 billion approximately in social environmental investments, sponsorships and donations. These are some examples of our multiplying effect in Brazil. Finally, I'd now like to stress that we have high-quality projects that will deliver growth -- both growth and profitability. The entire Brazilian society as well as our shareholders will enjoy long term with all these benefits. I'd also like to stress that we focus on executing our business plan from 2026 to '30. We have 3 fronts. First, capital discipline; number two, greater production; and number three, higher efficiency levels. This is what we will keep seeking throughout 2026. We want results and also economic development for this country. So this is the end of my presentation. Thank you. So all the top management is here, all the directors, officers are here to answer your questions. Eduardo? Eduardo De Nardi Ros: Thank you, Magda and Fernando. We will now start our Q&A session. The first question comes from Rodolfo De Angele of JPMorgan. Rodolfo De Angele: So I think every analyst is entitled to a single question. I'd like to discuss some of your, earnings in further detail of quarter four. But as I cannot, I cannot ask a long question, I'll just ask about your current scenario. In other words, what's going on in the oil and gas industry, considering the conflict in the Middle East. We've had questions by our clients on how the situation is, especially with regard to fuel. So how is Petrobras preparing to work in this moment of uncertainty and also highly volatile prices? So now I'd like to hear from you, from Petrobras' top management, how you see your supply situation. Do you have any prospects, any strategy about prices? Can you give us your views? Is there anything going on in exports? Is it possible to increase the use of refineries in the short run? So these are some of my concerns that I can ask of you, especially short-term concerns. Magda de Regina Chambriard: Thank you. I'll start by answering the question, and then I'll ask the other officers to also give their answers in refining and finance. Yes, undoubtedly, this is a high geopolitical instability. So at this moment, we want to make sure that the company is ready for any situation, anything that may happen. So if it's USD 85 per barrel, we need to be prepared. If it's USD 55, we need to be equally prepared. I'd just like to remind you that we started last year with an oil price that was higher than $80, and we finished the year with less than $60, so that was $59. And the company delivered its results and showed that it has remained resilient and faced this price variation accordingly. At the beginning of the year, this volatility was again very high as a result of the war. But we still keep or stick to our internal policy, which remains solid. We looked at the oil and derivative pricing without transferring this volatility to the Brazilian domestic market. And this is something we've been doing several times. Last year, we delivered a great result in terms of prices. So when Petrobras looks at international qualities and the appreciation of its products and also considering its own space, in other words, how it is in the Brazilian market. This is not a concern anymore. This is an equivocal I've had many similar questions this week. So this was okay when the price of oil decreased. Will this also work when prices increase exponentially as we see it now? Yes, it will. We have no price -- internal policy of price fluctuations. There's no discussions on this matter. As for routes, we will have an explanation in further details in a minute, but we really need to keep exporting what we need to export our refinery or import what we need importing our refineries still have a growing processing capacity. Our manager, William -- Officer William will talk about that. And our cash is still on our focus. We're really concerned about ensuring that this company remains resilient, that we respect our capital discipline and that we reduce costs. We're talking about $85. A few years ago, it was $59. And now those that mentioned $55 next year. So we are indeed working hard and checking all these variables, and we want to ensure that the company remains absolutely prepared to face any scenarios that might come up along 2026 and 2027. I'll now give the floor to another director. And the second one will be [ Fernando ] who will talk about the performance of our refineries. I'd also like to remind you that when it comes to exploration production and connection between oil wells, we are ensuring increasingly greater production and our target is to have increasingly more oil wells and also to optimize our -- the production and extraction of our deposits. Everyone is working hard and together to deliver these results. So can you explain a little more about this global market, Schlosser? Claudio Schlosser: Yes. Thank you, President Mrs. President. Yes, the company has this strategic plan. So we are indeed prepared for a Brent range that is quite wide when you consider the short -- and that in the long term. Now in the short run, our situation is highly unexpected. I think we've never had such a scenario. So the regions that export 16 million in oil and an additional 5 million in petroleum products, this region will be closed. Of course, this has a huge impact. We take snapshots at different times, 10 days ago, for instance, what people said, they were talking about $50 a barrel or a surplus of 4 million or 5 million barrels available. So -- and then it all changed. So we have different focuses at different points. There are also consequences to this. When we have, for example, Brent. So the first is when you no longer have this production of oil and petroleum products. It's as though the market froze. Oil was not being paid, and we have 2 or 3 days without oil trading. That was the initial impact. So we know that we know how that works and the market is now expected to change prices or adapt to the new pricing. We have many ships that were trapped. There's also a set of ships that are unloading, so shipping -- or freight values are now adjusting. So in the short run, let's look at our snapshot again. Our current snapshot is when -- as for our oils is that this means a favorable netback to Petrobras. So we have greater margins. So when it comes to oil, I would also add the fact that the markets that we supply, they're outside of the conflict region. We're not in the Gulf region or any other region where there's a conflict. All of our flows go towards India, Europe and other areas. So we're outside of this area, which is a good position for the company. If you look at the oil, we're looking at a more interesting netback for the company in terms of shipping. If you compare Petrobras with other companies in the world when it comes to freight, Petrobras is also in a privileged position. If you look at the international market, the companies are more or less working with 5% of their own fleets and 95% with other contracts. And Petrobras is with a -- in a much better position in oil exploration, we have more than 30% of rate allocated to long-term contracts, which is also an advantage and the market average doesn't even reach 10%. So we're very well positioned in that regard. So for -- that's what I would have to say about the -- about oil. When it comes to refined products, Petrobras is having no difficulty meeting its goals. We work with an optimized business plan. We optimize all of our assets, and we have very robust assets for that, be they terminals, refineries, pipelines. So we optimize that, and we optimize the more attractive export -- importing products. And we've been able to meet our goals and the imports are in line with our plans. In gas, we -- in gasoline, we are exporting it. In LNG, we are also exporting it. We talk to the market, and there's a relevant level of importing being carried out by distributors. And the vessels that were coming towards Brazil are still coming to Brazil. And we'll get here. If you look at the entire scenario, the business plan of Petrobras and the other players is in line with our previous plans. I'd also like to say that when it comes to supply, in terms of supply, Petrobras is committed to its clients. In Brazil, Petrobras is not the only player in the supply side. We have other relevant players in Brazil. So this is our perspective when it comes to products and refined products. The long-term perspective, as I said, is well covered by the strategic planning and the short-term view has to be done on a snapshot-by-snapshot basis. Every day is a different day. We do a constant assessment and obviously, we make use of the best netback opportunities, be they related to oil exporting or more profitable imports. So this is -- these are the details of the short-term planning. We covered basically everything along with our President. In terms of refining, we're already using the logistic planning for the first Q. And the idea is that we ended the year with 91% of foot in FUT and we'll close the first Q with 95% with a very good use of refined products. We have a few scheduled downtimes, especially in 4 refineries this year and replan will be revamped and expanded, but with the monitoring of the units, we are able, if necessary, to extend the campaign period of refineries, increasing the production of the refined products. And if necessary, we're also going to do that. So we're working in a synergy with the logistics and commercialization area. And as we said, we've had an increase in the utilization factor, which is very good. It's a benchmark from a global perspective. I would say the biggest reference is strategic planning. There are no changes in that regard. We are seeking efficiency, also reducing our balance Brent to $59, as we said. And all of these optimizations are being looked into by the directors, and they can be reverted into good operational results for the company. Well, I'm talking about pricing. The business strategy of Petrobras was created for times like these where there is a huge volatility as we are seeing in the market, a huge volatility coming from unexpected facts, and this is what it was created for. The business strategy of Petrobras provides this robustness to the company when it comes to conducting its business. Eduardo De Nardi Ros: Thank you, Magda, Fernando, Schlosser, Emilia. Before we take the next question. I forgot to say -- let's limit the number of questions to 1 question per analyst, please. Lilyanna Yang from HSBC. Lilyanna Yang: First, I want to congratulate you on the greater transparency of information. And my first -- my question is the oil price is much higher than the Brent that you have in your budget, the one that outlines the investment plans. If the oil prices are still high, like that. Can you tell us what is the priority allocation of the cash flow that would be generated in excess of the budget for the first half. Just to give you a hint of what I'm looking at is -- what are the investment projects out of the $10 billion that have not been approved or the ones that you said that you want to approve but the final investment decision could be postponed. What -- or which of these projects are in a more advanced approval stage and does that include Braskem, for instance? Magda de Regina Chambriard: Thank you for your question. Great to hear you again. Our priority is capital discipline as usual. We'll always be very careful in all of our decisions. It's something very recent. The entire world is still assessing its full effects. No one is fully clear as to what is going to happen, the new Brent price levels and/or even if that applies to the short or long term. What we've discussed before, including with you and your team, is that we always focus on the scheduled investments, both in terms of our base CapEx, our target CapEx and our CapEx under assessment. This is our focus. And obviously, if there is additional revenue, we'll take care of investments, then we'll take care of the debt. We want to converge to [ $65 billion ] in 5 years. And if there is a cash surplus, we will try to anticipate it according to our capital discipline that we've been discussing. So our rationale is still the same when it comes to elevated unnecessary cash levels. If we understand that our cash flow levels are too high, we would love to distribute extraordinary dividends as long as we're sure that there will be no impact on the financial ability of our declared projects based on our '26 to 2030 strategic plan. Eduardo De Nardi Ros: Now the next question comes from Bruno Montanari from Morgan Stanley. Bruno Montanari: Going back to the first subject about the prices, just to confirm, if I understand you correctly, it's very clear that the policy does not transfer volatility to the domestic market, but the President also said that it works in scenarios of high oil and low oil price scenarios. Since the Brent has reached levels above 90 today, for how long can the company maintain its unaltered prices before that starts harming its refining margin? In other words, should we always expect the refining margin to be positive in scenarios where this margin is challenged. Is this the moment where you make the decision to adjust the prices, assuming that the prices will remain like that for weeks or months? I'd just like to understand if that's the correct way to look at the policy. Magda de Regina Chambriard: Thank you for your question. I will start the answer and then Schlosser will help me with the rest of the answer. Your sentence says something interesting. If this assumption remains like this. So I think that right now, what we're asking ourselves is what's the trend -- what's the tendency? What will that look like a few days from now? Is that a momentary spike? Have we changed our rules unnecessarily? Or is that a more persistent change that has to be faced? I would say that as of now, this question remains unanswered. But if this volatility is really this high and if the price ascent is really that high, it will certainly require quicker responses than it would require if this scent were slower. But as you said yourself, as of now, we are not sure about anything. let alone this about this assumption. Claudio Schlosser: Thank you. I think I agree with you. As you said very well, it's part of Petrobras' strategy to be the customers' best alternative. And we're constantly analyzing the international market prices, and we have to look at our position. Our exploration and production has been producing oil significantly. There has been an increase in refineries. As William said, our performance is world-class. And the main principle is not to transfer volatility. In the past, for instance, readjustments were happening on a daily basis. If anything happened in the market, that would get immediately transferred to the market, but that does not work. It doesn't work for the company. It doesn't work for society in general. So basically, what we support in terms of commercial strategy is to guarantee that. And as the President put it very well, the thing is we're talking about snapshots. In 10 days, we're talking about a completely different scenario. We're talking about [ $1 billion ] in oil floating around the world. So as I said, the strategy was created to take these aspects into account. But evidently, as you said, another variable that's part of the business strategy is financeability, which is comprised in the strategy. It's analyzed on a daily basis from a technical standpoint, and that's how we position ourselves. If you ask me, we have not adjusted the diesel prices in 300 days, even though there is an environment that's full of conflicts around the world. So given that volatility, the most important factor here is time. Eduardo De Nardi Ros: Thank you, Magda and Schlosser. Bruno, thank you for your question. The next question comes from Bruno Amorim from Goldman Sachs. Bruno Amorim: Congratulations on the solid deliveries throughout the year, especially on the production side. My question is along the lines of production. I'd like to hear take on the optionalities for anticipations and the operations of platforms. Is there a possibility of advancing them to 2026. I mean, what are the conversations with suppliers like -- so that's a more encompassing question. If there is an anticipation being considered in terms of anticipating the operations of platforms. Renata Baruzzi: As we always say, we're always trying to anticipate. For 2026, we don't consider that any other anticipation is possible for the sail away of these platforms. The P-80 will sail away in August, P-82 in September and P-83 in February of next year. What we are looking at is the anticipation of ramp-up of P-78 and P-79. For P-78, I talked about -- we talked about the mooring record of P-79. But this week, we hit a record of the first injection of gas at P-78. The shortest time we reached with our own platforms had been with P-66 at 79 days. We were able to anticipate the injection by quite a bit, and that's fundamental in order for us to proceed with the other wells. We have one interconnected well to P-78 and by stabilizing the gas injection, we'll ask for approval for a second well and so on and so forth. So for 2026, our campaign is to accelerate the ramp-up of the current platforms. Eduardo De Nardi Ros: Thank you, Renata, and thank you, Bruno, for your question. Magda de Regina Chambriard: Give me one second, Eduardo. Just a reminder, Bruno, we are talking about 2 large platforms that will go into production in a scenario where we're able -- we've been able to significantly reduce the decline in the production of the large fields. So our reserves have allowed us to reduce the decline in production. And you've seen that if you look at the production numbers from last year, we're able to reduce the decline of our fields from 2024 until today from 12% to 4% per year. If we were at 12%, we would be adding platforms with no effects on production increase. So if we are better able to manage our fields and optimize our gas injection projects, as Renata said, our water injection projects, our complementary development projects and so on and so forth. If we do that, we're able to keep the fields with a minimum amount of decline so that the new platforms really lead to an increased production. So at 4% of decline per year, more or less in the pre-salt, 2 platforms of 180,000 each represent a significant production increase for 2026. In addition to the sale away of P80 in August. It should take it 2 to 3 months to arrive in Brazil. So in -- by November, it will be moored and that also ensures that by the beginning of 2027, we'll have additional support to our production. So we have 2 large platforms that will go into production this year, changing the production levels of Brazil and another 2 for the beginning of 2027, that will also go into production, also changing the production levels of Brazil in the beginning of 2027. Eduardo De Nardi Ros: Thank you, Magda. We will now go on to our next question. That's Monique Greco, Itaú BBA. Monique Greco: I'll resume your -- the topic of our trade strategy. So when you discussed how you're dealing with volatility in the short run, so it's really interesting to see how you can ensure greater allocation of your production. So my question is now a similar question to your commercial strategy. So how are you running your commercial strategy? Are you meeting every day? Are you evaluating it weekly, every 15 days? Can you tell me more about how you've been building this answer to a question that remains unanswered. So can you give me more details about this process in order to build, to design the structure that you need to have before you decide your next move? Claudio Schlosser: Monique, thank you for your question. I'll start by discussing our process, telling you about our process, what -- how the whole company is involved in the process. So as we said, our commercial strategy, it has this goal of being the best option for our clients. That's what we want to be. We have to have a strong position. That's what our commercial strategy aims at. So what do we do? We have our technical team working on this, our domestic market commercialization, our foreign market commercialization teams. These people, they talk daily. Every day, we write reports. So again, we have follow-up -- daily follow-up reports on Brent or even the exchange rate to the dollar of our petroleum products or derivatives. It's all part of what we call our alternative cost to our clients. This is a daily analysis and reports are written and forwarded to everyone to a group, a special group with a President and the commercialization of logistics and finance officers. So we get that information every day. And this is also something we do with our officers. Our top management analyzes the scenarios, moments of crisis. So we do this much more frequently. Last week, for instance, we had a discussion with the executive directors, about the scenario or the pricing scenario. So when we have more disruption in the horizon, that means more frequent meetings. And also everything is presented to the Board of Directors. Our Board of Directors is also aware of all the conditions and what is being done in our commercial strategy. So we have daily meetings. And even when the need arises, it can -- we have more participation from the executive suite and also even the Board of Directors. I don't know if I answered your question. Eduardo De Nardi Ros: Thank you for your question. Monique, thank you, Schlosser. Now Regis Cardoso, XP, you may proceed Regis. Regis Cardoso: I have a single question. So let me now discuss your current crisis situation. In the foreign market, we see limits shut-in oil production in the Middle East and crack spread of some products abroad. So my question is, in your physical operation per se in Petrobras in Brazil, what are the consequences? What are the effects that you feel in terms of LGP or the importing of liquefied gas? LNG or what you get from the oil that you are not getting from the Middle East, how will you adapt your refineries? In other words, physically speaking, how has your operation or how have the operations been affected or maybe gasoline is less critical, but tell me about your day-to-day operations and how you're adapting and how you believe this will change or evolve over time because I know that you also have some ways of absorbing that fluctuation, but how will happen with your stocks over time? Claudio Schlosser: Okay. I'll try to be less repetitive, and I'll focus on some other details. There are some operations like we import a very specific oil used for lubricants. The oil, we have that from the Red Sea. So we have a ship in the Red Sea and they get out from the other side. Saudi Arabia, for instance, they have 2 logistic systems. The prevailing system, they get out of the Hormuz, the Strait of Hormuz, but also from the Red Sea. That's an alternative route. In terms of inventory, in oil, we have a guaranteed provision. We have a significant supply of oil with a significant inventory. And [indiscernible], we have a very long-term contract with Saudi Arabia. So this type of oil is something that is -- that we can rely on. And our planning also includes an optimized scenario with the greatest profitability. When you look at our -- and yield, when you look at our progression linear models, we have the following more interesting imports, and we may change this every day if the situation changes dramatically. So we have many opportunities, many alternatives. And this is something we're checking every day. If a new opportunity arises in oil production or petroleum products, we will make the best of that and tap into that opportunity. So if you have ships, for instance, that are sent to the U.S., but then we have a new opportunity in Africa with a much greater cash netback. So that depends on what happens on different days. As for the supply and the planning of supply, we're talking in a short term -- from a short-term perspective. And we're looking at April, let's say, we're good. We have a good position -- market position. We have the imports coming from our distributors. So this is our current scenario. And the President -- our President has discussed widely about seeking operating excellence. So in 2025, we have an indicator that was planned and what was achieved. And this has been the best results we've ever had in Petrobras' history, considering what we plan to do, this is the best results we've ever had. So the difference between what we plan and what we achieved. This -- we've achieved the best results. And that's a very relevant indicator. It means that we are highly efficient, and that means a great result Eduardo De Nardi Ros: Next question, Tasso Vasconcellos, Tasso your question you may proceed. Tasso Vasconcellos: I'd like to explore a new topic, based on some news that we saw earlier. It's about your questions about IG4 and Braskem. So what are you expecting? What is the outcome of the discussion? Is there any time line? And in addition, how about the Braskem shareholders? Do you see the equalization of the debt at that company with some capital injection? Good Petrobras participate in that process of injecting capital in any way. So -- and if that is not possible, what are the other options you've been discussing? How could Petrobras contribute at some sort of a loan or any other possibility. And now one follow-up to this point, this discussion about extraordinary is this decision to be taken just by the end of the year? Or can that be evaluated throughout the year considering our current scenario. Magda de Regina Chambriard: Okay. I'll start the answer, and I'll turn it over for Fernando to continue. I think this is for -- is up to Fernando really to answer this question. Anyway, at Braskem, we have a corporate issue at state. What's going on? There's a related party, and we have a shareholders' agreement with them. So we in other words, our partner will have the preponderance of administration. In other words, if there's an agreement between the shareholder of Braskem with IG4 who represents the banks. So this is pending approval by the CADE committee. And this hasn't happened yet. And the latest news is that this would be postponed to a month. This space is absolutely necessary for us to have a new shareholders' agreement with IG4. In other words, we can better address the synergies with the Petrobras -- between Braskem and Petrobras. In other words, today, we know the synergies are not being used the way they should. Ultimately, Braskem is leaving money on the table as these synergies are not used with a company as large as Petrobras. We believe this will be sold in the next -- in the near future. And we will finally be able to enter into that new agreement with a new partner. And the point is to maximize the synergy between the Petrobras system and Braskem to benefit both Petrobras and Braskem in addition to our shareholders, whether government or private shareholders and Brazilian society at large. Can you continue on that Melgarejo? Fernando Melgarejo: Right. Well, still about Braskem, we should remember that with the -- in our government instances, we approved prevailing right. We're just giving up the right of first choice for everything we approved. So things -- if there's nothing new, things will be as it is. This has already been decided. And as the President said, petrochemistry is one of Petrobras' interest. We see synergies in that. So we are placing our chips on this project. But we cannot speak on behalf of the company if money will be invested or not from that company to Petrobras. So we will do everything that generates value to Petrobras' shareholders. This is the logic behind it all. But everything will be communicated in a timely manner as soon as CADE approves this -- these proposals are approved. And what we are having now is the shareholders' agreement. So we need to wait now for dividends. As for your question on dividends, when we were planning our strategy, it was and it still is, of course, so we need to be really careful about the foreign political situation, and they still have a perspective on our prices. So we considered this, and we have a basis CapEx, a target CapEx. In other words, we need to be flexible enough to add new projects, start working on new projects. In other words, our focus is on the execution of the projects we already have to begin with. And with a new Brent, nothing will change in the conduction of our projects, the Brent that we are testing. They're still at $50. This does not change. We need long-term resilience. That will not change in all our governance instances or levels. We also have greater return for any new investment. So we're trying to optimize or to achieve the greatest return on investment. And if it gets to $110, so we need to have the levels that we expect. And then we are also evaluating how feasible those projects are. That's a new governance level here. And then if they also see if there's a surplus in cash every quarter, this is calculated. And we not necessarily have payouts next month or in the next quarter or next year. It's too early to be able to state anything. If we have surplus cash, of course, we'd love to pay that out as long as it does not impact our long-term sustainability. But it's too early to say anything about that. And the practice of evaluating surplus as our strategic agenda is. This is the best thing Petrobras can do to discuss our extraordinary dividends. Eduardo De Nardi Ros: Thank you, Magda, Fernando and Tasso. Now the last question of our webcast by Gabriel Barra of Citi. Gabriel Coelho Barra: Well, my question is about this situation of higher oil prices and the equatorial margin. This is a very important topic in my opinion. There was the issue of the leaks that's already been solved. Now can you tell me about your time line in your exploration schedule. So when we have the first figures for the projects in the region? And can you -- also in a higher oil price scenario, can you -- and as Fernando mentioned, that won't change your long-term perspective much, I believe. Now do you -- are you considering any short-term hedging as we have a more stressed oil scenario. We don't talk much about hedging for Petrobras. Other companies do this more often. So maybe can you talk about all these points? Magda de Regina Chambriard: So I'll talk about the hedge. We have no hedge strategy being assessed. So far, we haven't had any strategies for hedging. And our opinion is that we shouldn't apply any hedging to the oil prices. That's a long-standing rationale that we still consider to be valid. The hedging cost nowadays would probably be a huge and to apply hedging to the amount of oil that we produce would be unfeasible. Talking about the equatorial margin, Sylvia? Sylvia Couto dos Anjos: Gabriel, about the equatorial margin, we can say that we made a great achievement, haven't obtained our license. We are now drilling. We've advanced. We are now introducing the -- implementing the BOP. And in very few days, we'll go back to production and we expect to reach the reservoir interval in the second quarter of 2026. When we acquired these blocks, we entered into a minimum exploration commitment. We have to drill this well plus another 7 to ensure that we're adequately exploring the region. Just to reiterate, the equatorial margin has a big potential. It's different from our other pre-salt fields. It's reservoirs are very similar to what we find in the -- such as basin in the post-salt. And we -- any assessment of what we're going to do is highly result dependent. So for this well, the results of a single well do not allow us to assess the exploration. President Magda, just to say that in the Campos Basin, we came to the first discovery after 9 wells. And here, we're going to assess the oil system, the results of well whether it produces oil or not, that does not indicate that we are performing an exploratory assessment. There is a huge potential the equatorial margin is not there by itself. It's aligned with major discoveries that were -- that occurred in Africa back in 2010 and 2012 and their equivalent to the discoveries of Guyana, our oil system will assess if this generator is equivalent to the La Luna generator of Venezuela and the efficiency of the oil system and if the migration generation were adequate so that we can achieve the accumulation that we expect to achieve. But the results only make sense after the discovery. And once the discovery occurs, the exploratory assessment and then only can we think about the production system that will be adequate. But let's root for this well, which is the world's most famous well. Everybody asked me about it. My -- even the janitor asked me what about ROL? So yes, that's a route for yet another discovery. Eduardo De Nardi Ros: Thank you, Sylvia and Fernando. Thank you, Barra, for your question. This is the end of our Q&A session. If you have any additional questions, please send them to our R&I team. We'll be happy to answer your questions. I will now give the floor to the Petrobras President, Magda Chambriard for her final comments about the 2025 results. Magda de Regina Chambriard: We are very proud of the results we're delivering. Petrobras is extremely proud of its integrated work and the delivery capacity of the Petrobras team. Over the course of 2025, we became Latin America's biggest company, which required a lot of work, a lot of efforts dedication and a lot of purpose to turn this company into Latin America's biggest company, we've been able to do that. So let's maintain our mission and purpose. The company is a strong cash generator. Our processes are solid. Our procedures have proven correct and effective, and this is what we're going to keep chasing. We are committed to providing the best possible production by our pre-salt giants. We've just made an important discovery in the Aram reservoir. It hasn't been tested yet, but we've seen a beautiful flame indicating that that's yet another pre-salt reservoir that's emerging with a beautiful flame produced by gas and condensate. Along 2025, we made 5 discoveries, not as big as the pre-salt. I would say that there are midsized discoveries that will require development efforts on our part. And we are considering all of them along with a complementary development project for 2P Buzios. And for the fields in general, both from the pre-salt and the Campos Basin with capital discipline and with the certainty that producing is not enough. We need to produce a value to our refineries and find the best possible markets for our products in the world. This is what we're doing, and that we'll keep on doing and this is how we should look at Petrobras and understand that this team is really committed to delivering what they promised. So let's keep doing this. Thank you very much. Eduardo De Nardi Ros: Thank you, Fernando. Any final words? Fernando Melgarejo: Well to wrap up. Thank you, Magda. Thanks, everybody. It's great to be with you, and to the investors, we are constantly available to ask to answer your questions over the phone or in person. As a take-home message, I want to say that a wrong strategy in a commodity company at a time of high volatility may bring about huge difficulties for the future of the company. That is why our Administration principles are based on 3 important pillars, regardless of the price of Brent, whether it's going up or down, which is capital discipline operational efficiency in all of our processes and the search for production increase. Eduardo De Nardi Ros: Thank you, Fernando. Once again, I thank you for your attention. This presentation will be available on our Investor Relations website soon, and the audio track will also be available to you. Thank you. Have a great day, and see you in the next webcast.
Fabiana Oliver: Good morning, everyone. Let's begin the Lojas Renner S.A. video conference call. With me today are Fabio Faccio, our CEO; and Daniel Santos, CFO. Before giving them the floor, I'd like to make some announcements. This video conference call is being recorded. And translated simultaneously into English. We will show here the presentation in Portuguese. So for those following the call in English, the English version can be downloaded from the chat. And from our IR website. Questions from journalists can be directed to our press office through the (113) 165-9586. Before proceeding, let me mention that forward-looking statements relative to the company's business perspectives, projections and operating and financial goals are based on beliefs and assumptions and on information currently available. They are not a guarantee of performance as they depend on circumstances that may or may not occur. During the Q&A PAUSE Questions may be asked live. I now turn the floor to Fabio. Fabio Faccio: Very well. Thank you all. Thank you for coming. Thank you for your time. Our Q4 confirms that our model generates profitability. Gross margin gains are the result of our operational evolution and the investments we made. We are now close to prepandemic levels, and the margin is sustainable, also with opportunity for growth. Expense growth was half that of sales growth. Even having a start of quarter that was slightly more challenging with milder temperatures, the performance of Black Friday and Christmas were very good and also with a lower promotional activity than the previous year. The efficiency of our model signaled another opportunity that of improving sales performance during times of transition. We also made progress in structuring our expense reduction plan. And this is an essential opportunity to prepare our company for the 2026-2030 period. So what characterized the year of 2025? Our sales performance in 2025 in the full year was in line with our expectations. We grew twice as fast as the market according to the trade monthly survey. We have the highest growth among our peers, our comparable peers. And we confirmed the expectations we had at the beginning of the year regarding how the year would unfold. We wouldn't have equal quarters, but the first half would be stronger. We grew 15.6% in the first half and the second half with lower growth. 2025 also confirmed the efficiency of our model in growing margins. This growing margins are the result of our inventory management, not only with smaller inventories, but mainly newer inventories. At the same time, we posted productivity gains with dilution of expenses. At Realize, we also had a year of good results, still acting prudently regarding credit granting. Well, given the risky environment that we see. Youcom also posted another year of strong growth. And Camicado had excellent margin growth. We increased our ROIC and delivered robust cash generation. We posted record net income, both in the quarter and in the full year with a return of BRL 1.8 billion to our shareholders in terms of interest on capital or share buyback. And we had a 27% increase in earnings per share. We ended 2025 motivated by the progress achieved by the company. I would also like to give you some examples of actions we took over 2025. When we look at our Renner brand and talking about fashion execution. We wanted to leave a universe of just fashion retail to become more of a fashion brand with leadership and authority in fashion. Within the Dare to Be You positioning, we strengthened our collabs and licensing strategies aiming to expand our perception as fashion experts and to reinforce sustainability and a Brazilian identity. We built a network of relationships with ambassadors, creators and influencers, who reinforce brand awareness, principality and leadership, and we evolved our artificial intelligence tools for further personalization and greater assertiveness. As a result, the Renner brand grew by 25 percentage points in brand recognition as a brand that knows, understands and creates fashion. Brand relevance remains unchanged. Very high, top of change in its category fashion and Brazil's most beloved fashion brand. Renner is also the brand with the highest engagement on social media. Now talking about expansion. We began accelerating store openings in 2025. In 2024, we already had more stores. We opened 23 stores. In 2025, we opened 34 stores. And in 2024 we closed more stores. So net opening in 2024 was 13. In 2025, net opening 31 stores. We accelerated expansion and remodeling of stores, also because those renovated stores provide improved customer experience and boost sales. And we had omni growth. It happened in brick-and-mortar stores and in the digital channel. In digital, we continue to gain scale and efficiency. We adopted new initiatives which personalize the offer and contribute to an increase in conversion rate. Let me give you some examples of digital advances. Just this quarter, Q4, we launched the virtual fitting room, where customers can try on different pieces of clothing in a virtual dynamic and very realistic way. Well, this is not yet available for all items. We see a 2.6% increase in conversion, and this should continue to evolve when we start operating this to more elaborate items into more pieces of clothing. Another important example. We are expanding the use of AI in the creation of content, mainly for the kids category. This has led to a 60% increase in views for this category. Another example is the omni shopping bag, where shoppers can purchase online and off-line at the same time. So they are at a store, they can buy, they can order something else to be delivered to their home. And this improves the culture and conversion rate. In brick-and-mortar stores, we have a much more assertive mix. We have more personalized fulfillment for every group of stores, for every group of customers. We have an increasingly fluid online and offline integration. And as a consequence of that, in addition to omni and off growth, we have continuous increase in NPS and expansion of the customer base. We will continue to advance in omni channel productivity and consistently scale value. Now when we do all that, we increased our productivity gains. We further expanded our leadership in performance per square meter. Sales per square meter reached BRL 17,000 per square meter in the year. We continue to have the highest productivity in the sector, increasing the difference in the gap to our peers. On average, we are 45% above our direct competitors. We had the highest sales growth among comparable peers but we have an opportunity to grow and sell even more. The operating model allowed us to see 2 opportunities to boost our results: executing cost reduction strategies and optimizing sales opportunities, mainly during seasonal transitions replacing marked-down items with new products on a larger scale than we have historically done. This path like all model evolution is gradual and continuous but it is important also to understand what 2025 meant for our 2026-2030 strategy, which we announced in our last Investor Day at the end of the year. Although 2025 is not part of the guidance horizon, 2026 to 2030, well, the year evolved in the same direction as the guidance in terms of sales growth, dilution of expenses, increased profitability and ROIC and even with store expansion, which was 34 stores in 2025. For 2026, we are aiming to 50 to 60 stores in total. So 2025 has already shown that the plan that we announced is feasible and tangible. I'll now hand over to Daniel, he's going to give us more data on the quarter and full year 2025. Daniel dos Santos: Thank you, Fabio. Good morning. To speak about growth. In Q4, we achieved 4.3% retail growth and 5.1% in apparel. This represents competitive sales growth even with lower than usual temperatures in the first half of the quarter, which resulted in lower store foot traffic and economic factors that pressured consumers' purchasing power. This performance reflected the positive reception of the high summer collection, particularly in the athleisure and beachwear categories and the improvement in the in-season reaction cycles and assortment allocation processes. In the full year 2025, we grew 9.2% in retail revenue and 10.4% in apparel. The breakdown of our 9.2% revenue growth already reflects the key growth pillars that support our long-term growth ambition. They are prices in line with market inflation, positive impact of mix due to better inventory mix, superior growth of the digital channel and Youcom and store expansion plan for Renner as well as for Youcom. In 2025, we opened 34 stores, including 14 Renner stores, 17 Youcom stores and 3 Camicado stores, resulting in a 1.8% expansion in full space. Not all of this expansion in area converted into sales in 2025, given that most of the openings occurred near the end of the year. We saw an increase in our customer base and in-store traffic and app and website traffic, which increased sales volume. We found that while our shoppers purchased fewer items per transaction, on the other hand, they made more purchases and spend more on average. On our digital channel, GMV grew by 10%, reaching a 14% share of total sales. This performance was driven by important innovations that enhance the customer experience and channel efficiency. As a result, retail revenue per square meter, one of the company's main drivers of growth and omnichannel productivity increased by more than 7% during the year, reaching BRL 17,000 per square meter, the highest among comparable peers. As for the gross margin. We ended Q4 with a retail gross margin of 56.5%, up 0.7 percentage points over fourth quarter 2024. Gross margin for apparel was 57.9%, increasing 0.8 percentage points. For the full year, gross margin grew 0.7 percentage points to 56.1% close to our historical record for gross margin. This performance was made possible by the greater share of new items in sales and the evolution of the supply model, which resulted in a healthy level of markdowns. The evolution and the mix added to price adjustments in line with inflation also contributed to an improvement in margins in 2025. Youcom reported a 0.9 percentage point reduction in gross margin in the quarter as a result of mix adjustments to renew inventories. These adjustments have already been made and Youcom will continue on its growth trajectory. For the full year, gross margin remained stable at around 6%. Camicado reported a 1.2 percentage point increase in gross margin compared to the previous year, reflecting adequate commercial management and a greater share of private label items, home and style. For the year, Camicado's gross margin was 56.5%, up 1.7 percentage points over the previous year. The company ended 2025 with a renewed inventory position and with fewer markdowns, which allowed us to start the year with renewed products in our stores, in our app and in our brick-and-mortar stores. As for expenses in the quarter, operating expenses grew by 2%, the lowest growth of the year. Even excluding PPR expenses, PPR being profit sharing program, our operating expenses grew 3.3%. As a result, we saw a dilution of expenses in relation to retail net revenue of 0.7 percentage points year-on-year. Sales expenses grew by around 3% in the quarter compared to the previous year, resulting in a 0.4 percentage point reduction in their share of retail revenue. General and administrative expenses grew 4% in Q4, in line with inflation for the period. The increase in spending on third-party services was offset by substantial reductions in shipping costs. In the full year, operating expenses grew 8%, resulting in dilution of expenses in relation to retail net revenue of 0.4 percentage points, reflecting our commitment to deliver consistent operational leverage in 2025. In 2025, expenses linked to the profit sharing program or PPR, which covers approximately 23,000 employees, excluding statutory offices grew 16% and accounted for 12% of net income, down 0.6 percentage points versus 2024. The total amount provisioned for 2025 was calculated based on the average achievement of 103% of corporate, individual and strategic targets. Each business unit has specific triggers and targets. Moving on now to Realize. The quarterly result of Realize reflects the consistency of risk management throughout the year, cautious origination and good portfolio risk management. It is important to note that we had a nonrecurring impact in 2025 of BRL 115 million that needs to be considered in the projections for 2026. And this nonrecurring impact happened entirely in the first half of the year. Our over 90 ex the effect of regulation of 4,966 closed at 13.8% in line with the previous year. And our short-term delinquency remains at low levels. This performance was mainly due to a careful credit granting model that allowed us to maintain a low-risk portfolio. In the medium term, we do not expect any change in our lending policy given the high default scenario that continues to happen in the country. As for net income in the company's profitability indicators, net income increased 13.4% in the quarter and 21.8% in the full year reaching a record mark of BRL 1.5 billion, reflecting improved operating performance in the Retail and Financial Services segments despite lower financial result and a higher effective corporate income tax rate. Earnings per share grew 26.7% in the full year, also a record mark. The 12-month cumulative ROIC increased by 2.3 percentage points to 14.7%. The continued growth of ROIC is supported by margin gains, higher asset turnover driven by inventory productivity, working capital discipline and store expansion with incremental returns in new markets. Cash generation in 2025 remained stable at BRL 1.4 billion, a slight decrease justified by an increase in CapEx in 2025. We distributed BRL 1.8 billion to shareholders in the period, including interest on capital and share buyback plan, which represented in total approximately 112% of the year's profit. As a reminder, distribution at this level of net income was only possible because we used reserves from previous years. Now as for the outlook for 2026. Our growth expectation for 2026 is 9% to 13%, in line with the guidance disclosed in the end of 2025 in our Investor Day. It is important to note and stress that growth dynamics for 2026 will be the opposite of what we saw in 2025. Stronger growth in the second half of the year due to a more challenging comparison base with the first half of 2025. When as Fabio mentioned, we grew 15.6%. The composition of revenue growth in 2026 will feature an increased contribution from revenue coming from accelerated expansion. In 2025, we accelerated expansion with 23 store openings concentrated mainly in Q4 '25. These new stores will contribute to sales for the whole 2026. In addition, we will expand by 50 to 60 stores, which will contribute significantly to year-end sales. And as mentioned on our Investor Day, we expect digital growth to outpace physical stores growth. In January and February of this year, we completed the transfer of old inventory from the digital channel to Cabreúva distribution center and ended sales operations via the Rio de Janeiro DC. This transfer caused the temporary unavailability of old inventory for the digital channel, impacting digital channel sales in Q1 but in a planned fashion. This situation was already -- has already been resolved. We chose to execute this based on our strategy in Q1 because it is the quarter with the lowest sales share and lowest operational impact for the year. This was an important step in the process of centralizing sales operations at the Sao Paulo Cabreúva distribution center. We will continue in 2026 on our journey to expand the gross margin. We will have operational leverage in 2026 as a result of expected growth and efficiency gains. We have made progress in identifying opportunities and now have the support of a consulting firm specialized in mapping out new initiatives and implementing short- and medium-term actions. As for capital allocation, we disclosed yesterday in a material fact that our proposed capital budget for 2026 is around BRL 1 billion with a focus on opening and renovation of stores. We expect to open between 50 and 60 stores. Our expansion process remains careful and diligent ensuring capital allocation in cities, in neighborhoods that are appropriate for our return objectives. As for capital distribution, profit distribution will be prioritized based on IoC, the buyback plan announced last year and/or dividends, all subject to the availability of reserves and our minimum cash limit. As a reminder, the distribution guidance we disclosed last year is an estimate. It does not represent a cap of distribution. In this way, we will continue our journey of ROIC evolution and value creation for our shareholders. With this, I turn the floor back to Fabi. Fabiana Oliver: Let us now begin the Q&A session. [Operator Instructions] First question from Joseph Giordano with JPMorgan. Joseph Giordano: I'd like to know more about 2 main points. The first leverage of sales per square meter. Perhaps we have 2 factors here. One is digital, as Fabi showed. He showed a lot of operational improvements and customer experience. And the second point, the renovations. We have a lot to be done during the year. Could you give us an update on how the stores have been performing -- renovated stores have been performing compared to the comparable cluster. How are you seeing this? And the second point has to do with the investments. We have the DC maturing. Of course, this contributes to gross margin. Daniel mentioned that he expects some expansion. So perhaps, 1 or 2 more years or expansion of gross margin. And then the CapEx for technology, there are many of initiatives, the CapEx is much higher. So I'd like you to explore these 2 points. Fabio Faccio: Thank you, Joseph. Well, on leverage of sales per square meter. As you mentioned, this comes from digital. Yes, we have been investing. And I think that I will also talk about technology CapEx. CapEx is mainly geared as a priority to new stores. In recent years, it was geared to infrastructure. And CapEx is also being directed to technology, data, artificial intelligence, improving customer's journey. So growth comes a lot from the digital channel and also the physical channel. I think it is an interrelationship, intertwining of both that is important. Improvements in digital have brought more improvements. It adds to total growth. But brick-and-mortar stores, both mature stores and renovated ones have been performing well. Both mature and renovated stores are above the average of the clusters. It's kind of hard to break down how much better our renovated store performs compared to others because there are many variables involved, but that performance is paying our bills because performance is improving. And as we mentioned in the Investor Day, we can have an investment cost per square meter, either new stores or renovated stores that is lower. We're being more efficient in using our investments. So this has brought -- this has been driven -- driving up our sales per square meter. As for the DC maturation and expansion of gross margin. It's all connected. It's not just the DC. As we always say, it's an end-to-end process. It's the whole model, capturing trends, improving collections, assertiveness of collections, assertiveness in distribution. It is our ability with the DC to distribute things in a granular fashion. This has helped us a lot. We have been reaping the fruits the stabilization of the DC in 2024, and we continue to reaping fruits now and in the future. And this is very important for the gross margin because the ticket has been increasing because we are selling new products, and we are reducing the sale of markdown items. That increases the ticket and the margin. So it's win-win. And this has been incremental month after month. It's easy to see in our balance sheet. We grew our sales 9% and reduced inventories by 3%. But a qualitative piece data, which is not there. So we have followed the percentage of our inventory, which is the oldest, more prone to markdowns, and that inventory was reduced by 16%. So we have a very competitive entry price for our shoppers with a healthy margin, and we can gain more margin by reducing markdowns. This is the result of the model that this is also a very important part of that. So it's the whole model and the DC contributing to that. Daniel dos Santos: Joe, your comment on the technology CapEx because we saw some reports talking about that. In Q4 there was a comment that there was a leap in CapEx, but 2 points to mention here. In our investment plan, disclosed in the beginning of the year about [ 320 ] technology was spent [ 350 ] flat. There was a theme of phasing out in Q4, there was slightly more spending. And basically, licenses. In technology, there are some licenses that are renewed between 3 and 4 years. So we had more licensing renewed in the end of the year. The license renew, there's a CapEx involved, but it's paid out over its use along the year. That's the only thing that I can comment on the technology CapEx. Fabiana Oliver: The next question from Pedro Pinto with Bradesco. Pedro Pinto: I'd like to mention 2 points. First, I'd like you to elaborate on expenses. You mentioned that in selling expenses, publicity and advertising sales were the highlight. In G&A, there was a reduction in utilities, in shipping. So could you elaborate on the line items that should support the 3.5% efficiency or percentage points in efficiency. There is a part related to operational efficiency. If the company has a 9% to 13% increase in revenue, but you suggested some line items where you could improve efficiency. Are these the ones? Are there any others? And is that the order of magnitude? That's my first point about expenses. The other point I'd like to explore is an update in the cohort of stores opened in 2024, '25. A lot of things happening in Q4 '25. We're not going to have a lot of data about that. But perhaps, those that have been opened for longer, I'd like to know about the ramp-up of sales? And things that the newer stores can inform us the timing, cost of occupancy, personnel versus the current lot of stores. If you could quantify that, it would be nice because with the acceleration of store openings that is coming, it would be nice to follow these metrics. Daniel dos Santos: Thank you, Pedro. Speaking about expenses. Well, first, as you said it yourself, we delivered operational leverage for 2025. And it is our target to deliver this over the 2026-2030 cycle. There are 2 drivers that we mentioned. First, the company's ability to deliver growth that we estimate between 9% to 13%. And doing that, delivering of that without the need to have greater investment. In other words, delivering growth by using an installed expense base that will allow us to have gains of scale. The other point is efficiency. It's what I mentioned in my outlook for 2026. We have identified some opportunities already. We have an external consulting firm that is working with us. To revisit these opportunities, come up with new opportunities so that we can adopt an implementation plan, an action plan to implement these opportunities. Where are the opportunities coming from? There are opportunities in selling and G&A expenses. There is not just one single sweet spot where we can find opportunities. We believe we can find opportunities across the board, in terms of gaining efficiency, in possible activities that can be performed with more efficiency, some activities that can stop being done. And that's the work that we're doing with this consulting firm. And as for open stores, I would say that, they are behaving as planned. These stores have a profile where on one hand, they are smaller stores. And of course, they have sale per square meter, which is lower than our base because we have an average bigger size of stores, but there's an occupancy cost and the personnel cost, when we look at total SG&A that is -- it is lower than the installed base we have. And that's why these stores collaborate more in terms of company's profitability. Fabiana Oliver: Next question from Bob Ford with Bank of America Merrill Lynch. Robert Ford: Fabio, as you improve the supply chain and efficiency, how should we think about working capital and additional improvements to gross margin? And what are you thinking in 2026? And what is the percentage of collections, especially the winter collection. Fabio Faccio: Thank you, Bob. It is what we mentioned before, I think that the key point about our model is to be able to produce closer to in-season periods when we have demand. That varies a lot in terms of collection assertiveness. We have the ability to produce 15 million to 25 million or almost 30% of our production happening in season. We are working to get that up to 40%, which is what we think is necessary. Well, there's a point of basic items, more constant items. So we have been working on that. And I think that this is bringing us margin gains and cash flow margins. We start having turnover inventories, store improvement in ticket margin and cash flow. And the trend is that we are going to have a gradual and continuous evolution. We continue to -- we expect to continue to have gains in inventory turnover margins, et cetera. As for the winter season and more specifically, that's a more challenging season in the end of the cycle for us. Both due to greater penetration of imported items and also the risks that we have a smaller collection time. We spoke about this last year. We have already implemented some initiatives in terms of having a faster flow of imported items or to replace some transition products by national items. That's what I mentioned. It's an opportunity during seasonal transitions, and that applies to several moments. What we have seen in our model and with the evolution of our model is that historically, at some moments, end of cycle of summer or winter when we are starting spring or fall, these ends of cycle historically dependent more on marked down items. So what's happening is that we are having fewer and fewer markdowns, and we are able to turn over our inventory faster and faster, which is very good. So we are testing. A part of the opportunistic sale will be reduced, but we can replace part of that sale by new items with a higher ticket and a higher margin for the company. That is an important opportunity for us. So we're testing this. Of course, we have to test what kind of product is accepted because it's not too clear to relationship. But we've been testing this. And we've had a good response with some of these items in recent cycles. So we see good performance of new items replacing those sales and generating margin. I think it's a gradual evolution that we're going to see, as I said in my opening remarks. This applies to both end of cycle, seasonal transition and weather variations. I think that this is an opportunity that we're starting to see good results, and we believe that gradually, this will also continue to evolve. Robert Ford: Okay. What are you thinking about 2026 and consumer demand? Fabio Faccio: That's an important question. And I think that Daniel kind of spoke about this in his remarks. We don't want to comment of quarters that are underway. So your question is good first to speak about the full year outlook. Last year, 2025, when the year began, we spoke a little about this, that we had an expectation of a greater first half and the second half of the year with low growth for a number of reasons. There are many variables, comparable base, planning, macroeconomic situation, which over 2025 for a long time, we saw consumers more under pressure, and we felt that in the end of the year. Now, things happened in line with our expectations, not exactly the same. The first half was stronger. We grew 15.6%, second half we posted about 4% increase. We got to 9.2%, which is very much in line with what we're expecting for 2026, was thinking about 9% to 13% for the coming years. But as Daniel said, for 2026, our year expectation is the reverse. For a number of reasons, we expect a first half growing less and the second half growing more. And one of the main reasons is inversion of the comparative base. We're going to have a stronger base in the first half and a weaker comparison base in the second half. So that already changes the expectation. And there are other reasons as well. Last year, we saw customers being under pressure, more and more under pressure because the interest rates were very high, were very long. And the expectation this year is okay, interest rates are already high. But the expectation is that interest rates will ease over the year. So the comparative base, the easing in our operational planning, put it all together, our expectation in that range of 9% to 13%. We don't expect equal quarters, of course. A first quarter, weaker second quarter, stronger, but growth along the year, along the quarters, as the quarters unfold. Fabiana Oliver: Next question coming from Vinicius Strano with UBS. Vinicius Strano: Two questions. if you could comment on how you're seeing price positioning of the company compared to the main competitors? And how is the customer perception regarding pricing in the Renner brand? How do you see this evolving? With inventory is improving, the company is generating a lot of cash. I'm just trying to understand whether you have any room for reinvesting part of the gains to increase commercial competitiveness to drive volume. My second question is regarding credit. If you could comment on how you see the expectations for Realize, speaking about the new cohorts of customers, your private label sales are slightly lower than historical levels. With declining interest rates, do you see -- do you expect a different demand? Fabio Faccio: Well, I'll start with the first part of your question, positioning your prices, Daniel will speak about credit and Realize. So here's what I can say. In our view, our price position is very adequate. We are very competitive. We have heard some complaints about promotional activity in the industry. I think that there are many players trying to adjust their prices and positioning. We saw some competitors at some points with very high prices, and we were very consistent in our pricing strategy. I think we have very competitive entry prices. Our model with the reduction of old inventories has allowed us to boost our gross margin, and this is very important to maintain competitiveness. Competitiveness in our positioning, of course, things are very fluid. Things are a living organism. The market is adjusting itself all the time. So we are always looking at pricing vis-a-vis our competitors, what matters for our shoppers. But I would say that on average, our prices are very much in line with inflation. And I think that customers do value that. We have seen consistent improvement in our NPS, focused not only on customer experience, but products. Our products are improving in quality, assertiveness, with greater price competitiveness. And the other part of the equation, we are growing in price. It doesn't mean higher price. It means lower markdowns. And that's very sustainable for us because it's a result that comes from greater efficiency rather than an attempt to gain margin by increasing prices. Our prices are very well positioned. Daniel dos Santos: Vini, speaking about Realize. Over 2025, we were very cautious in our originations. On one hand, this is reflected in the quality of the portfolio levels of delinquency of our portfolio. We do not believe in the short term in any change, we'll continue to be very cautious and prudent. When we look at delinquency levels in the market, there was a certain deterioration. If we consider the middle of the year and now which means that we will continue to be prudent and cautious. On one hand, this, of course, reduces the potential to expand the customer base and the portfolio. When we look at the loss of share of our Card, it's a reflection of that. We believe that as the macroeconomic scenario improves, we'll be able to increase our originations. On the other hand, it is what we mentioned in our Investor Day, which is the value proposition of Realize. We have plans to continue to strengthen that value proposition. One of the milestones is the new office room will be available in the second half of the year, and this will allow us to bring in other elements in the value proposition, which will allow us to combine a possible increase in origination with a better value proposition. This will allow us to recover the share of the Realize Card in Renner sales. Fabiana Oliver: Next question from Eric Huang with Santander. Eric Huang: I would like to address the digital channel. You mentioned it is an important driver of growth in the coming years. I'd like to talk about profitability. You mentioned that profitability is improving. So looking at the sales mix, how much more has the share of sales evolved on the channel? And what is the gap? Thinking about EBITDA margin of the channel versus brick-and-mortar channels. How is this evolving? That's number one. And my second question, a very quick one regarding performance of Renner stores in shopping malls, where international players are also going. There was a comment about that, that it kind of drove sales. I'd like to understand that. Fabio Faccio: Thank you, Eric. I'll start with the last one, and then I'll turn the floor to Daniel for your first question. As regards opening of international stores of international competitors, I agree with the observation of another player. Since these are few stores, in a large universe of shopping malls, when a new store opens, which is a novelty, of course, that brings foot traffic to the mall. But we're very competitive. Our performance in the shopping malls where these stores are opening, well, it's a good performance, a better performance. They haven't impacted us as for the profitability of the digital channel. Daniel dos Santos: Thank you for the question. First, our strategy is an omnichannel execution. So we aim to be very transparent in how we execute things. When we look at the digital channel, the digital channel, is one of the big advances we had in the period. When you talk about the cost of operating the channel. The investments we made and the centralization of all sales of the digital channel. In the Cabreúva DC that allows us to have a similar cost of operation today. The growth we have in brick-and-mortar stores or over the digital channel, this does not increase operational expenses because we have the cost to operate both channels operating in a similar way. This is the result of investments we made, and it's something that in the future will allow us to work with both channels without a concern of having expenses increasing related to one channel or another. Fabiana Oliver: Next question from Danni Eiger with XP. Danniela Eiger: My question is almost a follow-up question of what I asked in the last video conference call. I remember I asked you, what you were doing to go back to being the outperformer of the industry, as you always were. It seems that this quarter is pointing in that direction. You're talking about in-season reaction, it is a point that in Q3, you mentioned that you were not doing that. Could have done it. But I think it would be cool to understand the changes such as this one that can sustain in addition to the whole model, as you mentioned, in your positioning, you talked about colabs, and I remember Fabi talking about revisiting sub-brands of Renner -- and how the store is distributed and assembled. So my question is, trying to understand what you're doing in the operation itself, other than the model because we talk a lot about the model. But at the store level to sustain this overperformance because if we look at the 9%, you delivered in 2025, it was much driven by the first half. Of course, there was a customer base, get execution. But I'm thinking about what is it that you are building to overcome the difficulties in 2026? Fabio Faccio: There are many variables, you mentioned many of them that are very important. It is what we have been saying just the beginning of our investments in the evolution of our model. The expectation is that we'll have gradual gains, gradual improvement. We will continue to accelerate our gains over a longer period of time. And that's why we have a 2026-2030 cycle because we expect to have continuity of growth, margin improvement, efficiency gain in that time horizon for a long time. And there are many variables. We have the DC that we all see. The DC will bring about operational productivity, but also distribution assertiveness. We will be able to do something that was not done in the past. And as we do it, we increase efficiency. That is a gain. And our decisions are having speed to produce in season. We strive doing that in a more robust and efficient way. We gain assertiveness. And that's why we say it's a gradual process. We learn as we go and we implement and we learn. We don't go from 8 to 80. Because if we do that, we can have problems rather than productivity. We prefer to do it gradually. We see opportunities of new products, replacing markdowns by new products. This is not trivial. Some people are just trying to have new products, and some people are just trying to have markdowns. So how can we do this? But what kind of product we test, we see what works with this regard what doesn't work. The Renner brand more focused on fashion. It's not just the place to sell fashion. It's more of a brand fashion, a fashion brand, actually. And it's been more and more recognized by our consumers. So there's a whole array of actions that are very much coordinated. We have a lot of actions in product, distribution, fulfillment, operation, productivity, brand and customer journey. Putting it all together, that's how we expect to have a gain in productivity, efficiency, value creation with profitable growth in 2026 to 2030. That's why we announced our plan in that time frame. So it's the sum of all of these parts. Fabiana Oliver: Next question from Rodrigo Gastim with Itaú BBA. Rodrigo Gastim: Fabio would like to explore this dynamic, which I thought was interesting internal expectation in different first and second half. I'm not speaking about the quarter. I know you don't want to speak about Q1. It makes sense. I just want to understand because when we monitor Renner, when we look at the growth of the apparel segment, with a weighted average of the 440 stores that Renner has in different states, we see the debt of Renner, the market where Renner operate are growing almost 4 percentage points versus last year a relevant a significant acceleration at the beginning of the year. So I'd like to understand the logic of first versus second half of the year. But seeing this substantial acceleration of a debt and considering that you should not be losing market share. It's hypothesis, I'd like you to comment. My question is, can you really have a qualitative perception that is similar to what we see in debt? Fabio Faccio: Thank you, Gastim. As you said it yourself, since we gave you a guidance between 9% to 13% on annual basis, we are not going to be commenting on the quarter that is ongoing. We will make comments on the reported quarters. But in terms of the year, our intent here is to reinforce that never other quarter is the same. If we look at 2025, the full year that we are reporting on is a dramatic difference of growth quarter after quarter. And when we put together our plan and expectations for 2026. In the annual year, it's between 9% and 13%. It is what we expect for the year. But considering difference in the quarters, just like last year, when we look at our expectation and when we look at our plan, just this would explain the difference between half years and quarters. In addition, there are other factors. Last year, interest rates increased a lot and continued high. But this year, there's an expectation. I don't know whether it will materialize of declining interest rates, which should benefit the end of the year. And Daniel mentioned that we put pressure in the beginning of the year with a positive and necessary transition. And we are benefiting the end of the year with a more substantial number of store openings when we sum up all of the variables, we expect greater growth in the second half of the year, growing over the year and getting into that range, but with a lower growth in the first half. Rodrigo Gastim: Perfect. So to understand the rationale. It's very clear, actually. Since the first half, you have a comparative base, which is harder and using the low range of 9%. And that's my own analysis, okay, a mathematical perception. It is probable to have 9% in the first half. So double digit would be expected for the second half of the year, a difference between the half years with the most substantial acceleration in the second half. Is that what we should expect? Fabio Faccio: Yes. Yes, we're expecting weaker first half and a stronger second half. Rodrigo Gastim: Perfect. And Daniel if I may ask a quick question about buybacks. You created reserves with Q4 profits. Very much in line with what you have been saying. What do you use, Daniel, as a criterion to press the button of buyback? Is it share price or the moment of the company. I just want to understand the criteria. How do you define and you trigger the process of returning capital to shareholders, specifically with share buybacks? Daniel dos Santos: On on one hand, it's the composition of the balance of results, as you mentioned. The moment we disclosed Q4, we recompose it. We monitor share prices, and we have some good governance criteria regarding the percentage that we can purchase. We always try to have a cap of 5% and 10% of the daily volume. That's kind of the logic, the rationale we use. And that's the rationale we used last year, it will be very similar to the dynamic we will be using this year as we recompose our reserves we look at the share prices, and we will be executing the buybacks over the year. Fabiana Oliver: Next question from Irma Sgarz with Goldman Sachs. Irma Sgarz: About advertising -- advertising spending that dropped 17% year-over-year from what I understood, perhaps part of that comes from digital, where you generate more and more organic traffic. And perhaps you have more intelligence and discipline in spending. First, I'd like to understand what are the levers in addition to that one do you have or have you had in recent months? And any more improvements expected in that line item for 2026 and beyond? And related to that, because I don't want to disregard the 10% growth that you posted in digital, which obviously was great. But I'd like to understand how do you see the market? So digital market segments are growing at higher rates. Perhaps we cannot break it down to the apparel segment, but I'd like to understand, in digital, looking at the digital segment. You gained market share vis-a-vis the market as a whole. Perhaps you could tell us what you're thinking about balance of expenses? And growth in the digital environment. Perhaps you chose to grow 10%, you could have grown 15%. But then your profitability will be reduced. I don't know whether the question is clear, but that's the direction. Fabio Faccio: I think it is clear, Irma, I'll start with the end, and Daniel I will speak about expenses. When you talk about digital, I think that there are many ways of measuring it. We have been gaining share in our segment. We have seen -- we have been seeing a lot of more compressed margins, too much promotional activity on digital by some peers. And I think that your question involves the balance between market share growth and margin. Our strategy is to grow with profitability. We don't give up on margin. We're not doing a lot of promotions to grow in digital. We have been gaining efficiency and profitability in digital. Of course, if we had more promotions, we would have grown more. That's a direct relationship, but we believe that we can continue to grow. We can continue to gain market share with differentiated value proposition. We have to remember that our products are unique. There are ours, no one else sells our products. So it's not a price competition for the same product. We're betting all that. On our positioning, our power as a brand, our fashion power. And this has given us good results. We have been balancing growth and margin. We want to grow with profitable margins. This is what we are pursuing. It's our continuous pursuit. And perhaps to reinforce. When I answered the question by Eric from Santander, when he spoke about the omnichannel logic. Today, shoppers play in both channels. They can start online and up off-line and vice versa. And the integration of the channels is key to have a good balance of expenses. And to work well, not just the profitability of one single channel, but the whole picture. And this is a big challenge in our day today. And this is our strategy to gain productivity because at the end of the day, what matters to us is to grow the whole. And that's why we have that indicator of productivity per square meter. Daniel dos Santos: On digital Fabio mentioned, knowing how to work well on social media with the influencers, it involves a whole dynamic in the way in which we operate the on and off-line, which is key for our success. Of course, we look and see that the digital channel is growing more, and we're able to perform there. It leads to market share gains as a whole, and we continue to gain market share on digital. And it's kind of what you mentioned in the beginning of your comments. You kind of asked and gave us the answer. Because at the end of the day, the reduction in advertising expenses in the period is the result of this optimization. We continue to optimize investments in the digital channel. When we have more of our own traffic, traffic that comes from this social media strategy and influencers, we can reduce investments on digital, without giving up or hurting our competitiveness and presence on digital. It's part of our strategy. We will continue to evolve over the coming years because this is key for our competitive growth within this omnichannel logic. Fabiana Oliver: Next question from [ Ian Seskin ] with BTG. Unknown Analyst: I have just one question. You spoke a lot about margin levers or drivers that were very visible in Q4. My question is more on the logic of the pyramid of product assortment. What is the company's plan, mainly for entry-level products, given the scenario of more challenging consumption in Brazil? So what is your strategy regarding that? And do you expect you will sustain the strategy that we saw in Q4? Fabio Faccio: Very well, Ian. Thank you for the question. Here's what I can tell you. As we said, in entry-level products, I think that our prices are very competitive. We have an assertive positioning. Our product has good acceptance. A good value proposition for our customers. We have also seen in our middle of the pyramid core products that we are also very competitive. Anything that what is driving more margin gain and where we have more opportunity to continue to gain is with those fashion products. Shoppers come to us due to our fashion expertise, fashion knowledge with a very adequate value proposition. So these products tuned to fashion. And this also kind of becomes the middle of the pyramid. And this is the strategy that is bringing a lot of value and margin for the company. And when we speak about assortment, and that's where the opportunity lies. Well, of course, this is no dramatic change, but we have been seeing opportunities to add a few more products mainly in the end of cycles during seasonal transitions and weather changes, we bring something in terms of middle of the pyramid in fashion, trying to anticipate this. And this is bringing us good results. So in the pyramid as a whole this brings about an opportunity of a slight increase in average price, not a specific price or specific product and the entry-level products are at a very competitive level. Fabiana Oliver: Next question from Joao Soares with Citi. Joao Pedro Soares: I have some quick questions. I think it's very clear in terms of sales dynamic over the year, but Fabio. I'd like to do some mental exercise with you on the 3 main moving parts. When we think about volume, ticket and price. Just so we know what will move the needle? Because last year, we had a strong volume base. The whole industry suffered. We saw that in data of the segment. So what are you thinking about this? And this is also a relevant point here. If we have declining interest rates and you go back to the original origination level, this will help our analysis. Is this going to happen in your expectation? If we have a more hawkish interest rate cycle, could this impact your outlook? Fabio Faccio: Sure, thank you for the question. I think that, yes, it's a sum of everything. When we speak about the outlook for the year, there is the base effect, which is relevant. If we look at last year growth, it's very different. So the base effect is important. And there's also the element of interest rates when we start having an easing of interest rates, we put less pressure on consumers and to have a greater ability to pay and with a lower risk environment. It's a virtuous cycle. When for a long time, you have a lot of pressure that worsens ability to pay. But when you are easing, you improve everything. In a lower risk environment, you can go back to granting more credit, and this will lead to more sales. Our expectations while interest rates will start declining over the years. So in addition to the base, we have higher expectations for the second half of the year. And Internally, we opened a lot of stores in the end of 2025. These stores will gain productivity. We'll know more about their customers over the year, and they will trend up. And so we expect an improvement in the second half. And then we'll be adding more stores this year. If we think about average growth in 2024, it was basically net 0. In 2025, average area growth was about 1% with 1.8% in the end of the year, which kind of drags this to 2025 in the average area growth, when we speak about 50 to 60 stores expected, it's about 3% on average this year, getting to 4% in the end of the year. All of that, the last year's stores and the stores we're going to open this year will all help the second half of the year. So these are the three main moving parts. The base, the easing of the interest rates, and operationally speaking, we'll have more power coming during the year, mainly more towards year-end. Joao Pedro Soares: Excellent. And if I may, touch on another point. It has to do with what you disclosed in the Investor Day of 50% of payout. In your opening remarks, you mentioned that it could be higher than that. We see that you have a new buyback program, you have a cash position that is very strong. And thinking of what you distributed in 2025, it was above the guidance that we expected. So it seems we have this impression that in 2026 you should go over the cap because you're well positioned for that. Just want to be a little provocative regarding that, Daniel. Daniel dos Santos: So I think what matters is, let's analyze 2025. As I mentioned, we used the reserves of prior years. We started the year with 0 reserves. And we will recompose reserves with the Q4 results. As we explained in the Investor Day, the rationale. The rationale is I'll seek to distribute our reserves as they are recomposed. In looking at our cash generation, limited to what we consider minimum cash internally. If we create more reserves and if this is coupled with a good cash flow generation, we have the potential to be able to exceed the cap of the guidance, which is what I mentioned, the guidance is a guidance. It's a range, but it's not a limiting factor. If we have better cash flow generation, we might distribute interest on capital. It will always have a priority given the tax advantage. We can supplement that with a share buyback or perhaps an extraordinary dividend payout. That's kind of the dynamic, but we'll have to see how this will evolve during the year. If we have more cash flow generation, we might exceed the cap, the upper range. Fabiana Oliver: Next question from Andrew Ruben with Morgan Stanley. Andrew Ruben: Thanks very much for the question. Two topics from my side, please. First, you mentioned the consumer pressure from reduced purchasing power, but I'm curious if you're seeing any type of divergence in your stores that cater more towards higher income consumers versus lower income. And then second, curious also for Street versus non-Street stores. Any differences you're seeing in performance? And also as you look to the opening plans for this year, how you're looking at mall versus street stores for the plans. Fabio Faccio: Thank you, Andrew. As for the first part of the question, I would say that we haven't seen any dramatic change in consumption in recent months. Second half posted lower growth, there's a base effect, consumption effect, but -- the habit of shopping seems to be very similar. Unlike other types of retail, we have identified opportunities for fashion products, products with an added value that are selling well with good margins. Now obviously, purchasing power is under pressure, whereas the growth would have been a lot higher. And I think the easing of the interest rates -- easing cycle of the interest rate might help with that. But I would say that we expect or we saw some stability in the past few months. And as for performance of cities in -- in smaller cities. I'm not going to talk about street or non-street shops. But street is in midsized cities, as Daniel mentioned. They're performing really well. We are performing as expected or slightly above our plans. And as we mentioned in the Investor Day, above similar cohorts of the past, where we have stores in shopping malls and bigger stores. And this is due to lower costs and lower cost, as Daniel mentioned, and the lower cannibalization because we're opening stores in virgin cities. So there's a faster acceleration. And there's improvement online. So it's bringing 10% more sales online in those cities or else the brick-and-mortar stores would be selling even more. So we're happy with their performance. They are performing better than past average. According to plan or slightly above on average and with opportunities for improvement. Because all the improvement we have seen in fulfillment will helps us understand the type of consumer, type of shopper in that city, and that improves fulfillment illustrativeness. In smaller stores, it's going to be even more important. So we're happy with the evolution of our model. And this is the best timing to accelerate after opening expansion. We're accelerating to open 50 to 60 stores in total of the brands. Renner, 22 to 30. Youcom 23 to 25 and about 5 Camicado stores and our expectation. And we'll speak about this in a year's time, okay? But our expectation is that perhaps in 2027, we'll open even more stores. And just to speak about shopping mall and street stores. In the different cities, we have to analyze the potential of the city qualified demand, and then we'll look for the best location. It might be in a shopping mall, it might be a street store. So there is no rule written in stone. It will depend. It will vary city by city. In larger and bigger cities, we are normally present in shopping malls, okay? Fabiana Oliver: With this, so we are ending our Q&A session. Additional questions that were not answered can be sent to our IR team. I'll give the floor back to Fabio for his final statements. Fabio Faccio: Well, our conclusion regarding 2025 full year is that we are ready for the 2026-2030 cycle. We know what works. We also know where we have room for improvement. We are confident in our strategy and the quality of our team. We have focused on delighting our customers and creating consistent and sustainable value to our shareholders and other stakeholders. Thank you very much for joining us today. Fabiana Oliver: Thank you. Have a great day.
Fabiana Oliver: Good morning, everyone. Let's begin the Lojas Renner S.A. video conference call. With me today are Fabio Faccio, our CEO; and Daniel Santos, CFO. Before giving them the floor, I'd like to make some announcements. This video conference call is being recorded. And translated simultaneously into English. We will show here the presentation in Portuguese. So for those following the call in English, the English version can be downloaded from the chat. And from our IR website. Questions from journalists can be directed to our press office through the (113) 165-9586. Before proceeding, let me mention that forward-looking statements relative to the company's business perspectives, projections and operating and financial goals are based on beliefs and assumptions and on information currently available. They are not a guarantee of performance as they depend on circumstances that may or may not occur. During the Q&A PAUSE Questions may be asked live. I now turn the floor to Fabio. Fabio Faccio: Very well. Thank you all. Thank you for coming. Thank you for your time. Our Q4 confirms that our model generates profitability. Gross margin gains are the result of our operational evolution and the investments we made. We are now close to prepandemic levels, and the margin is sustainable, also with opportunity for growth. Expense growth was half that of sales growth. Even having a start of quarter that was slightly more challenging with milder temperatures, the performance of Black Friday and Christmas were very good and also with a lower promotional activity than the previous year. The efficiency of our model signaled another opportunity that of improving sales performance during times of transition. We also made progress in structuring our expense reduction plan. And this is an essential opportunity to prepare our company for the 2026-2030 period. So what characterized the year of 2025? Our sales performance in 2025 in the full year was in line with our expectations. We grew twice as fast as the market according to the trade monthly survey. We have the highest growth among our peers, our comparable peers. And we confirmed the expectations we had at the beginning of the year regarding how the year would unfold. We wouldn't have equal quarters, but the first half would be stronger. We grew 15.6% in the first half and the second half with lower growth. 2025 also confirmed the efficiency of our model in growing margins. This growing margins are the result of our inventory management, not only with smaller inventories, but mainly newer inventories. At the same time, we posted productivity gains with dilution of expenses. At Realize, we also had a year of good results, still acting prudently regarding credit granting. Well, given the risky environment that we see. Youcom also posted another year of strong growth. And Camicado had excellent margin growth. We increased our ROIC and delivered robust cash generation. We posted record net income, both in the quarter and in the full year with a return of BRL 1.8 billion to our shareholders in terms of interest on capital or share buyback. And we had a 27% increase in earnings per share. We ended 2025 motivated by the progress achieved by the company. I would also like to give you some examples of actions we took over 2025. When we look at our Renner brand and talking about fashion execution. We wanted to leave a universe of just fashion retail to become more of a fashion brand with leadership and authority in fashion. Within the Dare to Be You positioning, we strengthened our collabs and licensing strategies aiming to expand our perception as fashion experts and to reinforce sustainability and a Brazilian identity. We built a network of relationships with ambassadors, creators and influencers, who reinforce brand awareness, principality and leadership, and we evolved our artificial intelligence tools for further personalization and greater assertiveness. As a result, the Renner brand grew by 25 percentage points in brand recognition as a brand that knows, understands and creates fashion. Brand relevance remains unchanged. Very high, top of change in its category fashion and Brazil's most beloved fashion brand. Renner is also the brand with the highest engagement on social media. Now talking about expansion. We began accelerating store openings in 2025. In 2024, we already had more stores. We opened 23 stores. In 2025, we opened 34 stores. And in 2024 we closed more stores. So net opening in 2024 was 13. In 2025, net opening 31 stores. We accelerated expansion and remodeling of stores, also because those renovated stores provide improved customer experience and boost sales. And we had omni growth. It happened in brick-and-mortar stores and in the digital channel. In digital, we continue to gain scale and efficiency. We adopted new initiatives which personalize the offer and contribute to an increase in conversion rate. Let me give you some examples of digital advances. Just this quarter, Q4, we launched the virtual fitting room, where customers can try on different pieces of clothing in a virtual dynamic and very realistic way. Well, this is not yet available for all items. We see a 2.6% increase in conversion, and this should continue to evolve when we start operating this to more elaborate items into more pieces of clothing. Another important example. We are expanding the use of AI in the creation of content, mainly for the kids category. This has led to a 60% increase in views for this category. Another example is the omni shopping bag, where shoppers can purchase online and off-line at the same time. So they are at a store, they can buy, they can order something else to be delivered to their home. And this improves the culture and conversion rate. In brick-and-mortar stores, we have a much more assertive mix. We have more personalized fulfillment for every group of stores, for every group of customers. We have an increasingly fluid online and offline integration. And as a consequence of that, in addition to omni and off growth, we have continuous increase in NPS and expansion of the customer base. We will continue to advance in omni channel productivity and consistently scale value. Now when we do all that, we increased our productivity gains. We further expanded our leadership in performance per square meter. Sales per square meter reached BRL 17,000 per square meter in the year. We continue to have the highest productivity in the sector, increasing the difference in the gap to our peers. On average, we are 45% above our direct competitors. We had the highest sales growth among comparable peers but we have an opportunity to grow and sell even more. The operating model allowed us to see 2 opportunities to boost our results: executing cost reduction strategies and optimizing sales opportunities, mainly during seasonal transitions replacing marked-down items with new products on a larger scale than we have historically done. This path like all model evolution is gradual and continuous but it is important also to understand what 2025 meant for our 2026-2030 strategy, which we announced in our last Investor Day at the end of the year. Although 2025 is not part of the guidance horizon, 2026 to 2030, well, the year evolved in the same direction as the guidance in terms of sales growth, dilution of expenses, increased profitability and ROIC and even with store expansion, which was 34 stores in 2025. For 2026, we are aiming to 50 to 60 stores in total. So 2025 has already shown that the plan that we announced is feasible and tangible. I'll now hand over to Daniel, he's going to give us more data on the quarter and full year 2025. Daniel dos Santos: Thank you, Fabio. Good morning. To speak about growth. In Q4, we achieved 4.3% retail growth and 5.1% in apparel. This represents competitive sales growth even with lower than usual temperatures in the first half of the quarter, which resulted in lower store foot traffic and economic factors that pressured consumers' purchasing power. This performance reflected the positive reception of the high summer collection, particularly in the athleisure and beachwear categories and the improvement in the in-season reaction cycles and assortment allocation processes. In the full year 2025, we grew 9.2% in retail revenue and 10.4% in apparel. The breakdown of our 9.2% revenue growth already reflects the key growth pillars that support our long-term growth ambition. They are prices in line with market inflation, positive impact of mix due to better inventory mix, superior growth of the digital channel and Youcom and store expansion plan for Renner as well as for Youcom. In 2025, we opened 34 stores, including 14 Renner stores, 17 Youcom stores and 3 Camicado stores, resulting in a 1.8% expansion in full space. Not all of this expansion in area converted into sales in 2025, given that most of the openings occurred near the end of the year. We saw an increase in our customer base and in-store traffic and app and website traffic, which increased sales volume. We found that while our shoppers purchased fewer items per transaction, on the other hand, they made more purchases and spend more on average. On our digital channel, GMV grew by 10%, reaching a 14% share of total sales. This performance was driven by important innovations that enhance the customer experience and channel efficiency. As a result, retail revenue per square meter, one of the company's main drivers of growth and omnichannel productivity increased by more than 7% during the year, reaching BRL 17,000 per square meter, the highest among comparable peers. As for the gross margin. We ended Q4 with a retail gross margin of 56.5%, up 0.7 percentage points over fourth quarter 2024. Gross margin for apparel was 57.9%, increasing 0.8 percentage points. For the full year, gross margin grew 0.7 percentage points to 56.1% close to our historical record for gross margin. This performance was made possible by the greater share of new items in sales and the evolution of the supply model, which resulted in a healthy level of markdowns. The evolution and the mix added to price adjustments in line with inflation also contributed to an improvement in margins in 2025. Youcom reported a 0.9 percentage point reduction in gross margin in the quarter as a result of mix adjustments to renew inventories. These adjustments have already been made and Youcom will continue on its growth trajectory. For the full year, gross margin remained stable at around 6%. Camicado reported a 1.2 percentage point increase in gross margin compared to the previous year, reflecting adequate commercial management and a greater share of private label items, home and style. For the year, Camicado's gross margin was 56.5%, up 1.7 percentage points over the previous year. The company ended 2025 with a renewed inventory position and with fewer markdowns, which allowed us to start the year with renewed products in our stores, in our app and in our brick-and-mortar stores. As for expenses in the quarter, operating expenses grew by 2%, the lowest growth of the year. Even excluding PPR expenses, PPR being profit sharing program, our operating expenses grew 3.3%. As a result, we saw a dilution of expenses in relation to retail net revenue of 0.7 percentage points year-on-year. Sales expenses grew by around 3% in the quarter compared to the previous year, resulting in a 0.4 percentage point reduction in their share of retail revenue. General and administrative expenses grew 4% in Q4, in line with inflation for the period. The increase in spending on third-party services was offset by substantial reductions in shipping costs. In the full year, operating expenses grew 8%, resulting in dilution of expenses in relation to retail net revenue of 0.4 percentage points, reflecting our commitment to deliver consistent operational leverage in 2025. In 2025, expenses linked to the profit sharing program or PPR, which covers approximately 23,000 employees, excluding statutory offices grew 16% and accounted for 12% of net income, down 0.6 percentage points versus 2024. The total amount provisioned for 2025 was calculated based on the average achievement of 103% of corporate, individual and strategic targets. Each business unit has specific triggers and targets. Moving on now to Realize. The quarterly result of Realize reflects the consistency of risk management throughout the year, cautious origination and good portfolio risk management. It is important to note that we had a nonrecurring impact in 2025 of BRL 115 million that needs to be considered in the projections for 2026. And this nonrecurring impact happened entirely in the first half of the year. Our over 90 ex the effect of regulation of 4,966 closed at 13.8% in line with the previous year. And our short-term delinquency remains at low levels. This performance was mainly due to a careful credit granting model that allowed us to maintain a low-risk portfolio. In the medium term, we do not expect any change in our lending policy given the high default scenario that continues to happen in the country. As for net income in the company's profitability indicators, net income increased 13.4% in the quarter and 21.8% in the full year reaching a record mark of BRL 1.5 billion, reflecting improved operating performance in the Retail and Financial Services segments despite lower financial result and a higher effective corporate income tax rate. Earnings per share grew 26.7% in the full year, also a record mark. The 12-month cumulative ROIC increased by 2.3 percentage points to 14.7%. The continued growth of ROIC is supported by margin gains, higher asset turnover driven by inventory productivity, working capital discipline and store expansion with incremental returns in new markets. Cash generation in 2025 remained stable at BRL 1.4 billion, a slight decrease justified by an increase in CapEx in 2025. We distributed BRL 1.8 billion to shareholders in the period, including interest on capital and share buyback plan, which represented in total approximately 112% of the year's profit. As a reminder, distribution at this level of net income was only possible because we used reserves from previous years. Now as for the outlook for 2026. Our growth expectation for 2026 is 9% to 13%, in line with the guidance disclosed in the end of 2025 in our Investor Day. It is important to note and stress that growth dynamics for 2026 will be the opposite of what we saw in 2025. Stronger growth in the second half of the year due to a more challenging comparison base with the first half of 2025. When as Fabio mentioned, we grew 15.6%. The composition of revenue growth in 2026 will feature an increased contribution from revenue coming from accelerated expansion. In 2025, we accelerated expansion with 23 store openings concentrated mainly in Q4 '25. These new stores will contribute to sales for the whole 2026. In addition, we will expand by 50 to 60 stores, which will contribute significantly to year-end sales. And as mentioned on our Investor Day, we expect digital growth to outpace physical stores growth. In January and February of this year, we completed the transfer of old inventory from the digital channel to Cabreúva distribution center and ended sales operations via the Rio de Janeiro DC. This transfer caused the temporary unavailability of old inventory for the digital channel, impacting digital channel sales in Q1 but in a planned fashion. This situation was already -- has already been resolved. We chose to execute this based on our strategy in Q1 because it is the quarter with the lowest sales share and lowest operational impact for the year. This was an important step in the process of centralizing sales operations at the Sao Paulo Cabreúva distribution center. We will continue in 2026 on our journey to expand the gross margin. We will have operational leverage in 2026 as a result of expected growth and efficiency gains. We have made progress in identifying opportunities and now have the support of a consulting firm specialized in mapping out new initiatives and implementing short- and medium-term actions. As for capital allocation, we disclosed yesterday in a material fact that our proposed capital budget for 2026 is around BRL 1 billion with a focus on opening and renovation of stores. We expect to open between 50 and 60 stores. Our expansion process remains careful and diligent ensuring capital allocation in cities, in neighborhoods that are appropriate for our return objectives. As for capital distribution, profit distribution will be prioritized based on IoC, the buyback plan announced last year and/or dividends, all subject to the availability of reserves and our minimum cash limit. As a reminder, the distribution guidance we disclosed last year is an estimate. It does not represent a cap of distribution. In this way, we will continue our journey of ROIC evolution and value creation for our shareholders. With this, I turn the floor back to Fabi. Fabiana Oliver: Let us now begin the Q&A session. [Operator Instructions] First question from Joseph Giordano with JPMorgan. Joseph Giordano: I'd like to know more about 2 main points. The first leverage of sales per square meter. Perhaps we have 2 factors here. One is digital, as Fabi showed. He showed a lot of operational improvements and customer experience. And the second point, the renovations. We have a lot to be done during the year. Could you give us an update on how the stores have been performing -- renovated stores have been performing compared to the comparable cluster. How are you seeing this? And the second point has to do with the investments. We have the DC maturing. Of course, this contributes to gross margin. Daniel mentioned that he expects some expansion. So perhaps, 1 or 2 more years or expansion of gross margin. And then the CapEx for technology, there are many of initiatives, the CapEx is much higher. So I'd like you to explore these 2 points. Fabio Faccio: Thank you, Joseph. Well, on leverage of sales per square meter. As you mentioned, this comes from digital. Yes, we have been investing. And I think that I will also talk about technology CapEx. CapEx is mainly geared as a priority to new stores. In recent years, it was geared to infrastructure. And CapEx is also being directed to technology, data, artificial intelligence, improving customer's journey. So growth comes a lot from the digital channel and also the physical channel. I think it is an interrelationship, intertwining of both that is important. Improvements in digital have brought more improvements. It adds to total growth. But brick-and-mortar stores, both mature stores and renovated ones have been performing well. Both mature and renovated stores are above the average of the clusters. It's kind of hard to break down how much better our renovated store performs compared to others because there are many variables involved, but that performance is paying our bills because performance is improving. And as we mentioned in the Investor Day, we can have an investment cost per square meter, either new stores or renovated stores that is lower. We're being more efficient in using our investments. So this has brought -- this has been driven -- driving up our sales per square meter. As for the DC maturation and expansion of gross margin. It's all connected. It's not just the DC. As we always say, it's an end-to-end process. It's the whole model, capturing trends, improving collections, assertiveness of collections, assertiveness in distribution. It is our ability with the DC to distribute things in a granular fashion. This has helped us a lot. We have been reaping the fruits the stabilization of the DC in 2024, and we continue to reaping fruits now and in the future. And this is very important for the gross margin because the ticket has been increasing because we are selling new products, and we are reducing the sale of markdown items. That increases the ticket and the margin. So it's win-win. And this has been incremental month after month. It's easy to see in our balance sheet. We grew our sales 9% and reduced inventories by 3%. But a qualitative piece data, which is not there. So we have followed the percentage of our inventory, which is the oldest, more prone to markdowns, and that inventory was reduced by 16%. So we have a very competitive entry price for our shoppers with a healthy margin, and we can gain more margin by reducing markdowns. This is the result of the model that this is also a very important part of that. So it's the whole model and the DC contributing to that. Daniel dos Santos: Joe, your comment on the technology CapEx because we saw some reports talking about that. In Q4 there was a comment that there was a leap in CapEx, but 2 points to mention here. In our investment plan, disclosed in the beginning of the year about [ 320 ] technology was spent [ 350 ] flat. There was a theme of phasing out in Q4, there was slightly more spending. And basically, licenses. In technology, there are some licenses that are renewed between 3 and 4 years. So we had more licensing renewed in the end of the year. The license renew, there's a CapEx involved, but it's paid out over its use along the year. That's the only thing that I can comment on the technology CapEx. Fabiana Oliver: The next question from Pedro Pinto with Bradesco. Pedro Pinto: I'd like to mention 2 points. First, I'd like you to elaborate on expenses. You mentioned that in selling expenses, publicity and advertising sales were the highlight. In G&A, there was a reduction in utilities, in shipping. So could you elaborate on the line items that should support the 3.5% efficiency or percentage points in efficiency. There is a part related to operational efficiency. If the company has a 9% to 13% increase in revenue, but you suggested some line items where you could improve efficiency. Are these the ones? Are there any others? And is that the order of magnitude? That's my first point about expenses. The other point I'd like to explore is an update in the cohort of stores opened in 2024, '25. A lot of things happening in Q4 '25. We're not going to have a lot of data about that. But perhaps, those that have been opened for longer, I'd like to know about the ramp-up of sales? And things that the newer stores can inform us the timing, cost of occupancy, personnel versus the current lot of stores. If you could quantify that, it would be nice because with the acceleration of store openings that is coming, it would be nice to follow these metrics. Daniel dos Santos: Thank you, Pedro. Speaking about expenses. Well, first, as you said it yourself, we delivered operational leverage for 2025. And it is our target to deliver this over the 2026-2030 cycle. There are 2 drivers that we mentioned. First, the company's ability to deliver growth that we estimate between 9% to 13%. And doing that, delivering of that without the need to have greater investment. In other words, delivering growth by using an installed expense base that will allow us to have gains of scale. The other point is efficiency. It's what I mentioned in my outlook for 2026. We have identified some opportunities already. We have an external consulting firm that is working with us. To revisit these opportunities, come up with new opportunities so that we can adopt an implementation plan, an action plan to implement these opportunities. Where are the opportunities coming from? There are opportunities in selling and G&A expenses. There is not just one single sweet spot where we can find opportunities. We believe we can find opportunities across the board, in terms of gaining efficiency, in possible activities that can be performed with more efficiency, some activities that can stop being done. And that's the work that we're doing with this consulting firm. And as for open stores, I would say that, they are behaving as planned. These stores have a profile where on one hand, they are smaller stores. And of course, they have sale per square meter, which is lower than our base because we have an average bigger size of stores, but there's an occupancy cost and the personnel cost, when we look at total SG&A that is -- it is lower than the installed base we have. And that's why these stores collaborate more in terms of company's profitability. Fabiana Oliver: Next question from Bob Ford with Bank of America Merrill Lynch. Robert Ford: Fabio, as you improve the supply chain and efficiency, how should we think about working capital and additional improvements to gross margin? And what are you thinking in 2026? And what is the percentage of collections, especially the winter collection. Fabio Faccio: Thank you, Bob. It is what we mentioned before, I think that the key point about our model is to be able to produce closer to in-season periods when we have demand. That varies a lot in terms of collection assertiveness. We have the ability to produce 15 million to 25 million or almost 30% of our production happening in season. We are working to get that up to 40%, which is what we think is necessary. Well, there's a point of basic items, more constant items. So we have been working on that. And I think that this is bringing us margin gains and cash flow margins. We start having turnover inventories, store improvement in ticket margin and cash flow. And the trend is that we are going to have a gradual and continuous evolution. We continue to -- we expect to continue to have gains in inventory turnover margins, et cetera. As for the winter season and more specifically, that's a more challenging season in the end of the cycle for us. Both due to greater penetration of imported items and also the risks that we have a smaller collection time. We spoke about this last year. We have already implemented some initiatives in terms of having a faster flow of imported items or to replace some transition products by national items. That's what I mentioned. It's an opportunity during seasonal transitions, and that applies to several moments. What we have seen in our model and with the evolution of our model is that historically, at some moments, end of cycle of summer or winter when we are starting spring or fall, these ends of cycle historically dependent more on marked down items. So what's happening is that we are having fewer and fewer markdowns, and we are able to turn over our inventory faster and faster, which is very good. So we are testing. A part of the opportunistic sale will be reduced, but we can replace part of that sale by new items with a higher ticket and a higher margin for the company. That is an important opportunity for us. So we're testing this. Of course, we have to test what kind of product is accepted because it's not too clear to relationship. But we've been testing this. And we've had a good response with some of these items in recent cycles. So we see good performance of new items replacing those sales and generating margin. I think it's a gradual evolution that we're going to see, as I said in my opening remarks. This applies to both end of cycle, seasonal transition and weather variations. I think that this is an opportunity that we're starting to see good results, and we believe that gradually, this will also continue to evolve. Robert Ford: Okay. What are you thinking about 2026 and consumer demand? Fabio Faccio: That's an important question. And I think that Daniel kind of spoke about this in his remarks. We don't want to comment of quarters that are underway. So your question is good first to speak about the full year outlook. Last year, 2025, when the year began, we spoke a little about this, that we had an expectation of a greater first half and the second half of the year with low growth for a number of reasons. There are many variables, comparable base, planning, macroeconomic situation, which over 2025 for a long time, we saw consumers more under pressure, and we felt that in the end of the year. Now, things happened in line with our expectations, not exactly the same. The first half was stronger. We grew 15.6%, second half we posted about 4% increase. We got to 9.2%, which is very much in line with what we're expecting for 2026, was thinking about 9% to 13% for the coming years. But as Daniel said, for 2026, our year expectation is the reverse. For a number of reasons, we expect a first half growing less and the second half growing more. And one of the main reasons is inversion of the comparative base. We're going to have a stronger base in the first half and a weaker comparison base in the second half. So that already changes the expectation. And there are other reasons as well. Last year, we saw customers being under pressure, more and more under pressure because the interest rates were very high, were very long. And the expectation this year is okay, interest rates are already high. But the expectation is that interest rates will ease over the year. So the comparative base, the easing in our operational planning, put it all together, our expectation in that range of 9% to 13%. We don't expect equal quarters, of course. A first quarter, weaker second quarter, stronger, but growth along the year, along the quarters, as the quarters unfold. Fabiana Oliver: Next question coming from Vinicius Strano with UBS. Vinicius Strano: Two questions. if you could comment on how you're seeing price positioning of the company compared to the main competitors? And how is the customer perception regarding pricing in the Renner brand? How do you see this evolving? With inventory is improving, the company is generating a lot of cash. I'm just trying to understand whether you have any room for reinvesting part of the gains to increase commercial competitiveness to drive volume. My second question is regarding credit. If you could comment on how you see the expectations for Realize, speaking about the new cohorts of customers, your private label sales are slightly lower than historical levels. With declining interest rates, do you see -- do you expect a different demand? Fabio Faccio: Well, I'll start with the first part of your question, positioning your prices, Daniel will speak about credit and Realize. So here's what I can say. In our view, our price position is very adequate. We are very competitive. We have heard some complaints about promotional activity in the industry. I think that there are many players trying to adjust their prices and positioning. We saw some competitors at some points with very high prices, and we were very consistent in our pricing strategy. I think we have very competitive entry prices. Our model with the reduction of old inventories has allowed us to boost our gross margin, and this is very important to maintain competitiveness. Competitiveness in our positioning, of course, things are very fluid. Things are a living organism. The market is adjusting itself all the time. So we are always looking at pricing vis-a-vis our competitors, what matters for our shoppers. But I would say that on average, our prices are very much in line with inflation. And I think that customers do value that. We have seen consistent improvement in our NPS, focused not only on customer experience, but products. Our products are improving in quality, assertiveness, with greater price competitiveness. And the other part of the equation, we are growing in price. It doesn't mean higher price. It means lower markdowns. And that's very sustainable for us because it's a result that comes from greater efficiency rather than an attempt to gain margin by increasing prices. Our prices are very well positioned. Daniel dos Santos: Vini, speaking about Realize. Over 2025, we were very cautious in our originations. On one hand, this is reflected in the quality of the portfolio levels of delinquency of our portfolio. We do not believe in the short term in any change, we'll continue to be very cautious and prudent. When we look at delinquency levels in the market, there was a certain deterioration. If we consider the middle of the year and now which means that we will continue to be prudent and cautious. On one hand, this, of course, reduces the potential to expand the customer base and the portfolio. When we look at the loss of share of our Card, it's a reflection of that. We believe that as the macroeconomic scenario improves, we'll be able to increase our originations. On the other hand, it is what we mentioned in our Investor Day, which is the value proposition of Realize. We have plans to continue to strengthen that value proposition. One of the milestones is the new office room will be available in the second half of the year, and this will allow us to bring in other elements in the value proposition, which will allow us to combine a possible increase in origination with a better value proposition. This will allow us to recover the share of the Realize Card in Renner sales. Fabiana Oliver: Next question from Eric Huang with Santander. Eric Huang: I would like to address the digital channel. You mentioned it is an important driver of growth in the coming years. I'd like to talk about profitability. You mentioned that profitability is improving. So looking at the sales mix, how much more has the share of sales evolved on the channel? And what is the gap? Thinking about EBITDA margin of the channel versus brick-and-mortar channels. How is this evolving? That's number one. And my second question, a very quick one regarding performance of Renner stores in shopping malls, where international players are also going. There was a comment about that, that it kind of drove sales. I'd like to understand that. Fabio Faccio: Thank you, Eric. I'll start with the last one, and then I'll turn the floor to Daniel for your first question. As regards opening of international stores of international competitors, I agree with the observation of another player. Since these are few stores, in a large universe of shopping malls, when a new store opens, which is a novelty, of course, that brings foot traffic to the mall. But we're very competitive. Our performance in the shopping malls where these stores are opening, well, it's a good performance, a better performance. They haven't impacted us as for the profitability of the digital channel. Daniel dos Santos: Thank you for the question. First, our strategy is an omnichannel execution. So we aim to be very transparent in how we execute things. When we look at the digital channel, the digital channel, is one of the big advances we had in the period. When you talk about the cost of operating the channel. The investments we made and the centralization of all sales of the digital channel. In the Cabreúva DC that allows us to have a similar cost of operation today. The growth we have in brick-and-mortar stores or over the digital channel, this does not increase operational expenses because we have the cost to operate both channels operating in a similar way. This is the result of investments we made, and it's something that in the future will allow us to work with both channels without a concern of having expenses increasing related to one channel or another. Fabiana Oliver: Next question from Danni Eiger with XP. Danniela Eiger: My question is almost a follow-up question of what I asked in the last video conference call. I remember I asked you, what you were doing to go back to being the outperformer of the industry, as you always were. It seems that this quarter is pointing in that direction. You're talking about in-season reaction, it is a point that in Q3, you mentioned that you were not doing that. Could have done it. But I think it would be cool to understand the changes such as this one that can sustain in addition to the whole model, as you mentioned, in your positioning, you talked about colabs, and I remember Fabi talking about revisiting sub-brands of Renner -- and how the store is distributed and assembled. So my question is, trying to understand what you're doing in the operation itself, other than the model because we talk a lot about the model. But at the store level to sustain this overperformance because if we look at the 9%, you delivered in 2025, it was much driven by the first half. Of course, there was a customer base, get execution. But I'm thinking about what is it that you are building to overcome the difficulties in 2026? Fabio Faccio: There are many variables, you mentioned many of them that are very important. It is what we have been saying just the beginning of our investments in the evolution of our model. The expectation is that we'll have gradual gains, gradual improvement. We will continue to accelerate our gains over a longer period of time. And that's why we have a 2026-2030 cycle because we expect to have continuity of growth, margin improvement, efficiency gain in that time horizon for a long time. And there are many variables. We have the DC that we all see. The DC will bring about operational productivity, but also distribution assertiveness. We will be able to do something that was not done in the past. And as we do it, we increase efficiency. That is a gain. And our decisions are having speed to produce in season. We strive doing that in a more robust and efficient way. We gain assertiveness. And that's why we say it's a gradual process. We learn as we go and we implement and we learn. We don't go from 8 to 80. Because if we do that, we can have problems rather than productivity. We prefer to do it gradually. We see opportunities of new products, replacing markdowns by new products. This is not trivial. Some people are just trying to have new products, and some people are just trying to have markdowns. So how can we do this? But what kind of product we test, we see what works with this regard what doesn't work. The Renner brand more focused on fashion. It's not just the place to sell fashion. It's more of a brand fashion, a fashion brand, actually. And it's been more and more recognized by our consumers. So there's a whole array of actions that are very much coordinated. We have a lot of actions in product, distribution, fulfillment, operation, productivity, brand and customer journey. Putting it all together, that's how we expect to have a gain in productivity, efficiency, value creation with profitable growth in 2026 to 2030. That's why we announced our plan in that time frame. So it's the sum of all of these parts. Fabiana Oliver: Next question from Rodrigo Gastim with Itaú BBA. Rodrigo Gastim: Fabio would like to explore this dynamic, which I thought was interesting internal expectation in different first and second half. I'm not speaking about the quarter. I know you don't want to speak about Q1. It makes sense. I just want to understand because when we monitor Renner, when we look at the growth of the apparel segment, with a weighted average of the 440 stores that Renner has in different states, we see the debt of Renner, the market where Renner operate are growing almost 4 percentage points versus last year a relevant a significant acceleration at the beginning of the year. So I'd like to understand the logic of first versus second half of the year. But seeing this substantial acceleration of a debt and considering that you should not be losing market share. It's hypothesis, I'd like you to comment. My question is, can you really have a qualitative perception that is similar to what we see in debt? Fabio Faccio: Thank you, Gastim. As you said it yourself, since we gave you a guidance between 9% to 13% on annual basis, we are not going to be commenting on the quarter that is ongoing. We will make comments on the reported quarters. But in terms of the year, our intent here is to reinforce that never other quarter is the same. If we look at 2025, the full year that we are reporting on is a dramatic difference of growth quarter after quarter. And when we put together our plan and expectations for 2026. In the annual year, it's between 9% and 13%. It is what we expect for the year. But considering difference in the quarters, just like last year, when we look at our expectation and when we look at our plan, just this would explain the difference between half years and quarters. In addition, there are other factors. Last year, interest rates increased a lot and continued high. But this year, there's an expectation. I don't know whether it will materialize of declining interest rates, which should benefit the end of the year. And Daniel mentioned that we put pressure in the beginning of the year with a positive and necessary transition. And we are benefiting the end of the year with a more substantial number of store openings when we sum up all of the variables, we expect greater growth in the second half of the year, growing over the year and getting into that range, but with a lower growth in the first half. Rodrigo Gastim: Perfect. So to understand the rationale. It's very clear, actually. Since the first half, you have a comparative base, which is harder and using the low range of 9%. And that's my own analysis, okay, a mathematical perception. It is probable to have 9% in the first half. So double digit would be expected for the second half of the year, a difference between the half years with the most substantial acceleration in the second half. Is that what we should expect? Fabio Faccio: Yes. Yes, we're expecting weaker first half and a stronger second half. Rodrigo Gastim: Perfect. And Daniel if I may ask a quick question about buybacks. You created reserves with Q4 profits. Very much in line with what you have been saying. What do you use, Daniel, as a criterion to press the button of buyback? Is it share price or the moment of the company. I just want to understand the criteria. How do you define and you trigger the process of returning capital to shareholders, specifically with share buybacks? Daniel dos Santos: On on one hand, it's the composition of the balance of results, as you mentioned. The moment we disclosed Q4, we recompose it. We monitor share prices, and we have some good governance criteria regarding the percentage that we can purchase. We always try to have a cap of 5% and 10% of the daily volume. That's kind of the logic, the rationale we use. And that's the rationale we used last year, it will be very similar to the dynamic we will be using this year as we recompose our reserves we look at the share prices, and we will be executing the buybacks over the year. Fabiana Oliver: Next question from Irma Sgarz with Goldman Sachs. Irma Sgarz: About advertising -- advertising spending that dropped 17% year-over-year from what I understood, perhaps part of that comes from digital, where you generate more and more organic traffic. And perhaps you have more intelligence and discipline in spending. First, I'd like to understand what are the levers in addition to that one do you have or have you had in recent months? And any more improvements expected in that line item for 2026 and beyond? And related to that, because I don't want to disregard the 10% growth that you posted in digital, which obviously was great. But I'd like to understand how do you see the market? So digital market segments are growing at higher rates. Perhaps we cannot break it down to the apparel segment, but I'd like to understand, in digital, looking at the digital segment. You gained market share vis-a-vis the market as a whole. Perhaps you could tell us what you're thinking about balance of expenses? And growth in the digital environment. Perhaps you chose to grow 10%, you could have grown 15%. But then your profitability will be reduced. I don't know whether the question is clear, but that's the direction. Fabio Faccio: I think it is clear, Irma, I'll start with the end, and Daniel I will speak about expenses. When you talk about digital, I think that there are many ways of measuring it. We have been gaining share in our segment. We have seen -- we have been seeing a lot of more compressed margins, too much promotional activity on digital by some peers. And I think that your question involves the balance between market share growth and margin. Our strategy is to grow with profitability. We don't give up on margin. We're not doing a lot of promotions to grow in digital. We have been gaining efficiency and profitability in digital. Of course, if we had more promotions, we would have grown more. That's a direct relationship, but we believe that we can continue to grow. We can continue to gain market share with differentiated value proposition. We have to remember that our products are unique. There are ours, no one else sells our products. So it's not a price competition for the same product. We're betting all that. On our positioning, our power as a brand, our fashion power. And this has given us good results. We have been balancing growth and margin. We want to grow with profitable margins. This is what we are pursuing. It's our continuous pursuit. And perhaps to reinforce. When I answered the question by Eric from Santander, when he spoke about the omnichannel logic. Today, shoppers play in both channels. They can start online and up off-line and vice versa. And the integration of the channels is key to have a good balance of expenses. And to work well, not just the profitability of one single channel, but the whole picture. And this is a big challenge in our day today. And this is our strategy to gain productivity because at the end of the day, what matters to us is to grow the whole. And that's why we have that indicator of productivity per square meter. Daniel dos Santos: On digital Fabio mentioned, knowing how to work well on social media with the influencers, it involves a whole dynamic in the way in which we operate the on and off-line, which is key for our success. Of course, we look and see that the digital channel is growing more, and we're able to perform there. It leads to market share gains as a whole, and we continue to gain market share on digital. And it's kind of what you mentioned in the beginning of your comments. You kind of asked and gave us the answer. Because at the end of the day, the reduction in advertising expenses in the period is the result of this optimization. We continue to optimize investments in the digital channel. When we have more of our own traffic, traffic that comes from this social media strategy and influencers, we can reduce investments on digital, without giving up or hurting our competitiveness and presence on digital. It's part of our strategy. We will continue to evolve over the coming years because this is key for our competitive growth within this omnichannel logic. Fabiana Oliver: Next question from [ Ian Seskin ] with BTG. Unknown Analyst: I have just one question. You spoke a lot about margin levers or drivers that were very visible in Q4. My question is more on the logic of the pyramid of product assortment. What is the company's plan, mainly for entry-level products, given the scenario of more challenging consumption in Brazil? So what is your strategy regarding that? And do you expect you will sustain the strategy that we saw in Q4? Fabio Faccio: Very well, Ian. Thank you for the question. Here's what I can tell you. As we said, in entry-level products, I think that our prices are very competitive. We have an assertive positioning. Our product has good acceptance. A good value proposition for our customers. We have also seen in our middle of the pyramid core products that we are also very competitive. Anything that what is driving more margin gain and where we have more opportunity to continue to gain is with those fashion products. Shoppers come to us due to our fashion expertise, fashion knowledge with a very adequate value proposition. So these products tuned to fashion. And this also kind of becomes the middle of the pyramid. And this is the strategy that is bringing a lot of value and margin for the company. And when we speak about assortment, and that's where the opportunity lies. Well, of course, this is no dramatic change, but we have been seeing opportunities to add a few more products mainly in the end of cycles during seasonal transitions and weather changes, we bring something in terms of middle of the pyramid in fashion, trying to anticipate this. And this is bringing us good results. So in the pyramid as a whole this brings about an opportunity of a slight increase in average price, not a specific price or specific product and the entry-level products are at a very competitive level. Fabiana Oliver: Next question from Joao Soares with Citi. Joao Pedro Soares: I have some quick questions. I think it's very clear in terms of sales dynamic over the year, but Fabio. I'd like to do some mental exercise with you on the 3 main moving parts. When we think about volume, ticket and price. Just so we know what will move the needle? Because last year, we had a strong volume base. The whole industry suffered. We saw that in data of the segment. So what are you thinking about this? And this is also a relevant point here. If we have declining interest rates and you go back to the original origination level, this will help our analysis. Is this going to happen in your expectation? If we have a more hawkish interest rate cycle, could this impact your outlook? Fabio Faccio: Sure, thank you for the question. I think that, yes, it's a sum of everything. When we speak about the outlook for the year, there is the base effect, which is relevant. If we look at last year growth, it's very different. So the base effect is important. And there's also the element of interest rates when we start having an easing of interest rates, we put less pressure on consumers and to have a greater ability to pay and with a lower risk environment. It's a virtuous cycle. When for a long time, you have a lot of pressure that worsens ability to pay. But when you are easing, you improve everything. In a lower risk environment, you can go back to granting more credit, and this will lead to more sales. Our expectations while interest rates will start declining over the years. So in addition to the base, we have higher expectations for the second half of the year. And Internally, we opened a lot of stores in the end of 2025. These stores will gain productivity. We'll know more about their customers over the year, and they will trend up. And so we expect an improvement in the second half. And then we'll be adding more stores this year. If we think about average growth in 2024, it was basically net 0. In 2025, average area growth was about 1% with 1.8% in the end of the year, which kind of drags this to 2025 in the average area growth, when we speak about 50 to 60 stores expected, it's about 3% on average this year, getting to 4% in the end of the year. All of that, the last year's stores and the stores we're going to open this year will all help the second half of the year. So these are the three main moving parts. The base, the easing of the interest rates, and operationally speaking, we'll have more power coming during the year, mainly more towards year-end. Joao Pedro Soares: Excellent. And if I may, touch on another point. It has to do with what you disclosed in the Investor Day of 50% of payout. In your opening remarks, you mentioned that it could be higher than that. We see that you have a new buyback program, you have a cash position that is very strong. And thinking of what you distributed in 2025, it was above the guidance that we expected. So it seems we have this impression that in 2026 you should go over the cap because you're well positioned for that. Just want to be a little provocative regarding that, Daniel. Daniel dos Santos: So I think what matters is, let's analyze 2025. As I mentioned, we used the reserves of prior years. We started the year with 0 reserves. And we will recompose reserves with the Q4 results. As we explained in the Investor Day, the rationale. The rationale is I'll seek to distribute our reserves as they are recomposed. In looking at our cash generation, limited to what we consider minimum cash internally. If we create more reserves and if this is coupled with a good cash flow generation, we have the potential to be able to exceed the cap of the guidance, which is what I mentioned, the guidance is a guidance. It's a range, but it's not a limiting factor. If we have better cash flow generation, we might distribute interest on capital. It will always have a priority given the tax advantage. We can supplement that with a share buyback or perhaps an extraordinary dividend payout. That's kind of the dynamic, but we'll have to see how this will evolve during the year. If we have more cash flow generation, we might exceed the cap, the upper range. Fabiana Oliver: Next question from Andrew Ruben with Morgan Stanley. Andrew Ruben: Thanks very much for the question. Two topics from my side, please. First, you mentioned the consumer pressure from reduced purchasing power, but I'm curious if you're seeing any type of divergence in your stores that cater more towards higher income consumers versus lower income. And then second, curious also for Street versus non-Street stores. Any differences you're seeing in performance? And also as you look to the opening plans for this year, how you're looking at mall versus street stores for the plans. Fabio Faccio: Thank you, Andrew. As for the first part of the question, I would say that we haven't seen any dramatic change in consumption in recent months. Second half posted lower growth, there's a base effect, consumption effect, but -- the habit of shopping seems to be very similar. Unlike other types of retail, we have identified opportunities for fashion products, products with an added value that are selling well with good margins. Now obviously, purchasing power is under pressure, whereas the growth would have been a lot higher. And I think the easing of the interest rates -- easing cycle of the interest rate might help with that. But I would say that we expect or we saw some stability in the past few months. And as for performance of cities in -- in smaller cities. I'm not going to talk about street or non-street shops. But street is in midsized cities, as Daniel mentioned. They're performing really well. We are performing as expected or slightly above our plans. And as we mentioned in the Investor Day, above similar cohorts of the past, where we have stores in shopping malls and bigger stores. And this is due to lower costs and lower cost, as Daniel mentioned, and the lower cannibalization because we're opening stores in virgin cities. So there's a faster acceleration. And there's improvement online. So it's bringing 10% more sales online in those cities or else the brick-and-mortar stores would be selling even more. So we're happy with their performance. They are performing better than past average. According to plan or slightly above on average and with opportunities for improvement. Because all the improvement we have seen in fulfillment will helps us understand the type of consumer, type of shopper in that city, and that improves fulfillment illustrativeness. In smaller stores, it's going to be even more important. So we're happy with the evolution of our model. And this is the best timing to accelerate after opening expansion. We're accelerating to open 50 to 60 stores in total of the brands. Renner, 22 to 30. Youcom 23 to 25 and about 5 Camicado stores and our expectation. And we'll speak about this in a year's time, okay? But our expectation is that perhaps in 2027, we'll open even more stores. And just to speak about shopping mall and street stores. In the different cities, we have to analyze the potential of the city qualified demand, and then we'll look for the best location. It might be in a shopping mall, it might be a street store. So there is no rule written in stone. It will depend. It will vary city by city. In larger and bigger cities, we are normally present in shopping malls, okay? Fabiana Oliver: With this, so we are ending our Q&A session. Additional questions that were not answered can be sent to our IR team. I'll give the floor back to Fabio for his final statements. Fabio Faccio: Well, our conclusion regarding 2025 full year is that we are ready for the 2026-2030 cycle. We know what works. We also know where we have room for improvement. We are confident in our strategy and the quality of our team. We have focused on delighting our customers and creating consistent and sustainable value to our shareholders and other stakeholders. Thank you very much for joining us today. Fabiana Oliver: Thank you. Have a great day.
Operator: Ladies and gentlemen, welcome to the Lufthansa Group Q4 2025 Results Conference Call and Live Webcast. I'm Moritz, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Marc-Dominic Nettesheim, Head of Investor Relations. Please go ahead, sir. Marc-Dominic Nettesheim: Yes. Thank you very much. And also from my end, a very warm welcome, ladies and gentlemen, to the presentation of our full year results 2025. With me on the call today are our CEO, Carsten Spohr; and our CFO, Till Streichert. Both of them will present the results for the past year and discuss our commercial outlook for 2026, and afterwards, as always, you will have the opportunity to ask questions. [Operator Instructions] Thank you very much. And with that, Carsten, over to you. Carsten Spohr: Yes. Thank you, Marc, and a warm welcome from me as well to this full year '25 conference, which I think will start in a little bit of a different tone, not because it's our famous 100-year celebration this year, which makes it a special year for us anyway. But while we were focusing on this to a certain degree, obviously last weekend when everything was changed again. So maybe I'll share with you a few thoughts on where we are when it comes to the situation at the Gulf first, which is, as you know, very dynamic. And of course, with a few thoughts on the whole year before I hand over to Till for more details and expected by you feedback on our numbers. And of course, also, we'd like to give you a view ahead as much as possible in such a dynamic environment. On the Gulf situation, like many of us, I would assume, we're a little bit surprised by the various dynamic turns this takes. In the end, our crisis management always asks us for safety first, which, in our case, meant we stopped flying a day early to the region, which also allowed us to have hardly any aircraft on location because we brought them home before. We then brought our crews home and then went into the next phase of our management of the situation by deciding to close 10 destinations initially, which included Larnaca. We are opening this next -- this Saturday, again, we'll keep the others closed for probably a few more days at least to remain. I think there's more and more now doubts. This is a question of days of reopening or was it weeks, we prepare for both, and we'll take you through this in the Q&A session, if required. Second, of course, big impact spike on fuel prices. Till will come back to that. We actually believe, due to the fact that we are hedged higher towards our main competitors, actually only other airline hedged the way we are is Ryanair with which who, as you know, hardly overlap, should give us a relative advantage where now prices in the markets need to go up to cover for higher fuel prices, especially, of course, for our American competitors and partners to more or less are not hedged at all. Third, extension or extra sections to be flown to markets beyond the Gulf. We have seen huge demand since day 1 for bookings coming in from Asia, to Asia, also South Africa, also very much in China towards Beijing and Shanghai. So we now decided to put extra sections into the air with spare aircraft we have due to the cancellations, spare crews we have and also by the fact that we're still in the winter schedule which doesn't put our fleet to the max. So we already announced quite a few extra flights to Bangkok. There will be more coming to Singapore, to Shanghai, to Cape Town, and to India, which will probably confirm the course of the last day from our revenue management teams that we have record inbound bookings, especially to those regions I mentioned. And that will allow us probably give also later on to a more positive outlook on the commercial output, at least of this initial phase of this crisis than we otherwise would have been able to do. Last but not least, the mother of all questions probably for European airlines. How much is the situation changing the view and the behavior of travelers, customers on this obvious Achilles' heel of geopolitical topics beyond aviation but surely in aviation. So we all -- I think we, the Gulf carriers will reopen eventually but how our traffic flows, how are cargo flows being directed in the future based on this terrible experience locally, I think is the mother of our questions for our industries, and we're sure we'll be discussing that later on. With that, let me, nevertheless, take you, of course, now back to '25, which, as you might recall, we have called a transition year from the very beginning. Various topics in the pipeline, we have addressed to you before, and of course, happy to also discuss today. Overall, the turnaround of the Lufthansa Airline remains our utmost priority. As also mentioned in the former quarterly result sessions, starting from operations. We have seen significant improvements, which also allowed us to reduce our flight irregularity costs by 43%, equivalent of EUR 362 million, significant input into our improved numbers of '25. And overall, also, we were quite cautious with our capacity increase, which only resulted a 4% or a little less, even 3.8% growth by lifting our revenues to a new record of EUR 39.6 billion. Nevertheless, of course, we're able to improve our profits, as you know, to at least by 19% compared to '24. This is a delta of EUR 350 million, far away from where Till and I want to take the company, talk about the 8% to 10% margins, but at least a step in the right direction and especially when it comes to the core airline operational stabilization was the basis for everything to come. We once again saw strong earnings contribution from MRO and Logistics. But for us, important that also in the core of the core, we are moving forward. We also have seen the first but only the first positive impacts of our fleet modernization and the associated product improvements. As you know, we finally were able to certify our Allegris seats also the 787, which is a big part of the 23 new aircraft deliveries we received. As a matter of fact, 7 of these 23 were 787 with now more or less all certified seats across all classes. That fleet alone, Boeing 787 will grow to 32 aircraft by the end of the year, '27 will have a significant impact on our modernization. Allegris, our new product in Lufthansa and SWISS Senses are now underway out of 3 hubs: Munich, Zurich and Frankfurt. Not only we are receiving very positive feedback but maybe more important for you in numbers, we have been able to achieve 12% higher yields for Allegris than for the former business class. To give you an example on business class, that's a big element of bringing up our ancillary revenues, which already went up 15% last year. And I'm pretty sure we'll show you some good numbers for '26 a year from today. Overall, that, of course, forced us to discuss how much we want to make sure that shareholders already participate from this improvement. We decided to increase the dividend by 10% to EUR 0.33 per share, which is a 10% increase, resulting in a dividend yield of 4% and a payout ratio of 30%. With that, let me turn to the traffic regions. I think we all remember Liberation Day last spring, when there were doubts about the development of the North Atlantic, it turned out as expected that the North Atlantic remained strong. And by the way, continues to do so. We'll come back to that later. And we managed to expand and sell capacity on this most profitable market segment of ours by 5%. In the fourth quarter, with an overall capacity growth of roughly 4%, we even managed to slightly increase unit revenues on a currency adjusted basis, which was clearly a trend reversal to the demand situation we saw in Q3. Going forward, I think the backbone of North Atlantic will remain but I think it's already fair to say we will see an increased shift of point of sales to the U.S. This stage where American customers tend to book earlier than European customers in Q3, in Q2, we are almost at a 60% above share of point-of-sale U.S. and obviously below 40% in Europe. Again, due to the later booking patterns of Europeans this will shift a little bit. But again, I'm convinced the trend of last year where we grew our American passengers by 10%, and our European passengers only by 1%, will probably result in even stronger dynamics this summer. Second largest intercontinental area for Lufthansa is not anymore China but by now India, which is also obviously one of the fastest-growing aviation markets in the world. We signed a partnership agreement with our long-term partner, Air India, following just a few weeks after the EU and India had concluded a new trade agreement. We, in this case, includes not only Lufthansa but the German economy, the German business environment, are quite positive and bullish on India. And of course, Lufthansa Group wants to be part of it. But also in South Korea and Japan, where we slightly increased capacity, along with demand, we were able to bring up profitability. And that is also true for South America, which, as you know, becomes more important for us also due to the fact that with IATA, we were able to double our capacities to Argentina and Brazil. The idea for '26 is to grow 6% on intercont and more or less stay flat on cont. And as I said, this, of course, does not include our recent extra sections, we are now in the process of offering. So these numbers, of course, are based on the regular flight pattern, which probably will change due to the short-term demand we are trying to take advantage of. Nevertheless, focused growth will remain our fundamental principle. We've seen the upside of this '25 and we'll probably see more of this in '26. Coming to the next slide. Let me talk a little bit about our obviously unique business model based on the fact of not having the same home market as our main competitors in Paris and London. We will be even more focused on the 4 business segments, and we'll also show them now also in our financial reporting with the 4 strategic pillars we know. Network Airlines will continue to be our core of the core by 70% turnover share. Of course, with Lufthansa Airlines being the biggest part of it. But we will also now be more transparent on our success in the point-to-point business where Eurowings is continuous, not only going strong to defend our non-hub home markets. You all know this is the utmost priority for Eurowings historically, we also see due to the fact that other airlines have been leaving Germany due to the high cost structure, additional market opportunities on the leisure side, we are continuously exploring. Third pillar, Logistics. Not surprisingly, the more unplannable the global economy is, the better for cargo. We've seen a good year in '25. Till will give you more numbers on in a minute. And already, the way things are starting now after the Chinese lunar year with a complete mix up of traffic lanes and supply chains due to the situation at the Gulf, we're probably looking at a good year here as well. And on top of that, new consumer behavior when it comes to e-commerce, I think combined, will make this big. This is a strong part of our company to come. That's even more true for Technik. We all have discussed with you before that '25 due to tariffs, there has been a little bit of a slowdown of our increase of margin and profits, which we don't expect to see again in '26. And obviously, the more or less new part of the Technik business being defense will probably also get more headwinds -- sorry, tailwinds, tailwinds from the unfortunate military developments in Iran over the last days and more to come. So I'm sure we'll be talking this -- we will be talking about this rather more than less in the future. Till with that little call it, 360 and almost hourly dynamic situation where we are, I hand over to you and talk to you in a few more minutes with some outlooks on my side on the strategic path before we are ready for your questions. Till Streichert: Yes. Thank you, Carsten, and also a warm welcome from my side. Exactly as Carsten said, I'll deal with the 2025 looking backwards. And then, of course, looking into 2026 and commenting on our outlook and then Carsten and I will try to answer your questions, in particular, to 2026 as much as we can in the best possible way. But let's first get 2025 out of the way. So 2025, as you've seen, revenue increased by 5.4% to EUR 39.6 billion, enabled by disciplined capacity growth of 3.8% of our Passenger Airlines, strong third-party revenue growth at Lufthansa Technik and as well continued strong demand for air cargo. And while costs developed in line with expectations last year, the cost increases continued to weigh on our P&L, such as a 10% increase in fees and charges or also a 40% increase for emission certificates last year. On the positive side, we did benefit from a lower fuel bill in 2025 and that was EUR 514 million lower than the year before. Overall, adjusted EBIT increased by EUR 350 million to EUR 1.96 billion and our adjusted EBIT margin improved to 4.9%. Please note, due to a one-off tax valuation effect, our positive EBIT development did not translate into a higher net income. Adjusted free cash flow amounts to EUR 1.2 billion, and this is a significant improvement, and this significant improvement was driven by the stronger adjusted EBIT, tax reimbursements and a slightly lower net CapEx. Turning now to our Passenger Airlines. The segment surpassed last year's results despite a challenging environment. Adjusted EBIT increased by EUR 41 million, supported by favorable fuel prices, a significantly lower irregularity impact and a positive earnings contribution from IATA. We are especially happy about Lufthansa Airlines adjusted EBIT improvement of around EUR 250 million. And this reflects the positive impact of the turnaround program. And across all our airlines, capacity grew, as mentioned before, 3.8%, with growth being primarily deployed to the North Atlantic and Continental routes, reflecting the strategic importance of both markets. In the second half of the year, we shifted capacity growth towards intercont markets while streamlining cont traffic. Seat load factor was at 83.2%, slightly higher than 2024 and with a clear momentum towards year-end. As anticipated, yields came under pressure, particularly on short haul and parts of long haul. However, I want to highlight that in our important North Atlantic traffic, unit revenue increased in the fourth quarter by 2.1% on a currency-adjusted basis, confirming the resilience of the demand. Moreover, yield weakness was, to a large extent, compensated by strong growth in ancillary revenues, up 15% for the full year as well as significantly lower irregularity related compensation cost. On the cost side, we have improved our performance throughout the year, while ex fuel CASK still increased by 3.6% in the first half of the year. The increase in Q3 was only 0.5% and the Q4 CASK was almost flat to prior year. This impact of our turnaround measures is important given the ongoing substantial cost inflation in fees, charges and personnel costs. As mentioned before, Lufthansa Airlines is of fundamental importance to us. So I'm happy to report progress. In its turnaround program, we achieved measures with a gross earnings impact of more than EUR 500 million, a clear confirmation that the turnaround is gaining traction. Looking ahead, we expect to measure volume to increase to EUR 1.5 billion by the end of 2026 and to EUR 2.5 billion by 2028. As communicated in our -- on our Capital Markets Day, we are targeting a high single-digit adjusted EBIT margin by 2028 to 2030 for Lufthansa Airlines. The key building blocks of this trajectory are clear: The continued renewal of our fleet, productivity improvements and the combined power of many other initiatives of the turnaround program. On fleet, we expect the Allegris share of the Lufthansa Airlines wide-body fleet to reach as much as 50% by the end of the year. This goes hand-in-hand with an improved yield level, we currently see a 12% RASK uplift from Allegris. On productivity, we will shift further 14 aircraft into our more cost-efficient AOCs, Discover Airlines and City Airlines, City Airlines has recently taken up operations out of Frankfurt and will operate 18 aircraft by the end of the year in total. Discover will operate 32 aircraft, including four A350s. Combined with further measures to improve cockpit and cabin staffing, this is expected to increase crew productivity by about 7% in 2026 compared to prior year. On our 700 turnaround initiatives, let me just comment on some of them. One example is ancillary revenues where we expect a further push driven by the prominent placement of additional services as well as the consistent monetization of the Allegris seating options. Our new cont fare structure will lead to a more personalized offer with the aim to increase customers' willingness to pay. And on the cost side, we will increase operational efficiency and hence, achieve a further reduction as well in fuel consumption. All of this improves financial performance. And in 2026, we expect that we can limit the increase of the Lufthansa Airlines ex fuel CASK to a maximum of half the annual rate of inflation. Moreover, it is noteworthy that this unit cost increase is fully driven by premiumization, hence an investment into value creation for both our customers and ultimately, our shareholders. Ladies and gentlemen, structural improvements do not only apply to our mainline, we also focus on digital transformation on a group level. Let me briefly touch on the progress of our One IT program. One IT is a group-wide transformation program and its aim -- its aim is to move toward a completely unified IT backbone, a common data and AI foundation and an integrated operating model under the recently founded legal entity Lufthansa Group .IO. The objective is clear, structurally lower IT costs while unlocking digital business value. And I'm pleased that already in 2025, the launch year of the program, One IT delivered its first tangible financial contribution. We realized more than EUR 50 million of IT cost savings through quick wins such as contract renegotiations, sourcing optimization and application rationalization. In 2026, One IT will focus on the implementation of structural changes followed by scaling on in 2027. The program targets in total about EUR 200 million of sustainable annual cost savings by 2030. This IT transformation will also enable significant additional business, value for example, ancillary revenues, personalized advertising or cost improvements and customer servicing. And this is why One IT is not only a cost program, but a core enabler of value creation across the entire group. Let me now turn to our Logistics segment. Lufthansa Cargo once again delivered a strong performance in 2025, demonstrating that the business is well positioned in the post-pandemic air freight environment. The revenue growth of 4% was driven by a 5% capacity increase as a result of one additional freighter and increased belly capacity. Strong demand was driven by Asian e-commerce, semiconductors, aviation components and pharmaceuticals, all of them high-margin verticals and therewith putting them into the focus of Lufthansa Cargo. Lufthansa Cargo delivered an adjusted EBIT of EUR 324 million, representing a 29% improvement driven by higher volumes and improved load factors more than compensating a decline in yields. On the cost side, Lufthansa Cargo showed a strong performance, ex-fuel unit cost decreased by around 6% and main drivers were here, lower charter expenses, IT cost reductions and improved crew productivity through optimizing network planning. Looking ahead, we expect for Lufthansa Cargo a clear earnings increase in 2026, building on a disciplined execution of its strategy and the strong market position in special cargo and premium products. Turning to our MRO segment. Lufthansa Technik achieved a 12% revenue growth, with total revenue exceeding EUR 8 billion for the first time, driven by a 23% increase in third-party business. While this was an exceptional top line development, adjusted EBIT amounted to EUR 603 million, broadly in line with the previous year. And this result was achieved despite sizable external headwinds. One of those headwinds came from foreign exchange developments, while the weak U.S. dollar had a net positive effect for our airlines, Lufthansa Technik was impacted negatively with a mid-double-digit million euro earnings effect. Lufthansa Technik was also affected by the U.S. tariffs on aluminum and steel impacting the results by roughly EUR 30 million. But please note that this was already significantly lower than originally assumed due to the swift and successful implementation of mitigation measures. These measures included adjustment to the production flows, renegotiations with customers and optimizing customs processes. These steps contributed to an earnings recovery in the fourth quarter and we expect that the negative effects will diminish further in 2026. In parallel, Lufthansa Technik continued to expand its global footprint. New or growing facilities in Portugal, Tulsa, Calgary and Malta will contribute to substantial capacity additions, particularly in the engine segment. And in 2026, we expect earnings at Lufthansa Technik to increase significantly, supported by normalization of tariff impact, continued growth in the engine segment and the benefits of the commercial initiatives already underway. Turning now to cash flow. 2025 was a year of significant improvement for the group, both in terms of cash flow profile and resilience of our balance sheet. Operating cash flow increased to EUR 4 billion, driven by higher earnings as well as a tax repayment from a German tax audit. CapEx includes the final payments for 23 new aircraft, of which 9 were wide-body aircraft. This was partially offset by 19 sale and leaseback transactions and net CapEx stands at EUR 2.5 billion and is therefore slightly below previous year's level and also below our expectation at the end of Q3 due to a delivery shift of 4 wide-body aircraft into the first half of 2026. And adjusted free cash flow reached close to EUR 1.2 billion, which represents a meaningful increase of EUR 350 million. Looking at our balance sheet. The combination of strong operating cash flow and disciplined investment led to a significant strengthening of our liquidity position, and we ended the year with liquidity of around EUR 10.7 billion, above our target corridor of EUR 8 billion to EUR 10 billion. And we expect this liquidity position to return to the target corridor -- into the target corridor by year-end 2026 as we use these available funds for aircraft, invest and payments. Financial net debt increased to EUR 6.4 billion, mainly driven by the capitalization of leases. And when including our net pension position, total net debt remained stable year-over-year. And as our profitability increased, our leverage ratio improved to 1.8x. We continue to be solidly positioned with an investment grade credit rating and ample financial flexibility to support our fleet renewal and growth plans. Now let's talk about fuel prices, which is, of course, on top of everyone's mind right now. So fuel costs developed favorably throughout 2025 and amounted to EUR 7.3 billion in line with guidance. For 2026, our fossil fuel bill estimate is around EUR 7.2 billion, thereof EUR 7 billion for fossil fuel and EUR 0.2 billion for mandatory SAF. All figures as of last week Friday. These numbers represent a tailwind of approximately EUR 100 million versus 2025, predominantly driven by the weaker U.S. dollar. And as you know, our hedging strategy continues to provide protection against volatility while also allowing us to benefit from price declines. And for the Passenger Airlines, we have already hedged around 82% of our fuel needs for the remainder of 2026. Since last Friday, we have, of course, seen a substantial increase in the jet fuel price, resulting from both higher crude oil price as well as higher jet crack. I will comment on this in more detail in a minute when we talk about our full year earnings outlook. So let's go there. And speaking now about our outlook for the current financial year. This is obviously not easy given the events in the Middle East. On the one hand side, I see the strength of our group and the progress we make in executing our strategy in all the dimensions and also in all the dimensions that we can control. On the other hand, I see what's happening around us and this does have an impact as well on our financials. The bottom line impact will depend on which effects are outweighing the others and also on whether those effects will change subject to the duration of the current situation. Being in this situation for only 6 days by now, obviously, does not provide us with sufficient hard data points to draw final conclusions for the rest of the year. But of course, we have data points from the first couple of days, which we were going to talk -- which we are going to talk about in a minute. Let's go through the building blocks of our outlook. We plan to increase capacity by around 4% and here also in a disciplined way. Clear focus will be on intercont routes where we expect to grow in mid- to high single-digit range while cont capacity will be broadly unchanged. I do expect cost inflation to persist but it will be partly offset by our transformation programs and the ongoing fleet modernization. And on this basis, we expect adjusted EBIT for 2026 to be significantly above the 2025 level, consistent with our commitment to delivering sustainable profitability improvements. Now let me put this into perspective of the Middle East crisis, and let me describe to you what we are currently seeing. One slide before, we've shown you a fuel price forecast based on last week's Friday, and that is the way we always presented to you each quarter, including also the fuel sensitivity, the fuel matrix where you can go along the axis and get an idea how things can move. Now since then, fuel prices have increased and taking a short-term perspective, just for the next 2 months, current fuel price levels mean about a 20% to 25% higher fuel cost for March and April compared to the underlying figures reflected in our EUR 7 billion forecast for the full year. However, for March, the impact -- and again, that's normal, for March, the impact will be further limited as about 60% of our physical settlements for fuel are priced at the prior month level. This does give us additional time to also adjust our revenue management approach. Having said that, broadly, in terms of fuel dynamics, we don't believe that fuel price levels remain in the long run where they are right now. Then we also have impacts from flight cancellations. Since 28th of February, we, of course, have stopped flying into the region. These are 10 destinations. And overall, to give you an idea, Middle East traffic would have represented about 3% of our capacity in the first quarter. For comparison in 2025, it was just about 2%. So you can see that the overall impact is somewhat limited. We estimate about a EUR 5 million earnings impact per week from those cancellations based on lost business and cost of care. On the other hand, we are also observing positive earnings effect. And firstly, since last weekend, more people have been flying with the Lufthansa Group Airlines instead of connecting via the Gulf hubs. Since the weekend, additional bookings on our Asia and Africa routes have by far overcompensated the cancellations we've seen on our Middle East routes. Over the past days, revenue intake for departures in March was about 60% higher than last year. Global net revenue intake for the full year during those days, was more than 20% higher than last year, indicating a positive impact in booking intakes also beyond March. We expect this situation to persist as long as the hubs in the Middle East cannot be fully serviced. Secondly, many people are currently changing their travel plans in the short term. And on this topic, we see the possibility that travel patterns might also change for longer. Potentially persisting -- potentially persisting security concerns around the Gulf region might also lead to more traffic within Europe or through European hubs or U.S. destinations. Thirdly, with more than 80% hedge ratio, we are hedged to a higher degree than many others. This provides us with a relative advantage, especially compared to those who are not hedged at all. And fourthly, a large part of the airfreight capacity in the Middle East is currently affected, about around 18% of global capacity is not available at the moment. This means that also cargo streams are shifting. And Lufthansa Cargo has observed an increase in demand over the past few days. Moreover, we've seen rise in cargo yields of 5% worldwide and plus 35% in the Middle East and Asia over the past few days, even a further yield uplift from these markets is conceivable. More longer term, we might also see more shift from seafreight to airfreight when things are time critical. Therefore, for me, the conclusion or the message is kind of clear. We do control what we can control, and we are obviously closely monitoring what's going on in the world right now. And even in the light of the current situation, we are convinced that we can significantly increase our adjusted EBIT in 2026. However, let me also be clear, the range of uncertainty has increased and there was also the range of possible outcomes. Let's now go back to what we control, that's our CapEx. Our CapEx outlook. Net CapEx is expected to amount to around EUR 2.9 billion, reflecting the planned delivery of up to 45 new aircraft. That's the largest single year fleet expansion in our company's history. And adjusted free cash flow is expected to be around EUR 0.9 billion slightly below last year due to the higher investment volume. We expect 2026 overall, to be a year of continued progress for the group on our path towards our midterm targets and our businesses are well positioned and on a clear trajectory towards long-term value creation. And on that note, knowing that, of course, 2026 will be at the center of our discussion, I believe. I'd like to hand back to Carsten for further remarks on the strategic outlook. Carsten Spohr: Yes. Thanks, Till. And just a few words on, indeed, how do we look into the future, of course, based on what Till and I communicated at the Capital Markets Day back in September, where we announced our medium-term financial targets, you are well aware of by now, centering around 8% to 10% adjusted EBIT margins. First, lever of -- the 4 key levers I'd like to address is obviously airline growth in a profitable way, which means for us more long haul than short haul. We actually want to grow the intercont fleet to 200 aircraft while we keep the short-haul fleet more or less flat. The additional required feed will be provided by coordinating our hub traffic in the future, centrally over all 6 hubs, which will give us a higher share of feed passengers to intercont destinations rather than short-haul to short-haul. At the same time, we're, of course, leveraging the One Group approach beyond this example. We do see a 3% margin uplift from fleet and new premium alone but there's also elements of the loyalty ecosystem and the ancillary push, which will pay into our midterm targets. Last but not least, the so-called One IT, where we're harmonizing the IT network, at least across the 6 hubs in many regards, even beyond our hub and Network Airlines is another example of this second lever. Third, airline cost transformation. Operational excellence focus in '25 has provided the stability I quoted was -- mentioned to you before. Now starting in '26, efficiency will be higher on the priority list. And we do believe, including more modern aircraft, including, of course, lessons learned, and finally, enough staffing at the European and especially German hub airports, we will be able to show that we keep our unit cost despite cost inflation flat in '26 as we already did in the fourth and last quarter of last year. Another element of this will be the fact that we grow fastest in those airlines with the best cost competitiveness, thinking about Discover, for example, and Lufthansa City Airlines. Yes, and last but not least, the so-called fourth lever is the additional focus on MRO and cargo. You know our Ambition 2030 program in Cargo, by which we want to achieve EUR 10 billion of revenue with the 10% EBIT margin by the end of the decade. And also in Lufthansa Cargo probably supported by the recent developments in the Gulf, we are looking to claim the top 3 position globally, again, coming out of top 5. Last but not least, defense was already mentioned, and we strongly believe, again, with current affairs probably creating a tailwind here that defense will be a very stable and highly profitable part of Lufthansa Technik to a higher degree. Last but not least, let's talk about a little bit more about maybe the single most important lever and most impactful lever we have, our fleet renewal. You're aware we're taking -- we're in the middle or at the beginning, if you might say, of the largest ever step towards a more modern and productive fleet. We expect 45 new aircraft this year alone, more or less 1 per week, and there is an unheard number of 27 widebodies among them. That will bring us to a new tech quota across the whole group of 1/3 with obviously resulting cost advantages and productivity gains. Also, we see some light at the end of the tunnel of the Pratt & Whitney engine issue. As far as it looks now, we'll be able to bring down the number of grounded aircraft to less than 10, which is 30% less than last year. Coming to an end, getting ready for your questions, you might share my view that the Lufthansa brand is an iconic brand in our industry for many, many years now, celebrating our 100 anniversary today. No doubt, we intend to maintain this in the future. And part of that must be the further improvement of the customer experience and be an example of Starlink, which we are looking to offer to our customers as of Q2, be it new lounges in almost all of our hubs and flagship lounge to be opened soon in JFK, where all of our group airlines or more or less all of our long-range group airlines are serving the airport at least once a day, where overall, the further integration of IATA creating more synergies is a step towards that product improvement for our customers. So overall, again, with all the uncertainties existing, we're looking optimistically into '26, and now -- look forward to your questions and comments. Thank you very much. Operator: [Operator Instructions] And the first question comes from Jaime Rowbotham from Deutsche Bank. Jaime Rowbotham: Two questions from me. Firstly, Carsten, I wanted to ask about these puts and takes, pros and cons of the current unfortunate situation. Till did a great job of running through some of them. Interesting to hear bookings to Asia Africa over compensated for cancellations to the Middle East. I just wanted to focus it maybe on the transatlantic, given it's so important for you, your U.S. competitors aren't hedged, so they are likely raising fares and hopefully, you can follow that a bit. At the same time, though, I wonder if fares are going up at just the wrong time in the sense that some people might be nervous to travel at all, which could have a downward impact on demand. Maybe you could just flesh out either what you've seen so far or what you think happens next insofar as that's possible. Second one for Till. Thanks a lot, for clarifying what might happen to fuel for March and April. I just wanted to ask, if possible, about the full year. So on the fuel slide, you tell us you as of last Friday, $71 for Brent, $26 for the crack spread to get to EUR 7.2 billion. Obviously, Brent now $88 and the crack spread about $100 a barrel. So it's costing more to refine than to buy the oil. Hopefully, that won't last. But the forward curves are pointing to a scenario that's not even covered by your sensitivity table where the jet crack part on the x-axis could double or triple versus what you show. You also mentioned in the footnote, the hedging you've got is part on gas oil and part on Brent, so you don't actually have the crack spread hedged. With that in mind, have you had a chance to do any scenario analysis on what a mark-to-market type fuel bill might look like for all of 2026? Till Streichert: I'll go second first and then maybe on the puts and takes, Carsten, if you want to add a little bit. So Jaime, absolutely. I mean, this is top of mind question how this is going to evolve. And you are quite right in terms of hedging. We've got a split and you know that we usually hedge blend with about 35% and gas oil as a proxy for jet crack with about 50%. And it's true that, obviously, jet crack has moved up. You can almost say off the chart of our fuel matrix on the right-hand side. So here, I would just highlight, and again, mathematically, you can calculate all of that, and we have done that. And the impact, obviously, if you would imagine that it stays for the full year is of size. On the other hand side, I also don't believe that this situation will going to stay there for a long time. And you can see also, and I'm sure you've looked at the volumes that have been traded driving ultimately the crack price, the crack spread. It's on very low liquidity. And therefore, there was -- I would also say a bit on the back of what President Trump yesterday evening said to possibly also escort tankers through the Strait of Hormuz. Ultimately, I do believe that this is not going to stay for long at these levels. And of course, leading now into the other side of the equation, it's true that the hedge levels do we have give us a solid upward protection. And of course, this differentiates us versus others that follow a non-hedging policy. And therewith, I do expect that also yields also or in particular, on the North Atlantic have got the potential to go up and increase. Carsten Spohr: Yes, Jaime, Carsten here. I think you already kind of put it in your question. There are pros and cons, and I think it's very difficult right now to quantify them exactly after just a few days. Again, cost of cancellations exist, probably like EUR 5 million per week is our best estimate. But at the same time, as you pointed out, we have a relative advantage on the fuel cost on the one hand. I think there's also historically a certain move of bookings towards highly trusted brands in times of crisis, we are definitely SWISS as the [indiscernible] Switzerland and Lufthansa to a certain degree, we probably benefit from. Then, of course, the question is, is the overall potential softness in travel for us, European carriers overcompensated by the shift of travel from carriers in parts of the world where people don't want to go now towards us. Hard to quantify at this point but not completely probably unexpected that will happen to a certain degree. And as I said before, there will be flexibility in our network as we are now within days putting capacity into China, into South Africa into Southeast Asia, of course, we're happy to also reallocate capacity throughout the whole summer if needed. If, for example, the demand tool from Asia become so strong that the next best route tool from Asia is more profitable then the weakest route on the North Atlantic, we would move the airplane. But I think it's way too early to discuss that now. Till Streichert: Let me add maybe just 1 additional point, if I may, just to give you a bit of a holding line as well on the RASK side. If we would have spoken 10 days ago and talked about RASK expectation for the first quarter, I would have said currency adjusted, so ex-X positive but including FX, slightly negative. Now as we speak today, with the net booking intake that we've seen over the past few days, this has shifted clearly to the positive side. And I expect that the RASK for the first quarter should reach a positive territory, even including the unfavorable FX headwind in comparison to prior year because remember, obviously, the U.S. dollar started to depreciate just in the second quarter last year. Operator: And the next question comes from Stephen Furlong from Davy. Stephen Furlong: Carsten, Till and Marc, congratulations on the results. Carsten, in the prepared remarks, I mean, you talked about the industry being more resilient to crisis than it used to be. Could you just amplify that? And then maybe just talk about the Allegris products and talk again about the kind of rollout of that product. I know there's been a lot of kind of news, comments and reports about some delays and then not delays and what the revenue kicker you're getting from that excellent product? Carsten Spohr: Yes, Stephen, thanks. I think has said this numerous times about the industry being more resilient before the unfortunate events that the Gulf started a few days ago. Because, unfortunately, already before that, we have more military conflict in the world than ever before since 1945. And whereas usually, when there's a conflict somewhere, bookings usually collapse because people are afraid to fly and want to stay home, this hasn't happened, not only not the last days, let's even go beyond that. We have seen, as you well know, record demand in the industry basically since COVID. And what is the background of this. I share the view of some of my American counterparts that for consumers, traveling has been higher prioritized since COVID as before. That's 1 element. We definitely don't have a period of overcapacity due to the shortage of engine and plane productions at the OEM level. And I think last but not least, you see more wealth around the world, not only in the saturated markets but also in other parts of the world, which airlines serve. I think all that combined -- by the way, the last one is why especially the premium classes, as you know, are booming now for many years. So I think all that combined shows that even though the world has not become more stable, our industry has. And now to also the last days might add to this because imagine this would have happened 20 years ago, I think you would see a very different booking environment than what we are seeing since last weekend. Allegris, yes, we had significant delays in certifying the Boeing aircraft with our Allegris seats who have a different manufacturer than the seats in our Airbus wide-bodies are manufactured by. We wanted to split the risk many years ago and also the capacity of none of the seat manufacturers was big enough to provide all of our wide bodies. But now these airplanes are coming in quick time, as I mentioned, 9 are here already. By the end of the year, we have 36, I think, as I said in my opening remarks, we have 28 seats in the 787, of which 25 are now certified as the end of March. And there is now only 3 seats, which will not be able to be sold by the end of March. And we even now decided to pull that 1 week forward giving us additional revenue opportunities by already having the seats open for a flight a few days before the end of the winter schedule. But that's only the 787 topic. And as mentioned also by the end of the year, in the Lufthansa Airline, 50% of our seats will either be Allegris or in case of the 380 aisle access seats. So we're another manufacturer. So this is now in full swing. We mentioned before, we have 12% to 13%, 14% higher yields on these seats than on our regular business class seats. So that's big and also the ancillary revenue increase, which we're expecting for '26 to a high degree, will come from Allegris versus the first time we actually charge for different seat types in business class, so that will also be, I think, tailwind for '26 and beyond. I hope that answers your question. Operator: And the next question comes from Alex Irving from Bernstein. Alexander Irving: I'll ask 2, please, both around technology. First of all, on IT, you signed in the last quarter for a new IT platform to implement across 9 of your group airlines. There's an IATA paper that's been around for a while that talks about a 2% to 3% improvement to RASK platforming like this. Is that the right way to think about the upside for Lufthansa Group? Or is the incremental gain less given your work to date in areas like continuous pricing, for example? Second question is on the distribution side of things, specifically, how are you approaching decision about whether and how to sell in large language models? Are you planning to engage directly through an API or to rely on existing infrastructure GDSs, travel agents and continue to pay commissions? Do you have a view on when you're likely to sell your first trip through an LLM? Till Streichert: Okay. I'll make a start on the first one, and then I'll see how far I get on the large language model based selling. Look, I mean, as you know, quite right, we want to embark on the journey of implementing on the one order path, it will be a long-term journey for the industry and also us but it is important to be amongst those ones that joined the pack at the beginning. And we do believe that there are clear benefits on the IT infrastructure on the one hand side because, I mean, as you know, the P&R standard, e-ticket standard and the miscellaneous data standard gets basically consolidated into a single order that is more efficient and drives back office efficiency on the other hand side, quite right. Once you've got this type of let me say, Amazon order type model, marketing and retailing obviously benefits as well. I am aware that IATA quotes these figures of 2% to 3% RASK benefit. To be honest, I find it quite early to take a view on this. But I do believe that principally, there are benefits also on the revenue side from better retailing. I think particularly for us, what I believe is good. We obviously come with scale when you think of passengers that we've got. And whenever you touch these large-scale transformations, when you get it for done at scale, it does give you normally a greater benefit. Look on the distribution, to be honest here, and large language models, I have to admit I'm not that deep into the status where we are. What I can tell you is that, clearly, we are advancing on many fronts in the digital arena to improve customer servicing, through large language model-based trainings, bots. And I don't know what the digital adoption right now is, but we are making progress on that front. But happy to come back and have a dedicated conversation on this. Operator: And the next question comes from James Hollins from BNB Paribas. James Hollins: So Till, on the turnaround update, maybe I always see a slightly in charge of this, so maybe I'm wrong. But as you see it, where have you outperformed, underperformed so far on the turnaround program? And you may not choose to answer this but if I take the Lufthansa Airline EBIT growth of EUR 250 million, which was a gross benefit of EUR 500 million. Is that 50% net versus gross benefit, a good indicator for the full year '26 EUR 1.5 billion? And then probably for Carsten and I know there's lots going on but I thought I'd better mention the strike you had in Q1. Maybe you could update on the cost of that where we are on some of the open CLAs and whether this current situation tends to lead to a bit of a backtrack from some of the union aggression? Till Streichert: Yes. So I mean turnaround, first, to give you my kind of assessment, I am happy with what we have achieved last year. Again, it's not easy to get such a large-scale program off the ground. And the EUR 500 million gross figure, as you know, has come from several initiatives. We've got EUR 700 million in the entire funnel. Several of them obviously have gained traction and delivered in 2025. Let me say, where were we strong and where maybe things will be moving in the future towards. Point where we were clearly strong and successfully executed was operational stability. You remember that was one of our big topics at the beginning of 2025. Get stability back into the production, into the system. That is good for our customers, was good for our customers. You can see that in NPS, customer satisfaction everywhere. And also in the significant benefits on the so-called IRREG cost charges and foregone revenue that is sizable. And that's a clear proof point but also on many other smaller initiatives. And again, I wouldn't speak about EUR 700 million initiatives if it wouldn't be quite granular. We've made good progress. What's ahead of us is clearly the focus on productivity. And this is why I made it also a point on my chart on my slide. And there, we will continue to move capacity into our lower-cost AOCs, Discover Airlines, City Airlines. You can see the aircraft that we are moving and also starting operations for City Airlines from Frankfurt and there with big focus for 2026 and beyond is productivity. Now to your question, gross versus net. Look, it's hard to say. To isolate it on a program level because we do have, obviously, underlying cost inflation drivers from a salary point of view, from a fees and charges point of view, and therefore, it's a bit of a harder ask to say how this -- how the gross is directly translated into a net. But I do see us on track to get the EUR 1.5 billion in 2026 delivered. Carsten Spohr: Yes. On the strikes, the number you're asking for day of strike like the 1 we just had, we probably estimated to be around [ EUR 50 million. ] You might see that's a lot less than what we had before. Why is that? Well, there's less support this time for the units going on strike, which results in more volunteers to continue operation. So therefore, we don't ground the whole fleet as we were forced to in the past but keep our most profitable routes in the area that's reducing the cost. Looking ahead, we are in constructive talks both with our cabin union, as a matter of fact happening today, and Verdi, our ground staff union and also for the cockpit union, actually, we have now 2 corporate units in Germany but for the 1 which is affected here for Unabhangige cockpit, we have offered even in a moderated fashion to talk about the bigger scheme of things, which right now has not been agreed to yet but the individual pilots very much want to stop the shrinking of the main airline, which becomes more and more obvious, as Till just pointed out with our shift of airplanes. So I'm quite optimistic that eventually, that shrinking on behalf of the pilots should come to an end, which will require us to talk on the bigger scheme of things. So I don't see any strike action like the one we saw in 2012 to 2016 or anything because there, we just now too much what the members want and believe that the answers, of course, can only be a reduction of the cost disadvantage of the main airline to the other AOCs in Lufthansa, whereas a strike itself and even the things they're asking for in the strike, and we are not willing to give in the airline with the lowest profit would increase the distance and the disadvantage on the cost side. So this will not be a long-lasting, I think, exercise. Operator: The next question comes from Harry Gowers from JPMorgan. Harry Gowers: First question, maybe just related to Jamie's question on the fuel hedging. Can you just confirm, do you fully hedge the crack component and that's all included within your comments on the March to April monthly impact? I think you said that gas oil hedging is a proxy for jet crack, and so does that type of hedging basically fully cover the price increases we're seeing in the crack spread market at the moment? That's the first one. And then second one, just on the ex-fuel unit costs. You have this comment around 2026 ex-fuel CASK is expected to be half of inflation for Lufthansa Airlines? Can we extrapolate that for the entirety, I guess, of the kind of new network airline segment? Is there any reason why those other airline businesses won't be reporting a similar cost results? And maybe just related to that, if I can squeeze 1 in, what are you assuming for the union agreements? And staff cost inflation in your overall kind of cost and EBIT guidance for the year? Till Streichert: Okay. Maybe a comment on just union agreements. I'll leave to you, Carsten, and I'll go on the first question -- on the second question first, ex-fuel unit cost. So let me be clear what I said is indeed for Lufthansa Airlines, half of inflation is our target. Now overall, as you will remember, we stayed away from giving a group guidance on CASK overall. So we limited it to a specification just for Lufthansa Airlines. Of course, all of the other airlines, our business units have got CASK saving programs in place but I don't want to give an overall cost guidance for the entire group. Going back to the first question, which is a fuel hedging, once again, we hedged gas oil 50%. So 50% is the element of our hedge. Our hedging composition included 35%. And gas oil as a proxy that is strongly correlated to jet crack but it's true currently, Jet crack is very high. We believe that the spread between jet and gas oil will come back to normal levels. And I think the spread currently is inflated mainly because of the illiquidity in the market. Carsten Spohr: Yes. Harry, if I got your question right, you wonder how union agreements would impact our guidance. So I think it's fair to say they will not impact our guidance. Where we have talks, we kind of know what we are willing to offer and how that would result in financial outputs. Of course, it's in our planning. And in the last strike we had for the pilots on the mainline, we told them that as long as the main line is not reaching its targets in terms of profitability. And that actually is the lowest profitability airline in the group. There is no any financial room for maneuver to pay even higher pension benefits, which are already higher than the ones in the other airlines. So there's also no room for additional costs here. That remains is, of course, the cost of strikes. But at the same time, the more strikes there are, the less airplane will be in that airline. So I think there's almost like a natural hedge if you want to use the term from our fuel environment. So the answer again, to your question is that there is no impact on the guidance to be expected from the current labor conflicts. Operator: And the next question comes from Axel Stasse from Morgan Stanley. Axel Stasse: I have two from me. On the first one, coming back on fuel, apologies. How much of that fuel inflation can be passed on? Obviously, you mentioned your exposure to jet and gas oil crack. But obviously, the U.S. guys are not hard at all. So if fuel goes up by 10% approximately, how much of that can be passed on? Can we assume half of it? The reason why I'm asking is because I'm slightly surprised to see you we're comfortable of providing an EBIT guidance without a lot of visibility in the near term on fuel. And I therefore assume you guys feel comfortable passing that on. So just trying to understand the extent of it. And then the second question is can you provide maybe an update on TAP, what are the latest news here? And how comfortable are you on TAP? Till Streichert: I'll take the first one, just on fuel once again. Two comments I would add in addition to what I already explained. I mean, first of all, ticket prices are made at the market level but we do see already increased yields also on the North Atlantic and the fuel price surcharges are being implemented. Now how much of that exactly I can't tell you but the situation is dynamic, and therefore, I think it is just not prudent to give you a statement on that. I think if in the future, fuel prices remain elevated, clearly, everyone and in particular, those ones that follow a no-hedge strategy or have got less hedge protection will need to pass on fuel prices. And that, in my view, provides an opportunity and allows for equally pass-through from our end of additional fuel cost. We have done first price increases already through the fuel price surcharge and have implemented them. And sorry, and just 1 more thing, Cargo. I wanted to speak about both segments. Cargo obviously works on a pass-through model as well. And there -- there is literally -- it's not on a daily basis but within a week, prices get adjusted for the input cost of fuel. Carsten Spohr: Yes. Actually, there's nothing really new on TAP. As you know, we are in the process because we believe there would be a perfect addition to our multi-hub network, also due to the fact that we are currently the weakest on the Latin American market. The overlaps are less than they would be for others, which probably has an impact on the antitrust approvals to be obtained. At the same time, there are so many open questions about the process and the outcome that it's impossible at this point to answer is creating value for our shareholders or not. If it doesn't create shareholder value, we will not do it. We don't need it. If it ends up to be a win-win of Portugal TAP and us, we will maybe see more progress here. Nothing else to add. Operator: And the next question comes from Muneeba Kayani from Bank of America. Muneeba Kayani: Firstly, Till, if I can just clarify your comments around the impact from the Middle East on kind of near-term March, April. Did you say that the higher bookings demand that you're seeing for Asia, Africa and all is compensating just the cancellation costs? Or is it compensating cancellation costs and the jet fuel higher costs on the unhedged portion? So that's my first question. And then secondly, just going back to the transatlantic and Carsten, in your experience, how long does it take for kind of U.S. airlines to adjust the capacity in such shocks on the oil price, given their lack of hedging? Till Streichert: Mona, let me take the first question, albeit I might not give you a totally conclusive answer on that. But yes, first of all, and let me go on the net booking intake and just to run you through that. And I've really taken the view on kind of what numbers do we see right now. And since last Saturday, our net booking intake has developed strongly, exactly as I said. And when we compare these net bookings which we have received between Saturday and Wednesday, end of day, for the month of March, this figure is about 60% higher than 1 year ago. And my second statement on the inflow side was, if I compare same period, those few days, net bookings for the rest of 2026, this figure is 20% higher than 1 year ago. So clearly, what I said on the negative side, the cost of the cancellations of the Middle East, we have comfortably covered. To your question now, does that cover as well the fuel cost. Look, it really depends on how long the fuel prices remain elevated because I've equally given you a view on March and March as such, while I said, nominally 20%, 25% higher fuel bill as we obviously settle the physical fuel bill with a month's delay, you can actually knock half of it off for a month, okay? So it's not that straightforward to say how all-in looks like but there are puts and takes. And I think we should clearly see both of them, albeit I'm not giving you a net figure right now because I can't. Carsten Spohr: Yes. Muneeba, Carsten, you asked for my experience, and I think the things I experience is twofold. First of all, the speed of reaction is a function of the impact of -- on the traffic. Think about 9/11, it took us all only days to come up with a different schedule when the skies reopened than the schedule we had before because it was so obvious impact was huge. I think this is a different situation here. But none of us knows how long the war will last, how long the impact will last, at which degree but I think it's worth to say that all of us have become much better in reallocating capacity to demand, also due to the lack of aircraft in general. What does that mean? When you have a route which is not performing well anymore, you can more easily find another route to provide profitability and value for your shareholders than in the past where maybe you already had loss-making routes and couldn't find something else because otherwise, we would have done it before. So I think with the profitability where it is also for the international business of the U.S. carriers, we're going to see a very market-focused reaction on both sides of the Atlantic, which fuses our optimism -- fuels our optimism, sorry, for my language. Operator: And the next question comes from Andrew Lobbenberg from Barclays. Andrew Lobbenberg: Can I ask about IATA, we haven't spoken about that beautiful pretty picture on the slide of the planes? How are you thinking about the decision to take majority in general? And then how are you thinking about it in the context of the unsettling events in the Gulf? And then can I just come back to the scale of current bookings? You've given us really precise figures on how bookings have come in for those destinations in the range of the Gulf that have gained. What has happened to booking inflows for short-haul Europe? What has happened to booking inflows on the North Atlantic in that short time period? Till Streichert: So look, first of all IATA, on it, maybe I'll just divert the sac, and just IATA has done a good 2025. Organically, they've reached breakeven on adjusted EBIT, which is positive, which is great. And you can actually back-calculate what also their overall net income was. Our 41% contributed with EUR 90 million. On our side, I do see many benefits of calling and integrate -- calling early and integrating IATA faster. We've made very good progress throughout last year. But as you can imagine, with the call option being open to be decided in June, we will keep our options open, and we continue to assess and then take a decision nearer by the time and will communicate. Secondly, on the different travel on the -- sorry, your second question was on Europe and North Atlantic in terms of sentiment, travel sentiment. We actually have so far not observed worsening of travel sentiment or also bookings in intra-Europe or North Atlantic but of course, it's to be seen. Operator: And the next question comes from Ruairi Cullinane from RBC Capital. Ruairi Cullinane: What have you done to Middle East capacity this summer? And linked to that, should we expect the EUR 5 million per week cost of cancellations to tail off even if the conflict doesn't come to an end soon? And then secondly, are you any less comfortable hedging fuel through Brent and the gas oil and leaving spread to jet fuel unhedged? Could you consider that in the future? Till Streichert: First of all, Middle East, I've given you an idea of the sizing. Last year, it was about 2% of our capacity. In Q1 normally that would have been 3%. Remember, last year, there was also a bit of on and off of flying into the Middle East, and this is why it was 2%, and we had it increased it a little bit. So I think what I've given you now is a EUR 5 million negative impact while we are not flying will rather go down because it does include, of course, a view on the cost of care. We took a view now of also those additional costs that is just on the ones where we actually need to care -- where we need to support, while also passengers guests are staying still need to be repatriated or flown back. If it stays long, we will clearly reallocate capacity. And then even this element of what I called negative impact or lost business from Middle East will obviously go away. And therewith, I would say this is not so much of an impact medium term. In terms of strategy of hedging, look, I think I've described it probably to the fullest extent I can do on this call. And we -- our hedging strategy is clearly designed through options and that's different to swaps where we want to participate, also in the downwards movement and therefore, I'm comfortable with the strategy that we have so far in place. Operator: And the next question then comes from Antonio Duarte from Goodbody. Antonio Duarte: The first one is on ancillaries. So 15% growth year-on-year, clearly doing very well, namely with Allegris rollout. Could you give us some color here where you see these terms of ranges going forward? And my second question is turning to the MRO. As you said, a bit of a margin compression seen in '25, a bit of recovery expected from your defense, et cetera. Would you be comfortable with the full recovery from the margin seen in '24? And any color on that would be great. Till Streichert: Okay. Let me make a start just on ancillaries. We have explained what we've seen on Allegris. And the additional seat options and also ancillary sales overall. If I split that, I do believe that the ancillary sales as such has got substance to continue. But of course, it's hard to be at a double-digit rate going forward, just a law of big numbers at one point in time. Therewith, I would like to go back to the Allegris element within the ancillaries. And here, we clearly see the benefit of selling the different seat options. And the main driver of that is obviously the number of aircraft coming with the Allegris cabin into it, and that has got runway and gives us longevity to continue to grow the ancillary sales category. Carsten Spohr: We always call it the big 3, Antonio, baggage, seating upgrades. And that, I think, will continue to drive ancillaries up as Till explained, with Allegris, of course, a special push. MRO, you know that in '25, MRO was suffering almost -- as the only part of the Lufthansa Group under tariffs, which, as you well know, for airplanes and engines don't apply. These tariffs, as we all know, have been ruled illegal by the Supreme Court. So at least they don't go forward. Probably there will also be reimbursements as we all know. So that will be definitely 1 of the reasons why we believe we can not only get back to '25 -- sorry, '24 margins in MRO, but we will continue to go towards the 10% we have planned for the end of the decade. And I'll leave that defense element out, which as I mentioned before, we'll see, I think, another support for the strategic development of Lufthansa Technik, even though it doesn't necessarily monetize short term. But again, we are committed to our 10% margin in '23. And some of the ramp-up costs we had in for Canada, for Portugal also won't repeat themselves. So overall, my optimism continues. Operator: Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Marc-Dominic Nettesheim for any closing remarks. Marc-Dominic Nettesheim: Thank you very much for your questions, for your interest and for the lovely discussion. We are happy to continue this from the Investor Relations side. We wish you a lovely afternoon and talk to you soon. Bye-bye. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect. Thank you for joining, and have a pleasant day. Goodbye.