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Michael Preuss: Hello, everybody, and welcome to our Financial News Conference for the Full Year 2025 and the Outlook for 2026. Many thanks for joining us today. To begin, Bill Anderson will share his perspective on our performance and the path ahead of us. Heike Prinz will provide an update on the progress of our Dynamic Shared Ownership operating model; and Wolfgang Nickl will provide an overview of our financials in 2025 and the group outlook for 2026. We will then hear from Rodrigo Santos, Stefan Oelrich, and Julio Triana on the performance of our divisions and the plans going forward to execute their respective strategies. We also have a chance to briefly hear from our new Board member, Judith Hartmann, who joined the company on March 1. Now before starting, I would like to briefly draw your attention to the cautionary language included in our safe harbor statement. And with that, over to you, Bill. William Anderson: Thanks, Michael. Thank all of you for joining us today, and we're really happy to go through our 2025 results and provide an outlook for 2026. But before doing that, I want to share a short update on company leadership. As we announced in November, Judith Hartmann has joined the company and the Board of Management as of March 1, and she'll take over as CFO in June. But between now and then, she'll be busy getting to know the company and its stakeholders. But we wanted to give you the chance to hear from her today. So before getting into our results, I'm going to turn it over to Judith, who's joining from one of our pharma facilities here in Germany. Judith Hartmann: Thanks, Bill. And yes, I have started my discovery tour of Bayer today here in Buckautal, Germany. It's an impressive site, and I have already had some great conversations here this morning with our Pharma R&D team. I'm eager to learn much more about all of the businesses, of course, in the next few weeks ahead of me. So yes, this is only my third day, but I'm very pleased to have joined Team Bayer. Health and Nutrition are personal passions for me, and I am very excited to contribute to a company that truly makes a difference in people's lives. The mission, Health for All, Hunger for None, really resonates with me, and I can already see many great things happening at Bayer. Our novel operating model, Dynamic Shared Ownership, our investment in AI, both of these are very important levers to accelerate our business. And most importantly, I have already been impressed by our passionate and talented people. I'm looking forward to continuing my onboarding over the next months as I prepare to take over as CFO from Wolfgang in June. I will have the opportunity to meet many people: customers, stakeholders, employees, and I'm sure many of you over time. Until then, I'll turn it back over to you, Bill. William Anderson: Great. Thanks, Judith. Well, let's start with 2025. In July, we upgraded our currency-adjusted sales and earnings guidance for the year. Today, we're announcing that we delivered that guidance, landing comfortably within the improved corridor. Sales came in at EUR 45.5 billion, and we posted core earnings per share of EUR 4.91. And our free cash flow came in at EUR 2.1 billion. Here's a picture of our businesses. Crop Science progressed in the first year of its profitability improvement program, a rejuvenated picture of our Pharmaceuticals business emerged with launch medicines establishing themselves as growth drivers and others advancing through our pipeline to the market. Our Consumer Health business suffered from market softness in the United States and China, but maintained the bottom line. And across the firm, we're seeing improvements to the way we operate. Launches are moving with great speed. Resources are moving more fluidly. Our organization is considerably flatter and leaner, less managerial and more mission oriented. We have roughly half as many layers and have reduced management by 2/3 compared with when we kicked off this work. The 88,000 people of Bayer are doing more faster with less. All-in-all, we recognized progress on our comprehensive turnaround plan, but the journey is far from over. There's much more to do in each of our priorities, in each of our businesses. Our focus is on the important work ahead. One of those key priorities is significantly containing litigation. Two weeks ago, Monsanto and plaintiffs lawyers in the U.S. announced a nationwide class settlement to resolve eligible, current and future cases in the glyphosate litigation. Today, I want to reiterate a few key points. First, the class settlement is moving through approvals. Just as we said 2 weeks ago, we're confident in the merits of the agreement. We await the judge's ruling and will be ready for any scenario. Second, Monsanto has filed its opening briefs with the U.S. Supreme Court, and the case has received strong support in the form of amicus briefs from the U.S. government, Attorneys General in 15 states the U.S. Chamber of Commerce and many others. We will continue preparing our case in anticipation of a ruling likely in the second half of June. We're particularly grateful for the backing we've gotten from farmer groups across the United States who know better than anyone how important glyphosate is for their work. In fact, the White House recently recognized how essential glyphosate is for U.S. Food Security with an executive order. We share that view, and we're fully prepared to comply. Overall, our multipronged strategy proceeds at pace. We know we have some important milestones ahead of us. We'll stay focused on taking the right steps for the company and remaining prepared for all outcomes. Beyond that, this issue has garnered a lot of attention lately. And in the coming months, we expect a rigorous debate about American agriculture and what's needed to create a food system that's robust, sustainable, healthy and regulated by sound science. We appreciate that people come to this issue with a range of opinions, and we welcome that conversation. Most importantly, we've got to be clear on the facts. Fact one, glyphosate safety is resoundingly confirmed by regulators, more than 50 countries, including the U.S., Canada, countries across Europe, all say so. These are thorough reviews, not designed at getting clicks or going viral, but carefully assessing risk and reaching scientific assessments. Fact two, Glyphosate is essential for agriculture and food systems. It keeps carbon in the soil and protects harvest from being wiped out by weeds. It keeps a trip to the grocery store affordable at a time when food prices are a topic of concern. American farmers are a bedrock of the nation's economy and a force for food security around the world. We want to keep it that way. Fact three, litigation in the U.S. is big business. Litigation costs amount to more than $600 billion a year. That's taking more than $4,000 out of the pockets of every American household every year. And it's growing, thanks to backing by private equity and foreign investors who enjoy tax-free returns. Last week, the Washington Post called on Congress to pass tort reform and specifically cited the glyphosate litigation as an example of how this system has gone wrong. The next time the narrative is framed as sticking it to the big corporation, people should question who is actually the big corporation here and who's ultimately bearing the cost. For years now, we've been on the record on this issue and many others surrounding the glyphosate litigation. We've made our case to politicians across political lines and the general public. We'll continue to be clear and transparent about our interests. We'll engage with people of different opinions, and we'll hope to find common ground. Most importantly, when it comes to questions this big, we will always start with what's true. Beyond litigation, we have a full agenda for 2026. We have ambitions to help many more patients with Nubeqa and Kerendia. 2026 will be the first full year of sales for both Beyonttra and Lynkuet, and we want to launch Asundexian as soon as possible. Our Crop Science business set the foundation in 2025, establishing its 5-year framework. Execution is underway and will continue in 2026 with the goal of improving the top and bottom line in 2026, all while preparing important launch plans scheduled for '27 and beyond. Consumer Health plans to advance its Road to Billion strategy, offsetting an uncertain market by making the right investment decisions in categories where we have the most to win. And in a year where we're bearing the brunt of the litigation-related impact, we're exercising vigilant discipline in how we manage our resources. Cash conversion is of the utmost importance. Deleveraging remains a big focus area and Wolfgang will tell you more about our financing plans for this year. And we're laser-focused on delivering the EUR 2 billion in organizational savings through our operating model. In terms of our outlook, we expect a solid performance in 2026, with product declines in Pharma and Crop Science due to loss of exclusivity and regulatory pressure in the EU, offset by continued strong performance of our launch products in our annual portfolio refresh. In addition, we want to ensure continued investment in our pipeline and launch products in 2026 to set ourselves up for growth in 2027 and beyond. Before accounting for FX changes, we see our core earnings per share landing roughly in line with last year. And as we shared 2 weeks ago, we're expecting a negative free cash flow this year due to the litigation-related payouts. So that outlook is emblematic of the company's current strategic position, strong signs of progress, but still working on a comprehensive turnaround. We've made major gains across the company, but that work is not yet complete. We focused on delivering what we've committed for 2026 and making the right long-term decisions to set Bayer up for sustained profitable growth. We have a clear picture of what needs to be done in every area. We're dialed in on the tasks at hand, and we're ready to deliver. Wolfgang will walk you through the numbers. But before that, Heike is going to tell you more about our progress in implementing our new operating model. So over to you, Heike. Heike Prinz: Thank you very much, Bill. And ladies and gentlemen, let me give you a brief overview of where we stand with the transition of Bayer to our new operating model, Dynamic Shared Ownership or DSO for short. Today, 2.5 years after its announcement, DSO is the operating model of the Bayer Group in all countries, in all divisions, in all enabling functions. We are now organized as an agile network of teams. And with redesigned HR processes, we are placing more and more decisions in the hands of our employees. The reduction in bureaucracy is also reflected in our costs, which we were able to reduce by a further EUR 700 million last year. By the end of this year, the savings achieved through DSO will total EUR 2 billion, as announced previously. But DSO has not only reduced cost. Bayer has become noticeably leaner, more flexible and more effective overall. An outstanding example of this are the recent product launches by our Pharmaceuticals division, some of which took place in record time. I myself worked in the pharma business for a long time, and I know what an enormous achievement this is and how important it is to get a new product to market and to patients quickly. With DSO, innovations are created more quickly, and they reach our customers in the shortest possible time, directly benefiting patients, farmers and consumers. And with that, I'm handing it over to you Wolfgang. Wolfgang Nickl: Thank you very much, Heike, and also a warm welcome from my side. Let's together, take a closer look at the group financials for the full year 2025. In the pivotal year, we fully achieved our raised financial guidance for all group KPIs. Group net sales grew by 1% year-over-year in currency and portfolio adjusted terms. All divisions delivered their adjusted guidance. Let me briefly highlight the main business drivers by division. For Crop Science, the anticipated regulatory headwinds from the dicamba label vacatur and the Movento expiration were offset by strong corn seeds and traits growth. That was driven by several factors. First, we had historically high corn acreage in North America; strong performance of our corn seeds and traits globally; and finally, a portion of incremental licensing revenue from the resolutions with Corteva in Q4. Let me pause here for a few additional comments on the Corteva resolutions. First, the resolutions represent licensing fees rightfully owed to us for the usage of our proprietary technology across multiple periods, including the years '25 and '26. Licensing fees are an important element of our business model and thus are accounted for as operating revenue. Second, based on content and timing of the resolutions about EUR 300 million, supported our corn performance in Q4 '25, and as you may have read in the annual report, about EUR 450 million will support our soy performance in Q1 '26, which is reflected in our outlook. We always had a high level of confidence that we would prevail, but these numbers were higher than what we had modeled before. Third, given the positive impact, we decided to advance certain strategic measures like product portfolio streamlining together with an impact on incentives. This is largely offsetting the positive effect on licensing income in '25. It is important to note that the underlying operational targets would have been achieved without these effects as well. Our Pharma business fully delivered on its raised guidance. Nubeqa and Kerendia continued their significant growth momentum and finished the year ahead of our raised expectations. With that, the launch assets performance more than offset the expected decline in Xarelto as well as headwinds in Eylea. Our Consumer Health division delivered a resilient performance in a challenging market environment with net sales stable year-over-year and in line with our revised guidance. Nutritionals were particularly affected by difficult market conditions in China and the U.S., while softer seasonality in cough, cold and allergy led to a decline in this category. As previously indicated, our group top line was impacted by material FX headwinds of around EUR 1.7 billion, largely driven by the depreciation of the U.S. dollar, the Brazilian real and hyperinflation currencies. Let's now move to the bottom line. Group EBITDA before special items came at EUR 9.7 billion compared to the prior year negative foreign exchange effects of around EUR 500 million weighed on profitability. We also saw higher incentive provisions and growth investments compared to the prior year, while top line growth and cost savings helped to compensate. An important year for our transformation, all our divisions and the enabling functions delivered on their profitability commitments, balancing necessary growth investments with disciplined resource allocation and cost savings. Core earnings per share came in at EUR 4.91. The decline versus the prior year was driven by the expected lower EBITDA before special items and includes FX headwinds of about EUR 0.30. Our core financial results came in better than expected. The core financial result improved markedly over the prior year due to lower interest expenses and positive changes in equity results. Reported earnings per share were at minus EUR 3.68. Main drivers for the delta next to the regular amortization of intangibles, other significant litigation-related provisions and our liabilities classified as special items. Litigation-related special items amounted to EUR 7.5 billion in total, including the increase that we announced 2 weeks ago. Let me also clarify that our litigation-related provisions and liabilities are based on a comprehensive assessment. The provision liabilities of EUR 11.8 billion contain all litigation-related costs we know today and can reliably forecast. Also covering past glyphosate verdicts either settled or pending in appeals. Our free cash flow came in at the upper end of our guidance range at EUR 2.1 billion. The anticipated year-over-year decrease is mainly driven by the expected higher incentive and litigation-related payouts. Net financial debt was reduced below EUR 30 billion by the end of '25. And that was due to the cash flow contribution and about EUR 1.4 billion in foreign exchange tailwinds driven by a weaker U.S. dollar. Let's now move to the outlook for 2026. Let me start by explaining the background for a methodology change that we will implement for our core earnings per share KPI as of this year. What we want to achieve is to provide enhanced transparency around our operational performance, reflecting necessary cost of doing business and moving core EPS closer to the reported EPS. Previously, our core EPS definition only included the core depreciation linked to usual depreciation of property, plant and equipment. All amortization of intangibles were excluded. As of this year, we will also factor in the amortization of certain intangible assets, in particular, software. The change in methodology leads to an approximately EUR 0.35 step-down in '25. Adjusting for the new methodology, we come from the EUR 4.91 that I just mentioned to EUR 4.57 for core EPS in 2025. For '26, we anticipate stable core earnings per share at constant currencies on a like-for-like basis. All businesses plan to further progress in their transformation, continue to execute the strategic agenda and set the basis for future growth. This includes continued savings as well as investments in innovation and launches. Overall, expected higher earnings contributions from Crop Science and Consumer Health will be offset by anticipated lower earnings in Pharma, in line with the divisional strategies. On the corporate level, our outlook assumes higher long-term incentive provisions due to the increased share price compared to the end of '25. This also results in higher reconciliation costs. We also expect higher interest expenses impacting our core financial result. This is driven by an anticipated increase in net financial debt due to the substantial litigation-related payout and the resulting negative free cash flow for 2026. Finally, on geopolitics. Let me start by addressing the recently started war in the Middle East. Our thoughts are with the people across the region. Our focus is on ensuring the safety of our people and the continuity of our business. At this point in time, we do not see a material impact on our business, and we will continue to closely monitor the situation. We are in close contact with our people on the ground and ensure continued supply of our essential products. Regarding tariffs and FX, we are prepared to deal with a new dimension of volatility across businesses and regions. In '25, we successfully managed a dynamic trade environment and limited the impact of additional tariffs. This was achieved through a combination of mitigating measures by our cross-functional teams as well as tariff exemptions based on the relevance of our products. Our new way of working provided extremely -- was provided to be extremely helpful, handling the situation, and we will continue to build on that strength going forward. For '26, our outlook includes our latest assessment of estimated direct and indirect geopolitical impacts. As mentioned previously, we expect foreign exchange rate fluctuations to remain a major swing factor based on year-on-year spot rates, we anticipate continued foreign exchange headwinds of about EUR 0.30 to our core earnings per share, as shown on the right side of the chart. Managing our FX exposure and geopolitical context has been a major priority for us in '25 and will continue to be a priority for us in '26. Overall, we will continue to monitor the situation very closely. This includes the future of the U.S. EU trade relations following the recent court ruling on our tariffs. Let me summarize with the outlook for the group KPIs for '26. We anticipate net sales of EUR 45 billion to EUR 47 billion at constant currencies, representing a gross range of 0% to 3% in currency and portfolio adjusted terms. For EBITDA before special items, we target between EUR 9.6 billion and EUR 10.1 billion in '26 at constant currencies, representing a minus 1% to plus 4% development versus the prior year. As mentioned, core earnings per share are expected to come in between EUR 4.30 and EUR 4.80 at constant currencies. Now free cash flow outlook of minus EUR 1.5 million to minus EUR 2.5 billion at constant currencies, we account for the expected significant litigation-related payout of around EUR 5 billion as we also announced 2 weeks ago. With the negative cash flow, we expect net financial debt to increase to between EUR 32 million and EUR 33 billion at constant currencies. As also announced 2 weeks ago, ultimate financing for the litigation resolutions is planned to rely on senior bonds and instruments receiving equity credit by the rating agencies and not on the AGM authorized capital increase. While finalizing these measures, please note that the current net financial debt outlook for now is conservatively reflecting straight debt financing. And with that, I'll hand it over to you, Rodrigo. Rodrigo Santos: Thank you, Wolfgang. In Crop Science, we have built a more agile organization through our DSO and strengthening our operational discipline through our 5-year framework. That discipline is already delivering tangible impacts. It shows up in three areas of our core business and the differentiated growth we see through the end of the decade. Number one, in the resilient performance we delivered in 2025. Number two, in the clear step forward, we expect in 2026. And number three, in the progress already made against our 5-year framework, laying the foundation for a stronger performance through the midterm. So before turning to 2026 specifically, let me anchor us in where we stand in the 5-year framework. Because this is the lens through which we manage the business and the road map that guides every decision we make. We are on track to deliver across the triangle, sales growth, margin and cash. We strengthened the operational foundation of the business by simplifying the portfolio and sharpening our footprint, we are firmly on course to deliver the more than EUR 1 billion margin improvement. Actions included divesting and outsourcing multiple activity ingredients exiting nearly 200 crop protection products and streamlining our global site footprint from crop protection to seed production. We are also exiting lower-return vegetable crops and the non-core seed treatment equipment business. As we advance our efforts, portfolio is streamlining and go-to-market models will largely complete by year-end. Innovation remains our engine for future growth. Protecting our proprietary traits and R&D capability is critical. Simply put it, the recent resolution with Corteva is licensing revenue for the use of our technology. It does not changes our growth outlook or license expectation. It does ensure fair compensation for our technologies today and well into the future. And it safeguards the value of our innovation engine, which advanced six projects and introduced 470 new hybrids and varieties last year. Our industry-leading pipeline position us for differentiated durable growth. Our first blockbuster Plenexos is now launched, and we will expand into Brazil this year. The icafolin submissions are complete, and the new gold Camelina is now in the market for biofuels. And the nine additional blockbusters are on track for upcoming introductions. That includes the Preceon Smart Corn introduced with biotech approach and also the Vyconic in '27 and '28. As followed closely by our fifth-generation herbicide-tolerant soybean trait, position us for double-digit share growth and put us firmly on our path to reclaim the #1 soybean trait position in North America. This is the strength of our pipeline. We have unprecedented number of market-shaping innovations on the horizon with a clear pathway for growth. So 2026 represent another step forward in delivering our 5-year framework. We expect Ag market fundamentals to remain challenging and project below average market growth. However, our resilient base and focused execution give us confidence. While we benefit from the license income, we will continue pushing hard on our 5-year framework measure. Overall, 2026 is another year of diligent execution of our strategic plan setting us for the future. Our core business growth is expected at 1% to 4% currency and portfolio adjusted. An important contributor for this growth is the recent approval of the Stryax dicamba formulation. This marks the first step in reestablishing the momentum of our North America soybean business, giving farmers the added flexibility they've been waiting for. And for 2026, we expect Stryax herbicide growth as well as pricing gains in soy and cotton. Still, we do expect -- we do not expect full recovery yet preparing for the Vyconic introduction in 2027. For corn, we expect low single-digit growth globally based on anticipated price and market share increases despite the acreage reduction in the U.S. In core Crop Protection, we anticipate softer growth on higher volumes driven by new products, offset continued pricing pressure and the EU regulatory impact, as previously expected. For glyphosate, tariffs recently have been reduced on China imports in the U.S. and the generic PRC pricing has been declining below the historical median. With that, we currently expect glyphosate sales to decrease by 2% to 6% comparing to the prior year. We will continue to monitor the situation and adjust pricing as needed to the separately managed commodity business. As we look at calendarization, the noted soy licensing revenue will benefit the first quarter. However, lower tariffs and generic price declines are adversely affecting glyphosate sales. In addition, we expect a soft start to the crop protection season on top of the continued regulatory effects in Europe. Our growth drivers, such as the Stryax sales will only emerge later in the season. On the bottom line, within our margin profile, we expect EBITDA margin before special items of 20% to 22% at constant currency inclusive of the dilutive glyphosate margins. This reflects continued cost discipline as well as pricing and mix benefits from portfolio streamlining in line with our 5-year framework. For example, in soy, we are focused on pricing to value and improved utilization rates over top line growth. We will monitor currency closely as sales seasonally in the soft currency markets like Brazil can create volatility in both top and bottom line results. Taken together, these factors underpin a realistic execution-focused 2026 outlook and underscore the momentum we are building for the years ahead. Our sharpener portfolio, leaner footprint and increasingly resilient earnings model gives us a strong confidence in delivering our midterm targets and navigating x cycles with a greater consistency. With that, over to you, Stefan. Stefan Oelrich: Thank you, Rodrigo. In the Pharmaceuticals division, we continue to make really great progress on our strategic agenda. We have now entered the last year of what we are calling our resilience phase. We're well on track in renewing our top line and our strategy of balancing expected declines for our mature products with growth from new products, which is well working out. I will shortly provide more details on our expectations for 2026. However, I want to also highlight that we're well set for our next wave of growth into the next decade. This is driven by significant sustained growth momentum of Nubeqa and Kerendia, a very successful launch of Beyonttra, the first launch of Lynkuet in the U.S. as well as very positive data presented for Asundexian only a few weeks ago. We've also demonstrated great successes in our efforts to grow our pipeline value and nourishing our foundation for future growth. Driven by our new innovation model, we have progressed 16 clinical programs across the development phases and achieved approval for five new key indications or products in 2025. I already mentioned Asundexian, but I do want to reiterate the genuine excitement we witnessed among attending physicians at ISC in New Orleans just a few weeks ago. Not many were expecting such groundbreaking results. With this potential new treatment option in secondary stroke prevention, we may have an opportunity to truly rewrite the future for stroke survivors and their families. In addition, we're continuing to leverage our new operating model for increased performance. And we have consequently been able to sustain our margin in the mid-20s range. All of this despite facing continued loss of exclusivity and pricing pressures, while we continue to invest in our launches and also in our pipeline. Moving into 2026, we expect an unbroken growth momentum for Nubeqa and Kerendia, amounting to an expected growth of approximately 50% at constant currencies. This will be driven by continued market penetration and indication expansions such as the upcoming EU approval for Kerendia in heart failure, following the recent positive CHMP opinion. This growth momentum will be further supported by the continued launch dynamics of Beyonttra and also Lynkuet. While we were able to defend Xarelto well in 2025 overall, we experienced the expected increased generic pressure towards the year-end. We, therefore, also expect a slight acceleration of relative declines in 2026 in comparison to last year, being in a range of minus 35% to minus 40%. Given the accelerated pricing pressures we have seen for Eylea with the entry of 2 milligrams biosimilars since Q3 2025, which we may have slightly underestimated, we will focus our activities to build on the strong clinical profile and unparalleled label of Eylea 8 milligrams. We plan to significantly expand Eylea 8 milligrams contribution to the Eylea franchise to approximately 70% and sustain our market-leading position in volume shares. Despite these efforts, we will likely see declines for Eylea franchise in the range of approximately 20% to 25% at constant currencies in 2026, with the pricing pressures somewhat leveling out thereafter. Since 2 milligrams biosimilars only entered the market fairly recently, we will continue to closely observe and evaluate the evolving situation and will provide updates as we gain more clarity as per our usual reporting practice. In line with the stringent shift of resources to focus our activities on our current and future growth drivers as well as our continued pricing pressures and declines in our mature product portfolio, we expect a modest contraction of our base business in 2026. In sum, we're expecting growth of 0% to plus 3% at constant currencies for this last year of our resilience phase before returning to mid-single-digit growth as of 2027. And we're hovering over a prior year during which the pricing pressures increased over the quarters and Nubeqa and Kerendia will continue to grow as this year progresses. We expect the top line for the second half of 2026 to come in stronger than in the first half. Looking at our 2026 margin, we would expect that the impact of a changed product mix and increased growth investments throughout the year will only be partly balanced by cost savings from efficiency measures. We, therefore, expect a 2026 EBITDA margin before special items of 23% to 25% at constant currencies as we keep working to expand our margin as of '28 towards 30% by 2030. And with that, over to you, Julio. Julio Triana: Thank you, Stefan. As we review our performance and set our priorities, I want to begin with the progress we're making on our Road to Billion strategy. Last year's market environment was challenging for two reasons. First, market dynamics in the U.S. and China; and second, the continuation of seasonal softness in cough, cold and allergy. Despite these obstacles, we have stayed committed to our strategic approach focusing on areas where we can create the most value and actively respond to evolving market conditions. By focusing our efforts on the highest potential categories, we continue to advance our goal of reaching billions of consumers and creating sustainable value for our business. Across markets, consumers are more deliberate in their spending. They compare, they seek more, and they have more ways to shop. E-commerce continues to scale quickly, while traditional retail consolidates. Retailers and pharmacies, particularly in the U.S. and China have reduced inventory levels to manage working capital more tightly. Despite this backdrop, the fundamentals of our business remain attractive. A growing middle class, rising self-care, adoption and constrained health care systems continue to support durable demand for our categories. In the near term, we expect continued volatility in China and the United States with performance likely to contract. Over the long term, we expect both markets to return to a sustainable healthy growth pattern. While allergy, cough and cold have been soft for 2 years, the fundamentals underlying our categories remain very solid. As one of the top 3 global players in fast-moving consumer health, we're well positioned to capture this growth. We hold leadership positions in categories such as dermatology, digestive health and cardio. Our balanced portfolio across seven treatment and prevention categories pairs global mega brands with very strong local heroes. This mix gives us resilience in the short term and significant room for expansion over the long term. A Road to Billion strategy is designed to convert this foundation into sustainable value creation. At its core, the strategy aims to increase household penetration by reaching billions of consumers through both online and offline channels as well as through our strong presence in pharmacy and health care professional settings. In the medium term, this support consistent sell-out growth and more predictable sell-in. Looking ahead to 2026, we expect continued macro geopolitical volatility. Given our geographic footprint and the segments where we compete, we expect our relevant market to grow by about 2% to 3%. This is about 100 basis points slower than the total Consumer Health market. Category dynamics, geographic mix and elevated volatility underpin our net sales growth outlook of 0% to 4% in currency and portfolio adjusted terms. Building on our 2025 base, we aim for continued value recovery. In the United States and China, our two biggest markets will play a crucial role in our overall performance, slowing growth and market volatility there could heavily influence our results. Consumer confidence remains soft. If consumer spending picks up and seasonal categories see higher incidents, we might achieve the higher end of our growth forecast. If not, growth could be toward the lower end. Given the volatility and its impact on our top line, our EBITDA margin outlook before special items for 2026 is 22% to 24% on a constant currency basis. Savings from our new operating model and active cost management are expected to offset annual cost increases. We continue to reinvest portions of these efficiencies to strengthen brand equity and gain market share. We will continue to accelerate investment in e-commerce and AI across brand building and activation, customer engagement and product supply. Prioritizing self-care and empowering people to take control of their health has never been more important. Through our Road to Billion strategy, focused on building trusted brands we're uniquely positioned to meet needs of consumers, creating lasting impact and long-term value. And with that, over to you, Michael, for the Q&A. Michael Preuss: Thank you very much, Julio, and thank you to all the Board members for the presentations. And let's now start the Q&A session. [Operator Instructions] So we have the first question coming from Annette Becker from Borsen-Zeitung followed by Antje Honing from Rheinische Post. So first question, Annette, over to you. Annette Becker: I hope you can hear me. Michael Preuss: Yes, we can hear you. Annette Becker: Okay. I have two questions. First, I'd like to know why your Q4 results are in operating version, so extremely weak? The EBITDA reduced to 16%. And then the second one, what does the negative free cash flow for this year mean for the dividend you're paying out next year because your shareholders have now 3 years of minimum dividend. And I think that's not so good for time lasting. William Anderson: Yes. Let me comment on the second one first, which is that the dividend decision will be taken at a later date when we have results of the year. But -- so we'll be making a recommendation regarding that in due time, but we don't have any comment on that right now. I'll turn it over to Wolfgang for a little more perspective on the Q4 results. You have to remember that because a large part of our business is in agriculture and agriculture is seasonal, that the EBITDA margins go up and down accordingly. But maybe Wolfgang, you could provide a little more color. Wolfgang Nickl: I think you're absolutely right. I mean, as a matter of fact, we also don't look at quarterly results too much. We were really focused on the annual results. And as we said, we fully achieved everything on every KPI. And there was nothing extraordinary in Q4 worth mentioning. William Anderson: Yes. I think we have to say we increased our results -- sorry, we increased our expectations in August of 2025. And we fully delivered on those increased expectations. So I think we feel quite good about our Q4 results. Just some historical perspective, if you go back a year to what the expectations in terms of profit for Bayer were 1 year ago, we over-delivered that by about 9%. So I don't think we would characterize it at all as weak, but rather strong. Michael Preuss: Okay. So the next question comes from Antje Honing, Rheinische Post, followed then by Jonas Jansen from Frankfurt Allgemeine Zeitung. Antje, you are next. Antje Honing: I have two questions. One to Heike Prinz. How many jobs have been cut by DSO so far? And when will the cuts be completed? And how many jobs will then we have in totally? And to Bill Anderson, Bayer will sometimes have to repay the debts incurred in settling the wave of lawsuits. Will this lead to a cost-cutting program efficiency program and further job cuts? Heike Prinz: Yes. Thank you, Antje, for your questions. As I shared with you earlier today, DSO, our new operating model has been implemented in all parts of our organization. And I think right now, really the focus is on leveraging this operating model to drive performance in our businesses. Now you will see in our publication that we are at 88,000 employees across the world. But we've also shared with you previously that DSO is not about having a head count target or a job cut target. So really, the focus, as you've heard from also the divisional heads is on driving performance in our businesses. William Anderson: Yes. And Antje, our big focus is our mission. You see it here behind us, but this is what we and the 88,000 people of Bayer come to work for every day. And we're really committed to do that in the best way possible. And we are generating a lot of cash. Every year, we're generating cash from our operations, and we plan to continue to do that by getting more productive. But whether that productivity is going to be mostly driven by revenue growth, or whether there's going to be additional cost savings, we've announced cost savings that we plan to achieve by 2029 in Crop Science. We already announced that. But I think we've got a team that is really focused on driving this mission forward. And we've got exciting opportunities in Pharma, in Crop Science, in Consumer Health. And I think we will have no problem repaying our debt. I think our main question is how high can we go, and we're determined to go really far, really fast. And we've got an operating model in place that allows us to do that. And if you look across this company, whether it's in Consumer Health, where we're launching products now in well under a year that used to be 2 to 3 years of a life cycle to launch. We've got that under 1 year. If you look in Pharma at the progress we've made in the pipeline, but not only the progress in the pipeline, but how we're doing on launching those products, on bringing those to patients around the world. We've accelerated that dramatically by putting the power in the hands of our people. And in Crop Science, the work is really amazing what's happening throughout our world in product supply, in R&D just amazing stuff in terms of our people, having the power to make gains. So you hear about AI and productivity gains, and you hear about job losses. What we're looking to do with AI is put it right into the hands of every Bayer person to extend their impact to make them more effective every day for the mission. So I think we see an opportunity to dramatically increase productivity. But we want to do that a lot through growth. Michael Preuss: Right. The next question comes from Jonas Jansen, Frankfurter Allgemeine Zeitung, followed then by Sonja Wind from Bloomberg. Jonas, please go ahead. Jonas Jansen: Hello. Good morning, and thank you for taking the time. In the outlook, you have a China tariff effect on glyphosate sales expectation. Can you maybe explain this a little bit further because I thought there's kind of a Buy American movement right now in the U.S.? Or is that still a price topic. And then regarding to the White House, glyphosate letter, could you maybe explain what that could mean looking in the future with the plans you have there for the phosphate? And do you think that the latest efforts you had surrounding glyphosate and regulation and litigation, that will have an effect on the Supreme Court or is that not directly related at all? Thank you. William Anderson: Yes. Thanks, Jonas. I'm just going to try to answer these both really quickly. So in terms of the tariff effect on glyphosate, imports into the U.S. So last year, the rates of tariffs were generally 25% to 35% even, I think, for brief periods a bit higher. As a result of the IEEPA ruling from the Supreme Court recently, that rate has dropped to 3%. So it basically has a corresponding drop in the price of generic glyphosate in the U.S. And so that results in price or volume losses for us, and we just have to deal with it. So we're dealing with that. I would say that tariff rate remains kind of uncertain for the future, but at the moment, it's about 3%. So we have to deal with that by offsetting it with gains elsewhere, and we plan to do that. In terms of the letter, the White House letter on glyphosate production, yes, this has nothing to do with the Supreme Court and it actually has nothing to do with the settlement either. This is basically the U.S. government recognizing the vital importance of glyphosate to the American farming system. Frankly, the vital -- glyphosate is vital to farming systems outside of the U.S. as well, but the administration is taking a position and not wanting to be dependent on foreign sources, for something that's essential for food security and national security. So we've received the letter. We intend to comply with it, and there's not much else to say. So thanks for the questions. Michael Preuss: The next question comes from Sonja Wind, Bloomberg, followed then by Jens Tonnesmann, Die Zeit. Sonja, over to you. Sonja Wind: Bill, you said that you're ready for any scenario regarding the judge's decision for the settlement proposal. What is your plan in case it gets denied? And do you have a rough time line of when you expect the decision? And then also coming back to a broader question, which you said in February that you will look at the company's structure in the future. Will that be in 2026? Do you expect after the U.S. Supreme Court's decision? Or is that even further in the future? William Anderson: Yes. Thanks, Sonja. So we have plans for every scenario. I don't think we're going to speculate on a denial scenario, but I would say the time line is days. So you won't have to wait long for an answer there. In terms of the company structure question, basically, what it comes down to, and you've heard that from our division heads and from Heike and Wolfgang. I mean, we just -- we have so much going on. We have five big issues we're tackling. We've made remarkable progress in 2025 and 2024, we got more to do. So we're not going to be distracted by talking about structure right now. But that said, we are -- we remain very much committed to tackling that question in due time, but I couldn't give you a particular timing. So, thanks for the question, Sonja. Michael Preuss: Next question comes from Jens Tonnesmann, Die Zeit, followed then by Bert Frondhoff from Handelsblatt. Jens, you are next. Jens Tonnesmann: Yes, you can hear me. Well, I've got two questions that may sound like beginners questions to you. Bill, you were emphasizing how much support you feel in the U.S. regarding glyphosate. And the glyphosate has been proven safe by regulators of more than 50 countries, including the U.S., of course. So, can you please once more explain why then did you even agree to the recent settlement with the plaintiffs that are putting quite a strain on Bayer financially? And doesn't that contradict your commitment to focusing on the facts and your criticism of the litigation business? And second, would it be possible for Bayer to withdraw from the settlement partly or fully if the Supreme Court rules in Bayer's favor in June. William Anderson: Well, Jens, I think those are very reasonable questions. And I wouldn't categorize them as beginner's questions. But I think we can all recognize that the litigation situation in the U.S. is very complex. This is not a true phenomenon. I remember as a boy sitting at the dinner table here in a conversation about the tort system and some of the strange results that it could produce. So this is not a new thing. But the fundamental issue that's before the Supreme Court is whether the scientific endeavors of hundreds of scientists can be basically overturned by a jury of non-experts based on a very small set of facts as opposed to an exhaustive decades long set of facts. That's kind of what's at play. Nevertheless, the system is quite challenging for companies, and we believe that this settlement offer -- this settlement agreement is the right approach at the right time, because the company needs to move on. This has been a huge drag on Bayer for almost a decade, and that needs to stop because we have a mission that's more important than a court flight. And so we got to get on with it. But yes, the Supreme Court case and the settlement are distinct. They accomplish different things. The Supreme Court case is asking of the fundamental question about whether the EPA has the authority to govern pesticide labels and questions of pesticide safety or whether that gets played out in hundreds or thousands of courtrooms. So that's really important, not just for glyphosate or for our past verdicts, but it's also very important for the future of new and innovative tools like new crop protection products that we want to launch that are important for farmers as they continue to struggle to basically put affordable food on the table. So that's very important for that. The settlement is something that's important for Bayer in terms of moving on. So thanks for your questions, Jens. Michael Preuss: Okay. Next line is Bert Frondhoff from Handelsblatt, followed by Elisabeth Dostert from Suddeutsche Zeitung. Bert, over to you. Bert Frondhoff: I hope you can hear me. No, you can't hear me? Michael Preuss: Yes, we can. You can just go ahead. Bert Frondhoff: Okay. Good. Yes, Bill, can you give us another assessment on how Bayer views the conflict in the Middle East. I guess you source many intermediate products from Asia and the pharmaceutical business, the business via hubs in the Middle East. Are you concerned about problems in the supply chain? William Anderson: Yes. Thanks, Bert. I mean, first off, as Wolfgang mentioned, and I think we all share this. Our first concern is for the safety of our employees in the Middle East region and for all the innocents there. And we hope and pray a rapid cessation and a lasting peace. And there needs to be a solution for a lasting peace there. The short answer though, regarding your question, we're not particularly concerned about our supply chain. We're not heavily dependent on Middle Eastern hubs for our supply chain. So we don't anticipate any interruptions in supply. Michael Preuss: Okay. And next question then comes from Elisabeth Dostert, Suddeutsche Zeitung, followed by Isabella Bufacchi from Il Sole. Elisabeth, over to you. Elisabeth Dostert: Bill, what was your trip with Friedrich Merz to China and which role does China play for Bayer? Is it more for your Pharmaceuticals division or do you sell Crop Science products like glyphosate in China? William Anderson: Yes. Thanks, Elizabeth. Yes, it was a very eye-opening trip. Very interesting to see continued remarkable progress in China in building out infrastructure in the strength of various innovative industries. And I think, yes, it was very useful dialogue. And we have about 7,000 people in China working in Pharmaceuticals, Crop Science and Consumer Health. Our biggest division in China is Pharmaceuticals. And we have production there. Well, we have production for all three divisions in China, but it's an important market. It's an important innovative hub. And we have very good relations with our Chinese partners. And this is, again, we have a mission of Health for All, Hunger for None. That takes us pretty much to every corner of the globe. We see, yes, the need to feed the world in a way that is environmentally sustainable as something that's everybody's business. It's sort of every citizen of the world has a stake in that, likewise with medicines and every day, human health products that we have from our Consumer Health division. So we've got -- I think we've been in China for about 150 years. And we are very pleased with our, again, our great colleagues in China and the importance of continuing to drive innovation and access to these important, yes, tools for producing food and medicines. Michael Preuss: Okay. From China to Italy, we have next in line, Isabella Bufacchi from Il Sole, then followed by Andrew Noel from Chemical ESG. Isabella you're next. Isabella Bufacchi: Good morning. Thank you for the opportunity. I have two questions. One is on your net financial debt. It went below EUR 30 billion in 2025, and it was down a lot, 8.5%, but it's going up again in 2026. Now I was looking at your ratings. You have three ratings from S&P's, Moody's and Fitch, with a negative outlook. And the level that you are a downgrade would be quite painful because you would get to the last rate before speculative grade. So I've seen that you want to avoid that. I mean, you're looking for an upgrade. But I also saw that you were a solid A rating before the Monsanto. So I was wondering whether do you think that a good solution, final on litigation would have an impact on your ratings with the possibility of going back to A? And my second question is on Europe. As Europe as in a way it's own momentum, there are flows of capital coming back to Europe. Here in Europe, the growth is weak. But do you see any potential? Are you looking at Europe to increase your investments here? Wolfgang Nickl: Yes. Thank you very much for your questions, Isabella. I'll take the first one on the net financial that -- first of all, thanks for recognizing we came below EUR 30 billion. That was significantly better than the Street expectation. It was really driven by free cash flow performance, and we had a bit of a translation effect there as well. I think you have seen that we will be up slightly because we have a negative free cash flow expected for this current year, and that's largely driven by the EUR 5 billion expected payouts for settlements and defense costs and so on. So we could be higher up. But I also said in the script that will depend on the final takeout financing. This is all simulated based on straight debt. And like we said before, we will likely use instruments that receive at least partial equity rating by the rating agencies. That brings me to the rating agencies. You should expect that we have a very, very solid dialogue with the rating agencies on an ongoing basis. That's very valuable for us. And we keep them abreast of all the developments in particular as it relates to the financing as well. And of course, like every other stakeholder, they look at the developments on the litigation front as well. And as Bill said, hopefully, over the next couple of weeks and months, we see things going the right way there. And lastly, yes, the company has always been focused on A category kind of rating, so meaning leverage of something around 2.5 or less. We like that rating from an accessibility viewpoint from a flexibility viewpoint. And that's our midterm target. And probably the last thing is '26 will be the brunt of litigation payouts. We also said that, that EUR 5 billion will reduce to EUR 1 billion per year for the subsequent 5 years, and then it will be going down significantly. And if you pair that with the growth outlook that my colleagues have specified in particular for '27, you should see the company making significant progress in that regard, and that will hopefully also be realized and recognized by the rating agencies. Bill, I think you do the Europe piece. William Anderson: Yes. Yes, thanks for the question. I think Isabella, I think it's a mixed picture, the question of investment in Europe, and it's simple. We need basically more energy. We need lower energy prices in Europe and less regulation. And I think the experiment that's been run over the last decade the idea that sort of Europe could lead out in regulation and that, that would provide a competitive advantage, I think that's a failed experiment. And I think that's becoming more and more obvious every day. So I think those are some of the things that we would be able to invest more if we had better access on energy, less regulation, less bureaucracy. That being said, we're making major investments in Europe. So for example, in Monheim, very close to Leverkusen, we're building a new state-of-the-art chemical research facility that is going to be a base for crop protection, research and development for decades. We have cell and gene therapy production that's rapidly either being built or expanding in both Berlin and in San Sebastian in Spain. In Italy, I was in Italy, I can't remember, maybe 1.5 years ago, and I got to see some production we have there in the Milano vicinity that's sending really innovative healthcare products to the world. We also -- it's one of the few countries where we launched our short stature corn system, which is going to revolutionize corn production around the world and Italian farmers are some of the lead innovators there in adoption. So I think there's amazing potential for future innovation in Europe, but there's more work that needs to be done. Michael Preuss: Right. So next question comes from Andrew Noel from Chemical ESG then followed by Yonglong He from Xinhua. Andrew, you're next. Andrew Noel: I've got two, please. I understand now it's not the time for a decision on a split. But is the work that you're doing on Crop Science portfolio in line with getting the business ready for an IPO and making it more attractive to investors? I ask because BASF and Syngenta have been doing M&A in biologicals and that makes it more attractive to the sort of investor crowd. And the second question would be probably one for Rodrigo. Is there any interest in the new molecule opportunities at FMC, the partnerships they're talking about and perhaps the same for Corteva split, I guess? Thank you. William Anderson: Okay. Maybe I'll make a comment on the first one and then hand it over to Rodrigo. I think our basis for proceeding with all of our work at Bayer with respect to our divisions, our businesses, we need to be the best home for every business, and that means we have to be the -- yes, the most innovative, the leanest, the fastest. And so, I think all the measures that Rodrigo and his colleagues are taking in Crop Science, would be a benefit to Bayer Crop Science as part of Bayer or as a stand-alone entity. I don't think there's any kind of tension there. But that's the mentality we have to have with each of our businesses is we got to be the leanest, fastest, most innovative, simply put. Rodrigo, any comments on... Rodrigo Santos: Sure. Thank you, Andrew. And again, we are -- this is part of our 5-year framework. And I think the discipline that we are on the execution of that 5-year framework is very important. That includes, Andrew, that we have a very robust pipeline of crop protection, right? We talk about Plenexos, the first one that we launched. We have icafolin coming, Conventro, Stryax, and many other products that we have in our portfolio. We are always open for collaborations and with different companies on biologics. We have an open collaboration work that we do. No specifics to the two companies that you mentioned, but -- we have a strong portfolio coming in the next years. And I'm very excited about the work that we are doing on R&D on crop protection using AI to really move faster on the invention of new molecules. So I feel that we are -- we're going to be focused on launching these new technologies to the farmers in the next years, and this is really exciting and keeping the discipline on the execution that we lay out last year. Michael Preuss: Next question comes from Yonglong He from Xinhua, then followed by Anja Ettel, Die Welt. Yonglong, you're next. Yonglong He: I have two questions for Mr. Bill Anderson following the previous questions on your latest trip to China with German Chancellor. Well, the first one is, do you have any special impressions from this visit like an impressive moment or observation then stood out to you this time? And how have you observed the living and working conditions of people there in China? And the second question is, well, this year, China started its first year of the 15th year plan underscoring openness and innovation, which is also the innovation, which is also Bayer's core strategy. So would Bayer see this more opportunity and alignment or pressure competing with other international companies, there? William Anderson: Sure. Yes, I mean there were a lot of really impressive things to see. It was great to see, for example, the partnership between Mercedes and the local companies on autonomous driving. And so the Chancellor got to actually make a tour in the car that was basically driving itself. You just put in the destination and it goes. So that's obviously pretty cool to see. We were at Unitree. So we got to see the robot demonstrations, the humanoid robots which is -- yes, that's kind of cool to experience them up close and personal. I think the -- with respect to living and working conditions, it was a short trip. But I know that our 7,000 people at Bayer are -- yes, they're very excited about the innovation that they're doing. They've implemented dynamic shared ownership also in China, which is sort of unprecedented levels of empowerment for the individuals. It's not perfect yet. It's not perfect anywhere in the world, but I know they're excited to continue to work on that. And yes, we're -- I think we have five innovation hubs now in China. And so we're excited about the opportunities to continue to innovate together with many partnerships in China. I think we have over 100 collaborations with universities in China on various projects. But what they all have in common is they're all about Health for All, Hunger for None, which is why we exist at Bayer. We have 88,000 people in the world. We have 7,000 in China. We're all working on one mission. Thanks again for the question, Yunlong. Michael Preuss: So next, we have a question from Anja Ettel, Die Welt, and then we have a final question afterwards from Akash Babu from Scrip. Anja, over to you. Anja Ettel: Just a quick follow-up to Isabela Bufacchi's question. You spoke of the goal of less regulation in Europe as a failed experiment. And just to clarify, if you were to decide what would then be your top one priority in terms of less regulation in Europe. So what should be improved first here in your view? And a personal question, because Mr. Anderson, you have now been in office for about 3 years. Time is running fast. If you were to take stock of your tenure so far, how would you assess your performance? Where are you satisfied? And where maybe have you fallen short of your own expectation? William Anderson: Yes. Thanks, Anja. Well, I'm going to give you an answer that maybe is a little different than some that you'll hear on this question of less regulation in Europe and how do you fight this bureaucracy. And I think, by the way -- at Bayer, I think we're well, we're an interesting case study in how you fight bureaucracy, because -- let me give you an example. When we started our work almost 3 years ago, we had a rule book for Bayer that was -- I think it was 1,362 pages or something -- some number like that. And we could have said, "okay, we need to cut that back," right? And we probably would have spent the last 3 years taking that 1,300-page rule book and making it 1,100 pages, that would have made zero impact. You cannot fight bureaucracy with bureaucratic methods. Like, "Hey, let's form a bunch of committees, and let's see if we can write shorter rules or let's see if we can take the 26 rules about, I don't know, office furniture arrangement and make it 20 rules." Okay? That never works because by the time you would cut back 20% of the rules, the system would have generated another 30%. So I have to say, and I give this advice when I'm asked to policymakers, politicians, you've got to create kind of some sort of safe harbors for innovation. Because the amount of rules that exist -- and by the way, I'm not blaming -- some people blame Brussels and maybe Brussels blames Berlin and Berlin blames the state. Hey, there's too much everywhere. There needs to be some innovation zones created where whether large companies or new entities can come in and get going on things. I think AI is a fascinated example because everyone is racing to regulate it. We don't even know what it is yet. We're trying to write rules for things that haven't been done yet is the biggest folly. So I think there is a real rewiring that needs to be done. And I think there's there's a big wake-up call right now on that. So again, we could talk about that a lot, but I think this is something we have to get real about. We're never going to fight bureaucracy with bureaucracy. You got to make a clean sweep. What do we do with our 1,362-page rule book? We killed it, and we replaced it with a 14-page code of conduct that everybody needs to follow. All right? And so that is how you deal with bureaucracy. You have to basically clear it out and start over from scratch. And I think there's some real thinking that needs to be done on that. In terms of assessing 3 years, first off, I don't think of it as about me because when I arrived at Bayer, I sat down with some of these folks right here as well as a whole bunch of our other leaders and we basically said, "Hey, what do we want to do? What do we want to achieve together?" And we said, we identified four and then basically five things. We said we need to rejuvenate the Pharma pipeline. We need to really build up the productivity and profitability in Crop Science. We've got to get debt down. We've got to deal with the litigation situation. And we've got to tear out bureaucracy. And I think we've made tremendous progress on all five of those things. So I think we all feel really good about that. But when I talk to Bayer people, whether they're senior leaders or frontline workers, I always ask them, so how do you feel about the progress we've made and people say, yes, good, more than we thought we could do. Almost everyone says, "Wow, we've changed more than any of us thought we could do." But then I always ask, so how much more work do we have to do? And you might think people would say, "Oh, I'm tired. Can we just take a break?" But people tell me consistently we have more to do than we've done so far. And I actually find that exciting because I think we have a lot more gains to make, and I know my colleagues feel very similarly. We're going to -- we've made tremendous changes at Bayer in the last 2.5 years. We got a lot more to come, and we're excited about what those mean for our mission, for our customers and for our shareholders. So thanks for the question, Anja. Michael Preuss: So, and we have a last question coming from Akash Babu from Scrip. Aakash Babu: Perfect. I have two actually really quick ones. So in the past, you mentioned that you would be willing to walk away from the glyphosate business if things don't really improve or get handled. Especially, since you mentioned that it has been a drag on the business. So if everything doesn't go well in the next few days and weeks, is that something that still remains on the table for you? And secondly, I know you mentioned the 88,000 employee count right now. But I just wanted to understand if there was a to-date figure in terms of job cuts specifically as part of DSO, because I think you mentioned around 12,000 job cuts as part of the program back in August. William Anderson: Yes. So Akash, we -- what we said about glyphosate is that we've been dealing with litigation over claims that are historical claims or from historical use of glyphosate. And -- but we're still providing it because of its essential nature and because basically, the verdict of, from farmers and regulators is that this is a really important option. And we said, hey, but we -- there needs to be some sort of protection or some sort of change in the legal status. So we certainly see the settlement and SCOTUS are important topics. The recent executive order from the White House is also important on that. So we have to take that all into account. I think that it's important for these tools to be available for farmers and certainly, our actions will reflect that. I think what have we said -- I think we're saying, is it 14? There've been about 14,000 job reductions since we began implementing the new system. Some of those have to do with the new system explicitly. Others are things like facilities that we closed or things that we exited that aren't specifically related to DSO, but just have to do with the changing economics of different product lines. So thanks for your questions, Akash. Michael Preuss: Okay. So thank you very much for your questions and for your interest. Thank you very much also for your answers. This concludes our financial news conference for today, and we all wish you a great day. Thank you very much.
Operator: Good morning. My name is Melissa, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Bath & Body Works Fourth Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. [Operator Instructions] I'll now turn the call over to Luke Long, Vice President of Investor Relations. Luke, you may begin. Luke Long: Good morning, and welcome to Bath & Body Works fourth quarter 2025 earnings conference call. Joining me on the call today are Daniel Heaf, Chief Executive Officer; and Eva Boratto, Chief Financial Officer. In addition to this call in this morning's press release, we've posted a slide presentation on our website that summarizes the information in these prepared remarks and provide some related fact and figures regarding our operating performance and guidance. As a reminder, some of the comments today may include forward-looking statements related to future events and expectations. For factors that could cause the actual results to differ materially from these forward-looking statements, please refer to the Risk Factors in Bath & Body Works 2024 Form 10-K. Today's call also contains certain non-GAAP financial measures. Please refer to this morning's press release and supplemental materials for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measure. With that, I'll turn the call over to Daniel. Daniel Heaf: Thank you, Luke, and good morning, everyone. Today, we'll discuss our fourth quarter results, our outlook for fiscal 2026 and the early progress we're driving to return the company to consistent growth. Our fourth quarter performance was better than we had anticipated, but still well below the standard we expect for ourselves. Our aspiration is clear to bring together luxury scent, real benefit and unmatched access, building a brand consumers love, trust and choose every day. Last quarter, we introduced the Consumer First Formula, our multiyear plan to return Bath & Body Works to sustainable growth. Our fourth quarter results reinforce our diagnosis and the necessity and urgency of this plan. After a self-start to the quarter, our actions to strengthen our performance were successful. Supported by consumer rebound after the government reopened and strong execution of targeted promotions by our teams during key holiday moments. We ended the quarter with net sales down 2% and adjusted EPS of $2.05, both ahead of our expectations. Looking ahead, we expect improvement in our financial performance as we execute the Consumer First Formula with discipline and urgency. However, the full financial impact of the actions we were taking will take time and build throughout 2026 and accelerate into 2027. Since launching the Consumer First Formula last quarter, we have been focused on execution across the organization, teams are motivated, aligned and moving with pace. With many new roles and leaders in place, we are implementing an enhanced go-to-market approach with improved process and collaboration between product, brand and marketplace teams. Let me walk through some of the progress we are making across our four strategic priorities. First, creating disruptive and innovative products. Strengthening our hero category product offering and restarting our innovation engine, it's foundational to our plans. Since Q3, our product, merchant and supply chain teams have been working side-by-side to take insights from consumers and prestige brands and translate them into innovative products that we can deliver to consumers at extraordinary value and unmatched scale. We are prioritizing investments behind our fragrance icons; our priority product franchises and the core forms that drive repeat purchase. A recent example is the launch of our new moisturizing hand soap, one that featured updated efficacious formula, elevated packaging and is marketed as benefit first. Since the launch, consumer reviews and sell-through have been strong. So much so that we are now actively chasing into demand. This is a sign of things to come as we refocus on the consumer and our hero category. Our 2026 product pipeline reflects this approach to innovation. It is grounded in consumer insights, incorporate enhanced consumer testing and is targeted in the body care, home fragrance and soap and sanitizer category where we are the market leader. In the back half of 2026, consumers will begin to see significant product evolution in these hero categories that include new forms and upgraded vessels, such as the restage of our moisturizing body wash and a new flatback spray hand sanitizer, both directly informed by consumer feedback and designed to look modern, while improving usability. We are also strengthening how we communicate product quality by evolving the labeling on our packaging, emphasizing ingredient transparency and highlighting product efficacy and benefits, such as 48-hour moisture and dermatologists approved claims. We know stronger quality messaging is critical to attract new younger consumers, and it is already being rolled out across all touch points, including our stores, digital platforms and our product label. We expect that our new product formula, upgraded packaging, stronger product claims and elevated franchise positioning will increase our appeal to new consumers, while also increasing loyalty amongst our core customer base. We also expect consumers to respond positively to the rollout of higher fragrance loads across our iconic scent, franchises and complemented by new sensitive skin offerings. These examples reflect our focus on strengthening leadership in the core, delivering more consistent and relevant benefit advancements and better meeting the evolving expectations of today's consumer. In short, these early actions of a much broader innovation agenda, which accelerates in the back half of the year and continues through 2027. Earlier this quarter, we launched our latest Disney Princesses collaboration, building on the insights from last year's collection, including offering a broader range of accessories. This latest lineup features 5 new fragrances, Life is a Fairytale, Snow White, Mulan, Rapunzel and Aurora, along with the return of 2 fan favorites from the original collection, Belle and Tiana. The launch has resonated with customers and overall is in line with our expectations. Collaborations remain an important part of our growth strategy, and we have more collaborations planned this year than last. As we said last quarter, we will, over time, deploy them differently and more strategically to drive energy into our fragrance icons, key franchises and seasonal collections. A good example of this is the launch of the PEEPS collection, specifically designed to support the Easter shop. In summary, we are moving with pace to modernize our product, packaging and formulations, and this will become increasingly visible in the back half of the year and continue to build through 2027. Second, reigniting the brand. We have begun laying groundwork to modernize how Bath & Body Works shows up and communicates with consumers. Our brand and marketing teams are shifting towards clearer, more elevated brand and product storytelling. We are sharpening our position and creative platform, adopting a modern, consistent visual identity across channels and increasing investment in upper funnel media with higher-caliber influencers and creators to build a more culturally relevant presence that sparks excitement and builds awareness with new consumers. Earlier this quarter, our evolved brand identity made its debut on Amazon, showcasing Bath & Body Works in a modern and relevant way for today's consumer. I'll speak more about the Amazon launch in a moment. This updated visual identity is supported by richer, visually compelling product storytelling that highlight what makes our brand distinct, that everyone deserves to find their feel good. As expert creators, we bring together luxury fragrance, meaningful benefits and easy access delivered at exceptional value. The new brand expression that debuted on Amazon will begin rolling out across our own channels later this year. As we modernize the brand, creators and influencers at scale will be an important part of our new go-to-market strategy. The use of influencers is a proven go-to-market playbook that will allow us to create a more visible and consistent presence across the social media platforms, we know our consumers use every day. These actions are the beginning of a transformation of Bath & Body Works from a retailer to a global brand, one that leads with creativity, celebrates product and creates culture. I know what this looks like when it's successful, and I can see the upside. Third, winning in the marketplace. Discovery should feel effortless. We are focused on meeting consumers wherever they choose to shop online, in stores and across third-party platforms. Our global store fleet is a meaningful competitive advantage in beauty and fragrance, one that would take newer competitors significant time and resources to replicate, and we are committed to fully leveraging its strength. To welcome more consumers to the brand, we have taken steps to simplify and modernize the in-store experience. For example, we have reduced SKUs by 10%. Looking ahead, we are focused on enhancing in-store navigation. Changes will roll out later this year, creating a more intuitive, invited and elevated shopping journey. I am confident the consumer will feel the difference. At the same time, we are making these in-store changes, we are broadening and improving how consumers can discover and shop the brand across owned, digital and third-party platforms. A major milestone in this work was our February 20 launch on Amazon. We know consumers often go to Amazon to purchase their beauty products, and this launch gives us access to Amazon's broad, high-intent customer base, enabling us to reach new and lapsed consumers in one of the world's most trafficked marketplaces. The curated Amazon assortment is designed to attract new shoppers to the brand, while giving loyal consumers fast, convenient access to their favorite products. As we learn more from our Amazon launch, we are evaluating additional opportunities to extend our distribution further in strategic and brand-accretive ways. In parallel, we are elevating our owned digital experience with a focus on reducing friction and improving the customer experience through clearer product navigation, stronger storytelling and a more intuitive and modern shopping experience. For example, we have now lowered our free shipping threshold from $100 to $50, aligning more closely with specialty retail standards, enhancing our competitive positioning and crucially reducing friction for new-to-brand consumers. Looking outside of North America, our international business continues to be an exciting opportunity. The international business is approaching $1 billion in retail sales. Our partners who own and operate the stores believe in our strategy and are accelerating the pace of new store openings across existing and new markets, including Germany and Brazil. This reflects the strong global demand for our brand and allows us to further expand our reach to consumers worldwide. Our goal here is simple: be in the path of the consumer, spark Discovery and ensure the Bath & Body Works brand shows up consistently and powerfully across every owned and partner touch point. Finally, operating with speed and efficiency. We are laser-focused on removing complexity from our business, streamlining decisions, shortening cycle times and driving productivity. Our multiyear Fuel for Growth program targets $250 million in cost savings over 2 years with approximately $175 million included in our 2026 guidance. These savings allow us to accelerate and fund our strategic investments in product and brand. As we move forward, we are closely [ monicating ] indicators that our strategy is gaining traction, and we will share green shoots along the way, such as accelerated growth in new-to-brand consumers, stronger pricing power behind our innovation, improved performance in our hero categories and expanded reach through new distribution channels. The Consumer First formula represents a comprehensive end-to-end transformation of our company. It is designed to ensure we consistently meet and exceed the expectation of today's modern consumer. This work is well underway. We are moving with urgency. And as the year unfolds, our progress will become increasingly visible to consumers, associates and shareholders alike. At the core, this transformation is repositioning us from a specialty retailer to a premier global brand. With that, I'll turn over to Eva to walk you through our financial performance and outlook. Eva Boratto: Thank you, Daniel, and good morning, everyone. Today, I'll provide the details of our fourth quarter results, a wrap-up of 2025 performance and a review of our 2026 guidance. Beginning with the fourth quarter, net sales were $2.7 billion, down 2.3% versus last year and better than the guidance floor we set of down high single digits. This performance reflects improvement as the quarter progressed following a soft start in early November, when we navigated significant macroeconomic pressure that impacted our consumer demand. Our targeted promotional and operational adjustments such as a new Black Friday weekend event drove dual channel traffic growth on those key days. Our Q4 category performance reflects the same challenges we shared in Q3. We must deliver consumer-right product innovation, elevate the brand and be available wherever and whenever she chooses to shop. Body care declined mid-single digits below the shop, driven by underperformance in seasonal collections, notably holiday traditions, which did not resonate for the first time in several years. Consumer research shows our body care offerings have become too predictable and that we need to be more disruptive, modern benefit-led innovation. On a positive note, Champagne Toast had its strongest year ever, validating our strategy of elevating our core fragrance icons. Home fragrance grew low single digits, performing above shop. Candles were a relatively bright spot supported by stronger 3-Wick and Single-Wick acceptance, better inventory positioning and disciplined pricing. Soaps and sanitizers also grew low single digits with our pocketbac sanitizers leading the way. In U.S. and Canadian stores, net sales were $2.1 billion, a decrease of 2.6% to the prior year. Direct channel net sales were $579 million, a decrease of 2.5%. When adjusted for buy online, pick up in store, digital outperformed stores. International net sales were $91 million, up 8.6% to the prior year, and system-wide retail sales grew 13%. We are pleased with the rebound of our international business with all geographies delivering growth and our partners maintain healthy inventory positions. Our fourth quarter adjusted gross profit rate was 45.7%, better than expected and a decline of 100 basis points to last year, driven primarily by tariff impacts and partially offset by B&O leverage, which benefited from the Q1 '25 exit of a third-party fulfillment center. Mix-adjusted AUR declined low single digits, reflecting our strategies during holiday. Adjusted SG&A rate was 23.2%, increased 90 basis points to last year, reflecting softer sales and investment in technology and initiatives associated with the Consumer First formula. Bringing it all together, adjusted operating income was $614 million, 22.5% of net sales. Adjusted earnings per diluted share of $2.05 exceeded expectations and declined 2% to last year. With respect to inventory, we ended the fourth quarter with inventory down 5% to prior year and importantly, with clean inventory levels headed into spring. Our real estate portfolio remains healthy with 60% of our fleet in off-mall locations. In the quarter, we opened 21 new North American stores, all off-mall and closed 28 stores, primarily in malls. For the year, we opened 32 net new stores. International partners opened 36 stores and closed 7 stores in Q4 with 44 net new stores in the year. We ended the year with 573 international locations. Now for the fiscal year 2025, net sales were $7.3 billion, flat to the prior year, and adjusted earnings per share was $3.21, down 2% to the prior year. For additional full year results, please refer to the slide presentation we have posted on our website. Turning to our 2026 guidance. We expect 2026 to be a year of disciplined investment behind the Consumer First Formula, balancing rigorous cost control with targeted reinvestment to position the business for sustainable long-term growth. We expect net sales to be down 4.5% to down 2.5%. Key assumptions behind our net sales include a macro environment similar to 2025 with continued value-oriented consumer behavior. Our innovation pipeline, improved marketing execution and new touch points such as marketplace and wholesale will begin to contribute more meaningfully over time with a greater impact in the back half of 2026 and into 2027. Promotions are assumed at comparable levels to 2025 and will remain an important tool to drive traffic and customer engagement. International net sales are expected to be up mid- to high single digits. We expect full year gross profit rate of approximately 42.4%, reflecting B&O deleverage, primarily due to sales declines and merchandise margin pressure from product investments, partially offset by our Fuel for Growth initiatives. We are assuming tariff levels, inclusive of product cost inflation pressures remain roughly neutral to year-over-year earnings. We expect full year adjusted SG&A rate of approximately 29.2%, reflecting normal wage inflation, Consumer First Formula investments and sales deleverage, again, partially offset by Fuel for Growth initiatives. Our Fuel for Growth targets $250 million in cost savings over 2 years. As Daniel mentioned, we expect approximately $175 million of cost savings in 2026 with those savings earmarked to accelerate investments in innovation, digital and marketplace capabilities and high brand impact initiatives. We expect full year adjusted net nonoperating expense of approximately $230 million, reflecting the interest benefit of the early redemption of our January 2027 bond and an adjusted effective tax rate of approximately 26.5% and weighted average diluted shares outstanding of approximately 203 million. There are no share repurchases assumed in our outlook. Considering these inputs, we are forecasting full year adjusted earnings per diluted share of $2.40 to $2.65. Turning now to the first quarter. We expect Q1 net sales of down 6% to down 4%. We expect first quarter gross profit rate to be approximately 42.5%, reflecting approximately 150 basis point headwind from tariffs as we had no tariff impacts in Q1 of 2025, and B&O deleverage due to the sales decline. B&O dollars are expected to be relatively flat. We expect our first quarter adjusted SG&A rate to be approximately 32.3%, reflecting net sales deleverage and net timing of investments in Fuel for Growth savings. Our first quarter outlook includes adjusted net nonoperating expense of approximately $60 million and adjusted tax rate of approximately 28.5% and weighted average diluted shares outstanding of approximately 202 million (sic) [ 203 million ]. Considering all of these inputs, we are forecasting first quarter adjusted earnings per diluted share of $0.24 to $0.30. Now for a quick update on capital allocation. We are a strong cash flow generating business, and our top priority remains driving sustainable long-term profitable growth through strategic investments in the business. For the full year 2025, we invested $237 million in capital expenditures. We generated free cash flow of $865 million, including approximately $125 million of working capital benefits that our teams drove. We returned $167 million to shareholders through dividends and repurchased 15.1 million shares for $400 million. In 2026, we expect to invest approximately $270 million in capital expenditures focused on high-return real estate, Consumer First Formula investments largely related to product assortment and logistics and fulfillment upgrades. We expect to reduce the number of new store openings this year, resulting in square footage growth of approximately 1%. We expect to generate approximately $600 million of free cash flow in 2026, including a $65 million after-tax benefit from the interchange fee litigation settlement. We expect to maintain our annual dividend of $0.80 per share and we will redeem our $284 million of January 2027 notes in the first quarter, as I previously noted. We remain committed to returning to our 2.5x gross leverage target over time. And as always, we will take a balanced approach, investing to drive long-term growth, while returning excess cash to shareholders. To summarize, 2026 is an investment year as we execute our Consumer First Formula with pace and discipline. We are confident in our strategy and our ability to establish Bath & Body Works as a premier global brand, one that delivers sustained durable growth. With that, we'll open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Lorraine Hutchinson with Bank of America. Lorraine Maikis: Daniel, I wanted to get your insight on the competitive landscape across mass, specialty and other fragrance players. Some of these competitors are also leaning heavily into content creators and elevated packaging. How are you approaching this? And do you think you're positioned to compete effectively at this point? Daniel Heaf: Lorraine, thanks for the question. Without a doubt, the landscape we are operating in is increasingly competitive. We operate in innovative, youthful, fast-growing, high-margin categories that naturally attract strong interest and new entrants. I love -- I really love the sectors that we play in. As I explained on the last earnings call in Q3, for a period, our product innovation, our brand expression and our market execution did not keep pace with the competition or with the consumer. We leaned too heavily on promotions to drive the business. The Consumer First Formula is directly addressing those gaps, and we are moving with pace. It is not strategy, it is action. You will see from us bold and disruptive product innovation. We talked about a green shoot on the call in the moisturizing hand wash, new packaging, new formula, benefit-led marketing and the success that we've had that, a refreshed and reenergized brand that resonates with today's consumer and an elevated and extension and expansion of our distribution in the marketplace, as you have seen with our February 20 launch on Amazon. Now as part of that marketing evolution, we are going to significantly expand the use of content creators. This is really what I mean by moving from being a specialty retailer to being a global brand. We expect to see a roughly tenfold increase in how we leverage content -- and how we leverage content creators so we can show up in social media in a way that is modern and relevant. And what I love so much about this job and what I love so much about this company is where we sit. We're evolving so fast to adopt the playbooks used by these small insurgent competitive brands, but we do so from a position of strength and with what I believe are significant competitive advantages. We have the scale and resources to invest meaningfully. We have our 2,500 stores globally, which just gives us an amazing mousetrap to capture the demand we create. We have our fast, agile domestic supply chain that allows us to chase into demand, and we offer extraordinary value to our consumers. So what I like about where we sit is that we will be an incumbent, but operating with the pace and the agility of an insertion brand. I have so much confidence in our strategy, in our competitive position and most importantly, in our team's ability to execute with pace. Lorraine Maikis: Eva, can you talk a little bit about the puts and takes around your gross margin forecast for the year? What's embedded for tariffs, promotions, any other items? I would have thought you'd get some of that -- those elevated China tariffs back over the course of the year. So maybe just how you're thinking about the pace of gross margin development through the year? Eva Boratto: Sure. Lorraine. Overall, our outlook assumes about 130 basis points of gross margin pressure. I'll start with merch margin where we expect to see pressure, really driven by those product investments that Daniel just referenced, you'll begin to see some of that new product in the back half of the year. From a tariff perspective, our guidance assumes tariffs inclusive of product cost inflation, it's tough to separate those, roughly flat to earnings year-over-year. I would note you'll see an outsized impact in Q1 as we're wrapping the start of tariffs, which for us began in Q2 of last year. We had essentially no tariffs. That reverses a little bit with some of the rate movements in Q3 and Q4. We are -- we expect to experience B&O pressure as well, natural deleverage given the sales declines, the investments we are making in real estate and some wage inflation. This is all net of our Fuel for Growth. The Fuel for Growth program that we highlighted, about half of the savings flow to gross margin versus the other half SG&A. So we're continuing to mine for opportunities to improve our underlying cost as we progress. Operator: Our next question comes from the line of Ike Boruchow with Wells Fargo. Irwin Boruchow: Congrats on the improvements. I guess 2 questions. First one, Eva, could you help us understand the 1Q revenue guide a little more? Just looking for some thoughts really relative to the trends maybe that you saw exiting the fourth quarter. Eva Boratto: Sure. Thanks for the question. I'll start with a comment we made last November that was very consistent in Q4. When you exclude the benefit of broader promotional activity, our core business has been trending down about 3%. As I noted in our -- in my prepared remarks, our plan does assume promotional levels consistent with 2025. We are not building incremental promotional intensity into our plan. That doesn't mean we won't have different promotional events. But overall, as we think about intensity, we're assuming we're relatively flat. So think about the 3% I referenced as a baseline for 2026. And for Q1, we are facing our most challenging year-over-year comparison from a top line perspective. We had our strongest quarter last year in Q1. Irwin Boruchow: Got it. So I guess my follow-up is kind of to that point. So last year in Q1, I think you started off with a really successful collab, which created some tough compares for you this year. But just kind of curious if you can comment on how the follow-up Princess launch, which had a few weeks ago did. I think Daniel had some positive comments, but really just trying to understand how you were able to comp that event, and if that sets you up well relative to the 1Q guide that your kind of giving us today on revenue. Eva Boratto: Sure. Let me take that question in a couple of ways. So first, on the Disney Princess 2.0 launch, right, we built on our learnings from last year and our insights. We offered a broader range of accessories last year, those accessories sold out very quickly within a day or a couple of days. And overall, the launch has resonated with existing customers and overall is in line with our expectations. I would say you can't just look at Disney in isolation how it's affecting the overall shop. Q1 to date is tracking in line with the expectations that we just set. And while Q1 to date top line is running above our guidance range, that's consistent with our internal cadence of assumption and as there is some movement in timing of key events that can affect the quarter. So I'd say, overall, we're running in line with our expectations. Operator: Our next question comes from the line of Matthew Boss with JPMorgan. Matthew Boss: So Daniel, maybe taking a step back, what signposts should we look for to know that your Consumer First Formula is working here? And what gives you confidence in the plan or any green shoots that you're seeing at this point? Daniel Heaf: Matt, yes, great question. Let me give you a little bit of color on that. Let me start by saying I'm really pleased with how fast the whole company has moved from strategy to action. We're all collectively motivated, aligned behind the 4 pillars. We're focused on the Consumer First Formula. And I believe we're moving with real pace and discipline. The most important signposts are very clear and measurable, and we expect to see an acceleration in new-to-brand customer growth. We expect stronger pricing power and sell-through behind our core innovation. We are definitely looking for improved performance in our hero categories, specifically body care in 2026 and expanded reach and incremental sales from the new distribution channels that we will open this year, like Amazon, which we opened on February 20. These are just some of the tangible proof points that the Consumer First Formula is working. And as I've said a number of times, we expect the change to be visible to the consumer before we see the full benefits of our new strategy in the financials. And I believe there are things that the consumer is already starting to feel. We talked about the moisturizing hand soap. It is new formula, efficacious, benefit-led marketing, and we're seeing great customer reaction from that. And it is just a signal of the things that we have to come. As I said in Q3, we are really ramping into product innovation in the back half of this year. And then as Eva mentioned, we talked about the iconization of our fragrances. If we put the right level of marketing, if we build multiyear plans behind some of our iconic fragrances, we believe we can make big, bigger. We started that with Champagne Toast last year, almost as a test, and it had its best year ever. We've got a way to go to deliver that, but we will show that in 2026. When we talk about winning in the marketplace, international continues to be a great opportunity and grow nicely. We saw system-wide retail sales up double digit, which gives us confidence in the global opportunity for the brand. And then I would say, Amazon, it's an important structural proof point, one that we've already launched early into the fiscal year, and we know it's an opportunity to acquire new-to-brand customers as well as service customers, existing customers at a speed and convenience that this brand hasn't offered in the past. So that's a little bit of a color behind some of the proof points. Eva Boratto: And Daniel, can I just add a couple of additional points from a point you made. As you look at international, our partners are showing confidence in the strategy with acceleration of new store openings next year. We're expanding in new markets. And our store openings will be at least 60 net new store openings. And on the point that Daniel made about the moisturizing hand soap, as we look at the productivity of that, the productivity of that is double the soap hand gel soap that it's intended to replace. So just an early proof point of real tangible benefits when you bring the product to the market that resonates with the consumer. Matthew Boss: Daniel, to follow-up on that, how best to think about the cadence of your top line initiatives that you walked through over the course of this year? And maybe to put numbers behind it, just the time line that you see to reverse the underlying negative 3% run rate that Eva cited versus industry growth in your segment today? Daniel Heaf: Yes. As we said on our Q3 earnings call, we don't expect to grow in 2026, but yet we expect sequential improvement as we move through the year as the impact of the investments that we are making and the impact of the Consumer First Formula ramp. And really, I want everybody to think about the Consumer First Formula, not as a set of discrete initiatives, but as a system, a holistic transformation. It really as these things come together, which we will start to see in the back half, it is new product. It is a refresh and reignited brand brought to life in an integrated and elevated marketplace that delivers both the consumer impact and the financial impact that we are looking for. So make no mistake, we expect it to build through the year, and there is -- the whole company is working as fast as possible to return this company to durable and profitable growth without leaning on the brand erosive and promotional strategy that we have had in the past. Operator: Our next question comes from the line of Simeon Siegel with Guggenheim Partners. Simeon Siegel: Daniel, and sorry if I missed it if you said this, obviously early, but is there any way to quantify the initial reads from Amazon, maybe how you're thinking about both Amazon and the other incremental wholesale partnerships within the full year guide for next year? And then just when thinking about wholesale, I'm curious maybe higher level, can you share your thoughts on this is -- is this something you want to drive customers to wholesale? Or is it more so a function of you want to be able to meet your customers where they are? And then just, Eva, just quickly, it was nice to see the B&O leverage. And I heard the comment for go forward, but I'm just curious if you could tell us what the leverage point is now for occupancy and then maybe for SG&A as well? Daniel Heaf: So I'll sort of take the strategic question and maybe Eva, you can follow-up. So yes, the third pillar of the strategy is really winning in the marketplace. And the ambition here is to make discovery effortless. We are focused on meeting consumers where they are and where they choose to shop online, in our own stores and across third-party platforms. And Amazon is an important part of the strategy. We've only been live for a couple of weeks. So it's a bit early to be able to assess performance. But there's no question that the channel meaningfully extends our reach by giving us access to Amazon's broad consumer base and helps us connect, as I said, with both new and lapsed shoppers to drive brand discovery. I'm particularly pleased with the response that we've had from the way that the brand looks. If you think about when I started here, our own website offered one photograph per product. And I think it was seen very much as a way for store shoppers to replenish. If you look at how our assortment, and it is a limited assortment to start with on Amazon Look's, there's 50 SKUs. The product photography is incredible. You can see the scent stacks. You can see the benefits with lifestyle photography. We're starting to sell the brand through an elevated positioning and product storytelling in a way that we haven't done so before. And once we've done that at Amazon, of course, it's relatively quick and cheap to start to roll that out across our existing touch points. So Amazon is both a place to drive brand and consumer discovery, no question. And we are competing in the marketplace for traffic on Amazon. For too long, we've allowed our competitors to use our keywords and the fact that we didn't have an official brand presence to take the demand that was rightfully ours and funnel it towards their product. That is now no longer happening. So we have high expectations for this. It will make a meaningful financial impact in the year, and we are ramping into it. Eva Boratto: Great. And Simeon, to your question about the full year guide, inherent in our guide is about $50 million or 0.5 point of growth from our expanded distribution efforts. I would note our Amazon partnership is a wholesale model. So we're not realizing full year sales. We're excited about the start to the launch, and the teams are highly engaged to continue to drive this strategy forward. On leverage points, I would say we don't really have any changes to our leverage point. B&O at about 2% to 3% sales growth and SG&A at about 2.5% to 3.5% sales growth. Operator: Our next question comes from the line of Kate McShane with Goldman Sachs. Katharine McShane: Daniel, you mentioned a few times the words luxury and pricing power. And I wondered if you could drill down a little bit more about what specific initiatives center around these strategies? Daniel Heaf: Kate, yes, I think that's a -- it's a great question. So I think for too long, the brand has not listen to the consumer. And so that's what we mean when we talk about putting the consumer at the center of everything that we do. We are taking consumer insights and directly translating that into our new and disruptive innovative product. This is a new process that we are operating. And for too long, I think that we've looked at mass as the competition, which, of course, it is. But really, the USP of our brand and what we're getting back to is bringing queues and scents from luxuries and making it available at accessible price points. That is really the opportunity that we have in front of us. So it's not that we are looking to reposition the brand as prestige or move into luxury price points. That's absolutely not what we're doing. But it is luxury scent with benefits at unbelievable value for consumers. Katharine McShane: And just as a second question, Eva, we wanted to ask about the international outlook. Is there any risk to the numbers you gave today just given the current circumstances in the Middle East? I know there was a little bit of a drag the last time we saw a conflict in that region on your international sales. Eva Boratto: Yes. Thanks for the question, Kate. It's quite early. Let me take a step back, right? We're pleased with the rebound of our international business. In Q4, all geographies delivered growth, and our partners are starting the year in a healthy inventory position. As we look at the Middle East, today, international represents, as you know, about 5% of our total net sales with the Middle East currently representing about 40% of the portfolio. That's down quite a bit from where we were a couple of years ago. We have a strong diversified international portfolio. We're expanding our markets, and we have strong compelling consumer demographics. So I think it's too early to comment on the current dynamic in the Middle East, we'll continue to monitor it and pivot. Our stores are open and continuing to function, and we're focused on our partners and our associates, of course. Operator: Our next question comes from the line of Jungwon Kim with TD Cowen. Jungwon Kim: Daniel, as you think about the collaboration and Amazon, how is your retention strategy is different, if not at all? And how do you think that will evolve over time? And in terms of the core offering as you continue to evaluate what's the right mix of body care, candles and soap and sanitizer going forward? Daniel Heaf: Jungwon, so let me expand a little bit on collab. So -- as I said in Q3, we're sort of thinking about collabs differently. We love collabs. We want to use them differently and more strategically. We want to use them to drive energy into the things that are permanent about this brand. So driving energy into our priority franchises, driving energy into our iconic fragrances or driving energy into a seasonal collection that we are known for. And the good news is we have more collabs this year than we did last year, and we are starting to use them strategically already. A really good example of this is live right now. So we launched our PEEPS collab, which has had really excellent response for consumers. And what it's doing is not standing alone as a collab as a separate thing that's used to drive a quarter, but it is actually set up to drive energy into our Easter collection, and we are starting to see good results from that already. And when it comes to Amazon, I do think, as I've said in the past, this is predominantly about meeting new and lapped consumers. We have a very powerful and very successful rewards program with over 40 million members and over 80% of our transactions in our own network flow through that. That is an excellent tool for continuing retention, but Amazon doesn't offer our rewards program. And so we are getting a benefit of having improved AUR on that, and that is what the consumer is getting as a balance for speed and convenience. So it really is about new and lapped consumers on Amazon. And then on the second part of your question with regards to the core offering, I would say, we're focused together on making sure that we are taking share. And to take share, we should be growing in line or better than the marketplace. That is the standard we expect of ourselves, and that is what the Consumer force -- First Formula will deliver. So I don't really think about what's the right balance for the business. I think where is the consumer demand, where is the growth in the marketplace and how are we going to claim our rightful share of that. Eva Boratto: And just to repeat what you said earlier, Daniel, right, particularly as you look at body care and soaps and sanitizers, these are nice growing markets out there that we can win in. Daniel Heaf: Absolutely. We do so from a position of strength. Operator: Our next question comes from the line of Mark Altschwager with Baird. Mark Altschwager: Starting with margin, guidance implies low teens EBIT margin this year. Do you view this as a durable base for the business? And then what is your philosophy on driving faster top line versus EBIT margin expansion in fiscal '26 and into fiscal '27? Eva Boratto: Sure, Mark. I'll start with that. We -- this business has been a very healthy margin business for a long time. We need to invest for growth responsibly, while we're funding the journey through our Fuel for Growth, but we must invest in this business to get the business back to growth. And when you do that, this business leverages nicely. And so as we think about margin expansion beyond '26, we'll come back to you as we continue to execute on the Fuel for Growth strategy. But I would think about it, there's leverage to be had as we drive growth in the business. Daniel Heaf: It is growth and margin, but growth must come first. Mark Altschwager: And then a follow-up on capital allocation. You're pausing buybacks, redeeming the nearly $300 million in debt in Q1. But if free cash flow tracks toward the $600 million guide, would you intend to remain out of the market for the full year? Or is there a path to resuming some opportunistic repurchases through 2026? Or how are you thinking about the longer-dated maturities on the debt side as you update your buyback plans? Eva Boratto: Sure. Thanks, Mark. Our priorities remain the same, investing in the business, returning cash to shareholders and maintaining a strong balance sheet. We are committed to our 2.5x gross leverage. We repurchased those bonds earlier in the process of doing so. It was earnings accretive. We were preserving the cash for those bonds. And of course, as we progress through the year, we'll maintain the flexibility to return cash to shareholders after funding our Consumer First Formula priorities. Operator: Our next question comes from the line of Sydney Wagner with Jefferies. Sydney Wagner: Just one more kind of on the pricing architecture. How are you thinking about the price taking with newness and kind of what your right to pricing is there? Is there any learnings you've had as you've rolled out some of the brand refreshed product? And then just as you work to shift brand perception toward being benefit-led, adding dermatologist-approved claims in store, do you feel the consumer is following you there? What's been the early feedback on those specific claims? Daniel Heaf: Sydney, yes. So with pricing, I think our strategy is very clear. We have relied too often in the past on deeper and more frequent discounts. As we go into 2027, we are expecting AUR improvements on our innovative products. So we're expecting to get paid for our innovation. And that product isn't just great innovative, disruptive product in and of itself. It will be wrapped in new energy and new brand identity. So I do believe that when you get it right, great product, great brand brought together in the marketplace, we can start to regain pricing power. So that is absolutely the strategy. And as Eva and I have both said, across the whole business, it's not our intention in this financial year to use deeper and more frequent discounts as a lever to growth. We know that is not in the best interest of the business long-term. So that's how we're thinking about pricing. It's not that the pricing or the tickets will be materially different on innovation. It's the fact that it will not be included in some of the more aggressive discounting that we may do. When it comes to benefit-led, it is very clear in our consumer insights for many years that this is a critical thing that we must crack for new and younger consumers to consider the brand. And it is really a multipart 365 strategy. We have rolled out new claims and new levels of ingredient transparency on our product. So you can see it today on our labeling and the presentation that we showed as part of this call gave a couple of highlights of that. It is now prominent and permanent in stores and our website just launched what we call the feel good formula, which is going a much more detailed look into our ingredients and our commitment to a more clean product. So it's early days. We're getting good consumer feedback, and we expect this to be a core part of our brand identity as we move through the year, are critical for us. Operator: Our final question this morning comes from the line of Krisztina Katai with Deutsche Bank. Krisztina Katai: So Daniel, with the emphasis on attracting new younger consumers, and I believe I heard you say a roughly tenfold increase in leveraging content creators. Can you maybe just talk about your expectations around new customer acquisition, just how you see changes in your consumer demographics by age, by income? And then just how are you tracking engagement rates on social media platforms that you expect to see as a direct result of these efforts in 2026? Daniel Heaf: Great question. So our expectations on new consumers is that we are expecting to see a trend break in the levels of new consumers that we are attracting to the brand that -- we're really, really focused on that. And it is -- we welcome all consumers to the brand, and that's what I love. We are a broad church when it comes to consumers. We have propositions like Disney Princesses, which clearly skews younger. And we have a very, very loyal consumer that we love that skews slightly older. And where we want to play, of course, is where the market is growing, which is in that 25- to 30-year-old female demographic. And that is where our innovation in the back half is truly targeted. And when it comes to brands, of course, we're tracking new-to-brand consumers. Of course, we have really good new metrics on brand health, and we're expecting improvements in that also. And when it comes to social media, there are many metrics that we track, but I would say the most important one is going to be number of posts from the influencers. We're really looking for those thousands of influencers that we recruit to be posting their content about our products and our brand in their voice because we know from having seen this playbook run with other competitors and those insurgent brands I talked about, that is the secret to success in that area. So thank you for your question. Okay. So thank you, everybody, for your question. When I look -- and when we work in retail, the holidays don't mean a break. With that in mind, I just want to take this last moment to extend a heartfelt thanks to our associates across stores, across distribution centers and our home office for their continued commitment, passion and determination. We are acting with urgency and clarity against the Consumer First formula, creating disruptive and innovative product, reigniting our brand, winning in the marketplace and operating with speed and efficiency, all to attract new and younger consumers. Our expectations for our business and our brand are high, and this work will take time, but we are confident that we have the platform, the plan and the team to win. Thank you very much, everybody. Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
Cynthia Hiponia: Good afternoon, and welcome to Box's Fourth Quarter and Fiscal Year 2026 Earnings Call. I'm Cynthia Hiponia, Vice President, Investor Relations. On the call today, we have Aaron Levie, Box Co-Founder and CEO; Dylan Smith, Box Co-Founder and CFO. Following our prepared remarks, we will take your questions. Today's call is being webcast and will also be available for replay on our Investor Relations website. Supplemental slides are now available on our website. On this call, we will be making forward-looking statements, including our first quarter and full fiscal year 2027 financial guidance and our expectations regarding our financial performance for fiscal '27 and future periods, including gross margins, operating margins, operating leverage, future profitability, net retention rates, remaining performance obligations, revenue and billings, net tax benefits and the impact of foreign currency exchange rates, and our expectations regarding the size of our market opportunity; our planned investments, future product offerings and growth strategies; the timing and market adoption of and benefits from our new products, pricing models and partnerships; our ability to address enterprise challenges, enhance our product capabilities and deliver cost savings for our customers; the impact of the macro environment on our business and operating results; and our capital allocation strategies, including potential repurchase of our common stock. These statements reflect our best judgment based on factors currently known to us, and actual events or results may differ materially. Please refer to our earnings press release filed today and the risk factors and documents we file with the SEC, including our most [ recent ] quarterly report on Form 10-Q for information on risks and uncertainties that may cause actual results to differ materially from statements made on this earnings call. These forward-looking statements are being made as of today, March 3, 2026, and we disclaim any obligation to update or revise them should they change or cease to be up-to-date. In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release and in the related supplemental slides, which can be found on the IR page of our website. Unless otherwise indicated, all references to financial measures are made on a non-GAAP basis. Finally, please see our earnings deck, again, posted on our IR website for a more detailed look at our Q1 and full year '27 guidance. Thank you. With that, let me turn the call over to Aaron. Aaron Levie: Thanks, Cynthia, and thank you all for joining the call today. We delivered strong Q4 operating results, reflecting continued growth in customer demand for Box AI and the success of our Enterprise Advanced offering. We achieved revenue of $306 million, up 9% year-over-year or 8% in constant currency and Q4 EPS of $0.49, above our guidance. In fiscal 2026, we drove revenue of $1.18 billion, up 8% year-over-year, with operating margins of 28%. It was a defining year for Box as we executed on the launch of Enterprise Advanced, which brings together our most powerful capabilities around intelligent workflow automation, advanced AI and secure content management to enterprises. Enterprise Advanced customers have reached 10% of revenue, and we're incredibly excited about this early traction and continued momentum. Examples of Enterprise Advanced customer wins include a leading biotech company uses Box to manage large volumes of commercial documents but currently relies on manual searches to find key information. By upgrading from Enterprise Plus to Enterprise Advanced, the company will use AI-powered data extraction and integrated apps to surface critical commercial data directly from documents. Next, a leading global robotics company uses Box as the core platform for its revenue operations and content workflows. The company upgraded from E Plus to Enterprise Advanced to streamline quote creation and approvals with Box Doc Gen, Box Sign and Box Apps to increase throughput and reduce errors. They also plan to apply metadata extraction and OCR to financial and legal documents to automate data capture and better manage contractual risk. To understand what's driving the momentum with Box, it's important to think about the criticality of enterprise content when it comes to driving transformation with AI. Nearly every enterprise leader that I talk to today is looking to transform how their company operates with AI. They're looking to accelerate tasks across their organizations, ranging from reviewing legal contracts and doing financial analysis to accelerating pharma research and spreading expertise across their organization. They quickly find that for AI agents to be effective in a workflow, agents need critical context about their business. They need to understand the company's product road map, marketing strategy, HR policies, internal best practices, planning insights, strategy decisions and whatever else makes that business unique. Much of that unique context lives inside of enterprise content, ranging from contracts and financial documents to research documents and marketing assets, all housed inside of PDFs, documents, media assets, collateral, spreadsheets and markdown files and more. All of this enterprise content is the digital brain of an organization, containing the most important insights precisely because of their unstructured nature. Files provide a universal way to create, capture and share information between systems and people, which is why the growth of content continues to explode. Yet the vast majority of this data, which makes up 90% of corporate data has been underutilized until today. Now AI agents can finally help us tap into this critical business information and use it to accelerate knowledge work that previously could never have been automated. As we prepare for a world where there will be a 100-fold more agents inside of an enterprise than people, we will equally see incredible growth in unstructured data. Files are quite simply the native unit of work for agents. Agents use files to keep track of their work. They leverage files as context about the tasks that they're doing and use files to share back and forth with their human counterparts. And as AI agents help us augment all of our work across industries like pharma or financial services, legal and healthcare or the public sector, these agents will need the same level of security, data governance, auditability, logging and access controls that we've required for people in the enterprise. As we've seen with the growth of products like OpenClaw or the launch of Claude Cowork and others, agents may spin up countless sessions and will need their own secure file systems and sandboxes while also being able to easily collaborate securely with other people and agents. Thus, to have an effective AI agent strategy, companies fundamentally need a content strategy. They need a secure platform to manage critical content and ensure it can connect to all of their people, agents and applications. This is what we're building at Box with our Intelligent Content Management Platform. And FY '26 was another fantastic year of product innovation and momentum to ensure that we stay ahead of the market and power our customers' most critical content workflows with AI. Just in the fourth quarter, we announced the general availability of Box Extract, enabling enterprises to intelligently and securely pull the most valuable information from content and save it as metadata in Box, all powered by leading AI models. With Box Extract, companies can turn their documents into data, pulling out the structured data from contracts, invoices, marketing assets, research, financial documents and any other file type to automate workflows or glean critical insights in their business. In Q4, we also rolled out Box Shield Pro, a powerful new add-on that expands on existing Box Shield content protection and leverages agentic AI to bring new levels of scale, speed and automation to advanced security controls. We are also incredibly proud to have served as an early launch partner for Anthropic's Claude Opus 4.5 and Opus 4.6 releases, Google's Gemini 3.0 Flash and OpenAI's GPT-5.2, all available in the Box AI Studio. These are many of the foundational elements in our Intelligent Content Management Platform that we delivered in FY '26. Now looking forward, in FY '27, we will be delivering the next generation of AI agent features within Box, enabling AI agents that can do more long-running tasks and advanced work on enterprise information. Soon, you'll be able to give AI agents complete projects, and they will go off and work through your enterprise information to complete those tasks, powering everything from writing out complex RFPs to analyzing your contracts and generating a new one with the most relevant clauses. We are also building the most advanced AI-powered workflow automation capabilities with enterprise content. We will keep rapidly enhancing Box Extract to support even more complex document processing use cases. And with Box Automate, which we will launch in the first half of this year, customers will be able to combine human and agent-powered workflows to automate any content business process in an enterprise. And combined with new features in Box Apps, we will deliver full no-code business workflows from contract management to digital asset management and more. Throughout FY '27, we will continue to advance our functionality across Box Shield to enable more intelligent threat prevention and data classification with new Box Zones sites for enhanced data residency, Box Governance to power deeper lifecycle management features and new functionality to help improve the security of AI agents in Box. Finally, this is going to be a major year for the Box Platform APIs. Catalyzed by the rise of AI, enterprises will need to further centralize their enterprise content and connect a single source of truth of content to their people, agents and applications. The same contract that an agent produces, a user may want to review inside of an end-user application and may want to show up inside of Salesforce or a custom app. The same is true for every other type of enterprise content from marketing assets to financial documents. To support these growing AI use cases, we're making it as easy and secure as ever to leverage Box as a platform to integrate content across the entire AI stack like Claude Cowork, Copilot, IBM watsonx, ChatGPT or custom agents that our customers build by leveraging Box's APIs, MCP server and CLI support. We're incredibly excited about this new array of use cases for the Box Platform to be used as the file system for agents. And we will monetize this through either end-user seats that interact with these agents or API and AI unit consumption when our platform is connected to these agents in a headless fashion. So we are covered either way. Now turning to go-to-market. As I've noted, we are incredibly excited about the momentum we're seeing with Enterprise Advanced. Across industries like financial services, legal, life sciences and in the public sector, including other key industries, we're seeing growing momentum for enterprises to adopt Box's most powerful set of capabilities with Enterprise Advanced customers now reaching 10% of revenue and driving an acceleration in our top line metrics. Our partner business also remains a critical part of our strategy as we deliver more advanced solutions for customers. And in Q4, we saw continued momentum with key partners, a large government regulator that selected Box Enterprise Advanced as the content layer for regulatory case management. Working with a global systems integrator, Box replaced a legacy system, enabling secure document intake, high-volume review and AI-assisted classification integrated into core case systems, positioning Box as a foundational platform for the organization. Next, a global insurance organization upgraded to Enterprise Advanced as part of a legacy ECM modernization led by our partner, DataBank. Box AI now processes insurance policies and related documents at scale, extracting key data from large volumes of policies and endorsements to support underwriting and quoting, reduce manual review and improve operational efficiency. Given the strong results we saw in FY '26 and especially through the tail end of the year, in FY '27, we believe it's critical to continue to strategically invest to build on this momentum and ensure we're capturing this market opportunity. We will continue to invest in our critical growth verticals with go-to-market capacity and marketing efforts. We're bringing the full power of Box's Enterprise Advanced plan to customers through Box's solution offerings in key lines of business and industries. We're accelerating growth in large enterprises by deepening partnerships with major SIs like Deloitte, Slalom, TCS, DataBank and more. We're driving growth with key cloud marketplaces like GCP and AWS and much more. You will hear more about these go-to-market initiatives at our Financial Analyst Day in 2 weeks. As we enter a new era of work that is defined by AI agents, we are confident in the power that enterprise content plays in powering an agentic strategy in organizations and that enterprises will need a secure platform to connect their most important enterprise information to their people, agents and applications. At Box, our opportunity has never been larger to transform how companies work with their content. We are entering FY '27 with the strongest momentum I've ever seen as we become the platform that powers intelligent content workflows and automation in the enterprise. With that, I'll hand it over to Dylan. Dylan Smith: Thanks, Aaron. Good afternoon, everyone. Q4 capped off a year of strong execution against the 3 financial priorities we outlined heading into the year. First, we set the stage to accelerate top line growth by investing in key go-to-market initiatives and enhancing the AI capabilities of our Intelligent Content Management Platform. Second, we generated efficiencies across the business by advancing our AI-first efforts and workforce location strategy. Finally, we executed on our disciplined capital allocation strategy, reducing basic shares outstanding by more than 3 million over the past year. In FY '26, we delivered revenue of $1.18 billion, up 8% year-over-year and up 7% in constant currency. We drove an acceleration in RPO growth to 17% year-over-year or 16% in constant currency. Operating margin came in at 28.3%, up 50 basis points year-over-year and up 40 basis points in constant currency. Finally, in FY '26, we generated record free cash flow of $313 million, up 3% year-over-year. Turning to Q4. We closed the year with very strong results, exceeding our guidance across all metrics. We delivered Q4 revenue of $306 million, up 9% year-over-year and up 8% in constant currency. This represents our third sequential quarter of accelerating revenue growth driven by strong AI and Enterprise Advanced momentum. Customers paying us at least $100,000 annually, grew 9% year-over-year. After launching Enterprise Advanced as our highest tier suite just a year ago, Enterprise Advanced customers already account for 10% of our revenue. The intelligent workflow automation, advanced AI and secure content management that this plan offers are clearly resonating in the market. Over the past year, price per seat for Enterprise Advanced customers have commanded an average pricing uplift of 30% to 40% over Enterprise Plus at the high end of the 20% to 40% uplift we had initially anticipated. Going forward, we expect this 30% to 40% uplift to continue. Total Suites customers now account for 66% of our revenue, an increase from 60% a year ago. We ended Q4 with remaining performance obligations or RPO, of $1.7 billion, representing 17% year-over-year growth or 16% in constant currency and providing us with greater visibility into future revenue. Short-term RPO grew 12% year-over-year, both as reported and in constant currency. Our strong RPO growth continues to benefit both from longer contract durations and from mid-contract upgrades to Enterprise Advanced. We expect to recognize roughly 55% of our RPO over the next 12 months. Q4 billings of $420 million, were up 5% year-over-year and up 4% in constant currency, ahead of our expectations of low single-digit billings growth. This outperformance was driven primarily by strong Q4 bookings. We ended Q4 with a net retention rate of 104%, up from 102% in the year ago period, driven by continued improvements in both pricing and net seat expansion trends. We expect our net retention rate to remain at 104% in Q1 and to land in the range of 104% to 105% at the end of FY '27. Q4's gross margin was 82.3%, exceeding our guidance of 82%. This represents an increase of 130 basis points year-over-year. In Q4, we continued to drive cost discipline across the business, delivering record Q4 operating income of $94 million and operating margin of 30.6%, exceeding our guidance of 30%. In Q4, we delivered EPS of $0.49, well above our guidance of $0.33. This includes the benefit from several tax items, which reduces our effective tax rate in FY '26 and on a go-forward basis. Excluding these tax benefits, EPS would have exceeded our guidance by $0.02. I'll now turn to our cash flow and balance sheet. In Q4, we generated free cash flow of $98 million and cash flow from operations of $110 million, up 7% and 8% year-over-year, respectively. We ended Q4 with $480 million in cash, cash equivalents, restricted cash and short-term investments. Our balance sheet reflects the cash settlement of debt principal related to our $205 million of 2021 convertible notes that matured on January 15, 2026. In Q4, we repurchased 4.4 million shares for approximately $126 million. For the full year of FY '26, we repurchased approximately 9.7 million shares for approximately $293 million, representing more than 90% of FY '26 free cash flow generation. As of January 31, 2026, we had approximately $59 million of remaining buyback capacity under our current share repurchase plan. With that, let me now turn to our Q1 and FY '27 guidance. Please note that approximately 40% of our revenue is generated outside of the U.S. with approximately 65% of this international revenue coming from Japan. Note that our FY '27 guidance reflects a lower expected GAAP and non-GAAP tax rate benefiting EPS. For the first quarter of fiscal 2027, we expect Q1 revenue to be approximately $304 million, representing approximately 10% year-over-year growth or 9% in constant currency. We anticipate our Q1 billings growth to land in the low single digits, which includes an expected headwind from FX of approximately 530 basis points. We expect Q1 gross margin to be approximately 81.5%. We anticipate our Q1 operating margin to be approximately 27.5%, up 220 basis points year-over-year. We expect Q1 EPS to be approximately $0.36. Weighted average diluted shares are expected to be approximately 141 million. For the full fiscal year ending January 31, 2027, we expect our full year revenue to be approximately $1.275 billion, representing 8% year-over-year growth or 9% in constant currency. We expect our FY '27 billings growth rate to be roughly in line with revenue growth. This includes an expected headwind of approximately 100 basis points from FX. We expect FY '27 gross margin to be approximately 81.5%. We expect our FY '27 operating margin to be approximately 28% or 28.5% in constant currency. As we have discussed previously, given the momentum and demand we are seeing for Box AI and Enterprise Advanced, we are continuing to invest in strategic go-to-market initiatives to ensure we can reach customers at this critical technology juncture. We will continue to drive operating efficiency through cost discipline, AI-driven efficiencies and our workforce location strategy, and we remain committed to delivering significant margin expansion over the next few years. As it relates to FY '27 expense and margin seasonality, please note that our annual customer conference, BoxWorks, will take place in Q4. This will shift approximately $3 million in expenses from Q3 into Q4 as compared to FY '26. We expect FY '27 EPS of approximately $1.55 or $1.58 in constant currency. Weighted average diluted shares are expected to be approximately 141 million. In the era of AI agents, Box is powering the full lifecycle of content in a single platform with native enterprise-grade security and AI capabilities. Our strong results in fiscal 2026 demonstrate the success of this strategy, including an acceleration in RPO growth and an improvement in our net retention rate. In FY '27, we will continue to invest in our robust product road map and strategic go-to-market initiatives, delivering accelerating revenue growth and higher operating profit. We look forward to providing more details at our Financial Analyst Day later this month. With that, Aaron and I will be happy to take your questions. Operator? Operator: [Operator Instructions] We'll take the first question from Steven Enders, Citi. Steven Enders: Okay, great. I guess I just want to start on the opportunity for threat that you're maybe seeing from AI. And just how do you think about how the changes in the GenAI landscape, maybe impacts the content layer and what this looks like moving forward with agentic AI? Aaron Levie: Yes. So -- thanks for the question. So we're -- as you can tell on the kind of remarks, we're unbelievably excited around the role that content plays in any kind of agentic system. And so there's a few different ways that this will show up. The first is we actually expect to see a major rise of software in general being generated through AI. So if you just imagine that there's a dramatic increase in software that enterprises build, I don't 100% agree with the thesis that they'll build kind of existing in internal systems, but kind of almost independent of what you believe, there's going to be vastly more software produced in the future, sometimes bespoke software, sometimes just more companies. And for really any kind of enterprise use case, the second that you need some form of unstructured data inside that software. It could be a contract management system. It could be a pharma workflow. It could be a financial services onboarding system. It could be a client portal. All of those systems are going to need a secure place to be able to store the unstructured data that goes into that system. So the first piece is more software is just good for us because all of that software needs to eventually probably touch some type of unstructured data in an enterprise context. But probably the bigger play is as you have more and more agents doing work for us, and we've seen a few examples of agents kind of break through recently, the Claude Cowork agent, OpenClaw agent, these are great examples of agents that are doing kind of general-purpose knowledge work. And if you imagine the general-purpose knowledge work that most people do through their day, if you're a lawyer, you're looking at contracts; if you're in banking, you're looking at lots of financial reports; if you're in pharma, you're looking at lots of both research and kind of information coming in from lab tests. All of that is unstructured data. To now replace a person with an agent in that example, and agents will need that exact same data to work with. They're going to need the right contract to look at. They're going to need the pharma research to touch. They're going to need to be able to comb through financial information. And the enterprise is going to want a secure way to govern those workflows and govern the data that goes into them. If you imagine one of the kind of increasing kind of architectures emerging is these agents that have their own computers that they get to work with. Well, the computer will, to some degree, be stateless at some point, like it might disappear in a week or a month or a year from now. But what can't disappear is the data that, that agent worked on. If you're in a regulated industry, you need to govern that data. You need to be able to have audit logs, you need to be able to have a place where you store and can go do discovery on that information. So the part that actually has to keep state forever up to the point that the customer cares about working with the data is your -- is the information that, that agent worked with. And so we really imagine a world where, let's say, you have 10 or 100 or 1,000x more agents than an enterprise, than people even, they will need to do work on this unstructured information. And importantly, when they do that work, oftentimes, an end user will actually need to see the results of that work or go back and forth with the agent. So fundamentally, there needs to be some type of shared file system for them to be able to do that work. And that's why we are in a very strong position as a platform for both agents and applications, both of which will grow due to AI to be able to manage that content. So that's our overall take. We're seeing this kind of thesis continue to kind of play out in the market. You're going to see a number of developer tools launching over the coming days and weeks that will further support developers that are building on this, but this is directly what we're seeing already from our customer base and developer base. And so we're just excited to continue to make that as frictionless as possible and continue to kind of pour fuel on that fire. Steven Enders: Okay. No, that's great to hear. Maybe just on the Enterprise Advanced success so far. I think it's good to see at a 10% of rev already so quickly. Just maybe kind of what are your expectations for what that will look like for -- or where that is going to end up in fiscal '27, like what do you have embedded in the guide? And just yes, how are you kind of viewing the, I guess, seat uplift so far from customers that have taken on the Enterprise Advanced tier? Dylan Smith: Yes. So I would say certainly very excited about the momentum that we're seeing in Enterprise Advanced and just scratching the surface of the opportunity. We do expect to see that continue to drive a lot of the growth for -- in the year ahead. And we'll give more details in terms of what we're thinking and expecting around that momentum, not just for next year, but in the coming years in just a few weeks at our Financial Analyst Day. And then in terms of the type of impact that we're seeing from customers, we mentioned we've been really pleased with just how much the value of these newer capabilities are resonating with customers. So we have been seeing pricing uplifts even just from Enterprise Plus to Enterprise Advanced in that 30% to 40% range alongside a lot of the use cases that Enterprise Advanced is enabling being a catalyst and one of the reasons that we're seeing healthy dynamics around net seat expansion as well. So a lot of different benefits in terms of not just the top line growth, but the underlying customer economics and stickiness that is driving, which is one of the reasons that we're so excited about the path forward and the growth opportunity that creates. Operator: The next question is from Rishi Jaluria from RBC. Rishi Jaluria: Wonderful. Maybe I want to start, Aaron, in your prepared remarks, you talked a lot about many of the verticals, especially regulated verticals where you're helping enable a lot of these AI use cases. Can you talk a little bit about kind of the state of enterprise AI adoption and the willingness to take AI from pilot and proof-of-concept into more widespread production and what you're seeing specifically out of more regulated industries? And then I've got a quick follow-up. Aaron Levie: Yes. So great question. Obviously, I think right now, you have a bit of a tale of 2 cities with AI adoption. You have a lot of these sort of deep engineering use cases, AI coding, et cetera, that have obviously taken off because the very users of these platforms are technical, they can adopt their own tools. The communities are pretty wired together. And then you have sort of, let's say, the rest of knowledge work. And in the rest of knowledge work, I think what it often takes is applied use cases with AI that can actually bring real transformation to the workflow. There's -- I think at this point, it's safe to say every knowledge worker has some degree of access to a chat tool either personally or professionally. And so general purpose, I'm asking the Internet or some systems questions is I think increasingly growing. The real interesting part is can I actually go and automate and accelerate and augment my workflows in an organization. So with Enterprise Advanced, this is really an applied system for how do you bring AI and AI agents to enterprise content workflows. The biggest one that has taken off thus far is really data extraction. So you have a large repository of contracts or invoices or financial data and you want to be able to extract key details from that and then kick off some workflow or pump that data into a data lake and then query it or query it within Box. We are seeing a lot of growth in those use cases right now. There's -- as I kind of mentioned on the call, we have a new product called Box Automate that is coming. We shared this with customers at the tail end of last year. Box Automate is sort of one click above data extraction, which is I might want to sort of design an entire workflow, a client onboarding process, a contract process, a digital asset review process. And at multiple steps in that process, I want agents to do certain amounts of work dealing with content. And so now we move from really kind of task-specific applied use cases to really increasingly more of the full business process with both agents and people kind of showing up at the relevant point. But we are 100% focused on applied AI use cases in an organization. And that's, I think, why we're seeing healthy adoption of both Enterprise Advanced as well as in regulated industries, maybe ones where it wouldn't have been maybe initially intuitive that they would be able to adopt so quickly. It's because these are applied use cases and our platform is purpose-built for security, compliance, data governance issues that they're going to run into with AI. Rishi Jaluria: Yes, got it. That's really helpful. And then, Dylan, for you, just maybe a bit more of a housekeeping. But as you talked about your Q1 billings guide, you talked about FX as a -- correct me if I'm wrong, 530 basis point headwind to growth. That seems a little bit high, especially in light of the rest of your kind of as-reported and constant currency growth rates. Can you expand a little bit on just kind of the math behind that and why the headwind from FX is so extreme in Q1? Dylan Smith: Yes. So if you look back to a year ago, there was just a pretty significant movement in the U.S. dollar to yen exchange rate in that period. That's one of the reasons, also if you look at our Q1 results from this past year in FY '26 was really the reverse story and was one of the contributing factors to extremely strong billings growth. So it really is a unique to just the movement that we saw in that exchange rate a year ago. And for the year, much more normalized. So you did hear that right in terms of the 530 basis point headwind for Q1. For the year, we expect FX to be a roughly 100 basis point headwind to our billings growth rate. So definitely a pretty unusual dynamic just in the first quarter based on those rate movements a year ago. Operator: We'll take the next question from Brian Peterson, Raymond James. Brian Peterson: Congrats on a really strong quarter. Dylan, I'd love to understand as you went through the quarter, any help on how you're thinking about linearity demand? And any perspective from a geo in terms of Japan, North America, anything you can call out there? Dylan Smith: Do you mean linearity in terms of what we saw within the fourth quarter? Brian Peterson: Yes, 2 parts, sorry. Yes, for the fourth quarter, but 2 parts. I would love to understand just the general linearity as you went through the quarter and anything you would call out in terms of strength by geo? Dylan Smith: Yes. So linearity was really positive, both because I think the team has done a really nice job in terms of driving that and not letting everything sit to the last days or weeks of the quarter, which also gives us more cycles to bring in some of those deals, drive some of that upside, and that was certainly a contributing factor to the underlying bookings strength and outperformance that we saw. And at the same time, which also touches on your second question, we have seen a nice strength and really good momentum in the performance of our commercial business. So SMB, mid-market. And that is just inherently more linear typically than enterprise within the quarter. And so seeing that strength also contributed to the strong linearity that we saw. And then on top of those segments, again, Japan was a strong performer for us. And then we have seen some of the regions in the U.S. really starting to hit their stride as well. But no really unusual trends in terms of what we've seen over the past year other than just continued and additional strength on the commercial side, but everything, just a higher overall level of performance across those different segments. Brian Peterson: Got it. And Aaron, maybe one for you. You talked about some of the different end markets that might be coming to Enterprise Advanced. I'd love to maybe understand how do you think about the evolution of that ramp in terms of selling into the customer base, but also maybe coming in with net new to Enterprise Advanced. And I don't know if you guys can share of that 10%, how many came in kind of migrating from the existing base or net new, but would love to unpack that a bit. Aaron Levie: Yes. I mean Enterprise Advanced sets us up very nicely for net new conversations because it's getting you into a workflow conversation and in particularly an agentic workflow conversation. So you could have -- never had run into a use case that we previously would have been able to solve for you with Box, and we can come into your organization and instantly have a conversation around being able to start to drive automation in some process that, again, maybe 2 years ago, we'd have no ability to play in. So this could be a contract automation process, a client onboarding workflow where we're doing more of the intelligence. It could be in a healthcare data processing workflow. We have customers where we've had conversations where they want to rip and replace a legacy ECM system and maybe they were starting to kind of figure out can they migrate that to the cloud or build out their own capability and then all of a sudden, they kind of see the full depth of data governance, security compliance that they're going to need, especially in a world of agents and decide that actually Box is going to be the superior, more future-proof solution for that. So in all of these examples, Enterprise Advanced is kind of putting together a package between workflow, no-code apps, AI agents and sort of metadata extraction, all backed by a level of data security with Shield Pro and other capabilities that allow you to move your mission-critical work and content to Box. So we're seeing that again in a wide range of new logos as well as existing customer upsells. Operator: Matt Bullock from Bank of America has the next question. Matthew Bullock: Great. I wanted to ask about net revenue retention expectations. It looks like it's going to improve modestly in fiscal '27. But I'd be curious to hear if you could unpack the components of that across pricing per seat benefits, net seat expansion. And then it sounds like APIs and units are going to start coming into the model as well this year. I presume only marginally, but could that be something like 50 basis points of tailwinds to NRR this year as we progress towards that longer-term target of 1 to 2 points of growth from platform? Dylan Smith: Yes. So in terms of drivers of the net retention rate, yes, both for the coming year and then the additional improvement that we expect to deliver in the coming years, we would expect to see that coming from the combination of slightly higher impact from pricing uplifts and continued momentum with net seat expansion being more of a driver, which is a change from looking back to a year ago, that was more so being driven by the pricing side, but we're now seeing and expecting to see more kind of healthy mix between the 2 with no expected change on the full churn rate on that side. And then in terms of the overall platform business, yes, we could see that certainly contributing to the net retention equation and part of the overall pricing dynamic and that uplift that we'd see there. But to your point, at least for the coming year, I don't expect that to be a material driver of any change in the net retention rate. Matthew Bullock: Got it. Really helpful. And then just one quick follow-up, if I could. I wanted to ask about Enterprise Advanced pricing uplift. You've seen consistent 30% to 40% uplift relative to Plus, already at 10% revenue mix here, and you're innovating quite a bit. So my question is, do you foresee the pricing uplift for Enterprise Advanced potentially ticking above that 40% kind of baseline that it's tracked at so far over the next couple of years as you continue to add value? Dylan Smith: I would say you probably wouldn't set the expectation to see that move up too much in terms of the core upgrade from Enterprise Plus to Enterprise Advanced. Certainly, what we're driving is to deliver more of an overall contract value increase when customers make that move through the combination of just increasingly monetizing those platform components that we've been talking about as well as and kind of in conjunction with opening up the new use cases to drive more seats because that 30% to 40% uplift is really specific to the apples-to-apples, hey, you have X seats and now they're moving to Enterprise Advanced, what's the price per seat? Don't expect to see as much of the upside from the success and innovation of Enterprise Advanced show up in that specific metric, but more in the overall contract value through those other kind of related levers. Operator: The next question will come from Lucky Schreiner, D.A. Davidson. Lucky Schreiner: Maybe a unique one. But over the course of the year, did you notice any difference in behavior between the early adopters of Enterprise Advanced versus customers that maybe adopted in 4Q, just given the vast improvements in the models that we've seen over the course of 2025? And any way we should maybe be thinking about that for 2026? Aaron Levie: And when you say the models, i.e., AI models, right? Lucky Schreiner: Correct. Yes, and some of the agentic abilities that you guys can provide on the platform. Aaron Levie: It's a great question in terms of how you're characterizing it. I don't know that I could pinpoint -- I don't know that I would pinpoint any specific thing, but the general trend that is sort of embedded in that question is actually correct, which is, if I go back, let's say, 14 months ago when Enterprise Advanced initially kind of hit the scene in conversations, there were still lots of use cases in mission-critical workflows where you would have to do a lot of work to make sure that the data extraction was as accurate as you needed. And as each model family kind of has its next upgrade in its lineage, we tend to see anywhere from single-digit to double-digit percentage points in accuracy and kind of quality of the models on unstructured data. That's just universally a good thing for us because it means there's even more swaths of use cases that we can go after and say, "Hey, we can go and extract critical metadata from those even more complex contracts or financial documents or assets that you have." So I'd say the general trajectory, again, without pinpointing Q4 specifically is that customers will get more and more comfortable automating more and more of these content workflows as these models continue to improve, and we're already seeing that trajectory take off with our conversations. So it's a fantastic, just like universally good trend for us that we're going to keep riding. Lucky Schreiner: Awesome. That makes a lot of sense. Then on the Enterprise Advanced customers, congrats on the 10% of revenue. That's impressive. If I look at the percent of revenue coming from Suites, that implies nearly all of the revenue came from upgrades from Enterprise Plus customers to Enterprise Advanced, which makes a lot of sense. But is there anything about the non-enterprise Plus customers that might be slower to upgrade to the higher tiers? And maybe how are you thinking about that opportunity? Dylan Smith: Yes. I think that's right that the majority of the Enterprise Advanced customers who have upgraded were coming from existing customer base and more likely than not coming from Enterprise Plus and I wouldn't say there's anything unique about the types of companies, whether it's company size or any unique dynamics by the actual company. But just from a use case point of view, certainly, those customers who would be more already bought into the value of Box's platform offerings and who have a lot of the use cases that would benefit the most from Enterprise Advanced capabilities, as you'd expect and especially from an early adopter stage, there's pretty strong correlation with those customers who are already on Enterprise Plus, which was previously our highest tier offering. So that's really, I would say, a function of timing and the specific customers who are almost -- it's almost a self-selecting if you're one of the early adopters of Enterprise Advanced, more likely than not, you're on Enterprise Plus. But we see a huge opportunity for those non-enterprise Plus customers just given the types of use cases, the types of conversations we're having and the potential there as well. So more of a timing thing than anything else is what we'd point to. Lucky Schreiner: Got it. Appreciate the color there and congrats on a record year. Operator: Next up is Jason Ader from William Blair. Jason Ader: Aaron, I wanted to give you the opportunity to address a couple of the bear narratives out there for SaaS. First is the fear that SaaS apps become back-end databases on which an intelligence layer like Claude sits and captures much of the value. And then second, the seat-based models face structural challenges because of knowledge worker job displacement. Aaron Levie: Yes. So -- and this might sound like a little bit of the first question, but we're -- I don't -- the -- there's almost nothing in that, that is bad for Box, I guess, ironically. I don't necessarily totally believe some of those components, especially the kind of future of knowledge work and the volume of that. I think that most people are going to use AI to accelerate their work and augment their work -- kind of workforces. But what we are building as a platform is when you have critical information, contracts, research data, marketing assets, HR files, financial documents, all of that content is going to need to be shared between agents, people and systems or applications. There's simply no way around it. You can't have 2 agents that are maybe trying to coordinate a task for a lawyer be working off of 2 different sets of contracts. They fundamentally would need the same access to data. So you need a shared file system. That shared file system has to be accessible to your agents and your people. And maybe the ratio changes over time of different kind of roles in the economy in different parts. But no matter what, there'll be some human in the loop at some part. So then the data has to be shared with a person. And ultimately, that company is going to need to have the same governance, the same security, the same controls on that information as they did with people. So imagine that you're a large bank and your bank is processing escrow documents or loan kind of files from a client. That data will have to be governed just like when people went and review those documents. They're going to need to sit around for 10 years in some cases. You're going to need to see the exact traces of what the agent did and what decisions they made in that workflow. Well, all of that is unstructured data. It will all become content, whether it's markdown files or PDFs or word documents, that's all enterprise content that has to be secured and governed and controlled and protected in the exact same way that we've always been doing it because files are the sort of this natural medium by which people and agents share information. So I would just say that our platform story becomes really increasingly the core of how we can power both, again, agents, applications and people. And so in a scenario where you have maybe a seat decline because agents have grown so much, which, let's say, let's positive is some potential scenario, the agents that are growing on the other end of that still need a place to then store their documents and their enterprise content. And then I don't know if you heard this answer, but if you have more and more, let's call it, vibe-coded software or SaaS, those systems still also need repositories for being able to secure and protect and govern the content that gets generated. And we already have a business model for that. That's our platform business model. So we can grow either through platform consumption or we grow through continued seat adoption, both of which we're seeing right now in the business. And so I think we're kind of protected on both dimensions there. And it's really, again, because of the critical nature of how companies need to manage this information. You need data governance, you need data security, you need compliance, you need data residency. None of that can go away in a world of agents. And in fact, probably it becomes more important in a world of agents because if you have 100x more agents running around doing loan processes than you had people, the chance of a mistake happening, the risks of an agent revealing the wrong piece of information to a client goes up exponentially. Those agents don't have context for what they should or shouldn't be sharing. It's very easy to prompt inject those agents. There's a lot of risks that can emerge. So you need to give them isolated environments, but those are isolated environments that need some degree of controls and mechanisms and in many cases, kind of collaboration with the user. So that's what we're powering. That's what our platform has always done for humans and for applications, and now we're adding agents into the mix. And why we see this as, again, just universally a good thing. So I think maybe the one thing where we sit around and we look at Claude Cowork and we see OpenClaw, like we are just incredibly happy for the existence of these things. We were a Claude Cowork partner on their plug-ins like the more knowledge work that happens agentically, it's all goodness for us. It just creates a tremendous amount of data that needs to get stored somewhere securely. Jason Ader: Okay. Awesome. And then -- sorry, just a quick follow-up. Could you just talk about the API monetization opportunity in relation to that answer that you just gave? Aaron Levie: Yes. So there's a couple of parts of the API monetization. So there's a pure volume-based mechanic. So if you were to use Box tomorrow and you deployed a fleet of agents, and they were all running around, you had 100x more agents than people in your organization. And each of those agents, you would probably want to have a Box account of some sort. You can either have a headless Box account, you have a regular Box account you choose. And you're going to want those agents to be writing, reading, storing data, sharing with other people. And if it's done in a headless capacity via our APIs, we have a platform business model, which is consumption-oriented. And so you'll just pay for the API calls that go into that. Then if you use our direct intelligence layer, which taps into Claude and ChatGPT -- and GPT-5.2 or any new model, Gemini 3, then we also monetize that through AI units. And so we've got dual consumption monetization levers that will basically grow somewhat correlated with just the growth of AI agents in the economy, assuming our customers are deploying those capabilities. And then, of course, seats still -- like we're still relatively early on total seat penetration. And so there will actually be a scenario where seats will grow because of agent growth because we will then tap into use cases that we didn't previously solve where there still will be a human in the loop working with agents, but now we're able to capture more of those use cases than we would have for that particular knowledge worker 5 years ago. And so there's sort of just -- it's multifaceted sort of growth levers. But it's like the simple -- like if you just had to like -- be like, okay, what's the simple concept here? It's that agents use files. That is their core thing that they work with. Every time you hear any viral thing online about an agent, storing off its work, creating a memory, having documentation, having a specification to work off of, it's always a file. And so that -- those files are going to get generated. They're going to need to get stored somewhere. They're going to need to be governed. They're going to be shared with people. And so that is just the general sort of tailwind that our platform is going to be able to support. Operator: And Seth Gilbert from UBS has the next question. Seth Gilbert: I guess for the first one, you had the best greater than $100,000 customer growth in about 11 quarters. So the question is on the customer adds front. Can you help us expand on where you're winning? Is it Enterprise Advanced, other SKUs, other parts of the business? And then I believe someone else asked on the split of Enterprise Advanced new versus existing logos, but I'm not sure I caught the answer. Maybe you can expand there as well. Aaron Levie: Yes. I would say the 100,000-plus customer count growth is very much directly driven by the sort of overall set of capabilities that are either a part of Enterprise Advanced or customers that are now getting more involved in our platform because they kind of see us obviously on the right side of this AI curve. And actually, it's interesting, the neutrality piece, we haven't talked about too much on this call, but it's sort of somewhat timely in this idea that at any given moment, you might want to use a different AI model for a different capability in your enterprise. And you don't want to be moving and shuffling around your content depending on that use case. And so that's another benefit that you get with our overall platform. And so there's a lot of these sort of strategic tailwinds where our platform is positioned. And so some customers might buy our platform, not yet Enterprise Advanced, but they're buying it because they recognize the sort of importance of many of these aspects of our platform overall. And so that's also helping drive the growth. But Enterprise Advanced very much emphatically is helping lift that number up, and we're seeing it just kind of across industry right now. Seth Gilbert: Got it. That's helpful. And then maybe as a follow-up, as you're marching towards the long-term guide of double-digit top line growth, margins are remaining roughly flat for 2027 -- FY '27. I understand the drivers of these flat margins, but maybe you can talk about what has to happen for margin expansion in the future. Do we need to see top line growth above 10% to get margin expansion or maybe there's some efficiencies on the S&M and R&D side that will kind of percolate through once the investment phase next year has taken shape? Dylan Smith: Yes. So I would say there's nothing -- no required growth rate to be improving operating margin at a greater clip versus the kind of incremental improvement in constant currency that we're expecting to deliver this year. This year, really, as we've talked about, is about doubling down and making sure that we invest to capture the market opportunity, just given where we are in the market evolution. So most of those investments on the sales and marketing side. But if you look back over the last few years, we've generated significant margin expansion even while growing in the single-digit range. And so in addition to all of the opportunities and efficiencies that we're driving around kind of how we're deploying AI internally, including with Box's own product, some of the same areas that we've been driving operating margin up into the high 20s are the same things that are going to get us the next several points of growth. So that's things like continuing to take advantage of our lower-cost workforce location strategy, a lot of the other areas that we've invested in that are generating stronger returns, whether that's with Salesforce productivity, the ROI of the marketing programs or just as a lot of these core strategic go-to-market investments mature, those will be able to generate more leverage as well, including through our partner ecosystem. So really, a lot of things across the board, but would really frame the operating margin and lower rate of improvement in the current moment more as a strategic decision to put more dollars toward growth versus anything about the model itself. Operator: And everyone, at this time, there are no further questions. I'd like to hand the conference back to Cynthia Hiponia for any additional or closing remarks. Cynthia Hiponia: Great. Thank you, everyone, for joining us. And to drill down deeper on our strategy and financial model, we are hosting a Financial Analyst Day on Thursday, March 19. Please go to our IR website to register. And hopefully, we'll see most of you there in person in New York. Thank you very much. Operator: Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.
Oliver Gloe: Welcome to the Latham Group, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Casey Kotary, Investor Relations representative. Please go ahead. Casey Kotary: Thank you. This afternoon, we issued our Fourth Quarter and Full Year 2025 Earnings Press Release, which is available on the Investor Relations portion of our website, where you can also find a slide presentation that accompanies our prepared remarks. On today's call are Latham's President and CEO, Sean Gadd; and CFO, Oliver Gloe. Following their remarks, we will open the call to questions. During this call, the company may make certain statements that constitute forward-looking statements which reflect the company's views with respect to future events and financial performance as of today or the date specified. Actual events and results may differ materially from those contemplated by such forward-looking statements due to risks and other factors that are set forth in the company's annual report on Form 10-K and subsequent reports filed or furnished with the SEC as well as today's earnings release. The company expressly disclaims any obligation to update any forward-looking statements, except as required by applicable law. In addition, during today's call, the company will discuss certain non-GAAP financial measures. Reconciliations of the directly comparable GAAP measures to these non-GAAP measures can be found in the slide presentation that accompanies our prepared remarks, which can be found on our Investor Relations website. I'll now turn the call over to Sean Gadd. Sean Gadd: Thank you, Casey, and thank you all for joining the call to discuss Latham's Fourth quarter and Full Year 2025 results. In my first Conference Call as CEO of Latham I have the good fortune to be reporting on the strong results that the company achieved in both the fourth quarter and the full year of 2025. This performance demonstrates excellent execution by the Latham team. As you have seen from this afternoon's earnings release, fourth quarter revenues were up 15%, showing a solid growth across all of our product lines. We were especially pleased by the fourth quarter pickup in our In-Ground Pool sales which brought our full year In-Ground Pool sales to 1% above 2024 levels. The impressive performance per year within an industry in which we estimate the U.S. In-Ground Pool start declined low to mid-single digits. With the benefit of good weather and extended selling season, dealers were able to work through their backlog. The strong result reflects an increased demand for Latham's fiberglass pools. Fiberglass represented 76.5% of our In-Ground Pool sales in 2025 with the year-on-year growth of Latham's fiberglass pool sales of approximately 2.5%. As a market leader, Latham has been the key driver behind the increased adoption of fiberglass pools, which we estimate gained another percentage point of market share in 2025 to account for approximately 24% of last year's U.S. pool starts. The steady growth in fiberglass market penetration in the U.S. reflects the success of Latham's branding and marketing programs, emphasizing the benefit of our fiberglass pool against any alternative solution. Competitive strength of fiberglass pools, mainly their fast and easy installation, sleek designs matching current consumer preference and lower maintenance requirements, all at an affordable price makes Latham fiberglass pools the best alternative in the marketplace. While the estimated 24% penetration of U.S. pool starts for 2025 represents significant growth from 16% in 2019, this is considerably below the 70% fiberglass penetration in my home country of Australia and meaningfully below the approximate 40% to 50% penetration in key European markets, which really excites me as I think about the future and the size of the opportunity. I have considered the attributes to fiberglass from the vantage point of my many years of experience successfully selling against the standard in the boating industry, I see substantial runway for accelerated conversions to fiberglass, particularly in the Sand States, which I'll talk about in a moment. Another key accomplishment for 2025 has been the positive momentum in our covers and liners product lines, which delivered a meaningful contribution in both fourth quarter and full year sales results. The 22% growth in autocover sales in 2025 was a function of very positive consumer response to the unparalleled safety and peace of mind that autocovers offer. This is further highlighted by our partnership with Olympic Gold Medalist and Pool Safety Advocate, Bode Miller and his wife Morgan to promote full safety and the safety advantages of our autocovers. As a reminder, Latham's autocovers are compatible with all the In-Ground Pool types with the advantage of providing the homeowner with a significantly more attractive alternative to fencing, while also delivering cost savings from reduced water evaporation, reduce energy for pool heating and reduced chemical consumption, essentially autocovers pay for themselves within 4 to 5 years. Liner sales increased 4% in 2025, thanks to our industry-leading lead times and the successful rollout of our proprietary AI-powered measuring tool. Measure streams lines, the liner and winter safety cover measurement, including process for installers, ensuring a high degree of accuracy that can be completed in as little as 30 minutes. This tool is fully integrated with the Latham order entry and processing system, which allows the installers to get real-time quotes to submit orders and track their status by providing Latham with first look at all quoting opportunities and helps optimize schedules and operations. Approximately 20% of the installers who purchased this tool during the year were mutilated, enabling share gain in our liner and winter safety cover products. In 2025, the Latham team executed effectively on a strategic priority, expanding into the Sand States, in particular, and company gained considerable ground in FRGP, our initial target market, achieving double-digit sales growth for the year. This good growth was achieved by expanding our dealer network, establishing a presence for Latham in several master plan communities and nurturing our strategic partnerships with select custom homebuilders, who will feature our fiberglass pools in their developments when they begin building. The percentage of Latham sales volumes derived from the Sand States remains steady at approximately 17%. This reflects our considerable growth in Florida and a pickup in Arizona, offset by the tough Texas markets where pool permits declined at a double-digit rate. I recently spent 2 weeks in Florida engaging with the commercial team and some of our dealers, while visiting our priority Mastered Plan Communities and touring our Zephyrhills manufacturing facility, which demonstrated to me that Latham has the best fiberglass pools in the industry. I came away getting more enthusiastic about the opportunity and upside in Florida more than I had originally thought, as I do my research in joining Latham. First, the opportunity for fiberglass pool penetration in Florida and other Sand States is large. Second, the advantage of fiberglass pools are resonating with qualified established dealers, several of whom indicated their desire to partner with us in our Mastered Plan Communities. They recognize the benefits of providing their customers with a high-quality product, which posts lighting durability, elegant appearances and a smooth low maintenance finish. Not only do they get to sell a great product that meets the needs of the homeowners that are able to capture the benefit of quicker, easier installation. Shorter cycle times mean that dealers can improve their cash flow through the install process and triple or quadruple the number of pools they sell an install, annually, resulting in more profit for them in the end. Thirdly, Latham clearly has increased its brand awareness amongst consumers and leaders in Florida. With several high-profile marketing campaigns paired with logical activations. We still need to do more of this as the #1 gap I see is ensuring the homeowners gain awareness of the true benefits of fiberglass. Why is the right solution for their backyard to enable their dreams of creating wonderful memories to come true. Together with the speed at which our pools have installed allows homeowners to enjoy pools in days instead of the traditional months when compared to the standard, which is concrete. In 2026, we plan to increase our investment in branding and marketing in a very targeted way to capture greater consumer awareness with a network of trusted dealers who are able to fulfill the demand we generate. I'm excited to bring a market development framework and approach to Latham and I believe will make us even more effective than we've been to date. As we continue to focus on accelerating organic growth, you can also expect Latham to continue to consider select acquisitions that provide us with revenue synergies and/or expanded geographic reach and will be accretive to our earnings. Just a few days ago, we completed an acquisition that meets all 3 criteria. Oliver will provide more details shortly, from my perspective, Freedom Pools represent excellent acquisition, and that is: one, significantly expands our market position in Australia and New Zealand, 2 countries where fiberglass pools are highly preferred by consumers and builders; two, it gives us entry into new markets in Western Australia which represent a large markets of Perth, one of the fastest growing cities in Australia; and thirdly, it is immediately accretive to our earnings. We welcome the Freedom team to Latham. To sum up, our fourth quarter and full year 2025 performance demonstrates Latham's fundamental strengths and ability to drive considerable growth in sales and adjusted EBITDA in a down market. This proven capability differentiates us in the marketplace and provides the foundation for future growth and enhanced profitability. Now I'll turn over the call to our CFO, Oliver Gloe. Who will provide further detail in our Q4 and full year financial performance, including the drivers of our continued margin expansion in 2025 and in support of our 2026 guidance. Oliver? Oliver Gloe: Thank you, Sean, and good afternoon, everyone. I am pleased to review our fourth quarter and full year results and to report that our full year 2025 sales exceeded the midpoint of our guidance range, while our adjusted EBITDA performance was above our guidance range, demonstrating the benefits of volume leverage and production efficiencies. Please note that all comparisons we discussed today on a year-over-year basis compared to the fourth quarter and full fiscal year 2024, unless otherwise noted. Net sales for the fourth quarter of 2025 were $100 million, up 15% compared to EUR 87 million in the fourth quarter of 2024, reflecting strength in fiberglass pool sales as well as increased demand for autocovers. Organic growth was 14% for the quarter. For the second consecutive quarter, all 3 of our product lines In-Ground Pools, pool covers and pool liners experienced year-over-year growth. By product line, In-Ground pools sales were $50 million, up 15% from Q4 2024, showing strength in both fiberglass and packaged pools and representing a quarterly shift in the sales cadence given an elongated season due to favorable weather conditions in Q4. Cover sales were $37 million in the quarter, up 19%, benefiting from increased adoption of order covers and the 2 small covers acquisitions we made in February of 2025. Liner sales were $13 million, up 2% compared to fourth quarter of 2024, remaining resilient relative to the overall pool market due to the replacement cycle of these products and our industry-leading lead times. Gross margin expanded by 340 basis points to 28% in the fourth quarter, primarily resulting from volume leverage and the continued benefits from our lean manufacturing and value engineering initiatives. SG&A expenses increased to $31 million up $4 million from $27 million in Q4 of 2024, largely driven by investments made in sales and marketing initiatives and personnel to drive increased penetration of fiberglass pools and autocovers as well as higher performance-based compensation. Net loss was $7 million or $0.06 per diluted share compared to $29 million or $0.25 per diluted share for the prior year's fourth quarter. Fourth quarter adjusted EBITDA was $10 million, up $7 million, almost 3x the $3.6 million in the prior year period. The strong performance primarily resulted from increased fiberglass pool sales, benefits from higher plant absorption, efficiencies from lean manufacturing and value engineering initiatives and continued cost discipline. Adjusted EBITDA margin was 11%, a 630 basis point increase year-over-year. Now turning to our full year results comparisons. Net sales were $546 million, up 7% compared to $509 million in the prior year, reflecting higher sales volume from both organic and acquisition-related growth and tariff-related price increases. Notably, this performance was achieved while we estimate the U.S. In-Ground Pool market to be down low to mid-single digits in 2025. Organic growth of 5% benefited from execution on our key strategic priorities to drive awareness and adoption of fiberglass pools and autocovers. Acquisition-related growth reflected Coverstar Central transaction that was completed in August of 2024 and the acquisitions of smaller Coverstar New York and Tennessee, which we completed in February of 2025. All 3 product lines showed year-over-year growth. Latham's In-Ground Pool sales for the full year were $262 million, up 1% year-over-year. Importantly, this growth was achieved against a backdrop of a decline in U.S. In-Ground Pool starts in 2025, primarily as a result of our success in increasing the awareness and adoption of fiberglass pools. As Sean mentioned, we estimate that market penetration of fiberglass pools increased again by 1 percentage point in 2025, and we see a long runway for continued conversion from concrete pools, especially in the important Sand States markets. Cover sales were $161 million, up 22%, driven by organic and acquisition growth. Liner sales were $123 million, up 4% compared to the prior year period, reflecting our industry-leading lead times and the increased adoption of our MeasurePRO tool, which enables pool business to accurately and efficiently measure both pool liners and covers. With the introduction of our mobile app MeasureGO in the third quarter of 2025, we broadened access to more business as we seek to make the measurement and quotation process as seamless as possible. Gross margin expanded by 320 basis points to 33% compared to 30% in the prior year, primarily resulting from our lean manufacturing and value engineering initiatives and a margin benefit from the 3 Coverstar acquisitions as well as volume leverage. SG&A expenses increased to $123 million from $108 million in 2024, reflecting our increased investments in sales and marketing initiatives to expand the awareness and adoption of fiberglass pools and grow our market share in the Sand States as well as investments in digital transformation, along with the impact of the Coverstar acquisition. Net income for the full year was $11 million or $0.09 per diluted share compared to a net loss of $18 million or $0.15 per diluted share from the prior year. Adjusted EBITDA was $100 million, up $20 million compared to $80 million in the prior year as a result of higher volume and our structurally improved business model. Adjusted EBITDA margin of 18.3% was 250 basis points above the 15.8% in 2024. Thanks to our strong gross margin performance which more than offset higher SG&A expense. Turning to our balance sheet and cash flow statement. We ended the year in a strong financial position, which gives us the financial flexibility to fund organic growth projects as well as acquisition opportunities. Our cash position at year-end was $71 million. Net cash provided by operating activities was $11 million in the fourth quarter and $51 million for full year 2025. We ended the year with total debt of $280 million and a net debt leverage ratio of 2.1, in line with our expectations. Capital expenditures were $25 million for full year 2025 compared to $20 million in the prior year, with most of the additional investments going into our facilities in Florida and Oklahoma as well as malls for smaller rectangular pools with spas, which are popular in the Sand States. As Sean noted, we are pleased to have recently completed the acquisition of Freedom Pools. We expect incremental net sales of approximately $20 million and incremental adjusted EBITDA of $4 million on an annualized basis, which we have reflected in our 2026 guidance. In addition, we recently completed the purchase of 4 of our key fiberglass production sites. These sites, which previously we leased are important to our network and future growth. Including these acquisitions and the buildup of seasonal net working capital, we expect our net debt leverage ratio at the end of the first quarter to remain below 3 and to improve again thereafter. Turning to our outlook for 2026. We believe that U.S. In-Ground Pool starts this year will be approximately in line with 2025. Despite these continuing tough conditions, we believe Laser is uniquely positioned to outperform the overall market once again. This expectation is supported by our category leadership in fiberglass pools and autocovers and the continued execution of our strategic priorities, namely driving the awareness and adoption of fiberglass pools and autocovers, accelerating fiberglass conversion in the important Sand States markets and opportunistically making accretive acquisitions. With this as a backdrop, our 2026 guidance is between $580 million and $610 million in net sales and between $105 million and $120 million in adjusted EBITDA, representing year-on-year growth of 9% and 12.7%, respectively, at the midpoint. This includes our expectation for mid-single-digit organic growth, together with the benefits from the Freedom Pools acquisition and consider increased marketing expenses. Capital expenditures are projected to be in the range of $42 million to $48 million. In addition to the $25 million that includes maintenance CapEx for 2026 and the carryover of certain projects from 2025, the additional expenditure relates to the purchase of 4 of our fiberglass manufacturing facilities in Florida, Texas, California and West Virginia as well as investments to upgrade the newly acquired Freedom Pools manufacturing facilities. With that, I will turn back the call to Sean for his closing remarks. Sean Gadd: Thank you, Oliver. As you just heard, we are expecting a year of very positive performance from Latham in 2026. Our 9% growth expectations for this year at midpoint guidance is underpinned by Latham's specific performance, as we believe trough market conditions are likely to continue through much of the year with new U.S. In-Ground Pool starts approximately at 2025 levels. From my experience, soft markets are good opportunities for us to accelerate our Sand States strategy and execution as dealers and homebuilders be more willing to consider change in soft markets versus stronger markets. In 2026, we'll continue to execute on our key strategic priorities, namely to build the Latham brand and drive increased awareness and adoption of fiberglass pools and autocovers which we expect will enable us to continue to significantly outperform the U.S. In-Ground Pool market, while maintaining our focus on safety and excellent execution. Since joining Latham, I have met many of our customers industry leaders and our commercial people and have toured 3 of our manufacturing facilities. It is clear to me that Latham is a highly respected brand and a company with the best and broadest product lineup in the industry with a highly engaged workforce. I see tremendous opportunity for Latham to grow in the years ahead. I'm excited to drive our market penetration in the Sand States, rest of North America, Australia and New Zealand. With our extensive distribution network, high-quality fiberglass pools and autocovers and best-in-class lead times, we are positioned for accelerated profitable growth, especially when the market rebounds over the coming years. I'll be leveraging my past experience to drive greater consumer awareness and demand for fiberglass and autocovers and further enhance the value we deliver to our dealers. I would like to thank our dealers, industry partners and our employees for their contributions to our success in 2025, and I look forward to working together in 2026. Operator, please open the call for questions. Operator: [Operator Instructions] The first question is from Greg Palm with Craig-Hallum Capital Group. Greg Palm: Congrats on a good finish to the year. Sean, I wanted to start with you and recognize it's been a kind of short time since you've been CEO, but what do you learn? What excites you? And it's probably a little bit too early to ask this question, but in terms of any change in strategy or anything you want to lean into a little bit more going forward? Sean Gadd: Thanks, Greg. Good question. It's been a fast 8 weeks, I guess, and I've seen a lot of parts of the business. From my perspective, I'm very excited about what the opportunity looks like in the Sand States. I think that is something we will continue to lean on. I think from my perspective, what I've learned from my past market development, I think I can help the team to get a little more focused to drive true market developments into the MPCs. And for me, that's really about lead generation, quality of leads, getting the brand where we wanted, at the same time, getting qualified dealers into the MPCs that are going to fulfill that demand. When I think about qualified dealers, I think there's a lot of work we can do around segmentation, targeting, positioning around which the right dealers, being clear on what our positioning is for the dealers, which is to make more money. And then being importantly -- important for me is getting those dealers to position in the home to be able to talk to our fiberglass value proposition as well as we would. And I think when we do all that right, I think we'll start to get some leverage in the Sand States. And then when I back out a bit, in general, the business is running very well. I see opportunity even in our northern markets, which will ultimately help us fund the things we want to do and need to do in order to grow in our Sand States. Greg Palm: And you seem pretty excited about the conversion opportunity. And I'm just curious, is there any change in strategy in helping to accelerate that conversion opportunity? Or is it more just sort of leaning into some of the initiatives that have been sort of done and really accelerated over the last year or so? Sean Gadd: I think there's a lot of leaning in, but one of the things I'll add to it is managing the installed cost of the job. So if anything, when you're selling against the standard, the natural state is to put insurances into the job, so you don't lose any money or the job doesn't go wrong. And so controlling that to some degree because again, we're a very small portion of the total cost of a job. So us being able to manage it all the way through, I think, will be an important addition to what we're trying to do. Greg Palm: And then just one for Oliver. Can you help just unpack the guide for '26 on a segment basis in terms of that mid-single-digit organic growth. Is that across the board in pools, covers, liners? Is it skewed towards one category versus the other? I know you're coming off of a pretty good year in covers, but what's your overall thought on a segment basis? Oliver Gloe: Yes, Greg. So again, overall, the guide is about 9%. The organic part of it is 6%. Across the different product categories, as you would expect, the majority of the growth and key growth drivers will continue to be fiberglass, the continued conversion, especially indexing towards the Sand States as well as continued growth through awareness and adoption of autocovers. We do, as part of our guidance, project that all 3 of our product categories continue to grow like they've done in '25, but again, indexing towards fiberglass pools as well as autocovers. Operator: The next question is from Tim Wojs with Baird. Timothy Wojs: Maybe just first question that I had, just I guess how would you if you kind of step back and look at the early demand indicators that you have in maybe January and February and kind of coming into '26. I guess how would you kind of frame those relative to kind of a normal year for '26. Sean Gadd: A couple of things. First, obviously, we just come out of the season where we get to meet all of our dealers and our industry partners. I think it's been a relatively strong -- obviously, a quarter is relatively strong in terms of Q4. And that's driven by a number of things. One, I think really good performance from the team. Two, we've got an elongated sales cycle in that quarter because the weather turned out to be pretty good, which as we think about going to Q1, it's a little bit different with a bit of bad weather coming through. But in general, I think the industry is sort of believing that it's going to be a flat year. And I think there are so many things that are kind of going against the industry today that we need to be lifted, things like interest rates, things like the consumer confidence that will help get the starts going. But in general, tough market conditions, but feel good about what we can deliver in that environment. Timothy Wojs: And then, Oliver, I think the midpoint of the guide is maybe 50, 60 basis points of EBITDA margin expansion. Could you just help us kind of break that down between what the gross margin contribution is and maybe what SG&A should be? Oliver Gloe: As you would expect, right? So the majority or the margin contribution comes from higher gross margin, especially the continuation of our initiatives in lean manufacturing and value engineering. Those paid dividends in 2025. They will continue to pay dividends in '26 as well. You will, with the increased top line, see a moderate degree of volume leverage. And then to bring that down on an EBITDA percentage, which is 60 basis points up, you have higher gross margin that outperforms the increased investments in SG&A as we are ramping up our sales and marketing efforts in fiberglass, especially geared towards the Sand States. Timothy Wojs: I mean I guess if I look at gross margins, you you're probably up close to 300 basis points a year for the last couple of years. I mean, is it that type of magnitude of gross profit improvement? Or is it a lot more measured this year? Oliver Gloe: I want to say it's probably not going to be the 300-plus gross margin expansion, 300 basis points plus gross margin expansion that you've seen both in '25 as well as '24. It will be a little bit more moderate, but our expectation is that we take a meaningful step towards that 35% gross margin. Timothy Wojs: Very good. And then just the last one, just on the Sand States. Did you -- I didn't quite catch it -- did you say the Sand States as a percentage of sales were about flat year-over-year in terms of, I think, 17% or, I guess, similar year-over-year. I guess, a, did you say that, I guess, two, how does Florida do within that? Oliver Gloe: That's correct. So we stayed about flat. Within that, Florida was the shining star and certainly our focus in 2025, with a double-digit growth and a strong outperformance versus the market, as measured against the permit data. I think a close follow-up to that was Arizona, obviously, on a much more smaller scale for us, right? And then we had Texas, which obviously where permits were down and as a result, that reflected in our business as well as we shifted focus towards Florida. Timothy Wojs: And is it fair to think that now that you've become a little bit more seasoned in Florida and you've got at least one full season, if not a season in half behind you that the Florida trends could actually begin to accelerate from here -- as you kind of build up. Sean Gadd: I'll take that. I do think we should be able to accelerate Florida. What I'm trying to figure out as I get into the business is a formula that we can take into Texas. So obviously, we've got the Sand States strategy. I believe that we've got most of the pieces right for that. We've got to do some fine-tuning. And then I think there's a piece as well to think about, which is builder, how we think about single-family new construction builders. I've got a background in the new construction world, and I think I've got some segmentation models that I think can work. And like I said on my call was you've got an opportunity in down market to really change the way people do things. And there's 2 different paths for a builder when they think about a down market is to pretty much batten the hatches or to differentiate their way out of it because they're trying to sell more homes or sell more homes or sell for more money. And so we've got examples of both. I've got an example of Lennar telling us [indiscernible] and you've got a Taylor Morrison who's offering $50,000 of upgrades or actually including a pool. So I think that's a piece that I'd like to understand a little bit more before we go and really look to accelerate across the south. Operator: The next question is from Scott Stringer with Wolfe Research. Scott Stringer: When I dig into your 10-Ks and 10-Qs, it seems like industry pricing has been fairly muted for the past couple of years. Maybe some of that's mix. So just wondering what your outlook for pricing is in 2026 and if there's any pricing power in the industry this year? Sean Gadd: Yes. I think you're absolutely right, price has been sort of flattish. I'll remind you, though, that during 2025, right around June, we did have a price increase of about $10 million to cater to the tariff headwinds that we saw at the time and still see today. So from a price perspective in 2026, you have 2 things. One is the run rate and full year impact of that June 2025 price increase. Again, for simplicity of math and modeling, take half of the $10 million plus the normal annual and seasonal price increase that we usually take for -- to cover inflation and so forth. So I want to say price given us being the combination of both will probably be adding 2% to our top line. Scott Stringer: That's interesting. And then for my follow-up question, just on customer financing, interest rates seem to be coming down a little bit here, but outlook for flattish pool installs. So is interest rates a tailwind in this sort of macro backdrop? Or is that not really embedded in the outlook? Sean Gadd: So I want to say -- so interest rates certainly held. They've certainly come down, we don't yet see a pickup from that. And what I attribute that to is in an environment where the next quarter might have a lower interest rate, I think a lot of homeowners on the sidelines, right? An expectation of lower interest rates ahead just means that the pool buying decision tomorrow will be less expensive than the pool buying decision today, at least for the part of interest cost. So I think it's a good trend. I think what I would like to see in 2026 is that we get to the new normal, a new interest rate that is stable going forward. I think that might incentivize the homeowner to make that decision to buy a pool in the season. Operator: The next question is from Matthew Bouley with Barclays. Anika Dholakia: You have Anika Dholakia on for Matt today. So first off, I just wanted to circle -- so I just want to circle back on the MPC strategy. You guys spoke to leaning into the conversion efforts and you called out more growth this quarter in Florida, which is great to hear. Right now, it seems that you guys are targeting smaller midsized communities. So I'm just curious on the longer-term vision for this. Is the vision to partner with large-scale production builders? Or how are you thinking about further penetration in this channel? Sean Gadd: Thank you, Anika. I'll answer that. I mean we are -- the MPCs, I'll start with relatively large. When I drove through there, you're talking communities of 65,000 homes. So it's a pretty large community. Obviously, multiple builders in that community. The majority of pools, I want to understand, go in sort of 1 year after purchase or 1 year after you move in. And 1 to 3 years. So the start or where we are today is pretty much going aftermarket to go -- and go and take that MPC, but I do envisage us going after builders, but you mentioned the big national builders. You really got to earn your way to the space with national builders. And from my perspective, market development starts at the highest price point that's available to you and you're looking for a visionary builder who wants to put pools to differentiate themselves. And then slowly, you work your way down to price points -- so you eventually land when you face to face competing with National Builder. At that point, the national builders start to pay attention. So I do think we'll end up playing in that space. I don't think we are ready to do that yet, but I do see that as being a future play for us as we slowly do our market development to get to that price point. Anika Dholakia: Great. And then for my second question, Oliver, can you give us more detail on the appetite for capacity expansion beyond these 4 facilities you guys mentioned? Or do you feel well equipped with the current capacity levels in 2026? And then just any details around the cadence of the spend flowing through the year? Oliver Gloe: Yes. I think, first of all, let me address the purchase of the 4 fiberglass facilities. That were facilities that were sort of in our grid already. We lease them. They're very strategic for us. We didn't want to buy them and then did that earlier in the year. We did that early February. I think from a capacity standpoint, I think we have everything we need, right? I always -- in the earnings call, I always referred to when this business was -- or when the market was at 117,000 pools in 2021, we actually had free capacity, especially in fiberglass since then, obviously, the market is almost at half. And we've done some reduction of redundant capacity in the aftermath of that market decline, but we've also built capacity. We've built capacity through Kingston, the expansion of Oklahoma. So net-net -- and then I might add, we also built capacity through our lean and value engineering initiatives. So net-net, we probably today have more capacity than we had when the market was double the size. So I think from a high-level perspective, we have what we need from a capacity standpoint for the foreseeable future. I think as we develop our Sand States strategy, there are some geographies with one in Arizona that may need some adjustments going forward, in terms of building capacity. But I think for now, we have what we need. Operator: Next question is from Susan Maklari with Goldman Sachs. Susan Maklari: My first question is on the dealer backlog coming into this year. Can you just talk a bit about where they are? And what you're hearing from your dealers ahead of the spring. Sean Gadd: Yes. There's 2 parts to that question. The first one is our dealers were able to get a lot of work done with the extended season in Q4. That said, when I think about even just our backlog, very pleasing results early in the year. Obviously, weather is playing a little part of that right now. I mean I'm sitting here in New York and it's snowing. But in general, I'd say that backlogs look pretty good. I think that the dealers are feeling relatively optimistic about where the year might be. Susan Maklari: All right. That's encouraging. And then turning back to the margins. You've made a lot of really nice progress with the value engineering initiatives. Can you talk about where you see opportunities from here? And how we should think about the benefits of that starting to flow through. Oliver Gloe: So I think let me start with lean manufacturing. Lean manufacturing is more working on the process, whereas value engineering is more working on the product. I think lean manufacturing between the 2 is the more mature program. Think of a lot of Kaizen events, workshops that are then after completion, expanded to best practice learning and expanded to the other sites. I think lean manufacturing is in our DNA. It's how we improve on a year-to -- on a year-by-year basis, lots of little projects that add up to something meaningful at year-end. And I expect that to continue over the next few years as well, whereas value engineering think of the work on the product to make the product more -- give it a higher quality, give a better appearance, but also take out some costs, right, reengineer the material basis. So you would say there are more low-hanging fruit and more bigger projects that we then can replicate across the grid. Again, lean manufacturing, a little bit mature, value engineering is probably more new to us. We have a great organization with PhD level material scientists that we have great expectations for in 2026 as well as the years beyond. Susan Maklari: And maybe just building on that, Oliver. You've done a lot in terms of new product introductions or relatively recently. Can you talk about the momentum that you're seeing with those? And anything that you have planned for 2026 in terms of product launches that we should be aware of or paying attention to? Sean Gadd: I'll take that, Susan. I think from my perspective, we've done a fair bit of -- to your point, a fair bit of innovation. We don't disclose kind of what we've seen so far in terms of growth. But what I will tell you, based on our movements around the marketplace, we've got a -- we've reacted to some trends and have built the right product lines to basically cover where the market is going, in general. And then we've got Sand States-specific investment around product, which has been completed. So we have the right product for Florida that will enable us to penetrate, and we now are starting and have pretty much the right product for Texas as well. So as the Sand States grow, you would expect those product lines to grow as well. And then obviously, with Measure, we continue to drive that with a good penetration in the first year of -- first full year of launching, and we see that as continuing to penetrate through the marketplace and getting more people using it, enabling us to get more liner and safety covers. Operator: The next question is from Shaun Calnan with Bank of America. Shaun Calnan: Just the first one. So we've seen a pretty strong improvement in search trends for new pools and then meaningful outperformance in the search trends for Latham. What do you think is holding potential buyers back at this point? And how do you unlock that and turn those into sales? Is it just a matter of rates, consumer confidence? What do you think the key drivers are? Sean Gadd: Yes, that's a good question. I think it's multifaceted. One, when I was in Florida and certainly at the International Builder Show, I was surprised how many people didn't understand fiberglass, didn't even know how fiberglass pools get installed in the backyard. And one person actually asked if it comes in 2 pieces. So we've got some education, basic education we need to do and awareness, which is -- and you'll see that there's ads on TV, and that will continue and will always be on. The second part of it is we are -- we don't -- a homeowner doesn't engage with our brand at a high frequency. So we're not a consumer good. However, when they're in the cycle of buying something, they do engage. Now the key for me is ensuring when they engage and get on to the path to purchase that we don't drop them, okay? And we don't lose them. And so when I think about what causes a homeowner angst and why they might drop off the path to purchase, it's usually around decision-making. And the first decision-making is what contractors should they use. Do those contractors going to be here next year when something goes wrong. So that's the first question we have to help them feel comfortable with. And how do we do that is we make sure that, again, segmentation, the right dealers are available to them at the MPC so that we can make sure that the story is being told in the kitchen table and the work and the quality is where we want it to be in the MPCs. The second part, second challenge will be around colors and around shapes and sizes, right? So those are all decision points where a homeowner might get frustrated and might decide to defer. And so we're going to make -- our job is to make all those things with tools as easy as possible, which we will develop over time, but make sure that we meet our consumer when we need to and make sure we have the right tools to make their decision-making much easier, then at least we're controlling what we can control. The macro environment is out of our control. When that comes back, we'll get the benefit of it, but we are planning to do to make the power to purchase much easier than it is today. Shaun Calnan: Great. And then on the acquisition of the manufacturing facility, so that's increasing CapEx next year. Is there any impact to the P&L in terms of lease expense or depreciation and amortization? And then what are you guys expecting for free cash flow next year or this year? Oliver Gloe: So in terms of the impact to the P&L, and I'll limit my comments to EBITDA. So the purchase replaces a lease expense in the neighborhood of about $1.5 million annually. In terms of free cash flow, we don't specifically give guidance on free cash flow. But we've disclosed our CapEx need. The acquisition in Freedom was about $17 million and net of those 2 impacts, meaning the acquisition of the 4 fiberglass facilities as well as the acquisition of Freedom Pools, the additional EBITDA will flow through to free cash flow. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Sean Gadd: First of all, I want to thank everybody for joining us today. Obviously, this is my first call with Latham, and it's been a good time to join the business because we had a fantastic Q4 and certainly a good 2025. Very excited about what 2026 will bring and beyond. I think we've got lots of opportunity, great product, a great brand, and I think we can build on that to make it even better. With that, obviously, I've met some of you in the different shows, I look forward to catching up with you on calls post this call and then out at some conferences in the near future. So thank you very much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to VersaBank's First Quarter Fiscal 2026 Financial Results Conference Call. This morning, VersaBank issued a news release reporting its financial results for the first quarter ended January 31, 2026. That news release, along with the bank's financial statements, MD&A and supplemental financial information are available on the bank's website in the Investor Relations section as well as on SEDAR+ and EDGAR. Please note that in addition to the telephone dial-in, VersaBank is webcasting this morning's conference call. The webcast is listen only [Operator Instructions]. For those participating in today's call by telephone, the accompanying slide presentation is available on the bank's website. Also, today's call will be archived for replay, both by telephone and via the Internet beginning approximately 1 hour following the completion of the call. Details on how to access the replays are available in this morning's news release. I would like to remind our listeners that the statements about future events made on this call are forward-looking in nature and are based on certain assumptions and analysis made by VersaBank management. Actual results could differ materially from our expectations due to various material risks and uncertainties associated with VersaBank's businesses. Please refer to VersaBank's forward-looking statement advisory in today's presentation. I would now like to turn the call over to David Taylor, President of VersaBank. Please go ahead, Mr. Taylor. David Taylor: Good morning, everyone, and thank you for joining us for today's call. With me for the first time is our recently appointed Global Chief Financial Officer, Nico Ospina. Nico joined us from Raymond James U.S. Investment Banking Group, where he was a member of the team that has been so supportive of our U.S. capital market activities. He knows our business and our industry well and is already having a meaningful impact on our organization. John Asma, who previously served as our CFO, will now head up our Canadian banking operations, where his many years of experience with the bank across multiple executive roles will support the continued expansion and enhanced efficiency of our Canadian banking operations. I'd like to thank John for his excellent contribution as CFO over the past couple of years. Before I begin, I want to remind you, as I did last quarter, that our financial results for the first quarter reflect the continued, although significantly lower costs associated with our plan to realign our corporate structure to that of a standard U.S. bank framework. Those costs amount to $1.5 million before tax in Q1, which was down significantly from the fourth quarter. Also, a quick note about some updated terminology. As part of the broader reorganization, we have changed the name of our receivable purchase program to structured receivable program. This is a change in label only. The program itself has not changed in any way. Now on to the quarter. Q1 was a great start for fiscal 2026, unfolding very much on plan and highlighted by new records for the credit assets and revenue, which were up 23% and 31% year-over-year, respectively. And notably, the credit assets revenue grew 5% and 4% sequentially, clear evidence of the momentum in our business. But most importantly, as per the fundamental tenet of our business model, we are seeing the benefit of operating leverage really kick in. Most of this was driven by the acceleration of our U.S. structured receivable program portfolio. Finally, I will note, as I have in the last several quarters, that we achieved these metrics with significantly higher than typical levels of liquidity at the early point of our expansion in the U.S. Looking a little closer at our structured receivable program. After achieving and, in fact, surpassing our 2025 target for our program in the United States, we completed more than USD 200 million in additional fundings in Q1. Notably, the vast majority of the Q1 fundings were through our higher spread core SRP with only a small contribution coming from our securitized offering. Importantly, for Q1, we saw the efficiency of our U.S. operations surpassed those of our Canadian banking operations. Our U.S. operations have an advantage of both less expensive deposit funding and a smaller team need to manage and grow the business. With substantially all our cost structure in place, we will see meaningful increases in efficiency as the year progresses, moving into the low 20% range through the year-end. We are well on track to achieve our target of adding at least USD 1 billion in fundings in fiscal 2026. That's more than threefold increase from 2025. While we can achieve this with our existing SRP partner relationships, we are continuing to cultivate new potential partnerships to drive additional potential upside this year. I'd now like to turn the call over to Nico to review our financial results in detail. Nico? Nicolas Ospina: Thanks for the kind introduction, David. Glad to be here on my first call as a CFO as a global CFO of VersaBank. It is certainly a very exciting time as we enter a year defined by strong growth and meaningful improvements in operating leverage. Before I begin, I will remind you that our full financial statements and MD&A for the first quarter are available on our website under the Investors section as well as on SEDAR and EDGAR. All of the following numbers are reported in Canadian dollars as per our financial statements, unless otherwise noted. Starting with the balance sheet. Total assets at the end of the first quarter of fiscal 2026 grew 24% year-over-year and 6% sequentially to a new high of over $6.1 billion. Cash and securities were $729 million or 12% of our total assets, up slightly compared to the end of Q4 2025. I would like to mention here David's early comment about this being higher than our historical levels of around 7% as a result of our entry into the United States. Book value per share increased to another record of $16.93. In terms of our capital, our CET1 ratio was 12.8% and our leverage ratio was 8.2%. We both remaining above our internal targets. Our strong growth in assets drove total consolidated revenue to a record of $36.5 million, up 31% year-over-year and 4% sequentially. Consolidated noninterest expenses, including onetime costs associated with the reorganization were $20.5 million compared with $15.7 million in Q1 last year and $23.9 million of Q4 last year. Excluding these costs, noninterest expenses for Q1 were $19 million. As a reminder, DRT Cyber expenses are included in our consolidated noninterest expenses and totaled $2.8 million for the quarter. Reported net income was $11.1 million and consolidated earnings per share was $0.35. Excluding the after-tax expenses associated with the reorganization, consolidated adjusted net income was $12.2 million or $0.38 per share, with adjusted net income increasing 49% year-over-year and 15% sequentially. Looking at the income statement on a segmentated basis, revenue for the Canadian banking operations was 27.6%, up 16% year-over-year and level sequentially. I will remind you that the bank's corporate expense flow through our Canadian Digital Banking segment. And as a result, reported net income include those reorganization costs. Net income was $8.7 million. However, that number is dampened by the $1.1 million after-tax impact of the reorganization I described earlier. Revenue for our U.S. banking operations was $6.8 million, a 30% increase sequentially, primarily due to the ramp-up of our US SRP. That drove 40% increase in sequential net income to $2.8 million as we see the U.S. operating leverage take effect. Within DRTC, the cybersecurity component generated revenue of $2 million, level with Q1 last year, a net loss of $630,000 impacted by higher operating expenses related to the onboarding support costs for new cybersecurity offerings. Digital Meteor revenue was $528,000 with net income of $179,000, driven by higher client engagement and lower operating expenses. Our credit asset portfolio grew to a new record of $5.33 billion at the end of Q1, driven once again by our structured receivable program, which increased 29% year-over-year and 9% sequentially to $4.4 billion. Our SRP portfolio represented 83% of our total credit assets at the end of Q1, up from 80% at the end of Q4 2025. Our multifamily residential loans and other portfolio decreased 1% year-over-year and 8% sequentially to $0.9 billion as we transition some of our higher risk weighted to lower risk-weighted multifamily residential loans as part of our bank's strategy to capitalize on opportunity for low-risk-weighted credit assets with higher return on capital and to continue growth in our SRP portfolio. As a reminder, our multifamily residential loans and other portfolio is primary business-to-business mortgages and construction loans for residential properties. We have very little exposure to commercial use properties. Now turning into our income statement for our digital banking operations. Net interest margin on credit assets, that is excluding cash and securities, was 2.64%. That is 28 basis points or 12% higher on a year-over-year basis and level sequentially. Overall, net interest margin, including the impact of cash securities and other assets was 2.25%, an increase of 17 basis points year-over-year and down slightly from fourth quarter 2025. And again, it is dampened by our higher than typical cash balances. This still remain among the highest of the publicly traded Canadian federally licensed banks. Our provision for credit losses in Q1 continued to be de minimis as a percentage of average credit assets at 5 basis points. This was down from 11 basis points from Q4 2025, primarily due to changes in the forward-looking information used by the bank in its credit models. I now would like to turn the call back to David for some closing remarks. David? David Taylor: Thanks, Nico. The first quarter of fiscal 2026 sets us up for a very good year. In fact, what should be by far the most profitable year in our history. At the risk of overusing the term, we have strong momentum in our core digital business and in the United States specifically, where we have significantly greater operating leverage. Importantly, all the elements that support the very positive trajectory, the strong growth that I have discussed in our last call have not changed. We have multiple drivers of our credit asset growth. The U.S. SRP growth is accelerating, and we're on track to hit our fiscal 2026 target of $1 billion in additional assets. We expect to continue to see decent growth in Canada and expect our growth in CMHC loan book in Canada also. And we have already seen the incremental contribution of new revenue stream generated by our CMHC allocation fees. We expect net interest margin to be relatively flat to the higher levels of last year with some upside potential. We expect noninterest expense to be relatively flat to last year with some opportunities for year-over-year cost savings. I'll remind you that about $10 million of our annual costs last year were incurred by our cybersecurity business that we're in the process of divesting. 2026 is also a year in which we are on track to realize additional value from 2 other initiatives. First, we are making steady progress on our reorganization to a standard U.S. bank framework that we started last year. Most of this work is happening behind the scenes, but we do expect to be able to share some noteworthy updates in the near future. While we are very comfortable with where we are, there have been more work here than initially thought by our external legal counsel and auditors. So while Q1 costs for the reorg were more or less in line with the additional costs we thought we would have this year, we expect to incur an additional cost of $4 million to $4.5 million in the second quarter. We still expect the benefits and shareholder value creation to be meaningfully outweigh the aggregate cost of this project. Second, the divestiture process of our cybersecurity business is also steadily moving forward. It's still our goal to have this completed by the end of the summer, hopefully earlier. Completion of the sale will provide meaningful additional regulatory capital to support our growth and obviously well more than absorbs the additional costs associated with the reorganization. We continue to execute and deliver strong growth in our core digital banking operations. We are simultaneously moving steadily forward on our digital asset strategy. It was just a year ago that we reengaged on this opportunity. In my more than 4 decades as a banker, I've never seen the banking sector has historically very conservative move so quickly to adopt an emerging technology. We now have a separate investor presentation on our website specifically dedicated to our digital asset opportunities. This is also partly due to the importance and magnitude of this opportunity for us, but also due to confusion that exists around how the opportunity in this space is evolving. As a reminder, we have 2 parallel commercial paths. Both are based on our proprietary VersaVault technology, which we believe due to our unique approach is the most secure digital asset technology available today, proven and validated by SOC 2 Type 1 certification considered to be the gold standard in data security. The first and largest opportunity is our proprietary real bank tokenized deposits or RBTDs. Tokenized deposits are very rapidly gaining traction as the industry increasingly recognizes the many advantages of these being an actual bank deposit, just like any other bank deposit. In effect, we are simply replacing our check clearing system with state-of-the-art blockchain technology. For bank customers, this means they will receive interest, and we expect, subject to confirmation by regulators that they will enjoy the comfort of conventional deposit insurance. Announced U.S. stablecoin regulation prohibits both. For us banks, it means we can use these deposits for lending, again, just like any other deposit. Stablecoin funds must be parked with a third-party and liquid assets like T-bills. The integrated U.S. and Canadian pilot programs for our RBTDs that we initiated last fall is proceeding well on both sides of the border, although it's taking a little longer than I originally anticipated. The second is the extension of the deposit services we are already providing on both sides of the border as a national federally licensed bank to stablecoins. While we firmly believe that bank-issued tokenized deposits have a number of key advantage over stablecoins, stablecoins have a role to play in the financial ecosystem and being opportunist that we are, we have a strategy here as well, providing custody services to stablecoin issuers. This is not new for us. It's simply an extension of the custodial services we have provided to others for years, just a new market segment and using our VersaVault technology. Just a couple of days after the end of the quarter, we announced our first stablecoin custody customer, Stablecorp for QCAD, Canada's first regulatory compliant stablecoin. Stablecorp is a pioneering leader in the stablecoin space backed by an investor group who is a who's who of the leading participants in this space, including Coinbase, Circle, DeFi Technologies and FTP Ventures. We see their choice of VersaBank as custodian for QCAD as a massive endorsement of our technology and our experience as well as confirmation of our belief that the best choice for stablecoin custody is a national federally licensed regulated bank. It's difficult to provide any guidance on the financial impact of our relationship. It will very much depend on the growth in the issuance of QCAD, but one we'd only look at the U.S. market where the leading stablecoins in aggregate are valued at hundreds of billions of dollars. With that, I'd like to open the call to questions. Operator? Operator: [Operator Instructions] Your first question comes from Tim Switzer of KBW. Timothy Switzer: So first one I have is on the stablecoin custody opportunity you guys have talked about. Is there any update you can provide on, I guess, the progress Stablecorp has made on launching the coin? And do you have any kind of idea or expectations in terms of the volume the coin could reach and their aspirations there? David Taylor: Well, Tim, I would just say it's imminent for the full-blown launch. We're in the thick of it every day with working with stablecoin. It's hard to say on the quantum of the size. Their partners are the who's who in the industry. And in the United States, of course, Circle or USDC has got about $70 billion on deposit with BlackRock, I understand from public information. Canada is 10% the size. So I don't know if it proportionally will get to something like that. But kind of early days. They've got the right partners. They've got the right product, and they seem to have in Canada country keen to get on with it and endorse it. So they sort of -- I think we'll wait and see, but it won't be too much longer to see. Timothy Switzer: Okay. And could you maybe provide some details in terms of how you guys plan to monetize this? And what are the various revenue streams you expect to generate through the Stablecorp partnership? David Taylor: Well, for quite a while, it will just be the traditional net interest margin that we earn on the deposits. And we -- because we have no experience with the stickiness of these types of deposits, we'll keep them in highly liquid securities. So we might be earning around 50 basis points net interest margin on the deposits. So it's not super profitable, but it is incrementally profitable to the bank. Timothy Switzer: Got it. Yes, that makes sense. And has this like -- since you signed a partner, has this -- it allows you to kind of prove out the technology you have. Has this spurred more conversations at all for VersaVault and custody in Canada or the U.S.? David Taylor: Yes, it's put us on the radar screen for sure. I've had a lot of conversations with the players in this industry, probably prompted by that release. But there's one thing to talk about it. But when you're chosen to be the custodian by a company as well regarded as Stablecorp with its -- the partners, the who's who in this entire industry, it is an endorsement that we clearly have state-of-the-art technology to be able to deal with it. And of course, being a national bank in the States of Schedule I bank in Canada, we're better to put your deposits with us, of course. Timothy Switzer: Yes. Yes, I get you. Okay. And then on the other products you guys have, the real bank deposit tokens, any update on, I guess, like distribution strategy, potential partners? Like have there been any conversations with the big payment providers or payment rails, credit card networks, other banks like for maybe white labeling? Can you provide an update there? David Taylor: Well, I should just simply say all of the above. It's a very popular product with the other banks, particularly the community banks that are at risk of losing their deposits to the stablecoins. So we have lots of conversations with saying all of the above. Primarily, our work has been, though, with the regulators on both sides of the border, producing sort of a white paper framework for them to have a hard look at. So they'll understand just how it all fits together legally and mechanically. We're just about done that. We've got one for the Canadian regulators, one for the U.S. regulators, really well laid out, spells it out the legal side of it and mechanical side. And so within a day or 2, that should be in the hands of the regulators. And that's the gating item. We need the regulators to sign off on what we have in mind. And then I think it's just like all our other products, you build it and they will come. I mean we have all kinds of interested parties joining in with us. And I have said to both sides of the border that I don't plan on holding on to this technology for our own exclusive use. I'm happy to share it with all the rest of the FIs. In fact, it's the safety and numbers, it's a wonderful technology. It's good for all the entire banking industry. We might want to clip a little royalty on it going through. But we are -- I think it's best for the industry that we share the technology with everybody. Timothy Switzer: Got it. That makes sense. And one last follow-up. You mentioned the community bank showing some interest. And I assume that's in the U.S. You have a lot of other competition in the United States that are probably better known to those U.S. banks rather than VersaBank. I mean, JPMorgan, Citi, some of the nonbank stablecoins, SoFi USD recently launched. Like what are the conversations? What's the value proposition you offer them on why they should maybe choose one of VersaBank's digital deposits rather than a competitor? David Taylor: Well, with respect to the very large banks that are doing a good job of getting their tokenized deposits out, they -- I don't want to speak for them, but historically, they haven't been that much inclined to help these small community banks become competitive with them. Of course, not. So I mean they're looking after their own customers and they're doing a really good job of it. I think the community banks, which may be number say, 4,400 or so quite rightly see that they're not going to get a lot of help from the big guys, but they are going to get help from us because we're part of the pack. And with our discussions with the various regulatory bodies, it does appear we're ahead of the pack by quite a bit because the type of questions I'm getting would imply that they haven't heard about our techniques before. So if the others are talking about what they plan on doing, they're not there. They're not at the front or else I wouldn't be receiving the questions that I am from various regulatory bodies on both sides of the border. Timothy Switzer: Got you. Yes. I mean it probably helps that you're not necessarily competing directly with a lot of these community banks core businesses... David Taylor: Yes, we have no intention to do that at all. I mean this is just simply -- we think we've got a great product for the banking industry. It does a way with the archaic check clearing systems. It's good for everybody. We've got a little bit of a first mover on it, and I'm sure the rest will want to catch up quickly. And if we can clip a little transaction fee from our friends and the other community banks all the better. And for the ones I'm talking to, they all expect they'll have to pay a little bit of a toll, but we're not greedy. This is -- sounds I'm being altruistic, and that's kind of odd for a banker. But to us, you got to do something for the industry. This is a great technology. It's going to work for everybody. Operator: Next call comes from Liam Coohill of Raymond James. Liam Coohill: This is Liam on for Joe. I appreciate all the color on the crypto side, but I'd like to flip over to the U.S. structured receivable program quickly. Could you discuss the pipeline of partners there and your expectation for the mix between legacy portfolioing and securitized offering? David Taylor: Well, we started out with sort of lofty expectations. And I think most people quite rightly were skeptical about what our success would be. Strangely enough, a lot of that skepticism came from Canada saying, "Gee whiz, U.S. is a huge market. Why do you think that your product would be well received? " It's actually exceeded our expectations, which we're lofty to start with. We've got tremendous interest in our on-balance sheet securitized receivable product, as you saw by the results, it's almost as fast as we can sign them up, we'll be adding to it. So with the mix, this quarter, it was about 85% of on-balance sheet securitized receivables. We had originally estimated to be more like 60-40 still in favor of the on-balance sheet. It may move to that number a little later on, but the pipeline is very strong. It's an economical and reliable funding source and well proven in Canada and the folks that have signed up with us here in the States seem to have all kinds of volume for us. So good numbers. We've said publicly we expect to put $1 billion on by the end of the year. It could get well over that figure from just a few partners we've already signed. Liam Coohill: No, that's great color. And quickly, I appreciate the update on the sale process of DRT Cyber. But I am curious how you think about recent concerns surrounding AI potentially disrupting the cybersecurity space. David Taylor: Well, we have an AI module ourselves, and it is state-of-the-art. I mean, we did a few years back when AI started becoming more popular. From what I use AI for, I mean, it's -- I said -- went back to somebody yesterday, said it's fantastic. I think it is the way of the world, it's the way it's going to go. And I think the bad actors are going to use it just as much too. So we -- it's one of those games where you can't rest. You just got to keep getting better and better all the time. And we think DRT Cyber is there. It's got a team of about 60, 70 experts in this area. Some we recruited from around the world that were legendary at the time. So it's a team of people and technology that anybody would be proud to have with them. But let's just say, as we say, if you're not secured by DRT Cyber, you're not secured. We're not being arrogant there. It's just -- you're implying the world has changed so rapidly and the bad guys have got the tools, too. So you've got to have a really good team on your side to make sure that your facility has got chills up all the time. It changed in a month, a month or 2. It's a sad, sad comment on humanity that this has taken place. I think some of you folks know that in my youth, I used to be a maximum security prison guard. And I thought at that time, maybe 2%, 3% of the population was given to evil endeavors. Now with this, gee whiz, it's a lot higher percentage. Liam Coohill: Yes, no kidding. It's definitely something to watch. I appreciate all that. And just one more for me. I noticed some of the Canadian insolvency deposits declined slightly quarter-over-quarter. Could you discuss kind of bankruptcies in Canada and expectations for those moving forward? David Taylor: Well, unfortunately, we signed up maybe 1.5% more this quarter in new accounts that are there to receive the proceeds from a wind-up of an insolvency. So that would mean that Canada is still sliding down into a deeper recession as a leading indicator is how many of our insolvency professionals sign up new accounts. And then the accounts fill up with deposits. So you'll see deposits increase, unfortunately. It slid back a little because of seasonality, I guess, our insolvency professionals tend to distribute the proceeds maybe before Christmas. And then in the quarters to come, it will build. I think round numbers, we're around CAD 900 million, probably get to around CAD 1 billion by the end of the year. Canada is still suffering, and there's very, very -- a lot of reasons for that. We'll keep our fingers crossed even though we make a bit of money on insolvencies. I prefer to see -- I'd be telling you a decline in insolvencies rather than an increase. Operator: The next question comes from Andrew Scutt of ROTH Capital. Andrew Scutt: So first one for me on the U.S. program. You guys said you did -- the bulk of the originations in the quarter were through the core program. I was kind of curious how you see the mix working out as we go through the year and you kind of build towards that $1 billion target. David Taylor: Well, I think you'll see an increase in the purchase securitizations in the next few quarters. And there's a fair amount of product out there that fits us and some has strategic value for us in that it's -- the securitizations are issued by our target market. So I think the first quarter might have been a bit of an anomaly with about only 15%. But then again, there is super strong demand for the traditional on-balance sheet securitization coming in too. Bottom line is I said $1 billion, it could be a lot more than $1 billion in total. It's a good product. It provides value to our clients. It's cheaper funding. It's more reliable. And towards the end of the year, if we can -- we can enhance the product with the instant purchase program that we're working on, it should be even more popular. Andrew Scutt: Great. Well, I appreciate the detail and kind of building off the strong demand you have for the program. At what point would you kind of say the program is kind of mature enough that you can kind of bleed off some of the excess liquidity that you have on the balance sheet now to fuel the growth? David Taylor: It will be sometime this year. Our treasurer amassed a fair amount of liquidity. We're earning a little bit of a spread on it. But towards the end of the year, that should dissipate. We also -- we've said it earlier, we also start entertaining other community banks that might want to participate with us. We manage the program for them and provide them with the on-balance sheet securitized product, which we've -- a lot of them have expressed interest in it. So that was kind of a longer-range plan to provide the service to the other small community banks that may have an abundance of deposits may not a great place to put us, and this is a very low risk, pretty high-yielding product. Andrew Scutt: Great and congrats on the progress. Operator: [Operator Instructions] Your next caller comes from Eli Rodney of Bullpen Research. Eli Rodney: Congrats on the quarter. So sticking on the U.S. topic for now, $1 billion for 2026 in funding, $200 million as of Q1. How should we think about the pace of growth here, sort of steady quarterly build of $30 million to $40 million or more of.. David Taylor: Accelerated. No, it's going to accelerate as some of the partners are just signing up have just signed up. So -- and they've got some really good product. I just love the stuff they're doing in the States with this type of lending, low risk, getting -- it's kind of an altruistic to getting economical priced funding directly through to consumers to help with the purchase of homes and vehicles and such. So I'd say it's going to accelerate. It just -- it's catching on. People are saying, gee whiz, that's pretty cool, man. How do I get a piece of that? How do you start funding me, Dave? Well, let's sign here. Eli Rodney: Yes. And it sounds like with your earlier comments on how strong the pipeline is and the potential for new partnerships being incremental to that $1 billion target. I'm curious how -- given that there is some constraints to growth naturally, like how do you prioritize the pipeline? Like what characteristics are you looking for in potential SRP partners? David Taylor: Well, it seems that both sides of the border, it's primarily coming from homeowners doing home improvement, usually in the energy savings areas, energy saving furnaces and air conditioners that and maybe some insulation roofs and such. And in the States, similarly, and also maybe -- maybe sometime in the future, you see kind of a new kind of cool product on financing homeowners. So that's primarily where it's coming from retail, homeowners improving the existing properties and maybe looking at buying new economically priced housing units. Eli Rodney: Great. And just looking at costs associated with the reorg, 1.5% in Q1 and sort of guiding to 4% to 4.5% in Q2. I just want to frame up how we should be thinking about the back half of the year. And my baseline assumption is we're heading into 2027 on a clean slate. Is that fair? David Taylor: Yes, absolutely. I mean it's heart stopping. I think I did that for a fact when I spoke to one of the partners and the accounting firms that have been charging this huge fees for all this stuff. Boy, I should be happy to see the end of this. And the lawyers aren't shy either with their fees. But we just got to plow through it, get it closed. And then you'll see our efficiency ratio really improve. In the States this quarter, I think we're around 40-odd percent. With 1$ billion, $1.3 billion, which that $1 billion new assets would do, we get down to around 25%. And it just keeps getting better because we're employing the state-of-the-art technique for processing these receivables. So there isn't much more fixed cost needed to run the machine. So we'll be posting efficiency ratios that banks can only dream of 20%, 25% lower and lower. And the idea, of course, is to pass those savings on to our partners so that they can make a bit more money, too. And then self-fulfilling profits if we can leave more on the table for our partners, they're all more keen to sign up with us because they're being more profitable, too. So it's a win-win. The more we book, the more efficient we are, the better pricing we can provide to the partners. Eli Rodney: Right. And even with some of the sort of near-term noise and onetime costs, you're already starting to see the operating leverage in the U.S. model showing up. So maybe just to zoom out and reframe around the long-term picture, it's -- you spent over a year in the U.S. market now. Any changes to your original view on the long-term attractiveness of the market for better or for worse? David Taylor: Well, it will get way, way bigger than Canada. And that's just the metrics. I mean it's 10x the population in the United States, and they may have 10x the propensity to finance at point of sale than Canadians. So it won't be long before we have more exposure in the United States than we have in Canada. It's just those water finds its own level sort of thing. So -- and in the States, the efficiency is greater, lots of reasons. We're employing our state-of-the-art software, we call AMS 3.0. Also, the deposit gathering network in the States is a lot more efficient and sophisticated. We're only paying maybe 10, 15 basis points over U.S. treasuries. And we only have 1 or 2 people in the deposit raising area in the States versus in Canada, we have an entire department. It's fragmented in Canada, smaller, and we pay maybe 50 basis points over the risk-free rate [indiscernible]. So it's just -- the States is bigger and more efficient, and we're ideally set up with a national license to exploit it. Eli Rodney: Absolutely. And then as you said, as it scales past the size of the Canadian book, total bank efficiency should really move along with that. So I'll be following that closely. Last one for me, just on Canada. So some of the multifamily book sequentially is down quarter-over-quarter. I know that there were some comments earlier on that just being a transition from sort of uninsured to CMHC insured. So I'm assuming it's a timing thing, but I just -- maybe I'm curious on the macro side, obviously, inventories of multiunit are building, construction slowing down. So was this a bit of a conscious effort to accelerate that transition and reduce exposure to the unsecured or uninsured. David Taylor: Absolutely. In fact, if you look at my quarterly for the last few years, I'll say purposely that we're dialing down the conventional construction and that like most folks, Canada looks pretty scary for the conventional construction of multifamily residents. So we purposely emphasized the CMHC construction. And you'll see it -- I think we've talked about $1 billion in commitments. It will hit that number. There's some big well-heeled developers coming to see us. In fact, we just signed one recently in our backyard in London, Ontario. So those are the kind of deals we like, buildings we can see, we can touch and the developer is putting a lot of equity in despite it being CMHC. So we're doing what we've always done. I've done this for maybe almost 50 years now. I've been through a lot of cycles. You sort of look at the tea leaves and say, "Oh, gee whiz, I think I better be backing off. " And we say something to the effect that bad loans are made in good times. So you would have seen us backing off or maybe some of the others were still pretty aggressive. So at this point, the portfolio will start to look more and more like CMHC and our developer clients will be the who's who in the Canadian industry. Operator: There are no further questions at this time. I will now turn the call back over to David Taylor. Please continue. David Taylor: Well, thank you, Danny, and thanks, everybody, for joining us today. I look forward to speaking to you at the time of our second quarter results. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Éric Trappier: [Interpreted] Good morning and welcome to this press conference. We will introduce the numbers for 2025, but we'll start off as usual with a little movie. [Presentation] Éric Trappier: Eric Trappier unveiled in the East, the first Rafale built for the United Arab Emirates Air Force in the presence of the French Minister of Defense and the UAE Minister of State Defense. The aircraft will be used by Dassault Aviation's flight test center to develop the UAE's specific Rafale standard produced in line with the contract schedule. This first aircraft reflects Dassault Aviation's commitment to meeting its commitments to customers' expectation. Delivery will start beginning in late 2026. Eric Trappier received the Strategist of the Year award from Prime Minister Bayrou. Created in 1989, the award honors a business leader selected by the readers of Les Échos and by a jury of leading French figures from the industrial and economic sectors. Dassault Aviation took part in the IDEX exhibition in February in Abu Dhabi in the UAE. We will also attend the Aero India Air Show. Two 1/5 scale models were displayed on the standard Rafale C in Indian Air Force Livery and the Rafale Marine. Dassault Group won the 38th edition of the Course du Cœur, a major event raising awareness about organ donation and transplant. A sporting challenge, but above all, a powerful and inspiring human experience. The contract for India's acquisition of 26 Rafale aircraft in the naval version was signed on April 28th in New Delhi. Outside France, India will be the first country to operate the Rafale M. This decision reflects the Indian authority's satisfaction with the aircraft's capabilities and the intention to expand its operational role. It also provides further evidence that the Rafale is a key instrument of national sovereignty. The contract underlines our 70-year commitment to supporting the operational requirements of the Indian Armed Forces, as well as our determination to strengthen our footprint in India in line with the Make in India policy and the Skill India initiative. In early June, Dassault Aviation signed 4 agreements with Tata Advanced Systems Limited for the production of Rafale Fuselage in India. This marks an important step in strengthening India's airspace capabilities. The first components are expected to be produced in 2028 at the state-of-the-art Hyderabad facility. On the occasion of President Emmanuel Macron's state visit to Jakarta, French Minister of Defense signed a letter of intent with his Indonesian counterpart concerning the future acquisition of additional Rafale aircraft, which would be added to the 42 already on order. On 2nd June, General Christian Baptiste, National Delegate of the Order of the Liberation, and our Chairman and CEO, Eric Trappier, unveiled to the public a silver-bound case adorned with the Cross of Lorraine containing the Directory of the Companions of Liberation. This unique piece was acquired at the public auction, De Gaulle legacy for history in Paris with the support of Dassault Aviation and the friends of the Museum of the Order of the Liberation Society. Once again, Dassault Aviation took part in the Rêves de Gosse air tour, offering children with disabilities the unique experience of a flight and a moment of escape. We've been partners for 26 years with the association Les Chevaliers du ciel, which organizes the event. The 55th edition of the Paris Air Show at Le Bourget was a great success, with large crowds throughout both the trade days and the public weekend. The event was inaugurated by the Prime Minister, who notably visited our L'Avion des Métiers stand. Many ministers and distinguished guests also toured our facilities. French President spent considerable time at our Battle Lab, which showcased our expertise in collaborative combat. The future of combat aviation was in the spotlight on our static display with the first-ever presentation of a full-scale mock-up of the combat drone set to accompany the Rafale within the next decade. Rafale demonstrated its outstanding performance in daily flying displays piloted by Captain Jean Baptiste -- Jean-Brice Millet, known as Mimouss. The area dedicated to military support showcased the many innovative solutions offered to our customers. During his speech at the Paris Space Hub, the President also announced the launch of our VORTEX project. An agreement to support the development of the demonstrator for the space plane was subsequently signed by the Minister of Defense, the Chief Executive of the French Defence Procurement Agency, and our Chairman and CEO. In keeping with its key role in safeguarding national airspace sovereignty, Dassault Aviation is thus contributing to the development of strategic capabilities to address the emerging challenges of space mobility. Dassault Aviation space projects have also received the support of the European Space Agency. During the show, the company also signed a Memorandum of Understanding with the French Ministry's Defense of AI agency, AMIAD, to carry out R&D work on several air combat use cases. In the civil sector, Dassault Aviation displayed on its static standard Falcon 6X, Falcon 8X, and a full-scale mock-up of the cabin of the future Falcon 10X. As with the Rafale, visitors were able to admire the 6X in-flight, flown by test pilots Cédric Carl and Antoine Dussault. Dassault Aviation also signed a new agreement with the Ministry of Defense to support the operational reserve. Under this agreement, our employee reservists are granted up to 20 days per year to serve with the armed forces with their salary maintained. Our company was also at the Paris Air Lab showcasing innovative presentations in the fields of design and production, which proved highly popular with young visitors, as did our recruitment stand, which notably highlighted the importance of increasing the share of women in our workforce. Dassault Aviation ranks third in the airspace, rail, and naval category in the 2025 list of France's 500 best employers compiled by Statista for Capital. The company has featured in the top 10 of employers favored by students and young graduates for more than 10 years. Dassault Aviation also ranks in the top 5 of the Universum in France cross-sector ranking and in top 3 for the Epoka ranking for the industrial sector. Falcon 8X Archange electronic intelligence and surveillance aircraft successfully completed its maiden flight in Mérignac. The French government has already ordered 3 aircraft of this type to replace the Transall C-160G Gabriel and the DC-8 Sarigue with the French Air and Space Force. Falcon 8X Archange is equipped with the universal electronic warfare capability developed by Thales, enabling it to detect and analyze electromagnetic signals emitted by radar and communication systems. The level of performance expected from this aircraft has required an exceptionally high degree of systems integration, a core aspect of our role as an industrial architect. On 23rd September, Eric Trappier, surrounded by employees, inaugurated our new Cergy facility. The ceremony brought together Philippe Court, Prefect of Val-d'Oise, and numerous elected officials, notably Valérie Pécresse, President of the Île-de-France region, Marie-Christine Cavecchi, President of the Val-d'Oise department, and Jean-Paul Jeandon, Mayor of Cergy. The Cergy site is a state-of-the-art industrial facility spanning nearly 111,000 square meters dedicated to the production of our Rafale and Falcon aircrafts. The last time Dassault inaugurated an entirely new factory was in the early 1970s, more than 50 years ago. Dassault Aviation is continuing its development while modernizing its operations. This site is not merely a production facility, it also a place where expertise is passed on, a legacy of our experience built up at our Argenteuil plant since the early 1950s. It is here, together with the support of our supply chain that a passion driving the vitality of our industry continues to take shape. On 26th December, the French Defense Procurement Agency notified us of an order for five additional Falcon 2000 Albatros aircraft under the AVSIMAR maritime surveillance and intervention program. The program provides for the acquisition of a total of 12 aircraft, 7 of which were already ordered in December 2020. Based on the Falcon 2000LXS, Falcon Albatros is equipped with a multifunction under fuselage radar, a latest generation of Tronic Turret, observation windows, a search and rescue stores release system, and dedicated communication systems. It's a high-performance aircraft that reflects our dual civil-military expertise and our ability as a systems integrator. Its development is being carried out in cooperation with Naval Group, Safran, and Thales. The aircraft successfully completed its maiden flight on 24 January this year. First deliveries are scheduled for 2026. On 14th October, Dassault Falcon Jet, a wholly owned subsidiary of Dassault Aviation, inaugurated a new maintenance facility at Melbourne Orlando International Airport in Florida. This infrastructure strengthens Dassault Aviation's presence in the Americas and reflects our company's long-term commitment to customer support. The complex can accommodate the entire Falcon range, including the Falcon 10X currently under development. It is capable of carrying out major maintenance and modification operations on up to 14 Falcons simultaneously and also features a new state-of-the-art paint shop. This marks a significant further expansion of our global network, which now includes around 60 sites dedicated to the maintenance, repair, and overhaul of Falcon aircraft. We chose to open this hangar as the service center for the United States, Canada, and South America. It's also easier here to hire skilled personnel, it was very much a strategic decision to continue strengthening our footprint in the United States. More broadly, this will become a major hub for service and support operations in Florida, particularly for our new aircraft, the 6X and tomorrow the 10X. Our company was a partner of the 48th WorldSkills France National Competition held in Marseille from 16 to 18 October, a flagship event celebrating technical and technological excellence. This Skills Olympics brought together nearly 800 competitors under the age of 23, among them were 4 of our young talents from our Istres, Mérignac, and Saint Cloud sites, competing in 3 of the 70 disciplines represented. All 4 were awarded medals. Dassault Aviation received the Best Future Value award at the 24th Investor Awards organized in Bourg-Saint-Maurice, which comprised 9 different categories and were determined on the basis of a large-scale survey of 218,000 investors, both private and professional. Dassault Aviation and cortAIx, Thales's artificial intelligence accelerator, have entered into a strategic partnership to develop sovereign-controlled and supervised AI solutions for defense aerospace. Signed by Eric Trappier and Patrice Caine, Chairman and CEO of Thales. The partnership was announced on 25 November in Paris at an international AI summit held under the high patronage of the French president. At the Dubai Airshow 2025, Dassault Aviation signed a strategic cooperation agreement with the Technology Innovation Institute and ASPIRE, 2 leading organizations in technological research in the United Arab Emirates. This partnership marks a new step in the expansion of our international innovation network and builds on more than 50 years of trusted cooperation with the UAE. The aim of this collaboration is to accelerate innovation in next-generation airspace products and solutions, particularly in the fields of stealth materials and advanced communication and cybersecurity systems. On 28th November, the Indonesian Air Force formally accepted its first 3 Rafale aircraft at the Mérignac facility. This milestone marks a significant step forward and reflects Dassault Aviation's commitment to meeting our customers' requirements, thereby strengthening the strategic partnership between Indonesia and France. In February, India took a decisive step towards the acquisition of a further 114 Rafale aircraft. The Defense Acquisition Council approved the opening of government-to-government negotiations for this order. For its part, Dassault Aviation is committed to strengthening its presence with within India's industrial ecosystem by developing new production lines under the Make in India initiative. Well, then, let's move on to the presentation proper. In the recent development of war in the Middle East, I mean, this is not on the presentation, but inevitably this will have consequences for the industry as a whole should the conflict continue for any length of time. In any case, you have the challenging context of war in Ukraine, the tax situation of big companies, especially those in France, and the defense budget, in light of this fiscal battle at parliament was preserved with the steps. That remains unchanged. This is good news, there's uncertainties around FCAS. We'll talk about that. And then a decision a few weeks back, India's decision to start exclusive talks with France regarding the acquisition of 114 aircrafts. So the highlights, the signing and entry into force of interest, India's purchase contract for 26 Rafale marine for the Indian Navy. We have already delivered 300 Rafale. We have 400 French companies brought together in the program. 533 Rafale were ordered, 323 for export. There remains another 220 Rafale to be delivered as of January 1, 2026. So India's commitment is to stick to the Make in India initiative. We've been working on this for a number of years. We have to step it up, Dassault Aviation, but also our big partners, Thales and Safran, and also the entire supply chain, which will come to provide local support to manufacture in India a number of components of the Rafale aircraft and in particular the future assembly line. We started partnerships on the Falcon aircraft as a form of practice for the Make in India initiative. In France, we delivered 11 Rafales in France in 2025. There's another 45 to deliver in our backlog. We are pursuing the development of Rafale F4-3 is being developed as we speak. We're starting the F5 Rafale. The president mentioned this at Île Longue a couple of days ago, and that will be the main standard to develop the future -- airborne component. That's supposed to enter into service around 2035. In exports, we've delivered 15 Rafale, so that's 26 altogether. Another 175 remain to be delivered. In the present state of orders, the entry into force of the Indian Navy contract started, we took 26 aircraft to be delivered. Another -- 26 are ordered -- 26 delivered, 220 to be delivered. In France, we have to step up our support teams for export. And in France, in France, we've had a number of alerts, because of the activity of the Air Force, we need to be agile and respond to the needs of the Air Force. Now, I'll remind you that accumulated experience has been mentioned ever since World War II. We've acquired significant experience. We've developed all combat aircraft of France since the 1950s up until now and from the Ouragan to the Rafale. The reason I mention this is that this is a success story for France, and we certainly expect to build a future without partners. That's the next slide. On the next slide, a big question mark about FCAS. We are only at stage one, at the initial stage of Discovery, we haven't even entered stage 2, where challenges are being encountered. You may have questions about that. Let me tell you that since the beginning of the program, France was appointed to lead the program in Pillar 1. The aircraft was supposed to be under the main contracting of Dassault Aviation. That was part of the commitments back in 2018. We stuck to that commitment. Our teams worked in full cooperation with their partners under the Dassault leadership here in Dassault. Not everybody's happy with the Dassault leadership. If you want to develop that kind of a combat aircraft for the future, you need a leader. I'm not the one who decided who the leader should be. The decision maker, i.e. the states are the ones to decide, and the idea was to make that decision on the basis of who is the best athlete. That was reiterated by the Heads of State to meet the operational and indeed competitive challenge from other countries around the world. In space industry, we propose to have mobility in space. We have the demonstrator Program Stage 1 was launched at the Bourget Air Show. You saw that in the video. The idea is to have a 1, 2, 3 scale of a flying aircraft, a flying shuttle to arrive at the final goal, which will be both civilian and military. The idea is to find funding not just in France, but in other countries as well, at the European Space Agency for possible cooperation. We've been working with a number of companies, including OHB in Germany. The idea there is to make headway in this field, but we're also seeking partnerships outside Europe. The mission aircraft, as mentioned in the video, we've received an order for an additional 5 aircraft for maritime surveillance, the Albatros aircraft, so that means altogether 12 aircraft for the French Navy, and the first delivery should happen this year. The Archange program, that's Falcon 8X, a strategic intelligence aircraft. The first flight was completed last year in the summer. We're continuing development work on this. This is a very specific program because it integrates all sorts of equipment, including Thales's equipment on the Falcon 8X to replace the former Transall C-160G Gabriel. On Falcon, we've got an order of an additional 31 aircraft, more than last year. We certainly expect or hope these numbers to increase in future years. We've delivered 37 aircraft, and that's slightly below the guidance. On Falcon -- Rafale, we're above Falcon slightly below target. We had the uncertainty of tariffs in the first half of 2025. Fortunately, we're back to 0 tariffs for aeronautics, and so that means we can take new orders in the USA, but also to deliver aircraft in the US without being penalized by tariffs. The Falcons in surface, we have the Falcon 6X, which is the newcomer in the Falcon family. It already has 7,000 flight hours and with good feedback from the customers. We are pursuing the development of Falcon 10X, which is being finalized. At least the first aircraft is being finalized. Falcon support, we are working on that as well. As you may have seen, we closed a maintenance shop in the U.S. in Wilmington. We're now opening a big one in Florida. Florida is a wise choice because it is right at the heart of the Americas, North America, Canada, and South America, but that's also where you can find staff recruitment. We are located just next to Cape Canaveral. This is, of course, a part of the U.S. where the aerospace industry is very much present. This is very convenient for our own maintenance center and our customers, whom we question were quite happy with the idea of having the aircraft in that center for planned and unplanned maintenance operations. Likewise for the French government aircraft, we were able to retrieve that contract, and we are supporting the French fleet. That was not the case before. Decarbonization, we're pursuing this. No major change since last year. We're still looking -- we're seeking cancellation from the EU on the present taxonomy, which penalizes business aircraft compared to commercial airliners. That issue should come up this year. We'll see whether the decision is being challenged or not. At Dassault Aviation, we're not particularly concerned that the supply chain is unhappy not to be recognized in the taxonomy. In fact, we should be seen as making the right efforts to decarbonize private business jets. We're doing this at SAF, even though it takes some time. The carbon footprint is also making headway. I mean, of course, we want to emit as little CO2 out of our plants and buildings. Right now, we're sticking to the roadmap. You can see that in all our sustainability documents that are added to our financial report. In terms of recruitment, we've hired a lot, so we've renewed as much as 40% of the entire headcount. Lots of the hiring. We need to train all these people. That's a big challenge. We, of course, prefer to have more female members of the staff. It is not always easy. We've been discussing this with our counterparts in the industry. This remains something of a challenge. We are gearing up the gender balance. We're getting more women. It is a slow process, but it's working. Well, we have to pursue these efforts. We want to have more women on board. We're working with a number of employees organizations, including [indiscernible], to tell people that women certainly have a rightful place in the manufacturing industry, in the aircraft industry, and at Dassault Aviation in particular. We're pursuing our efforts in terms of human resources. We still need to hire more. We want to make sure we find the right candidates, the right people. We've been leaning on training organizations. I mean, of course, the French public education system, but you also have a number of private organizations, and you have the vocational training programs. But just because you have a nice degree doesn't mean you can work in the plants. You need to learn about the right gestures. The quality culture needs to be developed, that takes some time. With new recruits, that requires some effort on the part of the senior members of our staff. We have integration programs continuing. We have a number of programs so that we're modernizing what you call the industrial tool. We have a new plant in Cergy. Not every day do we build a new plant, especially not in the Greater Paris area, this is something we're very happy with. We left Argenteuil not because we didn't like Argenteuil, but because it wasn't possible there to upgrade the plant while keeping up production. We felt it was easier to change sites altogether. We found the land in Cergy, and we did this in good cooperation with the staff at Argenteuil. Now we have a brand-new plant which everybody's happy with in Cergy. At Istres, we have been pursuing our modernization efforts. We're getting it ready for the 10X. In Martignas, we continued investing there. In Melbourne, in Florida, we have a major maintenance center that will also accommodate Falcon 10X. In Mérignac, for those of you who have been there, we have two new buildings, including one to house the assembly line for the Falcon 10X fuselage. Digital and AI is very much on the forefront. AI in particular There's no such thing as one AI. There are all sorts of artificial intelligences, and we have to find the right balance between the right algorithms, the right uses, and it all depends on what we want to work on. There will be areas of development require certain types of AIs, and indeed, we've been working with our counterpart from Dassault Systèmes, based on the 3DEXPERIENCE. We've been working with Mistral to produce in-house chat using in-house data, and we've been modernizing a number of tools, SAP. We have APRISO that will be rolled out in Cergy. That's for our production management and firm video conferencing. Of course, there's been a lot of that ever since the COVID crisis. This is still very much topical, and we're working with BLEU. AI should serve our teams as well as our customers, we are there to build a future. Generative AI maybe not or maybe. The real issue, the most technological issue is embedded AI. We need to work with embedded AI on civilian aircraft. This means we need to have airworthiness certification. Just because we have AI doesn't mean we challenge any of the necessary standard safety standards, those of the [indiscernible] or our own. Then we need to have the same for fighter aircraft and drones to make sure that operations can be conducted safely and meet the requirements of our military friends. We've decided to take a stake in Zomato. Zomato is a rather large, well, startup company. It's a big becoming a big company now. They develop small drones, they also develop the technique to operate these drones using AI. We felt it was a wise decision to support that company to invest there. We took part in the fundraising. That took place earlier this year. They raised EUR 200 million. We're building a strategic partnership with that small company so that both us and they can -- I mean, everybody working at home in terms of in capital terms, we're still sharing solutions precisely to address this issue of embedded AI to manage drones and groups of drones just to see if we can make any headway there. This is a very dynamic company. We'd be happy to work with them and have a stake there. We're looking at EUR 10.9 billion in new orders. This is the same numbers as 2025 revenue. Net sales EUR 7.5 billion, significantly up. The backlog growing as well. Now it stands at EUR 46.6 billion, a historic high. In the pie charts, you will have the breakdown between civilian and military aircraft. If you look at the way our backlog is being unfolded, we have the type of business and the types of contract, EUR 2.8 billion. That is civilian aircraft, the 37 aircrafts that were delivered, EUR 38 billion for the delivery of 15 Rafale and EUR 1.6 billion for France, so you can see that the company has been working mostly abroad, which is good news for the French budget because, of course, we pay all of our taxes in France, therefore, that means that you were there to fill the state coffers, not including the other Social Security taxes. Unknown Executive: [Interpreted] The 6X is behind us. We still have to go through development. The 6X was useful. Now we're moving on to a different phase. We've built the first aircraft. We're going to start with in-flight trials. This is why there's been a decrease in the self-funded R&D. When we had the 10X and the 6X at the same time to work on, then of course, this figure was a little bit higher. Thales is doing fine. It's good news for us because we can benefit from their net income proportionally to our share of their capital. Their net sales are increasing. They're stabilizing. This company is developing its business in cyber matters, in defense, and in cyber spatial as well. EUR 7.420 billion for net sales with some numbers down. Thales, EUR 566 million. We included figures excluding corporate tax surcharges, EUR 186 million, EUR 1.157 billion. The corporate tax surcharge includes what we need to pay for Thales as well. In total, EUR 96 million, additional euros in total. You can see that the taxes are heavy, and it reduces the competitiveness of our company. When it comes to Falcon aircraft, we need to fight U.S. competitors and Canadian competitors as well. 14.3% for the net income margin, 5.2% of self-finance R&D. Earnings per share, EUR 13.60. Cash is increasing as well because military contracts have been rich in advance payments, so free cash flow is up. Now, of course, we need to use this cash to build the aircraft to actually do that, but we've got about EUR 3 billion. When it comes to shareholding, we bought back shares. If you look at the right-hand side of the screen, you'll see the GIMD group, the family group, owns more than 2/3 of all shares, which was one of the goals. I know that there are fewer voting rights, but the important thing for us as a group was to really get to this 2/3 objective. When it comes to dividends, the Board proposed that yesterday, and we need to have this adopted by the General Assembly, but EUR 4.78 per share, that's the dividend we're suggesting with a payout that's 35%, so we're keeping the same payout as last year. As part of value sharing, profit sharing, and other schemes, employers participate for an average of 35% of the company's net income. That's mostly in France. Outlook and strategy for 2026. We need to deliver. That's the main goal. We need to deliver in a timely manner. We'd like to deliver our Falcon aircraft. We need to negotiate the 114 Indian Rafale contract in the Make in India initiative. Meet development deadlines, especially when it comes to Rafale aircraft and 10X aircraft. Prepare for the future of the Rafale with the F5 standards. Development of a combat drone. We'll keep working on that and work on a future fighter jet, post Rafale after the year 2040. We need to work on operation support and aircraft readiness as well. We need to meet the needs of our clients and customers. We keep on working on prospecting. We need to achieve level of Falcon sales as well. Continue the VORTEX development in the space sector because we've now started this development. We're in Phase 1. We need to continue deployment of digital technologies and integrate AI in our developments, and we need to continue developing the skills of our new hires. It's going to be a big year. Projections for the net sales is EUR 8.5 billion range, so an increase compared to this year with 40 Falcon and 28 Rafale that should be delivered in line with the contracts. Of course, we'll move to phase 4 in the forthcoming years. This is what I wanted to say as part of my presentation to you this morning. Now, I will take your questions. Thank you. Mathieu Rabechault: [Interpreted] AFP. I have a question about the FCAS. What would be the risks and the benefits for you about the new solution? If France were to develop its own aircraft, then should you find new partnerships to make that happen? Éric Trappier: [Interpreted] This is actually a complex issue. That's the least I can say. What I can tell you today is that Airbus said that they didn't want to work with us, so I didn't say that. They said that. I took note of the statement. I never said I didn't want to work with Airbus or with the Germans to -- we have other partnerships starting with the Germans, so we don't have any issues with Germany. We don't have any issues to cooperate with these partners, and Airbus doesn't want to work with us. If we need to look for other partners, then we will do so if need be, but I won't be making these decisions. The French authorities will be in charge, if they want to suggest partnerships and ask other countries to work on a future system, well, they will do so. Unknown Analyst: [interpreted] [indiscernible] representative in Paris, German press. Could you explain once again your position? Why don't you want to respect your initial contracts as required by Airbus on the FCAS? I don't really understand, and Germany does not really understand your position. Airbus doesn't want to become a subcontractor for this. Éric Trappier: [Interpreted] Thank you so much for your question. Well, actually, it will be a good opportunity for me to actually say the truth. We are not complying with the requirements as part of the contract. We are complying with these requirements. We are doing that. We've been working for 100 years, I really need to say that from the get-go, I said that during my introduction, France was supposed to be the leader in this project, on the FCAS project. France is not the leading country on other projects, but when it comes to the FCAS, we were in charge of Pillar A, and we were asked to be leaders in this project. Spain came into the picture. The contributor in Spain was Airbus. We ended up having only one-third of the work to do. I accepted these terms. I said, well, we will comply with the contract," we've always complied with all the terms of every contract. Of course, you'd know about it if we didn't comply with the requirements. I'm very surprised by what is happening. Again, this is not true, and we need to make sure that we can be leaders but also cooperate. Of course, as you've seen, there are issues between Airbus and Dassault, but the real leader here is the one that needs to decide whether a subcontractor is going to be useful to project, efficient enough. The leader is the one taking responsibility and making sure that Phase 2 can be implemented. Phase 2 is about making an aircraft fly, and it's not an easy project. This aircraft is going to be discreet, low observable with aerodynamics that are quite specific to its kind, and the leader is in charge of making sure that all of this works. Dassault was the selected leader by all 3 countries. I understand that Airbus doesn't like that decision, but we are making sure that we comply with the contract. I disagree with their position and their statements about our position. The authorities are the ones who need to decide. I cannot take responsibility if this is the context, but I can't agree with you. We have been complying with the terms of the contract since the early beginning. Thank you. Airbus hasn't. Unknown Analyst: [Interpreted] Good morning. I'd like to talk about the FCAS as well. I'm from the German radio. In Germany, it feels like the project is completely dead. According to you, what's the probability for the FCAS to go through and to actually happen? Éric Trappier: [Interpreted] I've heard what the chancellor said. I know that he's now talking about having one plane instead of 2, or rather 2 instead of 1. That could be justified by the fact that, or explained by the fact that there are different operational needs. I can understand that. My highest authorities here in France say that we have similar operational needs and that there's an agreement at operational level. I'm just talking about what I know. I may not know everything, but I know that much. And what I know is if Airbus doesn't want to work with Dassault, then the project might not go through. Unknown Analyst: [Interpreted] Defense News. A question about the technological bricks that you bought. Harmattan, your stake in Harmattan for AI matters. Do you have all the technology bricks for Rafale F1 and for a potential future aircraft? I have a second question, if you don't mind. If 2 aircraft needs to be done, what will that mean in terms of timeline? Éric Trappier: [Interpreted] When it comes to the technology, we don't have everything to now work on the future aircraft because we'll need to work on a new technology that we'll need for future aircraft. We need to develop these technological bricks. When it comes to the FCAS, again, Dassault is fully committed because we want to develop these bricks. We're looking at the compromises between an aerodynamic aircraft and a stealth aircraft. An aircraft that can be easily handled and a strike aircraft that needs to be able to navigate enemy defense aircraft in all discretion. The French president a few days ago mentioned the very important mission that could be expanded to other countries. In the context of the war that is going on, the president obviously has important needs, and that involves the aircraft carrier as well. We do believe that we have the technology for the future, but we still have a lot to do as well. These are important developments that we need to undertake. Again, as I was saying, integrating AI to steer drones and aircraft, this is part of the future. I cannot tell you that we have the technology, that it's finalized to this day. We still need to explore this option to develop it further. It should be ready by 2035 if we want to fly drones with aircraft. When it comes to the 2 aircraft issue, I don't really know what to say. France does not support this idea of having 2 aircraft. Unknown Analyst: [Interpreted] Good morning. CNews. About the additional nuclear airborne component, do you think they will need more Rafale aircraft to carry them? Éric Trappier: [Interpreted] This is up to the authorities. I'm not going to comment on that. Of course, if there's nuclear deterrence, then the armed forces will need aircraft to support this effort. In the armed forces, there is a need for more combat aircraft in the years to come. So my answer is yes. If there's a need for deterrence along with submarines, then there'll be a need for more combat aircraft. We've seen what is going on with strikes in the air. There is a real need to operate and navigate the airspace. Yes, there will be a need in the future for more combat aircraft. Unknown Analyst: [Interpreted] Good morning. I have a question about the European market. In the context of the increase in the share of GDP in defense and the relationship with the US. What is the situation? How do you feel about the situation? Do customers talk to you? Are they concerned? Can you tell us more about this? Éric Trappier: [Interpreted] Well, what I hear is that we need more European aircraft than US aircraft. This is what people say. Now, we need to see action. I'm a very factual man, you know. You know how I feel about this. If you don't want to use F-35 aircraft, then don't buy F-35 aircraft. And then people say, if you create a European aircraft, then this will change in the future. I want to believe that. But again, the choices made by some countries actually lead to believe that they still want to buy American aircraft. Unknown Analyst: [Interpreted] Good morning. A German newspaper. We've heard the French president say that he still believes in the FCAS project. Do you believe that the two aircraft solution, proposed by Germany is the future of this project? Éric Trappier: [Interpreted] I cannot speak on behalf of the Germans. I work in France in a French ecosystem with the French armed forces, with the French Ministry of Defense, with the French president. France wants to have a French-German combat aircraft. In 2018 decisions were made, contracts were established for the Phase 1A and 1B, phases that were supposed to lead to the creation of a demonstrator. In the press, there's a lot about sharing, the manufacturing, the creation, but we're actually just creating a demonstrator for now. The main aim is to build an aircraft. Now, again, here at Dassault, we'll be adapting to the circumstances. Again, Airbus doesn't want to work with us, so they're not trying to settle a dispute. They're not trying to solve an issue. They don't want to work with us. I don't think it's a good idea for them to point fingers, especially at a [indiscernible] company that's been working worldwide for decades. Even the Americans don't have that privileged position. Unknown Analyst: [Interpreted] When do you think the French authorities, the political authorities, when do you think they'll understand that to build a military aircraft, you don't need Europe partners, especially not German partners, when they have in France a good, solid industry that's been active for more than 50 years? Éric Trappier: [Interpreted] When you reach a certain age, you realize that the lessons are always the same and you always hear the same things. France is too small. There's not enough money. We need partners. You realize that everything we've tried in the past in terms of partnership has failed and that French aircraft are a success story. Do you think at some point this reality will be taken into account in decisions made? I am not going to answer your question because this is a question that's actually for the French authorities. I hope they'll hear your call or your question or your message and let them answer to you. I think there are fiscal issues. That's one question. But you cannot blame the budget for a reality, and you cannot erase history. I think it's up to the political authorities to answer your question. Unknown Analyst: [Interpreted] About the FCAS, how long do you think this situation can last without moving forward on the calendar without actually answering the progress on the project? Éric Trappier: [Interpreted] Well, we're finalizing the first phase. It is a hard phase to complete because the beginning of Phase 1 is the end of Phase 1 is actually supposed to be the beginning of the second phase. You can't really waste much time between two phases. The way we complete phase one is actually very important for the way we're going to start Phase 2. If we are stalling now, that may be an issue for the beginning of Phase 2. Again, there is no issue when it comes to the manufacturing, but we really need to think about what we'll do in the future, for example, for in-flight trials. Who will be leading that? That's one of the issues. So yes, we're lagging behind. That's the way it is. We still have a lot of work to do on this project. I think at some point, a decision will have to be made between the states to know what we need to do. Again, and I'm going to repeat it once again, Airbus doesn't want to work with Dassault, and I understand that. Airbus wants to work alone. It was actually announced by Guillaume Faury in the financial results presentation. He said he was ready to work alone. Well, he said that. I don't know if he got any requests from Germany that led to this statement, but, yes, this project is stalling. It's complex. Tara Patel: [Interpreted] Bloomberg. A question, not about the FCAS, but about the Falcon. What's the demand at the moment for business jets, business demand, corporate demand? Can you give us your vision in terms of the Falcon in this complex, difficult context? And then I wanted to know, what about the timeline, when it comes to what you mentioned with, in your conversation with the President? There are requirements when it comes to phase one of the FCAS, this is my second question about the FCAS. I understand that Airbus doesn't want to work with you, but could you have done something differently from the early beginning not to get to this point? You said that you complied with all the terms in the contract, you signed the contract years ago the situation has changed, the context in the world as well. You talked about the wonderful and beautiful history of Dassault Aviation, it's a beautiful story. Thank you for sharing it with us, but what is happening to Dassault Aviation in a country that's in crisis? Because this is what's happening in France at the moment. Politically, it's a very complex moment in time with the end of Emmanuel Macron's term. I was at Davos in January. I didn't see many Europeans there, but many American counselors and advisors was there. This project was actually mocked by all these people. It became the symbol of crisis in Europe, European countries that can't talk to one another, that are struggling to cooperate efficiently. What does it mean for the future of the company? Éric Trappier: [Interpreted] When it comes to your first question and business aviation, it's an active market. It's working well. I am not concerned. It's a little bit different with business jets on the other side of the Atlantic. It's very important for the Americans. It is an easy way for company to travel in Europe. There are concerns about business jets versus commercial flights. I don't think that should be an issue because you fly Falcon to develop your business, to be efficient, to do business, but still, this is the way to think here, but it's changing and there are new markets. We are in a transition phase, where we have the 6X and 10X in the works, and the Falcon 2000 is still popular, and we still receive orders for this older one. Your question about the FCAS is quite complex. [Interpreted] Now your question about the FCAS is quite complex. What is the most efficient or rather be only combat aircraft that was created by Europe as a whole, when there's no such aircraft. There's only 1 and it's French. We developed Mystere, Ouragan it was the combat aircraft that was short manufactured with American money through the Marshall Plan, but Dassault was asked to develop it because there was trust in Dassault. So we had to work -- we've had to work through crisis before. Is France a country that dominates well, that's the biggest power in the world that has a lot of money. Well, not exactly. We've had important major changes politically speaking, during the Fifth Republic. And we've been concerned throughout history. But our company is still here. We're building missiles. We're building aircraft or building submarines. So there's no crisis per se. Sure, there is a complex situation here with the budget. So this is what we know. This is what we can do. We make combat aircraft. Now of course, I'm not mentioning what came before 1945. But well, maybe you could mention the Eurofighter there was 1 European combat aircraft, but in out of these 4 countries that worked on that project 3 then bought American aircraft. So do I still believe in my company? The answer is yes. I believe in Dassault , I believe in Dassault capability to keep going honor its legacy. I don't see a lot of companies like ours that still invest the way we do. And Dassault has always been praised. A lot of countries admire us say were a small company compared to others. And still, we build Falcon build combat aircraft and good quality ones. Now we can't compare to American companies that build other types of aircraft. But we can build aircraft that can do everything that can be operated in many different areas in all circumstances. So why would we indulge in French bashing? This is the situation. I defend Dassault. I defend France. And I am proud of what France has been able to do through our history. I am proud of the French investments in its defense and I don't want to quote Maurice Levy here, but I am very proud of the French success story. And I think we can build on this success story. I think we could expand to other countries and share the success story with other countries. And why Airbus that doesn't have these skills, and I don't want to criticize Airbus for the sake of criticizing it. They just don't have the same skills. We've shared, we shared skills, and we don't have the same markets. It's been like that for years, decades even. I've always been respectful of Airbus, and I never said that I don't want to work with Airbus. But they are being aggressive towards us. They are saying that they don't want to work with us. They always tell us we are arrogant, but who's arrogant here? So to answer your question, yes, I believe in the future of the company and in the future of my country. Thierry Dubois: [Interpreted] Thierry Dubois from Aviation Week, about business jets on the deliveries of Falcons in 2025. How do you explain lower level of deliveries compared to the guidance given earlier on how can you address this or readdress this? And what about the [ Elles ] aircraft? Éric Trappier: [Interpreted] Well, we did better than in 2024. I know it does not -- we delivered more than in '24. We kept the guidance to 40 aircraft because we expect to get there. We had some challenges with the supply chain we had. This was exacerbated with the Falcon because Falcon is only 1 plane and everything is built in France. So it's a lot easier, but it doesn't mean to say that it's easy. On the Falcons, you have Falcon 2000, you have the 8x, you have the 6X, you have several types of aircraft. So you have several supply chains and several manufacturing lines and the supply chain extends all the way across the world. So if you want to go to the U.S. for completion that provides yet another challenge. And so after COVID and a number of challenges met by our suppliers and our subcontractors. We find it difficult to stick to the guidance. And this is not just for the new aircraft or the older models as well. This challenge, as I said, I'm not saying there are no issues in-house. We -- I mean, even in-house, we had issues and when you at the end of the line at the assembly line, that's where you take on all the delays, they converge there. And if you want to straighten it out, it takes time. But I have good reason to believe we will be able to meet the guidance for the Falcon and -- but we -- well, we're pushing a bit. We still have 40 deliveries planned. We took 31 planes in additional orders. So we're looking at -- I mean, the bill-to-bill -- the bill-to-bill be about slightly below 1, slightly above the Falcons, but in any case, when you talk about competitiveness, I mean it's for you to see for the analysts, but is this a good or bad performance. But when overnight, you take in an additional EUR 100 million, you have to take it in. If it's 1 year, we can do it, it's a 1 shot. But if they want to keep at it with this additional tax, it's not 1 shot anymore. And they propose to keep that extra tax to 2027, it becomes a recurring cost. And I don't know who's going to be the President in 2027. They might, well, they said, right, there's a budget deficit will fit it with this extra tax on big companies, what Macron was able to do started in 2027 to bring taxes down to 25%, and then that put us back in the European average. And we were sort of neck and neck with the U.S. in terms of the corporate income tax. But that's only the income tax, there's additional social security tax and that makes us really uncompetitive. But the only way to cope with this extra tax is to be more competitive compared with the U.S. that the Gulfstream is built only in the U.S. exclusively in the U.S. So it really is not easy for us. Unknown Analyst: [Interpreted] From [ PACA ] I'd like to have a few clarifications, not FCAS because we all know and you were clear, there was an interesting figure, you look at from Ouragan to Rafale, we are the leaders in manufacturing fighter aircraft. That's not an issue at all. But what is at issue is the embedded electronics on your aircraft. There is a lot of avionics coming from the U.S. And with Mr. Trump tax regime, we may have questions. We have Indian partners that have been extremely effective in producing IT and electronics, have you considered going to them as an alternative? And what about the future jet trainers, I mean, apparently, Airbus is supposed to build training aircraft. But that means you need to train pilots. I myself, I'm small VFR pilot, I know what happened with the Glasgow PG2. What about the sovereign cloud, your own cloud? Éric Trappier: [Interpreted] Okay. That's a number of questions regarding embedded electronics on the Rafale. All the electronics is French, and it's most of it, if not all, comes from our colleagues from Thales. On the Falcons electronics, you do have electronics coming from the U.S. We did that to have some -- well, to split the euro and U.S. dollar exposure, a lot of business aircraft is from the U.S. And if only to balance our costs, the prices in the U.S. well, the U.S. is very competitive. So we have to offer competitive prices. But turning to India. Well, yes, this is an option. One thing is for sure, we will not go to China. Everybody is rushing to China, starting with Airbus. Even Boeing went to China, everybody wants to go to China. We are not going there. I mean this is the defense industry. We can't go to China, but we can go to India, and it's true that you could readdress the balance provided we get the authorization because this is defense equipment, but also on the Falcons, we could be competitive, having Indian partners work as part of well defined partnerships between French and Indian companies, at least with Dassault and it's partners regarding the trainers, Alpha Jet is a very good aircraft. It's a -- this is a Franco-German aircraft, by the way, that particular partnership went well. I wasn't much involved because it dates back many years. I may be quite senior at Dassault, this was before my time, but I worked with Dornier that was a family-owned German company, and it went very well indeed. The issue is not with Germany unlike what some people might believe the issue with the Airbus. Airbus want to be the leader since it cannot be the leader, they decide to be co-leaders, that doesn't make sense. Either your leader or you're not. On the trainer aircraft, we could build such an aircraft, but it is for the chiefs of staff to decide. I mean, we had at the time of program known as Euro training, Eurotraining didn't work. the French Air Force liked it, but the Europeans want to be trained in the U.S. And so that takes us back to the first question. So could we go revisit the concept. We've heard this fine words saying that Europe could be a sovereign power of its own. I mean, sure, I mean, we'd be happy to take part in that. The EUROJET is a good aircraft, but -- and [ facil ] is a teaching aircraft, we could use that. And we're well advanced in cockpit technology and man-machine interface. The smaller aircraft purchased by the Air Force are pretty good. And the company, we did this with the Pilatus purchased by the French and others could be an option to train pilots there. So do we need an aircraft between the fighter aircraft and the Pilatus? We -- I mean the armed forces have been pondering this, but we could well we could develop an aircraft with others just like we did before to have an advanced trainer aircraft. Francois d'Orcival: [Interpreted] Francois d'Orcival from Valeurs Actuelles. As a follow-up question, is this still takes us back to FCAS because you've just given us proof that the issue is not so much an issue between France and Germany per se. But then what happened between 2018 and that is -- that's when the project started. And when suddenly now, Airbus you have Airbus declining to work with Dassault. So what prompted Airbus to take such a stand? Did they change -- I mean, there's still they haven't changed nationalities, but they've changed their approach. Éric Trappier: [Interpreted] Well, Guillaume Faury is Head of Airbus, but Airbus, we're looking at Airbus, Germany here. So we're talking to Airbus Germany. So Airbus Germany, wants to be part of a Eurofighter type program. I'm not criticizing, but that's not what we support. What I've said from the start, we have a clear leader, not just on paper, not just in the contract, but we have -- it has to be effective leadership. But then our opposite number says that then I'm just a subcontractor. Well, I'm the subcontractor for Airbus' Eurodrone. And that's fine with me. That seems to be the issue with them. They want to know whether they can learn anything, gain know-how, these are fair enough questions, and it's true when there are 2 people working on the project. If there's 1 leading, then the other 1 learns from them. But just because your learning doesn't mean you become a leader yourself. I mean we're moving away from what was initially planned. I said governance should be adjusted so that my responsibilities can be actually performed. I never said I wouldn't want to work at the Germans or the Spaniards. But certainly, the -- what I get from the other side is we don't want to work with Dassault. And so I take due note of that. I mean, there may have been challenges that we were not able to overcome. Some people say, well, we need to have 2 aircraft, and that's what happened in the 1990s. We -- I mean, we don't need to -- we're not sorry we had to build the Rafale alone. So. Veronique Guillermard: [Interpreted] Hello, my name is Veronique Guillermard from Le Figaro. I had a question about the Middle East the French President said that France had commitments and responsibilities vis-a-vis our friends and partners with whom we have a strategic cooperation agreements in matters of defense, Qatar and the United Arab Emirates. Now does this mean anything for Dassault, I mean we sold Rafale in that region, does it mean that we need -- you need to beef up your teams, especially your maintenance people? And can you tell us where you stand in terms of head count and business in the Middle East and have you seen possible risks or consequences? And then the second question about the U.S. tariffs that are being challenged now by the U.S. Supreme Court. How -- is that a new period of uncertainty for you? And what will be the consequences for Dassault? Éric Trappier: [Interpreted] I want to take the second question first. As we speak, there are no issues, no risks regarding tariffs in our industry. Now this is as things stand today, we don't know what the future brings, Mr. Trump look at Spain is a case in point. So it is both our interest for the for civilian aircraft to be duty free as it were. There were agreements between the U.S. and Europeans, everybody recognized that was -- that was not going to be doing anyone any good. It would actually serve the interest of countries further away. We have a number of connections with the countries in the Middle East, including, of course, Qatar and the United Arab Emirates, and they have been using Mirages and Rafales for many years, there are Rafales in Qatar, are not in the UAE, but they are French Rafales on the French air base in Abu Dhabi but the 80 Rafales that have been ordered haven't been delivered yet. So of course, we're monitoring developments very carefully indeed. But we have no comment as yet as to having more people there. The big issue now is to protect our people. They're out there in countries that are facing the threat of war. I mean we saw it coming, but anyway, the concern is to protect our people. So that's our #1 priority as we speak. But of course, the next priority is to support our users as they fly our fighter aircraft. But there, we have to remain rather confidential about this because this is, of course, a state of war. Michel Cabirol: [Interpreted] Good morning. My name is Michel Cabirol from La Tribune. I have a few questions there, a bit different. Number one, on the T-6 tranche. When do you propose to sign the order on the T6 segment here. We're talking about sales and the marine Rafales that are aging. They're the first ones that were commissioned when do you expect to sign this important order, I mean, for France because it is for it's a military model for 2035. Then you are involved in the Eurodrone. And my question is what's your take on that? Is that program alive and kicking or not? And are you still involved in the Eurodrone program? And number three, what's your view on Make in India, what's really at stake there Dassault and indeed, for the entire French supply chain. We're talking about 114 aircrafts. Is there an issue there as to liability at the end of the line as it were? Éric Trappier: [Interpreted] Well, the first question, you should ask the procurement agency. We don't have a view on the tranche #6. I mean, the production rates for France are pretty low, and that's because of budget issues. We delivered a number of aircraft in 2025. For the 2 or 3 years got to come, we're talking about small volumes. It's not that we don't want to step up the production rate. But if you want to step it up, we have to be able to come up with the cash. For the Eurodrones, the product owner is Airbus. We are subcontractors. Again, that's -- we have no issue with that. That was the contract. Indeed, we would not have signed the contract in any other in any qualification. By the way, there, airbus was quite happy to be the main contractor to own the project. They didn't want to have co-leadership, and indeed, as a trade-off, we were the leaders on FCAS. Anyway, no further comments on Eurodrone that you have to ask Airbus and the others if they want to continue with the Eurodrone or not. And as to how Airbus can act as an architect or a main contract or a project owner, we can mention this in another press conference. Regarding the 126, just like for the FCAS, if -- I cannot be a leader unless I have the ability to be the prime contractor, unless I have all the wherewithal in public works is the same thing. The main contractor is the 1 that can bring together all the trades to build a building or plant or whatnot. And that requests from the Indians makes sense because if you want to deliver aircraft to your air forces, you do need a leader. You new dealer a prime contractor. And so for Make in India when we give place orders with a French -- with a joint venture, an Indian subcontractor. We still remain the leaders because the client wants it, I'm asked to take on the responsibility. I can take the responsibility, and I say loud and clear, not to please anyone -- what I'm saying is that if I make that commitment, this is what I need. And I need to decide who are my subcontractors or my partners tell us is not a subcontractors of Dassault for radars, but you cannot build the radars without having an architect telling them this is what I need to build my system to bring cooling, power, et cetera. That is something that we -- is well understood between Thales and Dassault. I don't want to build the radar. Even though we were involved in an electronics radar once, but again, the architect needs some wherewithal if Airbus can take on certain tops. It is for Airbus to take charge of that. But being the co-leader and be #1 -- well, it's all very well, but you have to be able. I took a commitment and we don't want to please 1 or the other. The idea is to have, well, have the right balance, but also being able to take on the job. We -- I mean, we speak frankly. People may not like it, but it spares everybody some disillusionment. I mean, we cannot -- we won't be able to build an electric aircraft crossing the Atlantic or hydrogen aircraft, powered aircraft across the Atlantic. We won't tell lies, but yes, the 114 aircraft, we will be able to deliver, and that's what we committed to do when we accepted leadership. Unknown Analyst: [Interpreted] Another question still from Bloomberg. This contract with India. Will this be signed prior to the end of President Macron's term? And then back to FCAS, do you believe that the President should make a nuclear cooperation with Germany, subject to progress on FCAS. And more generally, what did you think of the President's speech in Brest? Éric Trappier: [Interpreted] Well, I cannot comment on the President's statements. It's his business. Well, what he said in rest on reinforcing the nuclear deterrence, I can only support this because this is the very purpose of France's defense, nuclear deterrence. We are holding up the rest of Europe, but we are -- well, the Brits are not completely autonomous, but we are. And in view of the threats facing the world and the new contracts emerging. If you're in a position to hold nuclear deterrence, this is, of course a significant advantage. This is why we have a permanent position on the UN Security Council. Even some people envy this or challenge this. But this is what drives the machine for industrials. If you look at Naval Group, that's a fun company because with the submarines, that's what takes advantage of the know-how and skills of Naval Group. And likewise, for the fighter aircraft, that's the strength of Dassault and we're in a position to keep up our skills with nuclear deterrence. That was decided by General de Gaulle, and it is no coincidence that we've been supporting the order of companions of liberation. That's part of our DNA of our history. We have a history. We're proud of that. But that also includes nuclear deterrence as defined by General de Gaulle. And as an observer, I can only see that this is well suited for today's state of affairs. Some may wish to criticize the French President. In this particular field, I will support him. Regarding India, I was there a couple of weeks ago, traveling with the President, we felt that we want to make sure the contract is signed this year. Will it be signed? You'll see next year. Unknown Analyst: [Interpreted] from Liziko regarding the situation in the Gulf. I believe the Emirates would not receive Rafale before the end of the year. That's unfortunate. But if they wanted you to step up deliveries, would you be in a position to do so. Would you be more gently -- could you pass on to a production rate of 4 aircraft per year faster than expected? Éric Trappier: [Interpreted] No, if they wanted us to do this, we would not be able to do it because this is 2026, and we have to deliver an aircraft. I mean, well, it is following the normal timetable, then we'll have -- we'll be able to do just that. Wars raging now. We certainly hope it will come to an end by year's end. But when you delivered your first aircraft, there's a training period before that, that takes some time, then you have to make sure the aircraft can be delivered to the country, to be effective. You need a first quadrant for that. So that -- it couldn't be done. No. What about 4 aircraft production rates? We are producing 4 aircraft a year. But the upscaling is something gradual. You have to work with upstream plants with our subcontractors, but at the final assembly we're not there because, of course, everything has got to come into place at the right time to be able to push to 4 aircraft per year at Merignac, in any case, our present contracts, we're not supposed to deliver 4 aircraft per month by the way, not the year. We are looking at 28 aircraft. Unknown Analyst: [Interpreted] Defense news, how long -- I mean, you've taken some delay on the AGF? Yes, on the future generation aircraft? Éric Trappier: [Interpreted] I cannot give you a number. It's like -- we know when it starts. We don't know when it will end. It's true we've been -- I mean, we fall behind if we don't start the next stage on time. Earlier on, I said we should go from T0 to actual tests in flight test, just like we did for the Eurodrone. They don't like it, but there were 6 countries. We were better than other countries. We did better than expected in terms of stealth. And we had a contract with French procurement agency on behalf of the 6 countries involved in it. From T0 all the way to in-flight tests rather than looking at rather than slicing up the timetable because if you do that, you need to renegotiate everything. If we had been given the contract to go all the way up the first test flight, then we wouldn't have these issues would be -- we'd have a fine plan. So when we talk adjusting the government, that's part of it, we have to be more effective collectively. It is not for me to say what the 3 countries should do but we need to have some governance, some leadership here. And in keeping with the initial agreements, that should have been resting with France. Unknown Analyst: [Interpreted] There are lots of ammunition with Rafale. Is there problem with ammunition issue for potential buyers and for the FTL line in India, what's the time line? Unknown Executive: [Interpreted] Yes, there is a real issue with ammunition, especially with the war that's raging your commentators and you know that it's an issue to know who's going to lack in ammunition first. But I think we forgot that when war is raging, we need ammunition, and we use them quickly. The war in Ukraine actually reminded us of that, that the piece dividends go through having ammunition and arms and stock. It was the same with COVID-19. If there's a pandemic need masks and if you don't have masks, then you need to find them somewhere. So I don't build ammunition. I know that there's a true willingness and need to step up production in ammunition. I understand, but then industrial are trying the best they can. And we there are orders, orders mean more hires as well. So this is definitely one of the topical issues. Do we need to face. I can't hear you this new Microphone. Unknown Analyst: [Interpreted] And how about the time line when it comes to the Rafale aircraft? Will there be an impact? Unknown Executive: [Interpreted] No, not particularly when you buy a tank, when you buy a combat aircraft or a solar system, you need ammunition, obviously. And then there was a third topic in your question, I can't remember which. Okay. Well, it hasn't been defined, but we think we -- what we want to do is buy a build as many aircraft as possible for India in 1 year. Unknown Analyst: [Interpreted] [indiscernible] BFM business. A question about the UCAS that should be ready with the F5 standard soon. Could you tell us more about the next steps in the program? And what are you going to have to make progress on concretely speaking? Unknown Executive: [Interpreted] We're still working on the -- in the initial was part of the initial road map, and we don't have an answer for you. We don't have a precise time line. We're still working on the road map. Unknown Analyst: [Interpreted] I just wanted to ask another question about the FCAS in Germany. We tend to say the aircraft is not the important thing. The important thing is the communication system. The cloud system is that your vision as well. Is that your opinion as well? Or do you have a different opinion? Unknown Executive: [Interpreted] I do believe that in a large combat system in the military system, everything is important. And of course, today if you look at the operations that are ongoing everywhere in the world, those who control information definitely have a big advantage. So it's not only about developing a cloud system. The cloud system is just about data storage and it's not an issue really storing data. It's not the issue, but capturing data that come from many different places. That's the main issue, satellite systems, satellite networks and our American friends are paving the way and they're well ahead of us. Now we need autonomous systems to be operated by a European military forces because we don't have these autonomous systems. So yes, we need to develop them. We need to work on the satellite, constellations and networks. So satellite manufacturers needs to step up as well. But if you look at the number of satellite sent into orbit by SpaceX every day, this is -- I mean, numbers are very high. I think there's a satellite that takes off every 2 days, SpaceX again. So that's the main issue with the cloud. The issue is not about storing data. It's about getting this data from satellites and then putting this data at the disposal of our military forces. So of course, this pillar is very important, and I agree with you, but again, Airbus wanted to be a co-leader in the first phase of the project. So Airbus wants everything. And that's actually what they said themselves, they said they would like to lead a cooperation without Dassault that because they don't want to lead any project with us. And they even quoted a success story, the 400M, but in that specific example, it was just Airbus made. And our example, Airbus would have to cooperate with and partner with us, Dassault. Unknown Analyst: [Interpreted] I have a question about LMB Aerospace, which is one of your suppliers. What's your vision? Especially about the fact that this SME went to the United States. Unknown Executive: [Interpreted] But first, let me tell you 1 thing. This SME did not leave the U.S. It's still in France and still building, but it's always been building. But its shares on our own by the U.S. So in Dassault, we do invest quite a lot. Now I'm not going to compare that with Airbus, but most shareholders at Airbus or from the U.S. But there's a liberal system. This is the system we live in. It might be a political issue for some, but we live in that system, and we operate in that system. At the time when the war in Ukraine started and before the war started there, it was a complete taboo to invest in defense, even the government of a Bank of France, central bank in France, would say "Defense is just like tobacco or alcohol. It's not something you invest in, it's wrong". But then people start realizing that only our enemies had arms and weapons and it wasn't a very good idea to go forward that way. And we need to be more strategic. Now again, today, our funds for everything. We celebrate the defense, we celebrate European unity in defense, but it took us some time to realize that. And only the war actually made us realize that. So it takes us a war to realize that. And we shouldn't have rated, we need to predict these things. We need to be more preventive in our strategies. So to be honest and I currently remember what the question was at this point. Right. So yes, have American shares. There are others. There are American -- U.S. owned 100% sometimes even. So you need to invite and encourage people to come to France, and we're very happy to have investors, American investors investing in our capital, but we need to have French investors as well and we need to favor and encourage those who invest in France. I am very happy to be part of this company and this group that is investing into French defense and French industry. The French authorities have been cautious and they said, well, the work should be done in France, and there are rules that we need to comply with. There are no -- we're not dealing with American proxies per se, but show looks like it sometimes. So we're not in favor, of course, but it is acceptable to us. Unknown Analyst: [Interpreted] Bloomberg I just wanted to summarize what you said about the FCAS. If Airbus doesn't want to work with you, you said the project would be dead. Unknown Executive: [Interpreted] Yes, I didn't really say that, but the problem is not -- I mean it's not my problem, Airbus is the 1 being problematic here. All right. But is there a date or time line? Or is there a next meeting on the agenda or you need to ask them. Unknown Analyst: [Interpreted] About Rafale production. In 3 years' time, if we had to step up production, what do you think could be the pace in terms of production for the final assembly? And could you reach 45% or 50%. I think that's what the Indian Ministry wanted will be pace 4 in 3 years' time. Unknown Executive: [Interpreted] I said that we were ready to move on to what we call pace 5. If we were to step up production. When it comes to final assembly and we need 3 years to move up the pace. If in 2027, we make that decision to move up and step up our production, then we'll be able to do that 3 years later in 2030, but the decision hasn't been made so far. And about your question about India, we'll see how it goes. This 45%, 50% is the goal that comes from calculations and estimates. Now we've got an agreement -- a potential agreement with Indian authorities based on this 50% goal. But there are lots of parameters to take into account to make that happen, the 50% objective. But again, it's up to the Indian authorities, but we can guarantee a number of things. So this pace 4 that you're mentioning. When it comes to pace 5, it is possible. It is doable. Unknown Analyst: [Interpreted] I have an additional question. When it comes to the percent of values of value produced in France or elsewhere, when it comes to the Falcon -- what's the share of value produced in France? Unknown Executive: [Interpreted] 50%, which helps us balance with the dollar because when the dollar goes down, when it fluctuates, it can be an issue. So we need to balance this out. If analysts have listened to us then, I can tell you that we -- and we deal with values of 1.13, 1.14,1.15 at the moment. Unknown Analyst: [Interpreted] I see on the screen the space plane, makes me think of Hermes. Hermes is another case of the Germans stealing from us at the conference in Madrid. It might not be a question, but spatial sector is going through a number of issues at the moment. So is that project coming at the right time? Unknown Executive: [Interpreted] Well, the spatial sector is quite expensive, so you need to mobilize important major investments, major sums. And each state is ready to bring something to the table as budgets for the special sector. In France, just like in a number of sectors. We want to be the leading industry everywhere for satellite and for the spatial industry as well. So the position is sort of the same as with the FCAS project, corporations, partnerships. The idea is not always to work together, but that can be an avenue. And I've read in the press that Germany would like to work on the constellation project as well. So there's a difference here. A difference between countries, whether they want to admit it or not. So you're mentioning Hermes. Well, it's not the same situation. I mean, things have changed since then. Hermes has evolved developed. We've got a program as well. That helps us on the know-how that was developed at the time. And we're working with young people, young engineers, spatial sector is one that is inspiring to young people, and they want to work in that sector. And there's a need, a willingness to explore this sector can be about developing a cargo that could go and bring equipment to spatial stations. We've talked about a number of issues in that sector. A French astronaut left recently, and then she came back in the middle of the Atlantic and that was quite impressive. So we do think that there will be a comeback of this base plan that we want to reach the space. That's something that everybody wants. So we are using this need. We're exploring it. We are in our dynamics company focusing on that. We don't do satellite and then we're working on our backlog to make sure then we can then explore the avenues. But again, this is a different system to work with, we need to rethink our systems. We think we have the skills and we could do that in the future. We think there's a need to explore here. We think that young people want to work in that sector. So for all these 3 reasons, we do believe that there's a future for Dassault in this sector, and we could very much very well find partners to work with in this sector. Of course, there's always a budgetary issue in France and in other countries, but we'll try and make it. Unknown Analyst: [Interpreted] One last question, Defense news about drones. Dassault has always -- has already worked a lot on drones. The Americans already have flying drones. Can we expect the stealth drones to arrive before the F5 standard? Unknown Executive: [Interpreted] Well, again, we need to think of the T0. The starting point is there a project? Are the armed forces an agreement when it comes to use of these trends. So what we've always said is that we need demonstrators first so that us industrials can make the right technological choices. We did that. We've done that. And sometimes, we develop full programs. That's what happened with the FCAS. It's a program that sometimes it's only demonstrated before it becomes a program. But what we wanted with the FCAS as was to really have a flying aircraft. Now we're very motivated by the prospect of having a flying demonstrator as well. We could do that, but we don't just want to make our engineers to keep them busy really. What we want is to really achieve something. So -- when it comes to stealth jets, we've learned a lot from the drones that we had very stealth drones. And when it comes to the aerodynamics, it needs to be a supersonic aircraft, which was in the case in other projects. So we really need to take all of this into account, but we do want to have a flying demonstrator before we start working on a different program. Thank you very much, and we will see you soon. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Martina Kalkhake: Good afternoon, ladies and gentlemen, and welcome to our webcast on Bilfinger's Full Year and Q4 2025 results. My name is Martina Kalkhake, and I'm joined today by our Group CEO, Thomas Schulz; and our Group CFO, Matti Jakel. We will start with the presentation of the quarterly highlights and also the full year financials and then open up the call to your questions. [Operator Instructions] The event will be recorded also as usual. Now I hand over to Thomas. Thomas Schulz: Thank you very much, Martina. Hello, everybody out of the sunny Mannheim here in Germany. When we look into the year 2025, we can say that we achieved all financial targets what we set out for the year. It was a year with clear market -- our market position expanded, but in a very volatile environment. Our orders received went up 6%, revenues 8%, EBITDA margin up by 30 basis points and free cash flow significantly up to EUR 330 million. We propose a share increase from EUR 2.40 to EUR 2.80 per share. The outlook for 2026, we fixed with EUR 5.4 billion to EUR 5.9 billion, and the EBITDA of 5.8% to 6.2%. On our list, where in the last year acquisitions, we did 3 acquisitions, and we announced 1 signing in that case for Turkey. When we then look into the targets a little bit more detailed, you see on the left side, the revenue development, '24 full year to '25 full year. We achieved an 8% growth and a 4% organic. In EBITDA, we are up 13%. This proves that our system, our strategy with operational efficiency is actually working quite well. Our free cash flow made a significant jump upwards from EUR 189 million to EUR 330 million, which is a 75% increase. Our outlook was EUR 300 million to EUR 360 million but that was actually brought up during the year. When we then look into that what we do as a company, you know that sustainability is the core. Efficiency is the core of the Bilfinger Group to improve that on our customer site and customer businesses. On that very lively slide, I would like to have your focus on the left down part, the greenhouse gas emissions, Scope 1 and 2 intensity measured in CO2 versus million euro revenue. And there, we have a significant step improvement by minus 15% from '24 to '25. The second thing is in the middle of the slide, you see more than 0.5% of our revenue as an investment in learning and development for our people. Our people are our assets. Our people are our reputation, our competence and, in that case, our future. That target, of course, we fulfilled for 2025, and we will fulfill it for 2026 too. Above that, it's about safety. Safety is not only important that all our employees and people related are safe and in safe working conditions, it is actually for our customers a quite good KPI to see how our performance as a company, as a group on customer side is working. And we can announce with, yes, quite a lot of being proud of our own people that we had one of the best years ever in the Bilfinger Group. We actually improved the TRIF from 1.12 down to 0.91 and the LTIF significantly from 0.32 to 0.18, which is both world-class and shows the position of us to help customers to get more efficient. Next thing is that we measure our business in 4 categories because for mechanical industrial service, the European taxonomy and classification out of Brussels just forgot about that part of the industry, which, of course, is quite important. So we introduced, at the beginning of '23, our own classification. What you actually know when you buy, for example, a fridge in an electronic store. A is very environmental friendly, D is not environmental friendly. And here, you see the year '23, '24 and '25 on the left side. And you see that we are in the categories with the darker blue color, step-by-step going up when the gray one, which is actually the coal and fire energy generation-related business is slightly going down. To give you a little bit more information you have on the right side, some of the orders. For, a, it's a clear energy generation CO2 reduction direct business; and, b, it's enhancing energy efficiency and then, c, is all the support for that work. If we then go further to the industry outlook and industry development, how is the business going? We use, for quite a while, the production index and you have that on the left side and its index the first time here to the year 2023. Before it was 2019, the last year before COVID and '23 is the first year after COVID, hardly can say it was completely over, but a good measurement. And you see 4 graphs and the graphs actually symbolize the different industries. Of course, the most sticking out is, of course, the green one, pharma, biopharma with quite an increased outlook to EUR 130 million up in the index up to 2030. Then you have energy, then you have oil and gas and then you have chemicals and petrochem. On the right side, you see very much what our share is. The biggest industry we are operating now in is energy with 24%. The demand is okay and good. And then we have chemicals and petrochem, which is 23%. Demand goes sidewards. And here, the sidewards movement is predominantly out of Germany. We don't see further going down but we don't see a significant up no matter that they are the first positive signs at the end of the tunnel. Then we have oil and gas with 18% where the demand is good, too. And of course, pharma, biopharma, where we still see quite a positive market. Important in that is our outsourcing potential, the potential where customers decide or could decide to give us, Bilfinger, a big part of their complete maintenance business because we are experts in it. We do it more than 1,000 times per day, and that actually generates for the client a lot of positive profit impact. These outsourcing potentials are significant good in the chemicals and petrochem because they are -- our customers are there for quite a while under pressure. And you see energy is good. Oil and gas is good and pharma and biopharma is good, and it's part of our growth story. Then we go further. It's about selected orders. We always show you free orders of different geographies and different industries. On the left side, it's from our dear client, Borealis in Sweden. It's actually about the responsibility of Bilfinger to create an increase in production capacity in chemicals and petrochem. In the middle part, it's about energy. It's Estonia, our customer, Utilitas, and again, it's about district heating. We in Bilfinger a believe strongly that district heating is an ongoing positive development. And it makes actually from an energy point of view, a lot of sense. On the right side, we have oil and gas out of Germany. It's the company, Gassco, and it's about the reliability of the gas supply and gas infrastructure, which is nowadays more important than ever before. Out of that, we go to innovation because we, as an industrial service provider, have a fantastic position by having most of our people permanently on customer side, to create ideas and to make products out of it. This product, what we show today, is the Bilfinger Acoustic Corrosion Detection System. When you are in a processing plant, you have pipes, you have containers, you have storage tanks with material in it, liquids, gas, powder, partly flammable, partly quite aggressive in the environment. And when you try to detect corrosion, which is, of course, important to know what happens, you have normally in regular operation to empty all of that so that you can make your measurements. We developed together with other partners, a special acoustic emission sensor where we can go in a current environment in operation into the plant and measuring the effect of corrosion as a potential threat, leakage and so on. That is not only reducing the downtime for the customer and bringing up cost savings for the client, it is a significant safer approach and fits very much into our safety story. Out of that, we come to the figures. On the top line is our more or less already quite famous opportunity pipeline, what we invented several years ago. It shows actually indexed to 2 years before the amount of possible opportunities for the Bilfinger Group judged by if they will, out of our point of view, happen and if we have a chance to take the order. And when you see the development of the fourth quarter in the last 2 years, we actually improved with that potential what we have in front of us to roughly 110 versus that what we had at the beginning of the year -- at the end of the year 2024 or in the year 2025 -- or '23 and '24. When you look into it, a part of that improvement, of course, comes through our quite active M&A strategy, what we drive. Each M&A is, of course, adding us more potential. Out of that, the orders received, when you look here, we actually had a good year, but as it is typical for us as the Bilfinger Group, we have quite a fluctuation between the quarters in the order intake. It is based on the fact when milestones or contracts are dropping into a quarter from a timing or not. So out of that, we had organically and inorganically negative development versus the quarter 4 in 2024. But our order backlog throughout the year and versus the quarter actually improved by 5% or 4%, which shows a very good stable development of our group and is fully in line with our growth story. Out of that, I would like to give to Matti, our CFO. Matti Jakel: Yes. Thank you, Thomas. Good afternoon also from my side here. Yes, let's take a bit of a deeper look into the numbers. As Thomas said before, the orders received in the fourth quarter were a bit, let's call it, softish based on timing of contract awards and volatility in the markets that we have, I think, communicated quite well over the last 2 years, at least. For the full year, orders received increased by 6% in total, 2% organically. The acquisitions play a role in here, but also we had a little bit of a negative impact from the weakening U.S. dollar. Order backlog reached EUR 4.3 billion after EUR 4.1 billion in 2024, so a very nice increase. Revenue, a strong increase of 8% and 4% organically to EUR 5.4 billion. Growth in the energy sector, in the pharma and biopharma sector and obviously, due to the cost pressure, some decline in chemicals and petrochemicals. As part of our derisking, we introduced to report our revenue shares by a remuneration type. Early on, we just differentiated between projects and service and frame contracts. This year is a better picture almost 50%, 44% to be exact, is time and material, close to 20% is unit rates, 70% is mixed elements in the remuneration and only 20% is lump sum, which gives you a fairly good picture how well our contract portfolio is risk-managed. On the profit side, our gross profit increased from 10.9% to 11.3%. That's an increase on the absolute terms of 13% and again, what we announced during the strategy, product mix improvements, derisking, standardization, all of these do drive our margin improvement across all segments. On the SG&A side, we remained stable across the year at 6.3%. However, we have to say that the acquisitions, the 3 acquisitions that we did in 2025 came in with higher SG&A ratios which does give us opportunities for cost efficiencies in the future years. And EBITDA developed very well from 5.2% to 5.5%, and the last quarter at 6.1% was the strongest quarter sequentially. We had 4.5% in the first quarter, 5.5% in the second, 5.8% in the third quarter and then 6.1% in the fourth quarter. So a very nice development sequentially. Important also is to look at the adjustments. As you know, we do report on the reported numbers, but to give you a full picture here, we had last year a positive contribution from those adjustments of EUR 7 million and this year of negative EUR 8 million. So that's a swing of EUR 15 million. If you factor that in, then you see the real operational improvement, which is then more than the 30 basis points here. If you refer it to EBITDA, then the improvement is 50 basis points. Take a brief look into the segments. You will know that we have changed the segment structure effective January 1, 2026. Here is 2025, so it's the pre-existing segments. Europe, a very large segment with orders received of close to EUR 4 billion. That's a slight decrease organically, but overall a 6% -- a strong 6% increase. Revenue, very similar, organically, a slight decrease, but overall, 6% increase for the full year. Book-to-bill at 1.06, stable, same as last year, 1.06 and the order backlog reached EUR 2.9 billion, so almost EUR 3 billion in the segment. On the profitability, in margin numbers, a slight decline, from 5.9% to 5.8%. But what I mentioned before in terms of the adjustments, here, we have a swing of a total of EUR 17 million. So again, if we look at EBITDA adjusted, that improved from 8.1% to 8.5%. You find those numbers in the backup to the slide deck. International, very nice performance across all KPIs, 17% increase organically, 13% in total when we look at orders received. We did quite well on frame contracts in the United States. The government customers still are hesitant to award contracts. We had the shutdown, shutdown ended and then there was another one. So that takes a little while for this process to restart again. But very good new orders from oil and gas and energy industry in the Middle East. Revenue grew by 6%, 10% organically to EUR 742 million. And the profit from a breakeven position last year to almost 4% for the full year. And again, it's operational excellence that's driving margin expansion not only in the United States but also in the Middle East. And then technologies, also a very nice performance on all KPIs, 6% increase in orders received, nice growth, in nuclear and in biopharma and pharma and the revenue increased by a stellar 17% to EUR 856 million. Book-to-bill at 1.0 is lower than last year, but you know the business is more volatile than the other ones, so nothing to be concerned about. Profit, very stable in the fourth quarter at 8%. But overall, throughout the year from 6.2%, 80 basis points up to 7.0%, a very nice performance in our Technology segment. For the group, net profit for the year, in 2025, we achieved EUR 176 million for the full year. There is an impact in there that I need to mention. We bought back shares from minority shareholders in one of our larger entities that had a negative impact on the financial result and it had a negative impact on our tax rate. So consequently, the earnings for the year and the earnings per share are down by 1% for 2025. Cash flow. I think Thomas mentioned it before, we achieved EUR 330 million free cash flow for the year, a 75% increase, 110% cash conversion rate, some positive effects in here, a large payment from a dispute in the United States that we settled in 2024 and the cash came in, in 2025, so that certainly helped to improve the cash flow. But more importantly, our working capital efficiency that we measure in net trade assets over revenue has improved from 9.6% to 8.3% as we had planned and announced it last year. On the net liquidity or net cash position, no change on the debt side, very stable on the financial debt and also on the leasing liabilities, they fluctuate a little bit with the acquisitions. But we had payouts for the share buyback program. We had payouts for M&A, and we had payout, obviously, for the dividend but still, we increased our net liquidity position from EUR 88 million to EUR 146 million by almost EUR 60 million despite those payouts that we had. No change on net debt and consequently no change on the leverage. We're down to 0.3 at the end of 2025. Capital allocation, very important. No change there. Dividend, very important. We will propose EUR 2.80 per share. That's up 17% from last year where we proposed and paid out EUR 2.40. We are funding our organic growth in terms of sales improvements, people development, innovation, digitalization. M&A plays a significant role. And more importantly, and as we announced at the Capital Markets Day, we will accelerate there. And then obviously, if something is left then we have all kinds of options in terms of shareholder returns, but it's also very important that we maintain no matter what we do, we maintain our investment-grade rating. Let's take a quick look into 2026. The updated segment structure, as shown on the left-hand side. The segments are in size more equal than before. Western Europe is about 1/3 of the group, Central Europe a bit less than 50% and international is about 20% of the group. So it's more balanced than what we had before. We are working on a full restatement, and that restatement will be made available in the week of April 20 to everyone who is interested and we will publish this on our website. So for the Western Europe segment, which includes countries, Holland or Netherlands, Belgium, and the U.K. We see revenues of EUR 1.8 billion to EUR 2 billion for next year and an increased margin of 7% to 7.4%. Central Europe, which includes Scandinavia, the Nordic countries, Germany, Switzerland and Austria, we see a revenue of EUR 2.5 billion to EUR 2.7 billion and an increased margin of 5.8% to 6.4%. And for international, EUR 1.05 billion to EUR 1.2 billion and also an uptick in EBITDA margin of 4.2% to 5.0%, and then reconciliation is just for completeness sake. So that, I think, good targets and what it does for the group. I'll turn over back to Thomas. Thomas Schulz: Thank you, Matti. So this is the group outlook. You see here on the right side of the slide, the full year '24, '25, the outlook for '26 and of course, the midterm targets for 2030 because that is where we run to. When you look to the outlook, the EUR 5.4 billion to the EUR 5.9 billion reflects that what we see in a volatile business market, but at the same time, the growth potential, what we initiate to have. On top of it, an improvement in the EBITDA margin from 5.8% to 6.2%. For us, always as in the year 2025, the midpoint is the most important in that guidance and the free cash flow, EUR 250 million to EUR 300 million because we don't repeat or we can't repeat each year, any legal dispute where we get then cash paid in the year after. Important for us here is the cash conversion. And there, we target, of course, more than 90% towards the year 2030. Important in that is our development as a company. And this actually is the whole strategy of the Bilfinger Group. As simple as it should be, it shows that we work on our own efficiency, what we call operational excellence at the bottom as well as the market expansion and then you see 3 boxes with '25 results just delivered. Then the midterm targets, '25 to '27, what we gave at the beginning of '23, and we gave new midterm targets to 2030 in December last year. You see that the targets what we have from '23 are still on the list, and we achieve. The same we will do, of course, with the 2030 targets. Out of that, summary, again, we expanded sustainable profitable growth in a quite volatile market and the volatility will not end as we are well aware. Our orders received went up 6%, revenue 8%; EBITDA 30 basis points up versus the reported 5.2%, proposal for the dividend is still the same payout ratio of 53% from EUR 2.40 to EUR 2.80. Free cash flow is targeted is EUR 330 million in '25 and quite up from the year before. Outlook, I just explained. And of course, M&A is on our list. We did 3 in last year. And actually, we had one signing of a larger one in just before Christmas. And with that, I would like to give back to Martina. Martina Kalkhake: [Operator Instructions] The first question comes from Michael Kuhn from Deutsche Bank. Michael Kuhn: Starting with E&M International in the fourth quarter, I think quite a standout results contribution. You mentioned operational excellence. Any other things you would like to point out or any more details also on Middle East versus North America performance? Thomas Schulz: So the -- at first, our colleagues did a great job that where we are coming from, especially in U.S., great job. But -- and that's the thing and that's the reason why we keep our strategy target and prioritization target for M&A in North America as well as in the Middle East. We are still too small to be sustainable big player in that market, what has to be with our competence. So the improvement, as Matti said, is predominantly out of the operational excellence, how we are organized, how we work, how management layers, how competence is placed, how the global product centers are working with these parts of the world. And in -- I have to say that, in the situation what we have since Saturday morning in the Middle East, where all our people are safe, and we are very happy and was the first thing what we did in the crisis management. We see that our way of having a decentralized organization, especially with the new segment structure, makes it clear and easy or easier to manage, and that all contributes into a better performance. Michael Kuhn: Understood. Then on the margin improvement in '26, maybe some idea on gross profit versus SG&A/overhead. You mentioned some of the acquisitions you did came with higher SG&A rates. Any cost savings targeted here? And also on top line performance, you mentioned cross-selling initiatives at the CMD. Do you see those initiatives already bearing fruit? Thomas Schulz: With the cross-selling. Yes. Cross-selling is -- actually, it means that we are selling the good products, what we have in some spots to all the customers in the Bilfinger geography. The new segments will enable that because they are more balanced. They are more balanced in size. They are more balanced and competent. They are more focused on the customers. And there are less layers in between us and the customer, which always helps. This cross-selling is not really into the figures from the last few years. It's not really in that what we have in 2025. It improved, but you now, as it is an improvement on very little is still little. So there is more to come. It's actually part of the strategic lever market expansion. Matti Jakel: On the margin side, Michael, and thanks for the question. We continue to drive operational excellence to see margin progression in our gross profit. On the SG&A side, we see a few notches that we can improve year-over-year, and that is what we are also doing. Yes, it's true that the acquisitions came in with higher SG&A cost and we'll take a deep look at what we can do there. And I'm sure we'll find good things that will bear fruit in 2026 in the years following. Michael Kuhn: Understood. And then 2 on M&A. Firstly, on Teknokon. From today's perspective, when would you expect the closing? And can you provide us with, let's say, a few more details or at least an indication on Teknokon annualized top line contribution and profitability? Thomas Schulz: The -- we expect the closing, of course, this year if everything goes well. It should be up to the mid of the year, if things are going as expected. Regarding Teknokon's business performance, we actually gave to the market the information that is in the higher double-digit million range in revenue, but the profitability we will not disclose. Teknokon is -- and Turkey is when you look on a map, easy to understand between our growth areas Eastern Europe to the Middle East. When you look on a map, Eastern Europe for us, potentially at the moment, Czech Republic, Romania and especially Poland. But in the future, Ukraine and all the countries in between to the Middle East is building a bridge and starting with that bridge, Turkey is a very important partner. Michael Kuhn: And then lastly, again, sticking with M&A. How does the pipeline currently look like? Obviously, it can't be too precise, but let's say, is there a realistic chance for further deals over the next few months? Thomas Schulz: Yes. There's definitely a lot of chances, and I can explain that very short. At first, we work for quite a while, very professional and concentrated on filling up the funnel. Second, we are quite clear what we want to have, or we are quite clear what we don't want to have. We actually gave it on the Capital Market Day with 7 strategic points, which gives the parameter set for M&As. And third, it's a market situation. The industry, our end customers are going more and more for the larger service providers based on CSRD reporting, human rights reporting, equal pay reporting, all the reporting which makes it fairly difficult for smaller suppliers to be competitive. So the ones having multi-service in the offering as we up to being the solution provider are easier than that. So we actually have quite a lot of demand and questions from smaller companies to join us to be part of the Bilfinger family. And that is, as you know, a very important part for us because we are a people company. The ones we acquire, we would like to have that they want to be acquired by the Bilfinger Group. Martina Kalkhake: We have further questions on the line. So the next question comes from Olivier Calvet from UBS. Olivier Calvet: Just a couple left. Firstly, can you give us some more color on the hesitant customer behavior you mentioned in North America? Is that from a specific customer type? Or any color you could give us there, that would be great. Thomas Schulz: Yes. Olivier. Thanks for the question. What Matti rightly said is that you all remember, Mr. Elon Musk, coming into the White House at the end of '24, beginning of '25 with the DOGE program. And in that announcement was to cut positions in government-related offices by 50%. We have in U.S. quite a larger business, which is like commercial contracting, where we actually work throughout these offices and on top of it, some of our clients need, of course, permitting and approvals from these offices. And based on the fact that then the people who were on the target list of Elon Musk at the beginning of '25, they said we will work not that much any longer as before and not over time and so on. A lot of approvals, a lot of things just slowed down significantly. And despite the more positive result, we saw that actually in the figures. Olivier Calvet: Okay. That's helpful. And then just to come back on your Middle East exposure, obviously, good to hear that your staff is safe there. Can you shed some light on how you're thinking about risk? How you're thinking about country exposure in the current situation? Thomas Schulz: Yes. The -- at first, again, a big thank you in the Bilfinger Group, very professional risk management, very professional crisis management. The monitoring, the reporting, the taking care of own individuals in the Middle East as well as here in the headquarter and in Europe was outstanding positive. It shows a strong company. When we look into the Middle East, we cover there or we are acting in 7 countries, not in Iran, to make that fairly clear. We are not in Iran. Second, we are doing maintenance predominantly on customer sites and helping them to keep the sites up and running. We help them in engineering. We help them in turnarounds. We do a lot of work on the customer side. That work is still ongoing. And it's not impacted our business through logistics hurdle or traveling people in or out or goods in or out because our organization is acting local in a decentralized manner and on top of it, if we need support, which is always the support out of the competent centers then we do that digital or by phone. When we look into the risk in the Middle East, it's too early to say. But as we know, at the beginning of the crisis, it gets always very hot in the media. And then the dust has to settle and then to see how it goes on. We will go on and not changing our point of view regarding the Middle East as a growth area where we will be bigger, where we have a lot of fantastic great customers and a lot of business with a lot of investments. Olivier Calvet: Yes. Okay. And then just on the margin guidance, I'm not sure you'll be able to or willing to give us that, but just trying. Are you able to quantify how much of a headwind is the chemical business and how much support you're getting from energy in your full year '26 EBITDA guidance? Matti Jakel: Olivier, we're not guiding on industries, as you well know. And as you could see, the development in 2025 that we were moving that the revenue share between the industries were shifting from 28% in petrochemicals and chemicals in '24 to 23% in '25 and conversely, the energy industry from 21% to 24%. So we are -- our business model allows us to deploy resources between the industries. So from that point of view, we feel very well protected against those headwinds, but we don't guide on individual industries. Olivier Calvet: Okay. And maybe final nuts and bolts, just for you Matti. Tax rate you expect for '26. And I am correct in assuming there is no one-offs you expect in the free cash flow guidance for the year? Matti Jakel: Yes, no one-offs on the tax rate and/or the cash flow -- free cash flow. Olivier Calvet: Tax rate you expect for '26 is -- what do you expect? Matti Jakel: 24%, 25%, that's the usual. Martina Kalkhake: And the next question on the line is from Craig Abbott from Kepler Cheuvreux. Craig Abbott: A couple of remaining. Once again, this year, similar to last year, your guidance spread from the low end to the upper end is quite large. I appreciate it's still early in the year and obviously, there's a lot of geopolitical volatility out there. So that's understandable. But I just wondered if you could shed some more color on there about what your scenario assumptions are as to like what would happen to only have a flat top line and what will happen to be able to reach that upper end? That's my first question, and I have one more. Thomas Schulz: Yes. Thank you very much, Craig. As you know, when we give a guidance for us, the most important is the midpoint. And the -- and that is what we actually calculate and then we look around what is the volatility in the market and that gives the spread. So out of that, what we see is, of course, the high volatility in the market and Saturday morning last week was not helping in that to make it like this. Not that we are from a business point of view really heavily impacted as far as we see it at the moment. But of course, it brings uncertainty into the world. And we all know uncertainty is not a good food for investment on our customer side. On the other side, we see the dramatic need and demand for better energy solutions, not only more or lower in cost actually more to be safe that energy is always available at the right amount at the right location, especially in Europe. And that is what we not only have in Europe, we have that in the U.S. too and the thing when we look into that is positive from that. Second in that is the chemical industry, which suffered a lot reached a level where we see and we hear from our customers that their restructuring programs and efficiency improvement programs are taking actually quite a positive development. So slight -- a little bit light, a very small light at the end of that long tunnel we see. So that is another positive in it. Then we go on with the strategy execution. We did by purpose, as we explained it in December, an upgrade of our strategy to be better positioned to that what happens in the next few years, especially our sales force. We will be closer to the client. We will help them more, and we can show them with digital products to be more efficient, which is for us then a more profitable business, too. Last but not least, of course, things like long winter time, high volatility are more on the negative side. On the positive side are the developments, what we see to come, Ukraine, the Baltic states, infrastructure packages and so on. So it is quite a balanced outlook what we think, no matter that we have a very volatile market. Craig Abbott: Okay. And the second question is rather specific, but it was specifically mentioned in your detailed outlook report in the annual report where you were talking about the various end market investment programs. And I'm referring to the U.K. oil and gas services business, which you suggest is expected to decline by 1/4 over the next 3 years, while the industry and therefore, the industry spend would decline, obviously, by a similar amount. I just wondered if you could give us some indication of how significant this end market has been for you? Thomas Schulz: Yes. Actually, this whole oil and gas market in the U.K., when you look 20 years back and where it is now, significant less providers are in that business, a lot are out or completely gone as a company. Actually not so long ago, we saw that with peers. Second, we know that it will go down and we work for years, of course, to counteract on that, as Matti rightly said, to go into other industries, process industries where we were not so focused before on it. But actually, it's the same 80%, 90% of the same work, food, pharma, hydropower, nuclear, there is a lot what we can do more as Bilfinger in the U.K. and actually in Benelux, too and what we call in the Western European segment, which is one of the arguments why we have that as one segment because it's the same thing, shift slightly from one industry into multiple different ones where we have a lot of good experience and already some of it in the top line. So the fact is the U.K. oil and gas business will go down in that service part but the fact is that we were and we are further able to counteract and actually to put something on top of it. Craig Abbott: Okay. And that's very specific U.K. You're not seeing the Norwegian business or other decline? Thomas Schulz: So the -- actually, Statoil just came out that they found another oilfield or another carbon hydrogen field, oil and gas. And there's no intention at the moment that they really go into it like we see it in the U.K. At the same time, we should not forget that the oil and gas industry works very much on expanding their business model into carbon capture, but will be more and more important, similar technology, same customer, similar 80%, 90%, the same work for us. It's actually for Bilfinger quite a good news. So we see an industry going a little bit down and [ others ] will come up. And that is, as we saw in the last few years, helping us a lot. Give you one example in that, that we are not, how to say, playing too much Oracle on U.K. and Norway. Take Germany. When I joined, I think Germany was in the top line, 26%, 27%, and now it's 21% and the group still was growing 8% per annum since 2022. So we are, as Bilfinger with our business model, definitely able to adopt to new situations and to capture opportunities to make out of challenges, actually good opportunities as it should be. Martina Kalkhake: [Operator Instructions]. And the next question comes from the chat from [indiscernible] from AlphaValue and I will read that out. If high energy prices need to lower industrial output in Europe, could that eventually reduce maintenance demand for Bilfinger? How do you see sustained high EU energy prices affecting plant utilization and maintenance? Thomas Schulz: Yes. Let's start with the high energy prices, lower output. It is a relative game. If the prices in Europe are relatively higher than in other parts of the world, our customers are more under pressure with their production cost. So if the world suffers not to get enough oil and gas, then it hits the whole world and maybe some parts more to the east, more based on Iran than actually Europe or the United States at all. Yes, there is a connection in it. But if customers are coming under pressure, regarding the output and the energy costs, they actually get from us more support. They get from us more support. This is a pressure market as we enjoyed already since years in Germany. What is the difference for the Bilfinger Group? We -- I look into Germany now, which is under pressure and was under pressure in the last few years. We actually got more orders in the amount of orders, but they were smaller, significantly smaller in size because in a recession market, if you get an order for 100, you finalize it for 100. In an expanding market, you get an order of 100, you finalize it on 130. That's the big difference. But workload, we have a lot. Then regarding energy prices, plant utilization and maintenance, same thing, same part. We are looking into very much when customers plan to shut down complete plants and where then the lack of capacity, which is then shut down in that location is going. And what we see, it is not all going. It's wrong information to say everything goes to China. We don't see that. We see it in other parts of Europe and other plants to get a higher utilization where we help to shut down as well as to increase the higher utilization. And on the other European plants as well as into the United States. And of course, more and more still from a lower scale, the Middle East plays a more important role in what we call the regular chemical and petrochem business. Martina Kalkhake: Thank you, Thomas. I hope this answers your question, [ Igor ], but feel free to add a follow-up in a chat, if you like. At this time, there is no further question in the chat or also on the line. So let's probably give it a few seconds to add further questions, if you like before concluding the call. So I see there's a further question coming up in the chat. Let's give it a moment. The question is from Gerard O'Doherty from Metzler, Bankhaus Metzler. I don't see a question here in the chat yet. But I think he wants to ask via audio. So I'll ask technicians to open his line. He's dialed in as well. Gerard, can you -- yes, and line open. We need a few more seconds. Gerard we don't see you see dialed in per phone. Would you mind to type your question on the chat, please? Let's give it a few seconds. Otherwise, we can also bilaterally follow up. So unfortunately, that doesn't seem to work. I suggest we conclude the call now as there are no further questions. Now it's coming up. So I suggest we take it. So the question from Gerard is on working capital improvement. What we should expect this year on working capital improvements? Matti Jakel: We continue to work on the working capital management and on the improvements. We had a significant improvement in 2025. That will definitely stick in 2026. A similar improvement, I think, would be more difficult to repeat. Otherwise, our free cash flow guidance would be higher. So you can expect it to stick and we're happy to improve year-over-year. Martina Kalkhake: Thank you, Matti. And there's also a further question from Gerard whether the order pipeline has picked up in January, February of 2026. Thomas Schulz: Yes. We will give comments on the first quarter when we announce the first quarter. I think you expected that answer. The -- yes, not more to say on that. Martina Kalkhake: And another follow-up from Gerard, whether on the FX development in '26, we can give comments regarding the weak U.S. dollar. Matti Jakel: If I knew where the dollar would go, I'd not be standing here, I guess. Well, we have all seen the weakening in 2025 that has sort of come to a plateau. With the events and developments of the last few days, the dollar has strengthened somewhat. But I guess that's the normal volatility in volatile times. It's anybody's guess. So I think there are so many economists out there who are much better suited to comment on where the dollar versus the euro will be in 2026. I think if you ask about exposure as our business is very local, and we're not relying on materials and exports and imports, our exposure is very, very small on the fluctuations of currencies. Thomas Schulz: Yes. We go in line with that, what market in general expects for the dollar development. We work here with the standard agencies about it because in a volatile market to forecast is -- it's [indiscernible]. Matti Jakel: Yes. From -- maybe just one addition here, from an operational point of view, as far as our contracts are concerned, we are not hedging currencies. It's not necessary because we work in a local currency. We are being paid in local currency. So our hedging volume is very, very limited. Martina Kalkhake: We have one further question on the line from [ Andreas Wolf ] from Bereberg. Unknown Analyst: Congratulations on the achievements in 2025. It has now been nearly a year since the U.S. administration introduced its tariffs. Let's see whether those will remain in place. But my question is related to the client behavior that you might have observed since then. What implications does the globalization and location have for Bilfinger's business prospects? Thomas Schulz: Actually, no direct impact. We are a people company. The competence what we have to send around the world, we do digital or by phone. We have a few people who can travel in and out, but the flow of goods of hardware in our group is very, very, very limited. So the tariffs are not hitting us directly. When we then look on the customer side, it is a lot of debate about which impact that has on the different products and the different production costs, et cetera, et cetera. But at the end of the day, it actually focus our clients to get more efficient. And this is the core of what we offer, efficiency improvement and efficiency enhancement on the customer side. It is actually quite a good entry for us to go to the client and saying and talking with them, you have tariff headwind. We can help you to maneuver to monitor -- digital monitor the performance of your site, no matter where they are located and you can let us call it play it in the operation more from an international point of view, which definitely helps customers. So out of that headwind in tariffs, we can do some more products. But it is fair to say that any disruption in the global business always is not a good food for investment. And so the mood on some customer groups is, of course, not that positive, but it's that long, not that positive that we actually don't think that '26 will be a different year than '25. Martina Kalkhake: Thank you very much. That also was the last question on the line and also in the chat. So we conclude today's Q&A session. Thank you all very much for your participation this afternoon. As usual, if there are any further questions, the IR team is here to help you with your models and to answer further questions. Thank you very much, and goodbye. Thomas Schulz: Goodbye. Matti Jakel: Bye. Operator: The conference has now concluded, and you may disconnect. Thank you for joining, and have a pleasant day. Goodbye.
Operator: Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the ASM International Fourth Quarter 2025 Earnings Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Victor Bareño, Head of Investor Relations. Please go ahead, sir. Victor Bareño: Thank you, operator. Good afternoon, and thank you for joining our Q4 earnings call. With me today are our CEO, Hichem M'Saad; and our CFO, Paul Verhagen. ASM issued its fourth quarter 2025 results yesterday at 6:00 p.m. Central European Time. For those of you who have not yet seen the press release, it is available on our website together with our latest investor presentation. As always, we remind you that today's conference call may contain forward-looking statements in addition to historical information. For more details on the risk factors related to such forward-looking statements, please refer to our press release and our financial reports, all of which are available on our website. Please also note that during this call, we will refer to profitability metrics, primarily on an adjusted basis. Reconciliations to the reported numbers can be found in the press release and in the investor presentation. And with that, I'll now turn the call over to our CEO, Hichem M'Saad. Hichem M'Saad: Thank you, Victor, and thanks to everyone for attending our earnings call. I'll start with a few of the highlights. Even with the revenue at a lower level, results in Q4 remained solid, and the quarter marked a reacceleration in demand. For the full year, our sales increased 12% at constant currency, our ninth consecutive year of double-digit growth and operating profit increased by 17%. Strategically, we strengthened our position with key customers with the current generation of gate-all-around going into high-volume manufacturing and with strong traction in R&D engagement for the next nodes. To power ASM's next phase of growth, we continue to invest in our people, our global footprint and in innovation. I want to thank all our people for their relentless dedication and collaboration, which contributed to another successful year for ASM. As for the agenda today, it's the standard format. Paul will start with a review of our financial results. I will then discuss market trends and provide our outlook followed by the Q&A session. With that, I'll hand it over to Paul. Paul Verhagen: Thank you, Hichem, and thanks, everyone, for joining our call. Let's start with the review of the fourth quarter results. Revenue in the fourth quarter of '25 was EUR 698 million as preannounced on January 19. This represents a 7% year-on-year decline at constant currency, but came in above the guidance range of EUR 630 million to EUR 660 million, which we provided with the Q3 results. Logic/foundry was our largest customer segment in the fourth quarter. Within this segment, advanced logic/foundry accounted for the majority with sales approximately flat compared to the third quarter and somewhat down from a very strong level in Q4 of '24. Mature logic/foundry sales, mostly from the Chinese market dropped sharply as anticipated, both compared to the prior quarter and to Q4 of '24. Memory sales were relatively steady, both year-on-year and compared to Q3 with solid advanced DRAM sales, offset by lower NAND. The contribution from the power analog wafer segment remained at a fairly low level overall. Our spares and service sales were up 22% year-on-year at constant currency. This represents a very strong performance, especially considering the tough comparison with Q4 '24 when sales grew roughly 50%, driven by accelerated demand in China. Gross margin of 49.8% in the fourth quarter was down from 51.9% in Q3, but still at a solid level, supported by a favorable mix. SG&A expenses were down 1% year-on-year, while net R&D expenses increased by 6%, largely due to phasing of R&D investments. Operating margin dropped to 25% in Q4, explained by lower revenue and related gross margin, partially offset by lower OpEx. The results from associates increased to EUR 26 million in Q4, which was for a large part, explained by a one-off benefit in ASMPT's results. Our Q4 net earnings dropped compared to Q3, mainly as that quarter included a noncash reversal gain of EUR 181 million related to the recovery in the market value of ASMPT. Our new orders in the fourth quarter amounted to EUR 803 million, up 19% year-on-year and also better than indicated Q3 results. This was driven by very strong advanced logic/foundry orders. Mature logic/foundry orders from Chinese customers were relatively soft, but showed an acceleration in demand towards the end of the quarter. Memory orders were steady compared to Q3. Power, analog and wafer orders showed some recovery and reached the highest level in '25, but we're still at a relatively soft level. Please note that starting in 2026, we will discontinue reporting of quarterly bookings. This change reflects the high volatility of quarterly orders, which has been driven more by timing effects than by underlying demand trends. We will continue to disclose the year-end backlog as part of our Q4 results. In addition, beginning in '26, we will report sales by key customer segments, logic/foundry, memory and other on a half yearly and annual basis. Let's now have a look at the full year results. At EUR 3.2 billion, our sales increased 12% in constant currency to a new record high. In terms of customer segments, logic/foundry accounted for the largest part of equipment sales. Within this segment, advanced logic/foundry represented the clear majority. Gate-all-around related sales increased very strongly as customers stepped up in investment in 2-nanometer high-volume manufacturing. Mature logic/foundry sales, mostly from the Chinese market also increased but at a more modest pace compared to the leading-edge segments. In memory, sales dropped to 16% of total equipment sales, down from 25% in '24. Advanced DRAM for HBM-related applications continue to be solid and accounted for the large majority of memory sales. However, this was offset by a normalization of memory-related sales in China. As discussed in previous quarters, memory in China is typically a small market for ASM. But in 2024, it showed an unusual high demand. The overall drop in memory sales was also explained by lower 3D NAND sales, which were still at a relatively higher level in '24. Power, analog and wafer sales dropped for the second consecutive year. As part of this, silicon carbide sales, which were still resilient in '24, dropped by more than 50% in '25, reflecting the sharp deteriorization in this market. At constant currencies, equipment sales increased 10% in '25, primarily driven by strong double-digit growth in ALD. Spares and service sales grew 18% at constant currency, an excellent performance, which was driven by strong growth in our outcome-based services. Gross margin for the year increased further, rising from 50.5% in '24 to 50.1% in '25. This improvement was primarily driven by a stronger product and customer mix, including a resilient contribution from the Chinese market. Additionally, the margin benefited from the gradual impact of cost-saving initiatives such as more move to common platforms and ongoing cost optimizations across our manufacturing and supply chain operations. Gross R&D increased 9% in '25, reflecting the continuous growth in our pipeline of new opportunities. As a percentage of revenue, net R&D expenses increased slightly to 12.5%. Our target remains to keep net R&D in a low double-digit percentage of revenue. SG&A expenses decreased 7% in '25 on the back of disciplined cost control as well as the benefits of earlier investments made to scale the organization for growth. As a percentage of sales, SG&A decreased from 10.6% to 9.2% in '25. For 2026, we project SG&A to show a further decrease as a percentage of sales. Operating profit increased 17% in '25, thanks to improvements in revenue and gross margin, SG&A discipline and with continued growth in R&D investments. The operating margin increased from 28% to a record 30.2% in '25. Now turning to the balance sheet. ASM's financial position continued to be in good shape. We ended the year with a cash slightly north of EUR 1 billion and no debt. Excluding M&A-related cash payments totaling EUR 181 million, free cash flow increased 12% to a record of [ EUR 615 million ] in '25. This growth was driven by improved profitability and lower working capital, partially offset by higher CapEx. Working capital decreased to EUR 347 million at the end of '25. This was mainly due to the phasing of revenue during the year with Q4 2025 sales at a relatively lower level, together with very strong cash collection. CapEx increased from EUR 168 million to EUR 280 million in 2025, fully in line with our guidance range of EUR 200 million to EUR 250 million. This increase is for a large part driven by spending related to the completion of our new Korean facility and ongoing construction of our new facility in Scottsdale. 2026 will be a year of continued investments for a large part related to our Scottsdale site, which remains on track for completion in the first quarter of 2027. Regarding cash spent on acquisitions, in December '25, we acquired Axus Technology, a provider of CMP solutions for EUR 81 million, net of cash acquired, along with a potential earnout up to EUR 30 million tied to performance targets over '26 and '27. In addition, we paid EUR 100 million in earn-outs as part of the earlier LPE acquisition and as already communicated with the Q3 reporting. In terms of shareholder remuneration, we spent close to EUR 300 million in cash on dividends and share buyback in 2025. And with our Q4 press release, we announced a new share buyback program for an amount of EUR 150 million as well as a proposed dividend of EUR 3.25 per share, up from EUR 3 in the prior year. And with that, I'll hand over to Hichem. Hichem M'Saad: Thank you, Paul. Let's now review the trends in our markets. In 2025, the semiconductor market continued to be driven by AI, reflected in a wave of new AI data center and infrastructure expansion plans from hyperscalers and other leading industry players. This drove solid capacity investment in leading-edge logic/foundry and in advanced memory, areas where our ALD and Epi technologies play an increasingly central role. At the same time, several other end markets, including smartphones, PCs, automotive and industrial remained relatively soft due to persistent macroeconomic and geopolitical uncertainties. Looking ahead, the fundamental technology drivers remain firmly intact. Demand continues to rise for faster, more power-efficient semiconductor devices capable of supporting the massive growth in data and compute intensity. This will further accelerate the industry's transition towards more complex 3D device architectures and the introduction of new materials. These trends increase the number of ALD and Epi layers required at future nodes, supporting healthy long-term growth in our key markets. The main engine behind our growth in 2025 was the continued strong momentum in leading-edge logic/foundry. Our gate-all-around related sales rose substantially as customers ramped 2-nanometer capacity and started to move into volume manufacturing. At our Investor Day, we reconfirmed the significant expansion of our served available market by about $400 million in the transition to first-generation gate-all-around. We also highlighted the increase in our Epi layer share from 22% to 33% and the reinforcement of our leadership position in ALD. Our product penetrations included new applications such as moly ALD and area selective deposition entering high-volume manufacturing at the 2-nanometer node. In 2026, we expect customers will continue investing in 2-nanometer expansion, supported by rising end market demand across AI, high-performance computing and advanced mobile applications. Based on public commentary from several of our customers, the 2-nanometer technology node is expected to be large and long-lasting. While 2-nanometer will continue to represent the majority of leading-edge logic/foundry investment in 2026, we have also seen an uptick in 3-nanometer related demand. The pace of innovation is not slowing down, and customers are already advancing toward the 1.4 nanometer node with pilot line investments expected to start in the second half of 2026 and volume production in 2027 and 2028. This transition is projected to expand our served available market by a further USD 450 million to USD 500 million. A significant driver of this increase is the rising importance of functional layer in the transition area, which is a core strength for ASM. As also highlighted during Investor Day, we expect these transition-related layers to increase to roughly 60% of all ALD layers at the 1.4 nanometer node, up from about 50% at the 2-nanometer node. Based on the breadth of R&D engagement and the production tool of record selection secured so far, we expect to gain further market share as the industry moves to the 1.4 nanometer node. Let's now talk about memory. Our sales in the Memory segment decreased in 2025. And as discussed, this reflected a normalization in China after an unusually strong 2024. At the same time, momentum in the advanced segment of HBM-related DRAM remained robust. AI-driven data center investments continue to require high-performance DRAM. And in this segment, ALD high-k metal gate has become essential to achieving the performance and power efficiency levels customers demand. During the year, we strengthened our position with new ALD wins for layers that are expected to ramp in 2026 and 2027. And we also recorded our first Epi win in the DRAM segment. We expect healthy growth in our DRAM sales in 2026, even though memory is likely to remain a smaller share of our business than logic/foundry in the coming years. Looking forward further out, DRAM scaling presents a significant long-term opportunity. The transition to the 4F2 architecture will require more complex 3D channel structure and additional ALD and Epi steps, expanding our served available market by USD 400 million to USD 450 million. Let's now look at the power/analog/wafer. In 2025, the power/analog/wafer market remained in a cyclical downturn. In 2026 and based on the early signs of stabilization, we expect for this segment a modest sales improvement. This recovery will be limited to silicon-based power and analog applications. The silicon carbide market will take longer to recover, but we remain well positioned with a strong portfolio, including our PE208 platform for 200-millimeter applications. China remained an important market in 2025. After 2 years of exceptional growth, we had anticipated a period of normalization. Revenue from China did decline in 2025, but the decrease was milder than expected and mostly supported by continued robust activity in the mature logic/foundry segment. Sales softened in the second half of the year, particularly in Q4, but we saw demand accelerating towards year-end. Based on this momentum, we now expect higher sales in China in 2026, an improvement from our earlier forecast of a double-digit decline. As Paul already discussed, we continue to invest in R&D and CapEx to capture the opportunities ahead of us in logic/foundry, in DRAM and also in new areas such as advanced packaging. In 2025, we completed our new expanded innovation and manufacturing center in Downtown, Korea. Combined with our key manufacturing sites in Singapore and ongoing efficiency improvement in our supply chain model, we believe we have sufficient capacity in place to support our growth well into the next decade. I'm also excited to see the progress at our new Scottsdale facility, which will enable substantial expansion of our ALD and Epi product development activity in the coming years. And last but not least, in December, we announced our intention to invest in a new site in the Netherlands, which will house our new global headquarters and a state-of-the-art clean room. In December, we also acquired Axus Technology, a provider of differentiated equipment for chemical mechanical polishing focused on markets such as compound semiconductors and more than more manufacturing. CMP fits well with our capabilities in chemistry and interface engineering and plays an increasingly critical role in emerging technologies such as 3D integration. In 2025, we made further progress in accelerating sustainability, which remains one of ASM's strategic priorities. We maintained 100% renewable electricity for the second consecutive year. We also deepened collaboration across our value chain, including a new initiative to support suppliers with energy efficiency improvement and renewable energy adoption. In addition, we continue to advance product sustainability through initiatives that improve the energy efficiency and precursor consumption of our tools, contributing not only to reduction in Scope 3 emission, but also helping our customers lower operating costs. Let's now look into the outlook for 2026. Let me recap the key points of our guidance as included in yesterday's press release. We expect advanced logic/foundry to be our strongest business in 2026. In memory, we anticipate healthy sales growth. In power/analog, we expect a modest recovery from a low base. And for China, we expect sales to increase in 2026. For the first quarter, we expect revenue to increase to a range of EUR 830 million, plus or minus 4%, with a further increase projected in Q2 compared to Q1. And we anticipate our revenue in the second half to be up from the first half. With that, we have finished our prepared remarks. Let's now move on to the Q&A. Victor Bareño: Thank you, Hichem. We'd like to ask you to please limit your questions to no more than 2 at a time, so that everyone has the opportunity to participate. Operator, we are ready for the first question. Operator: So the first question comes from Tammy Qiu of Berenberg. Tammy Qiu: So first one is on 1.4 nanometer. So I remember that last time when you said you are expecting to ramp up pilot production in the second half of the year, you were talking about only one customer, but hoping for another one. I'm just wondering what is the progress? Did you get more interest of more customer ramping up 1.4 nanometer than just one? Hichem M'Saad: Okay. Thank you for the question. I think that 1.4 nanometer is a technology node that all key customers are looking for. And right now, I cannot really be more specific on whether 1 or 2 or 3 customers are ramping up the 1.4 nanometer node, but we see interest from all leading suppliers for the high-end logic and foundry to work on 1.4 nanometer. So we are very excited about the opportunity, and we see our customers really continuing to increase their investment in the next-generation gate-all-around. The other thing that we see is that the customers are very serious about going into HBM in the 1.4 nanometer node in 2027 and 2028. Tammy Qiu: Okay. And the second question is on China. So your peers also talked of China comparing to their expectation from Q3 last year. But your comment from down year-on-year to growth year-on-year. And also, we all know that China has been a lower visibility market comparing to the rest of the market. Is that something you've seen -- significantly changed over the past few months made you to have this call at such an early stage of the year? Or is that just basically customer conversation has been giving you the confidence that it will happen? Hichem M'Saad: I think that -- I think what we have mentioned before, it was very tough for us to really give a very clear projection for China. We mentioned very, very often that it was very tough because of many factors. One of them is the changing trade restrictions and also the funding releases, which really are very unpredictable from our customer. But we did see that at the end of -- actually at the end of the year that the customers are becoming -- Chinese customers are becoming much more bullish about their business in 2026, which really was very exciting to us, and that's why we feel that 2026 is going to increase with us. For us, we see visibility with them, and we see a strong momentum from that point of view. Operator: The next question is from Andrew Gardiner of Citi. Andrew Gardiner: Sort of related one on China, but really as it pertains to your business mix and how you think that will shape up over the course of 2026. If I go back to how you were framing things in October and indeed at the Capital Markets Day in September, you had cautioned us that business mix as it pertains to gross margin would deteriorate in 2026 and the decline in Chinese revenue was going to be a large part of that. Today, as you just mentioned, China is going to grow, maybe not quite as quickly as the advanced logic demand, but still it's going to grow. And so your mix isn't going to deteriorate as much as you had previously suggested it might. How should we, therefore, take that into consideration when looking at gross margin for 2026? Hichem M'Saad: So I think for our gross margin, it's -- like you mentioned, it really depends on product and also customer mix. And China would actually help our gross margin. So with the change in the mix, then the gross margin will also depend on that. And we see that in 2026, I think we have made -- I think we have made in 2025 and 2024 significant improvement, not only in -- actually, we made significant improvement in reducing our cost structure in our tools with the commonality. So we have initiatives to commonize more and more of our products, giving us economies of scale and more leverage with our supplier base to reduce cost. And I think with the way 2026 will materialize, I mean, if the customer mix goes further and further positive on the China-wise, then yes, we expect our gross margin also to be positive from that point of view. But I think overall, I think that we have made improvement in our basic gross margin in the past few years with better cost control. And I think China also would help in gross margin in 2026. Andrew Gardiner: Just so that I'm clear, Hichem, so -- I mean, you're suggesting with less of a change in customer mix year-on-year and with those structural improvements you've made, maybe we shouldn't see much change at all in gross margin relative to last year. Paul Verhagen: Yes. Let me take that, Andrew. Basically, confirm what Hichem said. So the mix, given that China is now better than what we anticipated before is, of course, a positive plus all the structural measures that we've taken. I think it goes too far to say that it will be the same as this year or maybe even higher at this stage. But I think what is -- what we're confident to say at this point already is that it will be at the higher end of the range that we guided for. And you know that we guided for is 46% to 51%. So at the higher end of that range, I think, is a reasonable assumption to take given what we know today. Operator: The next question is from Didier Scemama of Bank of America. Didier Scemama: I've got 2 questions. First, I think if we take the sort of baseline WFE growing 15% to 20% constant currency, are you comfortable to tell us that you will at least be in line with that at constant currency? Or do you see any reason why it should be better? Hichem M'Saad: So I think that -- okay, thank you, Didier, for your question. I think that for our market -- WFE market in 2026, we see that our growth will be at least at the level of the WFE growth. So if the market is going to grow by 20%, WFE, then we grow at least at that level at the 20% level. We are very, really upbeat about our position and our growth this year and actually in the future. Paul Verhagen: Didier, as you already mentioned in your question, but I want to repeat that because there is quite a difference, of course, between the current rate that we, of course, project going forward and, of course, the average rate of last year. So the question was right at constant currencies. Didier Scemama: And sorry, I don't want to use a follow-up for that. But Paul, since you opened the door, can you tell us what your average was in '25 so that we know what the starting point is? Paul Verhagen: Yes, I think it was around 112. Didier Scemama: 112. Okay. My follow-up is, I think -- there is a bit of confusion in the market as to what you're actually trying to say when it comes to the outlook for '26 because it feels like you're saying, yes, foundry/logic or advanced foundry/logic is going to be the key growth driver for the business. And then memory is going to have healthy growth. So implicitly that memory will grow less than advanced logic/foundry. So I guess, is that the right way to interpret that? And if that's the case, why wouldn't memory outperform given how bad it was in '25 and given that DRAM WFE looks pretty healthy, at least from a top-down perspective? Paul Verhagen: Yes. Let me take that question, Didier. So basically, what we said is that we expect growth almost on all fronts, to be honest. But the base from which the growth starts is very, very different. And I think that's the key. So of course, by far, our largest business is logic/foundry. And within logic/foundry, the largest part is advanced logic/foundry and then in China, in particular, mature logic/foundry. So especially advanced logic/foundry, we continue to see strong investments supported by investments, continued investment in 2-nanometer, but also 1.4 pilot, as we mentioned mature, you just heard our comments on China, we expect to grow. So that's a positive. Memory from a much smaller base, in particular DRAM, we also expect good growth, but it will still be the much smaller part of our overall business, as you've seen also in '25. And in addition to that, although it's still also from a lower base and modest, we also expect this year a modest improvement in power/wafer/analog, excluding silicon carbide. Silicon carbide is still -- that will still take longer, as Hichem already explained, but also power/wafer/analog, which is partially in China, by the way, and partially outside of China. Didier Scemama: Okay. So your commentary was based on euro incremental growth as opposed to percentage of growth. Is that correct? Hichem M'Saad: That's correct. I think that's really what we're trying to say here, Didier. Logic is a higher base. But in percentage-wise, the growth in DRAM is higher than -- percentage-wise than logic/foundry. Percentage-wise, DRAM is higher, but we're starting from a very much lower base. Operator: The next question is from Francois Bouvignier of UBS. Francois-Xavier Bouvignies: My first question is, Hichem on your comment on the AP, you mentioned an AP win on the DRAM side. Can you give more color on what this win is, when it's going to start kicking in? And was it competitive? Just more color on this comment, that would be great. Hichem M'Saad: Okay. Thank you very much for the question. I think that we're really excited of getting win in DRAM, and this is really in HBM, which we have realized in 2025. And it's going to be incremental to our revenue starting this year in 2026. Francois-Xavier Bouvignies: And is it going to be for multiple customers or just one? Hichem M'Saad: So it's -- as I mentioned, okay, so we had the win in 2025 for this particular customer, but -- and HBM is happening this year. But at the same time, we have significant engagement with other customers in high-bandwidth memory with epitaxy, and we expect some good news also happening hopefully in this year, too. Francois-Xavier Bouvignies: Great. And maybe on the advanced logic side, I mean, as the pilot line is getting in order this year, I just wanted to check your market share. You mentioned some moly ALD and area of selective deposition design wins as well potentially. Can you maybe give some color on your market share here? I mean, on the pilot line, how do you think it's trading? Is it higher? Is it similar? And selective deposition, I mean, I thought it was something a bit later on. So I was a bit surprised to see selective deposition in your comments. So just is anything happened? Did anything happen on the selective ALD front to accelerate the road map? Hichem M'Saad: Okay. So let me answer your question first about ASD and then talk about molybdenum. So if you look into ASD or area selective deposition, I mean, to be honest with you, we are -- myself, I'm very pleased that we got some win in area selective deposition in the gate-all-around area. And the reason we saw this win is because actually it's higher yield that's experienced by customers. So I think the simplification of the process flow and the reduction in the number of process steps have given rise to improvement in yield. So we see that happening. And actually, we see that also going to happen more and more into the future, and I see even acceleration in that. A very exciting area, I mean, and there's lots of possibility going on in this realm. And when we talk about the moly, we're also excited about winning HCM capability at the 2-nanometer node. I think we have mentioned very often that the moly adoption in the industry is going to happen, but it's going to be happening in a very slow pace. We mentioned that it started with 3D NAND. The second logic adoption is happening. And third is going to happen in DRAM. The change in the -- for us, this is penetrate -- this win is the first time that ASM has moved into the metal deposition area. So we're very excited about it. It's an area that we have -- we didn't have any experience about many years. We didn't have any experience because we didn't know what -- how to integrate metal layers. We don't know how to characterize that. But right now, I feel this win shows that, okay, yes, not only we can develop this new area, but actually, we can achieve HVM capability at the customers. So we're building the expertise within our development team and our teams, and this is something that really is exciting for us. But as I mentioned, the moly adoption in logic is going to take a while. And I mentioned before, it's going to start a little bit at the 2-nanometer. You're going to have a little bit more at 1.5 4-nanometer node, a little bit more at 1.0 nanometer node, but it's not going to be at the level of what tungsten and copper is. But this is really exciting for us, to be honest with you. Operator: The next question is from Adithya Metuku of HSBC. Adithya Metuku: So I had a couple. Firstly, just on the CMP acquisition, I just wondered, Hichem, if you could give us some color on which end markets you want to focus on, what sort of applications and end markets and whether you intend to have any partnerships with your CMP tool, especially when it comes to advanced packaging. There's a lot of debate there. So any color there will be helpful. And then secondly, I wondered, Paul, if you could give us some color on how you're thinking about your OpEx growth in 2026 with a focus on R&D and SG&A. Hichem M'Saad: Yes. So thank you for the question. We have -- when it comes to CMP, we when we looked into this market, okay, we talked in our Investor Day that we have focused on also some M&A and especially in an area where it can do 2 things for us. It's an area that's strategic to ASM and it's an area where we can add value to it. And also, we mentioned, okay, that when we do some M&A, we really want to make sure that there's some technology component to it. And this is really what we saw in this CMP acquisition. The company has a very good technology, very exciting technology to be honest with you. That's very unique by itself. They have a great footprint and also very good cost of ownership, very competitive cost of ownership. And we think that this technology, CMP is actually -- is complementary to our strength in interface engineering. As you know, that when you do the bonding at the end of the day, it's really to put -- it's like to bond interfaces together. So after you do polishing, you have a new surface. And if you can make the surface better and more -- you can actually control the engineering of the surface, that can help you also do the bonding. And also, it's also complementary to our deposition technology. I mean we have CVD deposition in advanced packaging and CMP would be also complementary to that. So from all this point of view, we think that we can add value to this technology. We are going to see how it works for us in the future. This is a very small acquisition, about EUR 80 million acquisition. And we're going to test it. We mentioned that we're going to test it in the advanced packaging area, and we'll see how it materialized. But definitely, the technology is differentiated. We like the tool architecture. And we think that also cost-wise, it will be very competitive. Paul Verhagen: Yes. And then on the OpEx, what I can say is that let's start with R&D. We will continue to invest in R&D. So that will grow further. And our net R&D will grow at a higher pace than our gross R&D simply because of the increased amortization expense because more and more films that we have been working on in the last few years have entered into HCM. So we start to amortize those. But I think net R&D at constant currency again, because also I'm not going to give you a percentage now, but a decent chunk of R&D cost is also dollar-based and another decent chunk is also euro-based. So net, around 10%, I think, is a good guidance to take into account and gross will be slightly below that because net will grow faster than gross. On the SG&A, we will continue to be very strict on SG&A. There will be some increases, of course, annual inflation, merit, but also we invested in -- as you know, we are the global big bang of our new ERP system that costs under IFRS need to be capitalized. So we will start amortization of these costs as well. We might have some higher variable expenses in '26. But overall, I think if you take into account a few percent increase, that's what we try to manage. We will be very strict on SG&A. And as a percentage of revenue, for sure, that will go below 9%. Adithya Metuku: Got it. Understood. Maybe, Hichem, just to clarify on the Axus acquisition. Is this -- do you have a specific focus on hybrid bonding? Or is it more generally bonding applications? Hichem M'Saad: Yes. I think we -- really we're looking into the advanced packaging as not only hybrid bonding. So it's really packaging as overall market from that point of view. Operator: The next question is from Robert Sanders of Deutsche Bank. Robert Sanders: Maybe just if you could just discuss a bit about what you see in terms of clean room constraints at your customers. Obviously, we've seen some companies talk about that. Obviously, your tools don't take up as much footprint. And -- but in terms of looking into '27, do you see significant capacity opening up? And how does that set you up for next year? Hichem M'Saad: I think that we see -- if you look into 2026, -- we do see there's a constraint in fab space in multiple areas, which limits the really expansion for our customer. I mean it's -- I think it's very clear. It's very public information. And also, we see a growing sense of urgency from our customers really to get some of the tools. So based on that, we see that there is a good momentum as more and more capacity come in, in 2027. So we see momentum really continuing in 2027. So not only we are excited about 2026 and very positive about 2026, but we see the fact that more and more capacity -- the fact that there's a constraint right now in fab space, but that fab space is going to open up in 2027 means that also 2027 is going to be a very good year for our company. Robert Sanders: Great. And just a quick follow-up. Just a clarification on foundry/logic in '26, are you saying that's going to grow? Or are you just saying it's going to remain the largest part? I didn't quite understand. Maybe I missed that if that was asked already. Paul Verhagen: Both, yes and yes, it will remain the largest part, and it will also significantly grow. Operator: The next question is from Stephane Houri of ODDO BHF... Stephane Houri: I just wanted to come back on the decision to stop giving the orders on a quarterly basis because, yes, indeed, some of your -- other players in the industry have done the same. But it seems to me that the volatility was not such a high volatility as for others and that given your lead time, it was a good indicator. So what are you going to give apart from more granularity on the current level of sales? And I have a follow-up. Paul Verhagen: Yes. Let me take that question, Stephane. Actually, we -- multiple, let's say, stakeholders that we have discussions with gave suggestions that we should maybe like our peers, stop with quarterly bookings because the risk of an overreaction is there. As we said already, it's not always demand driven, but it's timing, just phasing, nothing else. So we see overreactions up if it's really good or overreaction down, if it's really not good, which is not helping, of course, the stock increases volatility. So that's a key reason why we're stopping. On the other hand, I think with the hopefully improved transparency on segment information, that might help. We will continue with revenue guidance, of course, like we do today and maybe some qualitative guidance if we believe that is necessary. So with that, I hope that you guys have enough to model and to come to a view on how we will develop in the coming period. But these have been the considerations. And based on that, yes, we have made this call. Stephane Houri: Okay. And what about the evolution of spares and services it has been outgrowing the equipment parts in 2025. So what is your view on 2026? Hichem M'Saad: I think on 2026, I think with the fact that the fabs are at maximum capacity, we expect continued growth in 2026. The other thing, as the market moves more and more into more advanced nodes, we see the service part of our market also growing even higher than the rest because of the complexity of the equipment at the very high-end node, which favor outcome-based services or solutions that are much more valuable and add more value to the customer. So I'm very optimistic also on the service market this year and in the future. Operator: The next question is from Jakob Bluestone of BNP Paribas. Jakob Bluestone: Just on Axus, could you maybe just help us understand how you plan to cross-sell CMP tools? And if you have any idea what share of your customers are currently already using CMP in their processes? Hichem M'Saad: I think that for -- I just want to make very clear for Axus as a company, I mean, it has a very low revenue. I mean we're talking about revenue between USD 20 million to USD 30 million per year. So this is the latest revenue they have in 2025. So this is a very small acquisition from this point of view. And we're going to leverage the -- our expertise to help this technology, bring this technology to a larger customer from that point of view. But as I mentioned, okay, this is all about a technology buy where we think that, okay, we can add some of our strengths into the CMP market. I mean if you look into CMP, it's systems for chemical mechanical polishing and that chemical part that really means chemistry. And that's where we play with. I think we have some idea on how to make the chemistry better, especially when you go into 3D integration whereby the chemical part of the CMP becomes most predominant than the mechanical part, especially as you go to 3D and the structure becomes more and more fragile from that point of view. So we think we can play a role there. We're going to see how it goes. But again, this is something that we think that we can improve. It's a very small acquisition. I think it plays on our street and going into a market that's growing a lot, which is the advanced packaging. So we are very excited to look into how can we make it even better and improve our penetration into the advanced packaging in the future. Jakob Bluestone: Great. Maybe just a quick follow-up as well just on CapEx. Can you provide any commentary on CapEx for '26, I guess, particularly in light of the expansion in Almere? Paul Verhagen: Yes. No. The expenses as per our guidance from the Investor Day, I think it was EUR 200 million to EUR 250 million in the years where infrastructure expansion. So in '26 this year, it will mainly be CapEx related to Scottsdale still. And then very likely, as we see it today, then in '27, you will start to see the first more material CapEx for Almere. Operator: The next question is from Sandeep Deshpande of JPMorgan. Sandeep Deshpande: My question is back to the M&A you've done. I mean has the policy of ASM changed at all with regards to M&A? Those of us who have covered the company for a long time, I mean this -- the company did a lot of M&A, then made a lot of exits. Now you've started doing M&A in a small way again. So has the overall policy towards M&A changed at ASM? And are there more areas apart from now the CMP acquisition that you plan to do? And does the company plan to become stand-alone players in this? Or is this just addition to existing tools, which is probably a less risky proposition. And so I just want to try to understand your thought process behind the M&A. Paul Verhagen: Yes. No. So did it change? At least in the last 5 years, it did not, although indeed, we made 3 acquisitions in the last 5 years. And in the 10 years before that, we made none. So from that point of view, you could maybe think there is a change. But I think there's not really a change because also before that, what I understand from my predecessor, they've looked at certain opportunities, but for whatever reason, they never materialized. So we look into M&A if we see an opportunity where we see clear value-creating opportunities and that helps us to grow and build our position further in certain areas that we have labeled as important/strategic to us, then we want to act. And we did that now 3 times. There's always a very clear link to strength that we have. It leverages, let's say, our strength of the capabilities of the company that we buy. It can build and leverage on our global network that we have. So yes, the logic at least for the last 3 have been actually exactly the same for Reno, for LP and now for CMP, Sandeep. And we will continue to scan the market. We have continuously said that. Our first priority in terms of capital allocation is growth. Number one is organic growth. That's why we continue to invest in R&D, very important and in infrastructure expansion, as we explained. But the second is also inorganic. If we see true value-creating opportunities, we try to do it in a very disciplined manner. We're not throwing money away because we have it, no. We only do it if we truly believe that there is a medium- to longer-term strategic play that can create a lot of value to us based on the capabilities that we have in combination with the targets. So that did not really change as far as I'm concerned, Sandeep. Sandeep Deshpande: And a quick follow-up. I mean, I think a quick follow-up. I mean, in terms of the earlier question on your improvement being seen in the logic/foundry market. Earlier last year, you had talked about a slow start to '26. So did something change in the last few months in terms of the slow start that some key customers changed how the trajectory of how they're taking delivery of the tools? Or was this slow start is what you have already guided? This is the guidance and it was underplaying what the market expected. The market was underplaying what you expected, sorry? Paul Verhagen: No, I think, no, absolutely it changed in the last, whatever, 2 to 3 months. You've seen announcements from some of our customers that have significantly increased their outlook, especially a large foundry customer, which I think that's where it started with. We just explained the improved sentiment in China in combination with a pause of some of the export control measures that were initially put in place, but then paused. Some customers will take advantage of that. But at the same time, also clearly improved sentiment there. You read about the hyperscalers and their investments in data centers and infrastructure, hundreds and hundreds of billions. It's definitely a different situation in the last 2, whatever, maybe 3 months than what we thought before. We always thought '26 would be still a good year, but starting in the slow, as you said, and then accelerating more towards whatever the second half of the year. But that acceleration that we actually had expected maybe somewhere in the course of the year, literally starts now. So there's clearly a change, yes. Operator: The next question is from Timm Schulze-Melander of Rothschild & Company Redburn. Timm Schulze-Melander: I had 2, please, one for Hichem and one for Paul. The first one is just on the CMP business model just with respect to consumables, slurry and pads. I know it's a small business, but is that going to be something that you provide? Or is that going to be provided by an external or a third party? And then I had a follow-up. Hichem M'Saad: Okay. So to answer your question, okay, regarding the CMP part of the business and the acquisition. So the -- once -- as the technology in packaging moves more and more into high end, from -- it's going to move from TCB to hybrid bonding in the future. Then what happened is that we're going to go to lower temperature processing and the surface of the interface becomes a very significant in the hybrid bonding part of the advanced packaging. So for such, interface control is very important. We have solutions, organic solutions from our ALD know-how to engineer interfaces and engineered surfaces. But also CMP is part of that whole the whole process flow. And by definition, CMP also affects the surface of the deposition layers that deposited film. So it's important for us also to understand how that interface from CMP works with our deposition films that we developed in CVD and ALD to engineer a very clear interface. So I hope that's very clear from where we stand. This is a new market for us. This is a new market, and we try to understand this market very well. We have -- as we mentioned, we have organic offering there. This organic offering are in ALD in the area of ALD. This organic offering are also in the area of CVD like PECVD, but also this offering, the organic offering is also in the area of epitaxy and silicon photonics, where we also have some traction in those things. So CMP plays a significant role in engineering the interface. It's complementary to our deposition technology. And it's very important for ASM to really know how CMP also engineers the surface and interface in addition to the offering that we have in deposition, both CVD and ALD. The next thing regarding the question that you have asked about slurry and so on and so forth. As I mentioned, the CMP part is moving more and more into the chemical part. So you have CMP, you're trying to polish. So polishing both with force, okay? That's the mechanical part, but also the chemistry, which is the slurry and so on and so forth. And that slurry thing or the chemical part is becoming much more important than the mechanical part because of the 3D drive that's happening in our device. And when you talk about advanced packaging, you're going to put things on top of each other. And you also have wafers that are very thin, they are very brittle. So you cannot put too much force. So the chemical part becomes much more important. We are a company that knows a lot about chemistry, and we have know-how and knowledge in that, which we have applied for ALD and other parts. And we think we can do the same for the CMP part of the business. Timm Schulze-Melander: Great. That's very clear. Just moving on to Paul. sincerely appreciate the improved disclosures. For one, I'd probably request for a quarterly rather than a semiannual, but the disclosure improvement is much appreciated. I just wanted to ask about the cost saves and the run rate and just kind of get a sense as to kind of what the exit rates were or are for '25 coming into '26. And maybe just trying to think about the cost savings contribution and how that might scale or how that sizes relative to the increase in R&D, which I think you're guiding is going to, on a gross level, rise by about EUR 40 million, EUR 45 million. I just wanted to get a sense of maybe the extent to which cost saves might offset how much of that they might be offsetting. Paul Verhagen: Are you specifically referring to SG&A and R&D or also to cost of goods? Timm Schulze-Melander: I'm referring to the broad A to Z cost savings and efficiency programs that you guys have across the company and just trying to scale those relative to the specific cost increase that you're guiding for in the gross R&D spend. Paul Verhagen: Okay. So on the real cost savings, it's more, let's say, margin related where we have explained before on the -- for instance, the standardized platforms. So we have more and more products now that are qualified by customers based on standardized platforms, which have a better cost structure, lower cost structure, more common parts, et cetera, which leads to cost reduction, but also to a reduction of complexity in terms of logistics will lead to somewhat improved inventory simply because of more commonality. I'm not going to give you a number there, but it's -- yes, it's a meaningful improvement, let me say it like that. The other part, but also that will go slow. So every year, you will see some benefit there is the MIT that we talked about before, the merchant transit, where we don't have everything come to Singapore first, assemble it, test it, but have the platform go straight to the customer, the process chamber that comes from Singapore then straight to the customer and assemble it there and test it there, which skips one big step, which is also a big improvement. Of course, we have value engineering initiatives on our products continuously. We have material cost savings, commercial savings. So there's across the board savings going on. On the R&D part, here, I mean, the name of the game is selecting the right priority from the many priorities and many opportunities that we see, which, of course, to a large extent, are based on the, the overall market opportunity that we see and whether or not we can have a differentiated proposition or not, but it's not so much about saving costs, although we try to be very efficient, of course, in what we do there. For SG&A, it's literally doing more with less. So we grow and grow, but we want to automate more. We want to make our processes better. We want to leverage AI better. So there instead of just adding people more and more, it's all about doing more with less and do maybe more with the same, to be honest, to support this growth without adding too much cost. So every line has a different dynamic, if you wish. Operator: The final question is from Marc Hesselink of ING. Marc Hesselink: First its a follow-up on the market share in memory. I think now you very clearly stated that whatever the industry of WFE is doing, you expect to be growing faster. So does that also imply that in the more advanced parts of the memory market, your market share is getting closer to the market share that you have in the advanced logic/foundry. Paul Verhagen: Let me take this, Marc. No, absolutely not. I wish because then we would be looking at very different numbers. No, no. So what I think we try to say is that on the small revenue base that we have today in memory, especially in DRAM, we expect significant growth -- significant growth even more as a percentage than in advanced logic/foundry. Having said that, for '26, we also expect significant growth, in particular, in advanced logic/foundry, maybe a little bit less maybe as a percentage than DRAM, but still very high. If that growth would, let's say, change significantly during the year, the percentage so that advanced logic foundries, we don't expect that this scenario would grow much lower and DRAM would suddenly go even more and stronger than we are today, then the statement that we make is maybe -- would become maybe invalid because if all the growth would be in DRAM, of course, we would not be saying what we were saying. But also, we say what we say because we believe that also the growth in advanced logic/foundry will be very significant. That is the reason why we say what we say. Marc Hesselink: Okay. That's clear. And then my second question is on -- it's more of an organizational question. So you're adding R&D capacity. You're adding -- you have introduced a new IT system. You have now a new Board member. With the growth of the company, you're adding this kind of, let's call it, another layer of professionalization within the company. Is that the way to look at it? Is there more to come? And is there more that you have to scale in the coming years given the high growth that you have going forward and what you had in the past? Paul Verhagen: Maybe one small adjustment, Marc, we did not add a new Board member. It's a new ExCo member. So senior leadership, but it's not a Management Board member. The carrier that we talked about is an ExCo member. I think what we're doing is we have -- actually, this is something that's happening for many, many years in a row. Of course, we're trying to professionalize the company and trying to get ready to scale the company in an efficient and effective manner. So for instance, the new ERP system, which we have globally implemented through a big bang is, let's say, the foundation for further, let's say, growth in a more automated fashion, in a more productive way than we would have been able to do without this because with the previous system, we had to do much more manual work than what we can do today as an example. Also AI applications, we can leverage better with the foundation that we put in place now than what we would have been able to do without this foundation. So yes, it's all about scaling. Yes, it's about professionalization of the organization. So I'm not sure if that answers your question, but this is what I can say. Marc Hesselink: The question was also a bit, is there more to do on this side? I mean, I think we had quite some announcements over the past few years. Is that -- are the large part behind it now? Or are you still taking another steps here? Paul Verhagen: Yes. I'm not sure you're referring to because so many announcements I don't think we've had. I mean, we have an Expo. We have a number of KPIs. We professionalize, I mean, our way of working, which I guess every company does. So we will continue to do that. We will not stop. It's not like, okay, from now on, you will not see any announcement anymore. But yes, I think what we do is for the reasons that I just tried to explain is to scale the company in a controlled, professional and highly productive manner. That's what we are trying to do. Operator: That was the final question. I will turn it back over to the CEO for any closing remarks. Hichem M'Saad: On behalf of Paul and Victor, I would like to thank everyone for attending today's call. We hope to meet many of you guys very soon in the upcoming investor events. Thanks again, and goodbye. Operator: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
Operator: Good day, and welcome to the STAAR Surgical Company Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Connie Johnson, Director, Investor Relations. Please go ahead. Connie Johnson: Thank you, operator. Good afternoon, and thank you for joining us. On the call today are Warren Foust, Interim Co-CEO, President and Chief Operating Officer of STAAR Surgical; and Deborah Andrews, Interim Co-CEO and Chief Financial Officer of STAAR Surgical. Earlier today, we reported our fourth quarter and fiscal 2025 results via press release and Form 8-K. We posted our results release and shareholder letter to our investor website at investors.staar.com. Today's call is scheduled for 1 hour and will include Q&A for publishing analysts. Webcast participants can also send questions for today's Q&A session to ir@staar.com. Before we get started, I want to remind you that during today's discussion, we will be making forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by such forward-looking statements. I encourage you to read the disclaimers in today's release, the shareholder letter as well as disclosures in our filings with the SEC. Except as required by law, STAAR assumes no obligation to update these forward-looking statements to reflect future events or actual outcomes. In addition, during today's discussion, we will reference certain non-GAAP financial measures, including adjusted EBITDA and constant currency sales. Please refer to today's release for definitions and reconciliations of non-GAAP metrics. For brevity, unless otherwise specified, all comparisons on today's call will be on a year-over-year basis versus the relevant period. Finally, a quick reminder. We intend to use our website as a means of disclosing material nonpublic information and for complying with our disclosure obligations under Regulation FD. Such disclosures will be included on our website in the Investor Relations section. Accordingly, investors should monitor our investor website in addition to following our press releases, SEC filings and public conference calls and webcasts. And with that, I'd like to turn the presentation over to the Interim Co-CEO, Warren Foust. Warren? Warren Foust: Good afternoon, everyone, and thank you for joining us. Deborah and I are pleased to be with you today on our first quarterly results call as Interim Co-CEOs. Before we dive in, I'd like to address our leadership structure. Deborah and I stepped into the shared role of Co-CEOs effective February 1st, and we are jointly leading the organization on an interim basis. We bring continuity to this transition. Deborah and I have worked very closely and collaboratively over the past year in our roles as Chief Financial Officer and President and Chief Operating Officer, respectively, and that partnership has positioned us well for this next chapter. We complement each other's capabilities and areas of expertise, and we are aligned on both priorities and execution. STAAR's Board of Directors has engaged Egon Zehnder, a leading global executive search and leadership advisory firm, to conduct the search for STAAR's next Chief Executive Officer. The search will include both internal and external candidates. 2025 was a difficult year of transition for STAAR. We expect 2026 to be a much better year, a year of growth, improving profitability and meaningful progress across our innovation pipeline, all of which we plan to discuss on today's call. As Connie indicated, along with today's results release, we have issued a shareholder letter that provides commentary on 2025 and discusses our plans and approach for 2026. Deborah and I have the benefit of being deeply familiar with and embedded in the operations of STAAR. We are working with our teams to evaluate our portfolio and road map after a period of uncertainty, setting clear expectations on both operational front and in terms of financial performance in order to unlock the power of our 2026 growth, profit and innovation plan. We are encouraged by the start of 2026. The team is energized and productive. Days are filled with customer engagements, distributor meetings, internal town halls, leadership alignment sessions, and global commercial kickoffs focused on clinical training, commercial readiness, sales effectiveness and message discipline. Our teams are excited because across most markets, refractive surgery continues to move toward lens-based procedures and away from laser vision correction procedures that require corneal tissue removal. EVO ICL continues to gain share even as the broader laser vision correction market struggles. Consequently, STAAR remains well positioned to reaccelerate growth in existing markets and unlock opportunities with our new product offerings. In China, our largest market, after several years of macroeconomic volatility driven by COVID, housing market weakness and uneven consumer spending, conditions stabilized in 2025 as policy support increased and the stock market rose sharply. In-market EVO ICL demand recovered at mid-single-digit rates and procedures improved as we exited the year. This recovery did not translate into China net sales growth for STAAR in 2025 as our distributors reduced inventory levels, but it does provide us with optimism about 2026. Market conditions in China appear to be positioned for a rebound, which will help drive growth for STAAR. Outside China, we also have reason to be optimistic about STAAR's future growth. We are seeing momentum in our U.S. business despite the ongoing decline in laser vision correction procedures. And with our recently announced expanded age range indication for EVO in the United States, which is now approved for myopia treatment in adults aged 21 to 60, our opportunity is even bigger. This expanded indication equates to roughly 8 million more potential candidates for EVO in the United States. Our efforts to expand our EVO labeling are helping fuel our growth in other parts of the world as well. For example, in Brazil, EVO had previously been approved for use down to minus 6 diopters and can now be used for treatment of myopia down to minus 0.5 diopters. Our growth remains steady across the Americas, and we expect to see additional expansion in Canada in 2026. In 2025, we went direct in Canada. And while the team is small, our efforts there are already paying off. In 2026, we are targeting solid growth of EVO in EMEA and in our Asia Pacific markets such as Japan, Korea and India. India, in particular, where we're laying a foundation, represents a growing opportunity for us as its economy is growing quickly and a rising portion of its population can afford refractive surgery. We're also excited about the market opportunities in Taiwan, where we received regulatory approval in 2025. In terms of profitability, we made a lot of progress in 2025, and profitability will continue to be a focus in 2026. In 2025, we took costs out and reduced our annualized adjusted operating expense run rate, and we beat our second half $225 million target communicated to investors back in Q1 2025. As revenue grows, we expect cost discipline to drive operating leverage. We are focused on enterprise-wide impacts, not isolated improvements and on new ways of working that increase the velocity of decision-making, so actions can translate more quickly into results and returns. Profitability expansion comes from reducing costs enterprise-wide, but it also comes from disciplined investing. We are focused on opportunities big and small, including manufacturing and infrastructure improvements, and we continually look for margin improvement opportunities in our sales and distribution network. We also believe that optimizing ASPs can contribute to increased profitability. We are allocating capital where it makes the greatest impact, the right programs in the right markets, supported by the right people and infrastructure. To that point, we are in the final stages of our Oracle ERP implementation, which will modernize the way we operate enterprise wide. Full deployment is expected early in the second half of the year. Alongside ERP, we are advancing Stella, our next-generation online sizing and ordering platform, which reduces friction in the adoption of EVO ICL technology. We are also advancing additional IT initiatives spanning from manufacturing process improvements to sales force enablement. We believe these investments will not only benefit our surgeon customers and patients, but will drive efficiency and profitability across the organization. Our 2026 growth, profit and innovation plan also reflects a renewed focus on innovation. I'm proud to report that we have launched EVO+ in China, and we are progressing with our rollout plan as we scale Swiss manufacturing to meet demand. EVO+ represents our first new lens in China in more than a decade. Early demand has been encouraging, and we are working to increase supply as production scales. Over time, we expect higher ASPs and margin expansion from EVO+ in China. In 2026, we are also expanding the commercial availability of the Lioli injector for EVO ICL procedures. The Lioli injector has been well established in the United States, and we are pleased to bring this new injector option to our surgeons in EMEA. We're excited about these near-term launches, but we are also focused on our pipeline for the longer term. We are building new capabilities, and our teams are establishing clear milestones and time lines for future advancements as well as the operational discipline and accountability required to stay on track in a rapidly evolving market. Before I hand things over to Deborah, I think it's important to recognize that 2025 is now in the rearview mirror and the disruption associated with our proposed merger with Alcon is behind us. Our shareholders have spoken supporting a long-term approach, and we are listening to them, embracing the opportunities for STAAR as a stand-alone company. We firmly believe that STAAR has everything it takes to deliver on our growth, profitability and innovation goals. We have superior technology. Our differentiated Collamer material is the foundation for our EVO technology and is unmatched in the market. Only STAAR has 40-plus years of history treating myopia with our innovative lens-based procedure. And the myopia and dry eye disease epidemics are only getting worse. We have trusted relationships with our partners. The STAAR surgeon community is passionate about EVO ICLs and bringing the benefits of lens-based vision correction without corneal tissue removal to their patients. The power of this devoted customer base is real and tangible. We have a talented team. Our dedicated employees and the STAAR leadership team are aligned, focused and have the capabilities to execute our goals and objectives and drive stockholder value creation. Now I would like to turn things over to my Co-CEO, Deborah, for additional commentary and to discuss our financial results. Deborah? Deborah Andrews: Thank you, Warren. I'm pleased to join you on today's call, and I'm proud to lead the STAAR organization with you as Co-CEO. As Warren said, we took a number of steps in 2025 to reduce our costs and improve our profitability. A key activity in 2025 was addressing our China inventory to position STAAR for future growth. Our most significant operational challenge in 2025 was working through rebalancing product inventory in China following weakened demand in 2024. That year saw a double-digit decline in in-market EVO ICL sales and elevated inventory levels. In response, we deliberately paused shipments, normalized channel inventory and strengthened distributor discipline. These actions were painful, but necessary. By late 2025, inventory held by our distributor customers in China had declined to contractual levels. In-market sales and procedures improved and business momentum began to return. As previously discussed, our December 2024 China shipment contributed to elevated inventory levels. This $27.5 million shipment was consumed during fiscal 2025. And by the end of Q3, we had fully recognized the revenue associated with the December 2024 China shipment. During much of this period, STAAR did not have complete visibility into downstream inventory levels or actual EVO ICL procedure volumes. Over the past year, we have invested time and effort in more comprehensive data processes and analyses that now provide improved and still evolving insight into inventories across the channel. While this work is ongoing, our visibility has improved materially and will continue to strengthen. Let me briefly touch base on tariffs and Swiss manufacturing. We are pleased to report that we were able to respond quickly in 2025 when rising China-U.S. tariffs created additional headwinds for our business. We are able to mitigate near-term exposure by deploying temporary consignment inventory and leveraging existing China held inventory, while accelerating manufacturing expansion in Nidau, Switzerland. Our Swiss facility is now producing commercial product and is focused on EVO+ for China. Products manufactured in Switzerland are not subject to U.S.-China tariffs, which will be a benefit in the near-term as we roll out EVO+ in China. We believe Swiss manufacturing can be a long-term benefit as we look to manufacture EVO and EVO+ for China in the future. Swiss manufacturing not only helps mitigate tariff exposure, but it provides flexibility and scale to support sustained growth and significantly strengthens our long-term supply chain resilience. Now I'd like to turn to fourth quarter results. I'll start with fourth quarter sales performance, then margins, profitability and cash. Total net sales for the quarter were $57.8 million as compared to $49 million in the year-ago quarter, driven by a lower-than-expected rebound in sales in China, partially offset by growth in Americas and non-China APAC regions. China net sales were $17.5 million in the fourth quarter of 2025 as compared to $7.8 million in the year-ago quarter. During the quarter, certain China subdistributors and customers returned some inventory to our distributors, resulting in lower-than-anticipated fourth quarter net sales for STAAR. We believe this was largely due to uncertainties about their future if the company were acquired by Alcon. This uncertainty also impacted sales to distributors in other parts of the world. While these disruptions depressed our fourth quarter results, we believe that reduced distributor inventories will lead to improved net sales for STAAR in 2026 and beyond. Excluding China, net sales declined by 2% year-over-year, with the Americas up 18% in the fourth quarter, EMEA down 20% in the fourth quarter, driven by a distributor transition in the Middle East and distributor dynamics across the region due to the proposed Alcon merger and APAC ex-China up 2% in the fourth quarter. Turning to margins. Gross profit margin for the fourth quarter of 2025 was 75.7% of total net sales compared to the prior year quarter of 64.7% of total net sales. The increase in gross profit versus the prior year quarter was due primarily to the timing of the recognition of the cost of sales associated with the December 2024 China shipment, decreased period costs resulting from cost reductions implemented in the first quarter of 2025 and the ramp-up of Swiss manufacturing, partially offset by higher inventory provisions. Total operating expenses for the fourth quarter of 2025 were $66.6 million compared to $59.6 million in the prior year quarter. Operating expenses for the quarter included costs related to the company's terminated merger transaction with Alcon of $11.2 million and costs related to restructuring of $0.7 million. Excluding the costs related to the merger and restructuring, operating expenses for the fourth quarter of 2025 were $54.7 million, a reduction of 8.2% from the prior year quarter. Our 2025 cost actions reversed the expense growth of prior years, and we achieved significant cost savings in 2025. As revenue recovers, we intend to maintain this cost discipline, positioning the company to return to profitability. Because our proprietary products can earn strong gross margins, our operating margin has the potential to be quite high if we execute our plans effectively. Adjusted EBITDA for the fourth quarter of 2025 was a loss of $200,000 as compared to a loss of $20.8 million in the year-ago quarter. The year-over-year improvement in adjusted EBITDA was primarily attributable to higher gross profit and lower operating expenses before merger and restructuring expenses, partially offset by merger and restructuring expenses. Turning to our balance sheet. We ended the quarter with approximately $187.5 million in cash, cash equivalents and investments available for sale, a level of cash we have held fairly steady since Q2 despite significant restructuring and merger-related expenses. STAAR has no debt. As we look ahead to 2026, we are not providing financial guidance. However, we do want to provide some color commentary as to how we think 2026 will compare to 2025. First, because we expect to significantly increase our sales in 2026 compared to 2025 and because we made significant cost reductions in 2025, we are targeting profitability in FY '26. Second, while we are driving profitability, we believe gross margin will be slightly lower in '26 relative to '25 as higher cost of inventory for our Swiss manufacturing facility is sold in '26 and increased inventory reserves from expiring product create headwinds. We will work to offset these increased costs in 2026 through higher ASPs, improved yields and efficiencies in our manufacturing, which should lead to tailwinds in 2027. Third, we achieved significant operating expense savings in 2025. For 2026, we expect to maintain our operating expense run rate at levels generally aligned to the $225 million target we communicated to investors back in Q1 2025. Finally, while cash will dip modestly in the near-term, we expect to resume cash generation in the back half of the year and end 2026 with a higher cash balance than 2025. Now I'll turn the call back over to Warren. Warren? Warren Foust: Thanks, Deborah. To summarize, 2025 was a year of transition. 2026 is about execution. We have stabilized China. We have rightsized costs. We are scaling Swiss manufacturing. We're accelerating EVO+ in China, and we are aligned around growth, profit and innovation. We possess differentiated Collamer material, exceptional optical technology and a proven ability to gain market share in a very large and growing myopia market. We are moving quickly to ensure every employee understands our growth, profit and innovation focus and carries measurable goals tied directly to execution. Our people are talented and highly capable. We recognize change can be difficult, but it's also exciting and filled with promise and opportunity. We are working to reignite the organization around sustained long-term growth. Our Board and leadership team are aligned. Our strategy is clear, and our focus is disciplined execution and long-term shareholder value creation. We are energized by what lies ahead and confident in our path forward. Thank you for your continued support. Operator, we'll now take questions. Operator: [Operator Instructions] The first question comes from Tom Stephan with Stifel. Thomas Stephan: First one, just on distributor inventory. Warren, have the reductions continued into the first quarter, or has that stabilized now that Alcon is behind you? And with that in mind, can you give us any guardrails for how to think about the first quarter and revenues maybe compared to the $77 million in 1Q '24? We're here in March. I actually think Chinese New Year ended today. So just any comments on 1Q revenue as well would be helpful. And then I have a follow-up. Warren Foust: Yes. Thanks for the question. Look, we're really pleased with the progress we've made on inventory management. I actually love the progress and the oversight. We've got a new leader based there in Asia Pacific and China. This is a highly skilled, deeply experienced senior VP who's joined us, who's helping with that process. We're looking at inventory on a weekly basis. So we understand much better than we used to. It will never be perfect, but we understand it much better than we did. So we watched at the end of 2025 inventory get cooled down all the way below or right at contractual levels as we exited 2025. And we continue to see really stable inventory levels at our distributor. In fact, we're a little bit below the 6-month contractual level that we referenced before. So inventory is in a good place. We feel like we're ready now as the market starts to come back and we'd see what the market is going to bring. So that's on inventory. And then as far as just the Q1, you heard Deborah's comments, we're obviously not going to provide guidance. But what we would say is we're pleased with how '25 ended in China end market. 2024 was a really challenging year. That was, we believe, double-digit decline in in-market demand, which in 2025 rebounded to a nice sort of mid-single-digit level, and we think that we're going to experience that as we exited '25 into '26. So we maintain optimism. Thomas Stephan: Got it. That's great. And then just my follow-up, more thematic and taking a step back. Warren or Deborah, maybe if you can spend some time just discussing sort of the health of the organization today and how it compares to pre-Alcon. Sort of curious if this is any sort of consideration, positive or negative, in the near-term or long-term as we think about the path forward for the company? Warren Foust: Yes, it's a good one. I'll start and maybe Deborah can join us because I think she's done a lot in 2025 on the financial side to really get us into a healthy place. You'll remember that we let expenses spiral out of control in advance of the Alcon merger agreement. And we really got control of that starting in the Q1 2025 timeframe. And so I think as we went through the year, despite what was going on with the disruption, and there was a lot of disruption, particularly in the Q4 timeframe, we can talk about that. But we got our expenses in line, and we've carried that discipline now through '25 and we believe into '26, and that's our plan is to make sure we maintain that discipline. So I think from a cost management standpoint, that's great. Now it's about restoring revenue. You heard us talk about this 3-pronged approach. Let's grow our revenue, let's expand our profit margin, and then we have to accelerate our innovation. And we've got the organization what we believe, even early in our new roles, aligned around those 3 focal points. So I think what you would find is post Alcon transaction, we have a very aligned Board. The Board and the management team, we all want the same thing. We want growth and profitability. The organization, I think, is happy to be past the disruption. And so now it's about can we go out and execute. And I believe that we have the talented team to lead us to do that. Operator: The next question comes from Ryan Zimmerman with BTIG. Iseult McMahon: This is Izzy on for Ryan. So to start out, I appreciate that you're not guiding for 2026, and I heard your comments there, Tom, but I just wanted to ask or maybe push a little bit more. So if we think about how China saw end market demand up mid-single digits, but the rest of the business was down, I think you said about 2% outside of China, curious if low single-digits is a good place for 2026 collectively? Any growth -- or any commentary on growth you can qualitatively, would be super helpful as we start to think about our models? Warren Foust: Thanks for the question, Izzy. Is the question -- I'll make sure I understand. Is the question that the 2% we saw in the quarter ex-China? Is it a question around ex-China? Or is it something else? Iseult McMahon: So as we think about the balance of the company, right, weighing what we've seen in China versus what you're doing in the rest of the world collectively, do you think low single-digits is a good place to be or something that could be achievable for 2026 for STAAR? Warren Foust: Got it. I think -- it's a good question. Look, I think 2025 needs a little context, particularly in Q4. There's a lot of disruption. And we watched our distributor partners all around the world, not just in Asia. We watch our distributor partners make decisions around what are they going to do with inventory. Imagine being a distributor facing into what you believe is going to be a transaction and likely thinking you're going to lose your job, you're going to skinny your inventory down. You're likely going to stop investing in some of the key things that might drive revenue to your company and so on. So we saw all of those things happen, particularly in Europe, where you see the European number pretty soft for Q4. We think those things are largely influenced by that disruption, and that disruption is behind us now. And so we're still optimistic as we've ever been around ex-China business being able to continue to grow. Clearly, surgeons are moving away from LASIK and taking steps in the direction of lens-based refractive surgery, choosing Collamer, which has been around for 30 years. We're the only one in the phakic IOL business that's been there. They're choosing ICLs. And so we're seeing that momentum continue. We think in China and we think ex-China that we're going to be able to continue that momentum. As you mentioned, we're not guiding on what we think that number is going to be, but we're pleased with where we are. Iseult McMahon: Got it. And as we think about the distributor dynamics, can you elaborate a little bit more about the specific structural changes that you've put into place with those agreements, particularly in China that will prevent us from seeing any form of inventory buildups similar to what we saw in '24 and '25? Warren Foust: You bet. Look, as I mentioned before, it's never going to be perfect. And so I don't want to pretend that we know everything about China all the way down through the different layers of subdistribution, first tier, second tier, holding companies for the hospitals and then out into the vast number of hospitals in China. What I would suggest to you is we have a lot better process around it now. We see those numbers weekly. We understand what the number -- the shipments that go from our distributors downstream into the distribution network and the returns that come against them. Therefore, we have a -- it's a proxy for net sales. It's not a true net sales number. But as the inventory levels have now rightsized in China, we now feel like we've got a good proxy for what in-market demand looks like. Operator: The next question comes from Brad Bowers with Mizuho. Bradley Bowers: Just wanted to ask the first one maybe on China. Historically, 2Q busy season. Obviously, that was obscured last year because of the distributor dynamics. But wanted to hear about how we should be modeling 2Q? Is the seasonality still expected? And are there any early reads that, that momentum that we typically see -- will be seen again this year in China? Deborah Andrews: This is Deborah. We do expect that -- from a seasonality standpoint that Q2 and Q3 will continue to be very strong for STAAR in 2026, as it has been historically. So don't expect significant changes in that area. Bradley Bowers: Okay. That's helpful. And then maybe just a high-level one, just how we should be thinking about prioritization, U.S. growth versus China growth. Obviously, historically, China has been a ballast to the business. How should we be thinking about getting back towards that versus accelerating some of the U.S. businesses and again, the prioritization of each? Warren Foust: Yes. So -- it's a good question. Look, we're proud of the progress we're making in the U.S. We continue to see success there. You saw us rightsize our cost structure last year. Some of that was relative to the U.S. business itself. Some of it was just global footprint because a lot of our headquarters -- certainly our headquarters, but a lot of our infrastructure is U.S.-based. So you saw us tone that down and still have nice double-digit growth in the U.S. And so it's just a smaller business relative to the bigger business outside of the U.S., particularly China, of course, Japan our second, and Korea and Southeast Asia, India representing big opportunity, not to mention what we do in Europe. And so we'll continue to invest with -- along with our customers that invest in EVO ICL. We'll do that in the United States. We'll do it outside of the United States as customers are interested in partnering with us. Again, we're seeing surgeons and our customers. We're seeing patients ask for alternatives to laser vision correction that requires corneal tissue removal. They're moving toward the lens-based option that's reversible. And so we're seeing that. And as customers share that with their potential patients, then we'll partner with them, and we'll put our investments there. But China is the biggest opportunity for us. It remains that way. We'll continue to double and triple down there. Operator: The next question comes from Simran Kaur with Wells Fargo. Gursimran Kaur: I guess just bouncing off of the prior question, maybe Warren or Deborah, could you help us understand like what is the true growth algorithm from here? How much is driven by the continued China recovery and growth versus ex-China recovery penetration and mix? And can you get back to that strong double-digit growth levels that you were seeing in China prior to last year and sort of that mid-teens growth level ex-China? Just help us understand how you get back to sort of the pre-2025 levels, and over what time? Deborah Andrews: Yes. Thanks for the question. I think -- I don't think in 2026 we're going to be seeing the hyper growth levels that we saw back 2023 and before that. Certainly, we're working towards that. Right now, thankfully, our Board has a very long view of the company. And while we do expect nice growth globally for the company in 2026, I would caution, I don't expect to see 20%, 25% growth, although that is definitely what we're working to, and that is definitely the opportunity for sure. Gursimran Kaur: Understood. That's very helpful. And maybe just in China, I appreciate the commentary around the EVO+ sort of launch. How should we think about competition in 2026? And can you give any color around what is that ASP delta between EVO+ versus EVO in China? And how much of the 2026 China growth algorithm is being driven by price versus volume and sort of underlying demand and improving macro? Warren Foust: Yes, it's a good question, Simran. And what I would say is even just appending to Deborah's previous comments because I think they're somewhat related, we're still wildly underpenetrated as far as refractive surgery as a percentage of the myopia epidemic that exists in this world. China is no different. They, in fact, lead in that. Maybe India is right there close with them. And so I think we collectively, as those that want to impact that epidemic. Lens-based refractive surgery is growing, but that's one piece of it. And so I think there's going to be plenty of opportunity for us, plenty of opportunity for competition as well. What I would say about the competitors, look, we take it really seriously. It's a little flattering, if I'm honest, that phakic IOLs are starting to grow. And I think it just speaks to LASIK is in most markets on the decline and folks are looking for another way to treat. And this reversible approach, I think, is really appealing to the patient, or potential patients. So it's a strong recognition we're happy with. Many companies have come as competitors in the past, and they all are non-Collamer lenses. They are acrylic lenses, which are varying types, but it typically creates a more rigid structure. And history will tell you that of the many that have come, only a few have really even stayed in the market. And so Collamer is a differentiator for us, 30-plus years. We had a pretty big head start on the market. And so we're taking advantage of that, but we can't just rely on that. We also have to continue to innovate. And so it's important for us to bring products like EVO+ into the Chinese market to allow us to expand. So that gets to your question around ASP. What we've seen so far is a lot of excitement around EVO+. So we're happy about that. And we're going to continue to try and scale up our Swiss plant to be able to satisfy the demand. We are seeing a premium. We're not sharing the premium. You can imagine why it's a competitive advantage to us. What I'll say is that customers see the difference and patients are paying for the difference. And so we'll see where that goes. It's still really early. I wouldn't make too much out of it yet, but we are pleased with the early progress. Operator: The next question comes from John Young with Canaccord Genuity. John Young: I just want to follow up on the comments on EVO+ and the launch in China. If I recall the strategy correctly, a part of it also was to defend against value-based purchasing in China. Are you seeing any headwinds or -- to the traditional EVO lens right now from VBP in China? And do you expect any? Warren Foust: Yes. We haven't heard anything about VBP. And so what I would say is, in order for a VBP to happen, typically, it happens in the public market. It can happen in the private market. There are examples of that in dental. And I think even in some of the provinces, they've tried to look at orthokeratology. But we've not heard anything about VBP. Remember that our competitor, the Loong Crystal that you hear about, they don't have a toric version yet. You need multiple competitors in the market before the government has typically gotten interested in it. We certainly can't predict one way or the other what's going to happen, wouldn't try to do it. But to answer your question, haven't heard a thing about VBP and feel like so far, so good. John Young: Great. And then in your script, you also talked about the importance of people in the organization. I'm just wondering, have you had any higher-than-usual turnover in the organization outside the restructuring with all the changes that have been going on? Deborah Andrews: No. Things have been pretty steady in that regard. We have a wonderful team. We have wonderful employees in the organization. They're all very happy, to be very honest, that the Alcon transaction did not go through because they love working here, and we love having them. So yes, so far, so good in that regard. Operator: The next question comes from David Saxon with Needham & Co. David Saxon: I wanted to get your thoughts on what year has no stocking dynamics for China, just so we can kind of better frame what a normal year is for China sales? Like, is 2023 at 185 kind of a clean year in your view when you think about channel inventory and not necessarily returning to that in '26, but over the near-term? Warren Foust: It seems like an easy question to answer, but the reality is China is going through -- was going through such a hypergrowth period that the distributors -- the single distributor at the time and then the 2 distributors, once we brought on HTDK, were doing everything they could to get inventory, get folks trained, get it out into -- remember, these are thousands of hospitals in a very large, diverse country. And so I don't know when you would say that the in-market demand ceased in such a way that it started backchanneling or backfilling inventory at the distributor or anywhere else within that distribution lane. So I don't know that, that question can be answered. What I can tell you is that on a go-forward basis, we understand our inventory position very well, and we have very good controls in place to ensure that we don't allow that to happen to us again. And so feel good about the contractual levels of inventory with our importers, feeling better about the stabilization seemingly, of the China business in 2025 and excited for a clean start here in '26. David Saxon: Okay. Great. And then just as my follow-up, I wanted to switch gears to the U.S. and just to get an update on the strategy. How has it evolved since early to mid-last year? What's going right? What are some areas that need retooling? Warren Foust: Yes. Our U.S. team is so good. The people running that organization are fantastic. And what I'll tell you is, they -- a couple of years ago, you'll remember the language of Highway 93. And that's -- that wasn't -- at the time, it was 93 customers, but it's not really designed to be 93 customers. It's designed to be a mindset of let's focus on the customers that are willing to partner with us and that want to drive EVO ICLs as an option for their patients. And that team has expanded upon that list now and what they've done is really get into the economics of making EVO ICL a better business for these refractive surgeries -- excuse me, these refractive surgeons that want to grow their practice. And they'll describe a market -- it's a refractive market that's not shrinking. It's one that's shifting and it's shifting away from LASIK, which requires corneal tissue removal and going to a reversible procedure that when priced appropriately, when taught appropriately to the staff and therefore communicated appropriately to a potential patient, it's a really high profit opportunity for those practices. And so they're focused around that mission. They have strong training and message discipline, and they're executing against it. And you saw the results for 2025 with double-digit growth, and we're excited to see what they're going to do this year. And they're doing it on a string budget relative to what it was a couple of years ago. We were wasting money in the U.S. We were spending it in the wrong places. I learned a lot of lessons in that. I was sitting right here for it. And so I feel like we're in a better place. Operator: The next question comes from Mason Carrico with Stephens. Mason Carrico: I'll keep it to one. The deck that you guys published on the Alcon merger included language around STAAR's inability to penetrate lower diopter patients, which makes up the majority of refractive patients, and that is deviated from prior commentary around moving down the diopter curve. So could you just talk about that shift in messaging and really how it informs your strategic decision-making and process moving forward? Warren Foust: Yes, it's a fair question. And I would just make one subtle correction to it, and it's that it's not a change in messaging from the standpoint of we know we have to go down the diopter curve in order to be effective. We know that even in the publication you're referring to, that we made progress coming down the diopter curve starting back at the -- I don't remember from memory, but minus 12 diopter down to something like minus 9, minus 9.5. Now we're at that point where we have to continue to go down the diopter curve, and it's hard to do. It's hard because in markets around the world where customers have invested in infrastructure to treat patients with laser technology, they want those technologies that they invested in to pay dividends. And so the reality is we're going to keep fighting that fight. We're going to keep pushing appropriately for our customers to consider EVO lower diopters. We know that the higher diopter refractive error correction the patient has, the more tissue you have to take, which induces dry eye, which does other things. And so we're going to continue to push. We haven't made as much progress as we would like to make. We always want to make more. Some markets will do better. Some markets will continue to have wild amounts of high myopia. Think of Asian markets like China, like India, like Korea and Japan, there's plenty of high myopia patients to treat. But we're going to keep the fight up, and I'll take your question as encouragement that we need to do so. Operator: The next question comes from Adam Maeder with Piper Sandler. Adam Maeder: Two for me. The first one is on China and lots of questions have been asked, but not sure we've discussed expectations for ICL in-market growth in FY '26? And it sounds like things have started to stabilize some over the course of 2025. Do you expect to see further recovery this year? And just any finer point you can put on it would be appreciated. And then I had a follow-up. Warren Foust: A lot of the same challenges we've been fighting in -- that we fought in 2025 are still there. There's still macro challenges in China. They're just getting better. You see the stock markets doing a whole lot better in China, but you see the housing market is still a little bit depressed. They're coming out of the Chinese New Year. I don't know that we have good data on it yet. I think the tone out of Chinese New Year was seemingly positive. We'll see. The stimulus that the government has put into place through the course of 2024 and then 2025, we think, is starting to help. Maybe it's some of the driver behind even the stock market surge. So cautiously optimistic about their economy. What role that's going to play in in-market sales, too hard to tell. What we can tell you is that Q4 in 2025 was a nice acceleration relative to the previous quarters in in-market sales. That left us for the full year '25 around, we believe, a single-digit in-market demand growth versus the prior year. So hopefully, we get a little bit of that momentum coming out of Q4. Hopefully, the economy stays as it has been or gets better, but it's still too early to tell, thus the reluctance to give guidance. Adam Maeder: Okay. That's very helpful, Warren. I appreciate the color. And for the follow-up, I wanted to ask about innovation and prioritizing innovation. I think that was mentioned a couple of times during the call in the shareholder letter. So I guess, what can you tell us today about the innovation pipeline and specifically, how we should think about some of these new products potentially getting regulatory clearance and impacting models? Warren Foust: Yes. Great question because it's the third pillar in our strategy here, and it's a place where we have -- candidly, we haven't delivered in the way that we really want to. EVO is amazing. The Collamer material is differentiated. And now the onus is on us to bring new products to market. Proud of V5, proud of bringing EVO+ to China. That's going to be a differentiator for us, we believe. We'll also bring the Lioli injector, which is incremental innovation. The lens is still the star of the show, but it will be a nice way for our customers to be able to inject EVO into their patients. And then we're working on a series of projects in the background. We hope to be able to update you even in subsequent calls on time lines. Think of milestones like when we start to do first-in-man treatments and when we go through other stage gates of the design control process, which is an important part of the R&D process. We want to give you that visibility, just not ready to do it yet. Connie Johnson: That's all the phone questions we have so far. Warren Foust: Okay. Operator, it sounds like there's no more questions? Operator: That concludes the question-and-answer session and today's conference call. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and welcome to CrowdStrike's Fiscal Fourth Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the call over to Andy Nowinski, Vice President of Investor Relations and Strategic Finance. Andy, please go ahead. Thank you. Andy Nowinski: Good afternoon, and thank you for your participation today. With me on the call are George Kurtz, Chief Executive Officer and Founder of CrowdStrike; and Burt Podbere, Chief Financial Officer. Before we get started, I would like to note that certain statements made during this conference call that are not historical facts, including those regarding our future plans, objectives, growth, including projections and expected performance, including our outlook for the first quarter and fiscal year 2027, and any assumptions for fiscal periods beyond that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this call. While we believe any forward-looking statements we make are reasonable, actual results could differ materially because the statements are based on current expectations and are subject to risks and uncertainties. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise. Further information on these and other factors that could affect the company's financial results is included in the filings we make with the SEC from time to time, including the section titled Risk Factors in the company's annual and quarterly reports. Additionally, unless otherwise stated, excluding revenue, all financial measures disclosed on this call will be non-GAAP. A discussion of why we use non-GAAP financial measures and a reconciliation schedule showing GAAP versus non-GAAP results is currently available in our earnings release, which may be found on our Investor Relations website at ir.crowdstrike.com or on our Form 8-K filed with the SEC today. With that, I will now turn the call over to George. George Kurtz: Thank you, Andy, and thank you all for joining CrowdStrike's Q4 FY '26 Earnings Call. I couldn't be more pleased with our results. AI is driving elevated demand for the Falcon platform and is a key accelerant for our business. At the same time, AI is weaponizing adversaries to attack with increased speed, sophistication and precision. We're seeing this play out in real time in the Middle East as emboldened adversaries fuel nation state activity. FY '26 was CrowdStrike's best year yet capped by a blockbuster Q4 where we set new records across the business. Summarizing our results: one, all-time record net new ARR of $331 million for the quarter, which grew 47% year-over-year, coming in well ahead of our expectations. For the year, we delivered $1.01 billion in net new ARR, up 25% year-over-year, our first year delivering over $1 billion of net new ARR. Two, ending ARR of $5.25 billion, crossing the $5 billion milestone, which accelerated to 24% growth year-over-year. CrowdStrike is the fastest and only pure-play cybersecurity software company to achieve this milestone. Three, record free cash flow of $376 million for the quarter or 29% of revenue. And for the year, we delivered record free cash flow of $1.24 billion or 26% of revenue. Four, all-time record operating income of $326 million for the quarter or 25% of revenue. This is the third consecutive quarter of record operating income. For the year, we delivered $1.05 billion of operating income, exceeding the $1 billion operating income milestone for the first time. Five, record net new ARR from cloud, Next-Gen Identity and Next-Gen SIEM collectively. Ending ARR for these solutions collectively grew more than 45% year-over-year. Amidst today's AI backdrop, our endpoint business accelerated for the second consecutive quarter. Six, dollar-based net retention of 115% and gross retention of 97%, showcasing best-in-class durability and stickiness, which leads to my final point. Seven, we delivered $1.69 billion in ending ARR from accounts that have adopted the Falcon Flex subscription model, growing more than 120% year-over-year, turbocharging our land-and-expand motion. Our Q4 and FY 2026 execution showcases CrowdStrike's leadership in every theater, every segment and every route to market. In our third consecutive quarter of net new ARR acceleration, the voice of the market is clear. CrowdStrike is durable, mission-critical infrastructure for both securing AI and accelerating global AI adoption. We find ourselves in one of the most defining times in the history of modern technology. AI has gone from dream works to reality, now increasingly in production across the enterprise. From CrowdStrike's founding, we've been building AI innovation for cybersecurity, yet the pace of AI innovation is broadly misunderstood. Novel discoveries are often interpreted as the death knells of existing categories. The market is questioning enterprise software's role in an agentic world. It's in moments like these where opportunity is created. In the same way that we anticipated the cloud revolution, we pioneered and built for the agentic revolution. Here's what I see unfolding in the market. We see the AI revolution creating 2 disparate groups of software companies: Group 1, those who are now existentially vulnerable. These are historically nice-to-have technologies that are productivity features and point products geared to legacy pricing models; Group 2, those who will thrive. These are mission-critical, trusted infrastructure technologies necessary for global continuity with deep IP. These technologies are net data creators producing novel, fresh and proprietary data that doesn't exist elsewhere, data that is fuel for the agentic business outcomes. In these companies, proprietary data is just one part of the advantage. The other is trusted enterprise architectural superiority, which drives stickiness, adoption and scale. Here's why CrowdStrike is winning and how AI is driving even more competitive success for us. One, our competitive moat is becoming an opportunity ocean. Falcon is a vertically integrated net data creator and third-party data aggregator. We generate real-time data that no one else has from customer environments and our world-class threat intelligence. What frontier AI labs cannot do, we've been doing for over a decade, cyber reinforced learning from human feedback or RLHF at scale. Our MDR analysts, threat hunters and incident responders produce expert label data as a byproduct of operations. These labels don't come from Internet text. They come from stopping real breaches in real time. Threat Graph correlates more than 1 trillion security events per day across approximately 2 trillion vertices, analyzing 15-plus petabytes of data, structured, queryable, security signals at scale no one can replicate. Frontier models can augment security, summarize alerts, draft queries, speed up triage. That's extremely valuable, but stopping breaches requires sensors, real-time telemetry, continuous expert validation and enforcement, a closed-loop system, not a text model. As our technology evolves, our data improves. As our data improves, our platform evolves. As our experts validate outcomes, our AI agents get better. This is a flywheel and network effect that no one else has in cybersecurity at our size and scale, and it's how we stand behind our brand promise of stopping breaches. This dynamic is not cyclical. It is structural. Two, we win because Falcon is purpose built for securing AI at every layer. The layers of the new AI stack are the attack surface of the future, and Falcon can secure all of them. AI must be secured at every level, including: one, GPU foundation, partnering with NVIDIA, AMD, Intel and others to secure AI at the source; two, hardware and infrastructure OEMs, securing AI factories such as Dell, HPE and Super Micro; and novel AI operating systems such as VAST Data; three, neoclouds and hyperscalers, securing where AI happens in the cloud across AWS, OCI, GCP, Azure and inference disruptors such as CoreWeave, Nebius and Crusoe; four, token factories, securing the use of frontier model creators like Anthropic, OpenAI and Google Gemini; and five, AI applications and in agents securing AI native software and the agentic workforce. Not only do we secure the use of each of these companies' products, but we also secure nearly all of the companies themselves. We secure the world's AI future by securing the world's AI leaders. And three, we win because efficacy and precision matter more than ever. In cybersecurity, you simply cannot have a hallucination. You can't prompt twice. It's first time final. It's the difference between thwarting an adversary or experiencing a breach. Cybersecurity is a unique paradigm. Success for us and our customer is did we stop a breach. We win because cybersecurity needs to be faster and more deterministic than ever before, and we uniquely deliver superior outcomes. Our agentic SOC and AI technologies are transforming security. CrowdStrike's AI innovation is setting new adoption standards on the journey to delivering security AGI. Charlotte is our flagship agent, and now we have 10 other agents representing specific security skills and roles within security teams. Between Charlotte and our other agents, we can already see the mobilization of security's agentic workforce working hand in hand with human security professionals. Coming back to Charlotte, our agentic SOC workforce built from multiple models allowing us to optimize from the latest and greatest LLMs. We couple industry innovation with our own AI expertise, training and models from security's richest data source, Falcon adversary, threat and security analyst training data. We saw Charlotte usage soar more than 6x year-over-year as ARR more than tripled. A thematic win was in a leading cloud software provider in an 8-figure re-Flex transaction. The re-Flex expanded the adoption of next-gen SIEM and Charlotte. Their 30-day use of Charlotte tells a compelling story, achieving a 3x faster mean time to respond, using the power of our domain-specific AI, Charlotte accelerates, streamlines and democratizes security outcomes. Technology innovation is just one part of our success. Our results are also driven by our go-to-market innovation, creating the revolutionary Falcon Flex subscription model, which we now see mimic across cybersecurity. The model transformed our discussions with customers to demand planning based on risk, data, attack surface and overall platform capabilities. Let me share our Q4 Falcon Flex performance within the now $1.69 billion ending ARR cohort of Flex account value, growing greater than 120% year-over-year. We now have more than 1,600 customers who have adopted Falcon Flex and added more than 350 Flex customers in Q4. That amounts to nearly 4 new Falcon Flex customers each day of the quarter. The average Flex customer's ending ARR is greater than $1 million. The proof of Falcon adoption success is in the re-Flex. Customers are using what they buy and expanding their Flex commitments. More than 380 Flex accounts have already re-Flexed, representing more than 23% of the Flex customer base, up from 5% in Q1. The average ARR lift after a re-Flex is 26%, happening on average within 7 months. And the platform adoption grows even further from there. We're now tracking the number of customers who are repeat re-Flexers. Nearly 100 customers have re-Flexed multiple times. The multiple-time re-Flex cohort now represents approximately 6% of total Flex customers and over 1/4 of all re-Flex customers. Our multiple-time re-Flexers, on average, have an ARR lift of an additional 48% from their initial Flex subscription. In summary, Falcon Flex unlocks never-seen-before adoption for customers. Flex is now how we go to market. A key win includes a major enterprise software player that started with using 1 module, threat intelligence, and spending low 6 figures. Through Falcon Flex, this customer is now using 25 modules and spending $86 million in total Flex contract value with us. Flex is creating its own flywheel. Demand drives use. Use drives more demand. Flex is the stage on which our platform solutions shine. Collectively, our Next-Gen Identity, cloud and Next-Gen SIEM businesses grew more than 45% year-over-year reaching more than $1.9 billion in ending ARR. Our Next-Gen Identity business ended FY '26 with more than $520 million of ending ARR, growing more than 34% year-on-year, a double-digit acceleration versus 2 quarters ago. Key drivers include our privileged account security solution, which grew more than 170% sequentially. Falcon Shield ending ARR grew more than 300% year-over-year, more than 5x since our acquisition of Adaptive Shield, as customers protect the rapidly growing agentic SaaS attack surface. Our ability to secure both human and agentic identities wherever they exist is rapidly turning CrowdStrike into our customers' identity secure control play. A key identity win, an iconic department store selecting CrowdStrike over an SMB point product in a 7-figure deal driven by the ease of use of our ITDR and PAM solutions in a Flex consolidation. While our Next-Gen Identity business had an excellent quarter, we're most excited for what's ahead. We recently closed the acquisition of SGNL.ai. This is S-G-N-L, bringing the power of 0 standing privilege for all identities to the Falcon platform. With SGNL.ai, CrowdStrike is delivering high fidelity, content-driven, real-time authorization to the market, enabling our customers to rapidly reduce their identity attack surface even as they rapidly expand the number of identities within their organization. We're moving access from static point in time to real time and redefining Zero Trust. Access should be always on, granular and dynamic. But we're not stopping there. Our recent acquisition of Seraphic turns any browser into a secure enterprise browser without impacting user behavior. The browser has become the front door for AI applications, and Seraphic meets human and nonhuman users where they are and where they're going, agentic browsers for real-time visibility and protection. Turning to our cloud business, where net new ARR growth accelerated for the second consecutive quarter and ending ARR grew more than 35% year-over-year. For the first time, our cloud business exceeded $800 million in ending ARR as our customers look to us to secure the infrastructure powering their AI future. Our unique ability to operate in runtime at scale continues to set us apart from the rest of the market. A key win in our cloud business was with a major enterprise data platform company who deployed Falcon Cloud Security in an 8-figure total deal value Flex. After extensive testing, this account ripped out their existing provider for our runtime protection-first approach, realizing the integrated benefits of CSPM, CIEM, CDR, and OverWatch threat hunting, which resulted in a 90% reduction in mean time to detect and respond for their cloud environment. Turning to our Next-Gen SIEM business, where we delivered a record quarter. Our Next-Gen SIEM business grew over 75% year-over-year, delivering ending ARR of more than $585 million. Next-Gen SIEM has proven itself a scaled market disruptor where our performance and cost advantages set us apart from legacy competitors. At the same time, our launch of agentic security workflows is powering the cybersecurity operating system of the future. With Falcon Onum, we're enabling our customers to connect data sources quickly and efficiently, resonating with both security and IT teams. A key win in the quarter was with a Fortune 500 retailer highlighting our strength and momentum in the next-gen SIEM space. In a 7-figure deal, we replaced a legacy SIEM and its attached point product data pipeline. Falcon's fully native data pipeline and an expected 80% faster query performance was a game changer in helping this customer build out their agentic SOC. Rounding out our product portfolio, I want to touch on our endpoint and other AI-specific businesses. Amidst the backdrop of accelerating AI proliferation, our endpoint business accelerated for the second consecutive quarter. The endpoint is rapidly becoming the epicenter of AI usage driven by the growth of technologies ranging from MCP servers to coding tools to localized LLMs. AI is the fastest growing attack surface on the endpoint. As of Q4, our sensors detected more than 1,800 distinct AI applications running on enterprise devices, representing nearly 160 million unique application instances across our customer base. And with the acquisition of Seraphic, we now give our customers even more control over their knowledge workers' usage of AI tools. Lastly, I want to touch on our recently launched AIDR offering. In just a short time, AIDR has become one of our most in-demand products, growing more than 5x versus last quarter despite having only been available for a few weeks. AI adoption is moving faster than can be controlled, and our AIDR offering gives customers immediate visibility into their employees' usage of AI tools, including the specific models being used as well as detections into potentially malicious or noncompliant usage. Bringing model scanning, visibility, guardrails and detections to AI usage positions CrowdStrike as a catalyst for enterprise AI adoption. Concluding the discussion on our platform solutions. Seeing is believing. Please reference our investor deck, which now includes a link to product demo videos, showcasing AI innovation across the Falcon platform. Our partner go-to-market delivered beyond expectations this past year. We saw growing practices across EY, Accenture, Deloitte, HCL, Wipro, KPMG and Infosys taking shape focused on next-gen SIEM migrations. Our MSSP business also continues to grow at a rapid pace. In just over 3 years, we've gone from a sub-$100 million MSSP business to more than $1.3 billion spanning market-leading partners like Kroll, Pax8, and NinjaOne. Finally, our hyperscaler leadership continues to differentiate CrowdStrike from every other cybersecurity player. This past year alone, we did nearly $1.5 billion of total contract value on the AWS marketplace, growing nearly 50% year-over-year. Then a few weeks ago, Satya Nadella and I spoke to CrowdStrike's go-to-market team together. We are now open for business on the Microsoft marketplace and customers can use their Microsoft Azure consumption commitment dollars on Falcon. This is a watershed moment reflecting a clear evolution of how our companies see each other and how Microsoft and CrowdStrike are working together to make the world a safer place. In summary, we didn't just have a great partner year. We built an ecosystem to win the next decade. Closing my remarks today, I'm proud of the team and our partners for executing a terrific FY '26. Here are my key takeaways as I look at the business today and into the future. First, CrowdStrike is an AI adoption accelerator. Our customers are safely and securely using more than 1,800 distinct AI applications on their endpoints, which would not be possible without CrowdStrike. Second, AI use necessitates AI security. Every enterprise deploying AI needs an independent protection layer for visibility, compliance and enforcement. As AI adoption grows, CrowdStrike becomes even more of a necessity to these organizations. And third, our data moat creates a structural advantage. Delivering cybersecurity at scale requires more than a prompt. It requires expert label telemetry from our global sensors, MDR analysts and elite incident responders. It is a structural advantage no LLM provider can replicate. In addition, agentic cybersecurity requires in-line prevention as well as real-time remediation. Since the founding of CrowdStrike, we created an AI-native platform. Enterprises have trusted us to help them safely navigate market transitions like digital transformation and cloud migration. The AI revolution is now upon us, and just like prior market transitions, adoption of AI will be secured by CrowdStrike. Thank you for your trust. I'll now turn the call over to Burt Podbere, CrowdStrike's CFO. Burt Podbere: Thank you, George, and good afternoon, everyone. As a quick reminder, unless otherwise noted, all numbers, except revenue mentioned during my remarks today are non-GAAP. We delivered exceptional fourth quarter results and a record finish to the year, exceeding expectations across all guided metrics driven by continued Flex and re-Flex momentum and strong organic growth across the platform. FY '26 was a milestone year for CrowdStrike. For the full fiscal year, ending ARR growth accelerated to 24% and net new ARR accelerated to 25% year-over-year. We delivered this record top line performance while exceeding our profitability and free cash flow targets. Operating income reached a record $1.05 billion or 22% of revenue, and we delivered record free cash flow of $1.24 billion or 26% of revenue. The combination of growth, scale, profitability and cash flow puts CrowdStrike in rare air. The strength of our platform and the significant market opportunity ahead further reinforce our conviction in the path to achieving our future growth milestones of $10 billion and $20 billion of ending ARR as well as our target profitability model. Our full year momentum was punctuated by an exceptional fourth quarter. We achieved record net new ARR of $330.7 million, up 47% year-over-year and well ahead of our stated expectations, driving ending ARR to $5.25 billion. Our fourth quarter results showcased the success of our Flex-led go-to-market strategy. Momentum was broad-based across customers of all sizes from enterprise to down-market and MSSPs, achieving another record quarter in our corporate business. Customers continue to leverage Falcon to consolidate their security needs and lower their total cost of ownership resulting in higher retention rates over the prior quarter and strong module adoption rates. As of Q4, 50% of subscription customers are now using 6 or more modules. 34% are using 7 or more, and 24% are using 8 or more modules. Our gross retention rate remained high at 97%, and our dollar-based net retention rate increased to 115% in the quarter. At our more than $5 billion ending ARR scale, these retention rates highlight the durability of our customer relationships and our ability to both retain and expand our customer base. Our strong business momentum and Q1 record pipeline entering FY '27, which grew 49% year-over-year, gives us conviction in our ability to deliver profitable growth throughout FY '27 and beyond. As we lapse the 1-year mark from the end of our highly successful CCP program, we have seen that accounts that took CCP deals have gross and net retention rates higher than the company average, have shown a strong trend of early renewal and have already expanded more than twice the total $80 million of ARR value we provided. Moving to the P&L. Total revenue exceeded our guidance range and grew 23% over Q4 of last year to reach $1.31 billion. Subscription revenue grew 23% over Q4 of last year to reach $1.24 billion, and professional services revenue remained strong at $63.1 million, up 26% year-over-year, driven by the elevated threat environment. The geographic mix of fourth quarter revenue consisted of approximately 66% from the U.S. and 34% from international geographies with both EMEA and APAC year-over-year revenue growth accelerating compared to Q3. We saw broad strength across all our major geographic markets with the U.S., Japan, Europe, the Middle East and Africa all exceeding expectations. Total Q4 non-GAAP gross margin was a record 79%, and Q4 non-GAAP subscription gross margin was a record 81% of revenue, primarily as a result of continued cloud optimization. Fourth quarter non-GAAP operating income was a record $325.8 million, and non-GAAP operating margin was 25%, exceeding our guidance. The outperformance was driven by our strong top line performance, gross margin improvement and sales execution, underscoring our commitment to durable, profitable growth as we continue to balance strong net new ARR growth and operational excellence. In Q4, we delivered positive GAAP net income attributable to CrowdStrike of $38.7 million. Non-GAAP net income attributable to CrowdStrike was a record $289.1 million or $1.12 on a diluted per share basis, exceeding our guidance. Moving to cash. Our cash and cash equivalents increased to $5.23 billion. We generated record cash flow from operations of $497.9 million and record free cash flow of $376.4 million or 29% of revenue. Our FY '27 outlook reflects our confidence in the durability of CrowdStrike's growth trajectory, profitability expansion and cash flow generation. The fundamental tailwinds, platform consolidation, AI proliferation and Flex adoption are continuing to gain momentum. As George mentioned earlier, we see the AI revolution creating 2 disparate groups of software companies: one, those who are now existentially vulnerable; and two, those who will thrive. CrowdStrike is thriving amid the AI revolution as we not only leverage AI within our entire platform, but our platform helps organizations adopt AI safely and securely. The AI revolution represents a new and generational growth opportunity for CrowdStrike as accelerating AI adoption necessitates security built for this next era of technology. As AI adoption accelerates, combined with our record Q1 pipeline and continued platform consolidation momentum, we have strong conviction to once again raise our FY '27 ARR outlook. The outlook we are providing today includes the acquisitions of SGNL and Seraphic, both of which closed in February and are expected to contribute a combined $5 million to $8 million of acquired net new ARR in Q1. We are assuming minimal organic contribution from these acquisitions in the remaining quarters of FY '27 as we remain committed to natively integrating their capabilities into the Falcon platform before fully scaling go to market, consistent with our proven M&A strategy and brand promise. We expect FY '27 net new ARR seasonality to remain unchanged relative to FY '26 with approximately 41% in the first half and 59% in the second half. Beginning in Q1, we are changing the sales commission amortization expense period from 4 to 5 years to reflect our longer customer relationship periods. We expect this change to benefit non-GAAP operating income by $85 million to $95 million in FY '27, partially offset by additional operating expenses resulting from the integration of our recent acquisition of SGNL, Seraphic, Onum and Pangea of $74 million to $80 million. For a detailed breakout of the acquisition impacts to our guidance, please refer to the guidance slides of our Q4 FY '26 earnings presentation available at ir.crowdstrike.com following our prepared remarks today. Additionally, we remain confident in our previously provided assumptions for FY '27 partner rebates to represent approximately 0.8% of total revenue. Moving to interest income. Based on expected market rates and cash outlay from our recent acquisitions, we are assuming interest income of $160 million to $170 million for FY '27. Moving to cash. At the midpoint of our guidance, we expect free cash flow margin to be approximately 33% in Q1 and at least 30% for the full fiscal year. In FY '27, we expect the seasonal mix of free cash flow dollars between the first and second half of the fiscal year to be 43% in the first half and 57% in the second half, with Q2 remaining our seasonally lowest quarter. We anticipate capital expenditures as a percentage of revenue to be 7% to 8% in FY '27 with these investments more weighted to the first half of the year. Finally, as of March 2, we repurchased approximately 144,000 shares following our fiscal year-end and had approximately $950 million remaining under our current share repurchase authorization. We will remain opportunistic in returning capital to shareholders as we remain focused on capturing the significant growth opportunities ahead of us. For the first quarter of FY '27, we expect annual recurring revenue to be in the range of $5.502 billion to $5.504 billion, inclusive of the estimated acquired ARR and reflecting a year-over-year growth rate of 24%, translating to net new ARR of $249 million to $251 million, reflecting a year-over-year growth rate of 29% to 30%. We expect total revenue to be in the range of $1.360 billion to $1.364 billion, reflecting a year-over-year growth rate of 23% to 24%. We expect non-GAAP income from operations to be in the range of $308 million to $310 million and non-GAAP net income attributable to CrowdStrike to be in the range of $275 million to $277 million. We expect diluted non-GAAP net income per share attributable to CrowdStrike to be approximately $1.06 to $1.07, utilizing a 21.0% tax rate and weighted average share count of approximately 259 million shares on a diluted basis. For the full fiscal year 2027, we expect annual recurring revenue to be in the range of $6.466 billion to $6.516 billion, reflecting a year-over-year growth rate of 23% to 24% and translating to net new ARR of $1.213 billion to $1.264 billion, reflecting a year-over-year growth rate of 20% to 25%. We expect total revenue to be in the range of $5.868 billion to $5.928 billion, reflecting a growth rate of 22% to 23% over the prior fiscal year. Non-GAAP income from operations is expected to be between $1.422 billion and $1.462 billion. We expect fiscal 2027 non-GAAP net income attributable to CrowdStrike to be between $1.241 billion and $1.271 billion. Utilizing a 21.0% tax rate and approximately 260 million weighted average shares on a diluted basis, we expect non-GAAP net income per share attributable to CrowdStrike to be in the range of $4.78 to $4.90. George and I will now take your questions. Operator: [Operator Instructions] Our first question comes from Joe Gallo at Jefferies. Joseph Gallo: Really nice results and guide. George, securing AI is a huge market opportunity. Would love your thoughts on, one, when securing AI materializes to ARR meaningfully for you? Is that a fiscal '27 story? And then two, how much of the new market opportunity goes to pure-play cyber vendors? In cloud, people certainly use the hyperscalers for some of their security needs. So just curious how much of that new AI market goes to pure-play cyber vendors like yourselves. George Kurtz: Yes. Thanks, Joe. Obviously, we're still in the early innings, but we continue to ramp in protecting AI and it's happening today in terms of ARR growth. And we're obviously blown away of what we've seen with Pangea and AIDR. It was up 5x quarter-over-quarter from when we acquired the company. So we're really excited about that. The other piece to keep in mind is that not only is it going to drive AIDR growth, but we're going to see growth in protecting attack surfaces like cloud. We're going to see growth in next-gen SIEM. We're going to see growth in other areas that all touch AI. So from that standpoint, as I said, early innings but lots of opportunity for us. And I think with regards to hyperscalers, I'm glad you asked the question because when I started the company in 2011, we pioneered cloud-delivered security. And over the years, as cloud was maturing, I heard a lot about the hyperscalers actually providing all the security services. Well, that didn't happen. In fact, as you've seen with our results and our partnership with AWS, as an example, we transact billions through these platforms, and they're a great partner, and there's a lot more exposure in the cloud. So we see the same thing happening what I call AI hyperscalers, being able to actually partner with these hyperscalers leveraging AI and their LLMs, and also being able to leverage the technology to provide better outcomes within the platform of record for our customers, which is Falcon. Operator: Our next question comes from Rob Owens at Piper Sandler. Robbie Owens: George, you talked about the 10 other agents that you guys have besides Charlotte and some of the traction that CrowdStrike's seeing with security agents. But can you provide color on some of the recent acquisitions? When we look at agentic security more broadly, where are customers in their journey? And do you see identity as maybe one of the main hurdles for them getting agentic deployments at scale? George Kurtz: Yes, Rob, identity is one of the biggest threat vectors right now that we see. In fact, one of our latest threat reports, 80% of the breaches are non-malware-based, right? So a lot of it is around identity. And between the identity stack that we've built over the years, again, we got into identity security in 2020. We've built that out. It's a big business. And now really with the addition of SGNL.ai. This is, in my mind, game-changing technology to have 0 standing privileges to be able to protect nonhuman identities and human identities in a much more modern stack than anything else that's out there in the market. It's a perfect fit to CrowdStrike and our platform. You combine that then with something like Seraphic in browser security. So now you're able to protect the front door of really where these attacks happen, plus where AI takes place and you add the identity layer to that. And again, we're providing something that we think is going to be very unique in the industry. And of course, Pangea, which is our AIDR product, when you look at EDR, in today's market, EDR is a must. It's compliance mandate, and we believe that EDR will be a similar opportunity -- sorry, AIDR will be a similar opportunity to EDR in the coming years, driven by compliance and the need to accelerate protecting AI. Operator: Our next question comes from Fatima Boolani at Citi. Fatima Boolani: George, I wanted to direct this to you. Had a question about the next-generation SIEM opportunity. There are very much percolating fears that the open-ended SOC modernization share capture opportunity that had thus far been pretty open ended has -- is perceived to maybe be at more risk from what the frontier labs may or may not be pursuing. So maybe in the context of the opportunity ocean commentary in your prepared remarks, can you help us with a deeper explanation and understanding of what your current nature of relationship, partnership and integration is with the frontier labs and the frontier models? And how should we very critically think about the durability of your moat from any potential commoditization from an architectural or technical or, frankly, any other relevant contextual standpoint? George Kurtz: Yes, great question. So when you look at what we've built, and I talked about this in the prepared remarks, we're a net data creator, right? We have telemetry that we create from our agents and from other parts of our platform that is unique. We put it into various data stores, including next-gen SIEM and our Threat Graph. And we're able to understand the threats in real time with real-time prevention. That's vastly different than what the LLM providers and frontier models do. Now certainly, we leverage the frontier models. We have our own small language models. We have our own curated data. So I think we get the best of both worlds, but we're doing this in a platform that is driving consolidation that we've got millions and millions of workflows on already and becomes very, very sticky. So from the standpoint of our next-gen SIEM, you've got to look at the next-gen SOC opportunity and what we're doing with Charlotte and the agents that we've created, where we're driving meaningful change in a SOC or overall driving down costs and getting better outcomes, and we're doing it in a compliant way. To be a security vendor, you have to have trust. Customers are driven by compliance, and we are the epicenter of creating this data. So what we also are open to is having an open model. We have customers that create their own agents that leverage our technologies, that leverage our MCP services. And this is part of having an open platform, which is why our customers love CrowdStrike. Operator: Our next question comes from Saket Kalia at Barclays. Saket Kalia: Great finish to the year. George, maybe for you. The cloud security business, I think, is the biggest piece of kind of that 3 platform product group, if you will. And it's continued to add a consistent amount of net new ARR dollars over the last few years, which has been great to see. Maybe the question is how do you see the competitive environment in cloud security right now. And how do you think about the longevity of the growth in that market as you look out onto the future? George Kurtz: Well, when we look at the cloud market, I couldn't be prouder of our execution and the products that we brought to market. One of the areas that we focused on, as you know, for a long time, is runtime protection, and that's the technology that really is focused on stopping breaches. And I think customers have realized just by having the ability to understand sort of exposures doesn't mean you're going to stop the breach. So with our CSPM technology with -- a lot of the other technologies that we have acquired like Falcon Shield, it has become an extremely potent offering for our customers. And again, why is it resonating? One, the technology works. Two, it all works together, and we're able to drive down cost, complexity and get a better outcome, which is stopping the breach. It's not just about reporting on some exposures. It's about understanding the overall control plane in the cloud and being able to protect it. And we're giving the customers what they want, and that's the right outcome at a much lower cost than the competitors that are out there. So I think that's why, in a nutshell, you're seeing the results in our cloud business. Operator: Our next question comes from Brian Essex at JPMorgan. Brian Essex: Congrats on some nice results. And Burt, congrats on the return to GAAP profitability. Really good to see. Maybe a quick question for you, George, on identity. Great to see the acceleration there. Could you unpack that business a little bit and help us understand? I mean, obviously, identity was one of the segments that was part of the CCP incentive plans that you guys were pursuing. How much of the resurgence in growth there on the identity side is, I guess, renewal of CCP or Flex deals versus net new kind of emerging identity product? It would be great to get a feel underneath the covers there. George Kurtz: Well, it's one of the modules everyone wanted, and certainly, it was a fan favorite in the days of CCP. So we're seeing success from that. And as I have mentioned many times, once a customer engages with the module, there's an extremely high percentage that they're going to continue to renew that. So we continue to see that. But I think overall, you have to look at the threat landscape and the fact that identity is really one of the -- compromised identity, it's really one of the #1 drivers of breaches, and customers are being -- are focused on being able to protect those identities, both in the cloud and on-premise, if you will, and there's a massive compliance need for something like ITDR. So we're getting the benefit from the platform consolidation piece, and we're also getting the benefit from having a very mature stack now. Not only can we prevent these sort of breaches with ITDR, but you include now Falcon Shield protecting SaaS identities. And then you kind of look at what we've done with our PAM offering. It's been very, very well received by our customers. So I think that's why you're seeing our opportunity to continue to grow there. And as I said earlier, we couldn't be more excited about the SGNL.ai acquisition that we just completed. Operator: Our next question comes from Brad Zelnick at Deutsche Bank. Brad Zelnick: George, Burt, congrats on a really strong finish to the year, an impressive ARR guidance out of the gate for next year, implying 22.5% net new growth, which is above your prior commentary and now off of even a higher base. After such a strong fiscal '26, this obviously stands out in a very good way. Can you talk about the building blocks that get you there and especially how to think about the renewal opportunity that you have visibility to and the expansion opportunity given just how much you can address today versus when many of those customers might have last transacted? Burt Podbere: Brad, thanks for your comments, and I'll give you an insight into how we thought about the guide. I mean first and foremost, it starts with the strong momentum that we're seeing in the business. We saw in Q4 broad-based demand from all sizes of businesses -- from all business sizes, whether it's enterprise all the way down to MSSPs. And then that rolled over into Q1 when we talked about the record Q1 pipeline, which grew 49% year-over-year. Then as George mentioned, CrowdStrike is thriving in this AI revolution. We are not only leveraging AI within the entire platform, but our platform also helps organizations use AI security, and that's the key. And then I think we're still benefiting from the consolidation tailwinds. Customers continue to seek the best outcomes at the lower TCO, which we [ help ] to provide. And the consolidation really comes from the strength of our platform. You look at cloud, Next-Gen Identity and Next-Gen SIEM collectively, we posted a record net new ARR, resulting in $1.9 billion in ending ARR, up 45% year-over-year. Now look at endpoint. That accelerated for the second straight quarter on the heels of AI-driven demand. And then you tag onto that the success that we saw in Flex. We added over 350 Flex customers in Q4. The average Flex customer ending ARR that was over $1 million, those guys have adopted nearly 10 modules well over our company average. And then re-Flex, we have greater than 380 re-Flex customers. The average time for our re-Flex is 7 months. 100 customers re-Flexed multiple times with the average ARR lift post re-flex for this cohort was 48%. These are really, really great numbers for us. And so you combine all those things and other things gave us the confidence to be able to come out with the guide that we came out with for that new ARR for next year. Operator: Our next question comes from Matt Hedberg at RBC. Matthew Hedberg: Congrats from me as well. George, I wanted to ask about pricing. Obviously, Flex and re-Flex is doing extremely well, but there's obviously a lot of concerns that I think we're all seeing out there about potentially fewer knowledge worker seats in the future due to AI. The flip side to that is way more agents. So I guess two-part question. First, how do you think about agent pricing? And second, how well does Flex position customers for this potential mix shift? And could consumption become a bigger element to the growth algorithm? George Kurtz: Well, when we look at the overall threat landscape and how we go to market, obviously, we protect endpoints and cloud workloads. You have to look at those in totality, but now we have the opportunity to protect AI agents, and industry stats is that each knowledge worker will have 90 AI agents. So even if the mix moves around, we have a massive opportunity to protect AI agents. We have a massive opportunity to protect all of these AI cloud workloads. And from what I've seen in different technology shifts, we tend to create more opportunity as technology advances, not less opportunity. So that's the way we would view that piece of it. In terms of Flex, look, it's been a smashing success. There's a reason why some so many other companies sort of copied our model or tried to copy it. Customers like it. You can see the success in the numbers, and it just makes it so much easier to help customers very quickly. You look at the acquisitions we did. They were available immediately to customers as soon as the deal closed and/or we went to a GA, but we didn't have to go through another procurement cycle. So that's really the model that we're leading with going to market this year, and we couldn't be more excited about it. And I think the Flex results speak for themselves. Operator: Our next question comes from Roger Boyd at UBS. Roger Boyd: Great. Can you hear me okay? Andy Nowinski: Yes, go ahead. Roger Boyd: Okay. Great. George, I want to go back to your comments on why you're best positioned to benefit from AI SOC. And I appreciate your comments around your approach of tech plus human expertise and the flywheel that creates, giving you an advantage in terms of operationalizing this technology. I think it's also maybe the lowest friction way for some enterprises to benefit from some of this emerging tech. And I guess with that in mind, what sort of growth are you seeing with some of the managed service offerings like completing Overwatch relative to the acceleration you're seeing in the overall endpoint business right now? George Kurtz: Yes. Those businesses continue to grow extremely well. And when you look at why, it's because we're getting the right outcome that customers need. One of the things that we track is mean time to detection, mean time to remediation. We are absolutely best in class for customers. Very difficult for them to replicate what we do. Why? Because it's the network effect, right? It's the full view that we see in over 176 countries where we actually have our software operating. So when you're at the tip of the spear in seeing the activity through our technology, the tip of the spear in responding to some of the biggest breaches in the world combined with our threat intelligence, you've got the right understanding and the right DNA to create the right technology and outcome for customers. So that's what we continue to see. Obviously, they're leveraging our technology, and we're providing the automation. But there are many, many customers who don't have the skills or expertise to get the outcomes that we provide, which is stopping the breach, identifying these sort of threats, remediating much faster than they ever could and ultimately giving them the best outcome for a cost that it's very hard to replicate. And that's why it's been a fantastic success for us. Operator: Our next question comes from Gabriela Borges at Goldman Sachs. Gabriela Borges: George, I really appreciated your description on what LLMs are not and as it pertains to the RLHF commentary. I want to ask you the opposite question. What do you think the role is of Anthropic in cybersecurity use cases, whether it's on the coding side or the pen testing side or even the data aggregation side? What role do you think they should have? George Kurtz: I mean, I guess, I'll talk just in general terms for LLM providers. And they're certainly good at a lot of things. You can help sort through lots of data very quickly. And it's something that the security industry and most security players are leveraging. In our particular case, we certainly leverage technology like that, but we've built our own bespoke models depending on the module and trained in a certain way, with the vertical expertise to get the right outcome. Here's what you have to remember, is that what customers want is real-time prevention. You have to be in line. You have to be able to get the data in milliseconds, and you have to make a decision. That's not the case with an LLM. There's many great things it can do, and it's certainly a fantastic technology, but it's not stopping any breaches in real time. And that's one of the areas, I think, again, where we shine. So from my perspective, we continue to work with them. We continue to partner with them and amazing technologies. And I think it really is going to be the better together approach as the industry goes forward. Customers want to leverage their own models. We leverage Nemotron with NVIDIA. It's an unbelievable time to be in tech, and you're going to have agents talk to agents and our agents talking to customer agents that are inside their network. But at the end of the day, as the platform system of record for security, this is where you want to be. It is a very sticky place. We create the data. We curate the data. And again, we want to be open and work with any of the models that are out there, and we want to meet our customers where they have AI and leverage their technologies as well as ours. Operator: Our next question comes from Todd Weller at Stephens. Todd Weller: Yes. Appreciate the question. George, this is the second quarter of endpoint acceleration. Can you talk about what's driving that, how you think about the durability of the growth acceleration? And then related to this, there's been a lot of action in the market recently around browser security. Do you see that as a new category or as an extension of endpoint? George Kurtz: Well, when you think about endpoint acceleration, it's a simple answer, AI. We've talked about it, and we're showing it in the results. And I mean one of the biggest things you look at -- OpenClaw comes out. Our customers immediately are looking at all of our technologies to be able to identify it, put controls around it and make sure that they can leverage these technologies in an efficient and compliant way. So that's where AI meets -- the rubber meets the road, is at the endpoint, and that's how people consume it. So that's where we're seeing it. And then you combine that with browser security. That's really the front door now for how people are interacting with AI models and LLMs and the various technologies that are out there as well as how threats get into the environment. So you combine that with our agent and the ability to have protection across any browser, not just ask an organization to switch their browser. We can protect any browser that's out there. We tie it into our identity stack. And I can tell you, the feedback from our customers, as soon as we made the announcement, they were looking at how fast can we get this technology because they know on our platform, it's going to be additive for them. And we're excited about the category and the great company in Seraphic that we acquired. Operator: Our next question comes from Dan Ives at Wedbush. Daniel Ives: Yes. It's a great, great quarter as always. I -- So George, I was going to say what -- when it comes to Anthropic and Claude and obviously all the worries out there and you hear in the Q&A., to some extent, can't this also be a huge benefit to you as it just further spreads the word and customers realize essentially what they don't have and you do have, especially with the Microsoft partnership at the same time? George Kurtz: Yes, Dan, as I said in my prepared remarks, AI is a tailwind for us. And I mean I take a simple approach, is will we have more AI in the next year or 2 or 5 years. And for me, the answer is absolutely yes. And if that AI is being deployed with AI agents, you're going to need protection. You're going to need something like AIDR. You're going to need identity security. You're going to need browser security. You're going to need compliance around this. And that's the way we look at it. And again, we leverage the technologies that are out there. Why wouldn't we? And we have our own unique IP and our own model. So we get the best of both worlds, and there's many things that customers are looking for in these workflows and sort of data curation and knowledge in the security industry that you can't just get from a general LLM model. So I've talked about this before, and it's a great opportunity to work together. And that's really what we're focused on. Operator: This concludes today's question-and-answer session. George Kurtz: All right. So thanks, everyone, for their time today. We appreciate your continued support and look forward to seeing you at our upcoming events. Thanks so much.
Steven Levin: All right. Good morning, everyone, and welcome to our 2025 results presentation. Before I start, we are all conscious with the very uncertain global political environment that we see, geopolitical environment. Across Quilter, our thoughts are with our colleagues and our clients in the Middle East right now. Let me get on to the results. I will start with a review of the year. Then I will cover our business highlights and talk through our flow performance. Mark will take us through the financials, and then I want to spend some time today talking about the growth outlook and the exciting opportunities that we see ahead. After that, we'll finish with Q&A as usual. I'm very pleased with our strategic and financial performance in 2025. We delivered another good year of strong profit growth from a very strong base in 2024. We saw excellent momentum in flows, taking market share in growing markets. Let me run through the highlights. Core net inflows were up a record -- to record GBP 9 billion, that's 75% higher than 2024. Our operating margin is at 30%, in line with our medium-term goal. Adjusted profit increased 6% to GBP 207 million that reflects higher revenues and good cost management, combined with increased investments. Earnings per share increased 4% to 11p and the Board has declared a dividend for the year of 6.3p, an increase of 7%. We've also announced the share buyback and a change in distribution policy, which Mark will cover later. Let's now drill down into the flows. This slide shows gross new business, outflows and net inflows for the last 2 years. New business flows on the left have continued to build momentum with sequential period-on-period improvement across both channels. Our flows in the middle temporarily picked up with a protracted speculation and uncertainty around the U.K. budget in November last year. But even so, we've seen consistent improvement in net flows on the right. And given the market share gains we achieved last year and the current level of net flows of around GBP 2 billion a quarter feels broadly sustainable. Our strong flows are no accident. It's the direct result of the strategic progress we've made. First, in distribution. We've delivered flows ahead of our targets. We've added to the number of advisers and adviser firms in our Quilter channel and we've increased their productivity. More than 100 advisers graduated from our academy, and they're now starting to build their books. In High Net Worth, we added investment managers and announced the acquisition of GillenMarkets in Ireland, building out our footprint there. Next, in propositions, our high-performing WealthSelect MPS is the largest in the market and is now on 6 third-party platforms. And early in the year, we launched smoothed funds with Standard Life. This is a unique product for clients nearing the accumulation or retirement. We've been working on our targeted support proposition, and I'll say more about this shortly. And in High Net Worth, we've added a private market proposition for those wanting alternative asset classes and a new decumulation offering for clients in retirement. In terms of becoming future fit, we've completed our simplification program, invested in our brand and progressed our advice transformation program. And we started rolling out AI productivity tools to advisers, as you will hear shortly. We've achieved a lot and we're doing it from a position of strength. We're already the U.K.'s largest single adviser platform and the fastest-growing of the large platforms. The vertical axis here shows gross flows of each platform in 2025. The horizontal axis is net flows as a percentage of opening assets and the size of the bubble is the total AuMA. We are clearly the largest and fastest growing. This gives us scale in a market where scale matters. Now what's especially gratifying is that we've been increasing flows onto our platform consistently month-on-month, year-on-year, as you can see here. The charts show cumulative monthly net flows with Quilter channel in green and the IFA channel in gray. As you can see, inflows onto the platform from the Quilter channel up 12% year-on-year, and net flows are around 18% of opening balances. Similarly, in the IFA channel, net inflows were up 92% year-on-year, and these are running at 9% of opening balances. The key to delivering results like this is providing a market-leading proposition to customers combined with excellent distribution, and that's been our focus over the last few years. Let's step back to 2020. Back then, we were only capturing around half the platform flows generated by Quilter Advisers. Following the successful migration to our new platform in 2021, we started focusing on adviser alignment and began reviewing the productivity of our adviser force and we streamlined where appropriate. As you can see on the top right, our adviser force is now smaller, more aligned and far more productive more than doubling the gross flows it generates onto our platform. In the IFA market, our focus since launch of our new platform was growing market share by deepening our share of wallet with existing relationships and winning new friends. And you can see the success of that in the black line in the bottom right, which combined with the improvement in total flows across the market has driven a trebling of gross flows over the period. There's also a slide in the appendix, which gives a helpful perspective of our performance against the market. So we've done well, and we've got real momentum, and we're continuing to invest where we see opportunity. There are 3 areas I'm focused on to drive our distribution even further. First, building the advice business of tomorrow. Our advice transformation program is giving advisers the tools to materially increase their productivity serving more customers and bringing in more new business. Quilter partner assets are also growing significantly, and these are assets that are both on our platform and in our solutions. Brand will also play an important role here. Second, on recruitment. We'll continue to add firms like the 6 we announced earlier this week, and the Quilter Academy will deliver a higher number of graduates this year. Our goal is for the Quilter Academy graduates to offset the natural attrition from adviser retirements so that all the recruitment into the advice business drives net adviser growth. Third, support. We'll continue to invest in the award-winning service and propositions which sit behind our platform and our solutions. This is key for our network and for the broader IFA community. Now let's turn to our Solutions business. We want to be recognized as the leading asset manager for advised flows. As you know, across the industry, we're seeing a move away from active management towards passive and blend solutions and a trend away from fund to funds towards MPS. That's reflected in what you see on the left. Our growth is biased towards our WealthSelect MPS as well as to passive and blend solutions with outflows in Cirillium Active. The regulatory environment is also encouraging advisers to focus on planning and to outsource investment solutions. And we've been clear beneficiaries of this. On the right, you can see our managed assets have increased from GBP 26 billion in 2023 to GBP 37 billion at the end of 2025. The strong performance and competitive pricing of our WealthSelect MPS means that it's now got over GBP 25 billion under management. It's recognized as the market leader and in direct response from requests from IFAs, it's now available on multiple third-party platforms. That means they can use it as their core investment solution across their entire client base no matter which platform those clients are on. Now to High Net Worth. Net flow growth improved year-on-year, and we continue to outperform our listed peers, as you can see on the left. We've broken down the flow picture by channel on the right-hand side, and you'll see good net flows from our own advisers in green. The more challenged picture from the IFA in the direct channel. This is generally a more mature book with higher natural redemption rates. It's also worth noting that the uncertainty caused by the pre-budget speculation was a notable concern amongst High Net Worth clients, which led to above-average outflows in Q4. This is a strong business with strong foundations, but we know it's got more potential. Over the last 12 months, we've made good progress. Advice and investment management permissions are now in a single entity. We've digitized a number of core processes, and we've launched a mobile app to provide a much better client experience. We've expanded our client solutions, and we've continued to deliver strong investment performance, but we still need to do more. So when John Goddard took over the reins in September, I gave him a clear mandate to grow the business. We are refocusing our distribution strategy across both our own advisers and the IFA markets. We've reviewed the fit of our own RFPs to deliver high net worth products and services more effectively, and we are realigning and rationalizing the team in some places. The advisers impacted by this change can explore options within our Affluent segment or exit the business. Once we've done that and enhanced productivity, we will grow the team. We're also leveraging our MPS capabilities. We're moving smaller-scale clients from DPS to MPS, which are more suited to their needs and come at a lower cost. This also frees up investment manager capacity, allowing them to concentrate on higher-value clients where discretionary solutions are more appropriate. We were the first U.K. retail wealth business to offer private market evergreen solutions, and we've led the way with decumulation offerings. It's important to offer a broader proposition range beyond the traditional DFM offering. We're aiming to attract a broader client base and as ever, distribution is the key. We intend to build a high-performance business. That means building out our digital capabilities, continuing to invest in proposition and distribution, and maintaining the strong client service and investment performance culture. We're working towards delivering mid-single-digit rate of net flows as a percentage of assets and operating margin in the mid-20s. Right. With that, let me hand over to Mark. Mark Satchel: Thank you, Steven, and good morning, everyone. Let me start by echoing Steven's comments that our business is in great shape. We delivered a strong financial performance in 2025. Let me give you my 3 key messages. One, we delivered revenue growth of 5% That included 7% growth in net management fees, partly offset by lower interest income on shareholder capital, which reduced revenue growth by around 1 percentage point. Costs are well managed and came in below our GBP 500 million guidance. We invested in initiatives such as our brand and Quilter Invest and absorbed higher national insurance costs. Our cost discipline and the remainder of our simplification initiatives contributed to 1 percentage point increase in our operating margin which has now reached 30%. And our balance sheet remains in very good shape. I'll cover the conclusions of our capital review later. Let's get into the details with my usual analysis of our P&L dynamics. Starting top left, net flows of GBP 9.1 billion were, as already covered, significantly ahead of 2024. Strong flows and positive markets meant that average AuMA was up 14%. Top right, you can see revenues grew 5% to GBP 701 million despite the impact of lower interest rates. Costs, bottom left, were up 4% to GBP 494 million, reflecting inflation and higher national insurance as well as planned business investment. As a result, adjusted profit increased by 6% to GBP 207 million. Positive [ draws ] gave an operating margin of 30%. We reported adjusted diluted earnings per share of 11p, an increase of 4%, with the difference in growth between EPS and adjusted profit attributed to a small rise in our effective tax rate. Now getting into the moving parts. Let's start with revenue margins, which are in line with guidance. On this slide, each chart shows the average revenue margin for the past 4 half year periods. The main point I'd like to draw out is the relative margin stability into the second half. In High Net Worth on the left, the overall margin was down 3 basis points from 2024, largely reflecting mix and changes to some fee structures. Touching on Steven's point earlier, in time, we expect the mix of DPS to NPS to result in a slight attrition in High Net Worth margin. That mix change will provide greater capacity for larger clients, which in turn will improve the operating margin. In Affluent, the year-on-year reduction in the managed margin largely reflected mix shift with Cirillium Active outflows offset by growth in MPS and other solutions, and this is in line with our previous guidance. I expect the managed margin to fluctuate around the low to mid 30s basis points level with the mix being the driver of movement. Given the success of our MPS solution, I expect that range to hold. And finally, our platform or administered margin was 23 basis points. Let's now turn to revenue by segment. Our High Net Worth revenues grew modestly. Higher net management fees and advice fees were offset by lower investment revenue with total revenue up 3%. In the Affluent segment, revenues grew 7%, a good performance. The main contributors were higher net management fees on both administered and managed assets and a stable contribution from advice fees. Turning now to costs. I'm pleased to report that while total costs increased 4%, that was lower than revenue growth, giving us positive operating leverage for the year. The waterfall on the right summarizes the main cost changes year-on-year. Increases came from inflation, higher national insurance and regulatory levies and the investments we've made. And these include bolt-on acquisitions such as MediFintech, brand building activities and the money needs a plan campaign, continued support to grow and develop Quilter Invest in the Quilter Academy as well as costs associated with cyber and technology functionality. Reductions principally came from our simplification program which I'm pleased to report is now completed, and I'll touch more on that shortly. With our large transformation programs now complete, many of you have asked how we expect our cost base to evolve. As a people and technology-focused business, the main drivers of our cost base are linked to salaries and technology contracts. So I previously guided to inflation plus a few percentage points. We do, of course, remain vigilant on costs and continue to focus on effective cost management to provide capacity for reinvestment in revenue-generating activities. Looking to 2026 with a significant growth opportunity ahead of us and the returns we have already seen, I expect the business to invest a bit more to support the growth opportunities we see for our business. These include costs associated with acquisitions, including GillenMarkets in Ireland. We plan to develop Quilter Invest proposition further, including targeted support. We will continue to grow the Academy to add new financial advisers. We expect to spend a bit more on technology, including AI capabilities, and we do intend to build our brand profile and we'll continue with the marketing campaigns that we kicked off in 2025. As some of this investment started in the second half of 2025, that level of cost run rate is a reasonable base to add inflation on to. And on the far right of the slide, you can see the first half versus second half cost split. So in terms of thinking about the outturn for 2026 costs, I would take the second half level, double it and add around 4% or so for inflation. That would get you to a figure somewhere between GBP 530 million to GBP 540 million, which seems a sensible base for your models with the actual outcome likely to be managed with an eye on market-sensitive revenues. I'll provide further updates on our cost expectations at the interims. I should underline that the current rate of investments, excluding acquisition activity, won't increase to this extent every year. And our longer-term guidance of inflation plus a few percentage points remains unchanged. While on the topic of transformation, I wanted to take a step back and reflect on what we've achieved with our cost programs since listing in 2018. Since then, we've done a huge amount. I won't run through it all and you can see it here on the slide. With savings coming across the business, particularly in the technology, estate, operations and support functions, while we've continued to invest in revenue generation opportunities. In total, we've delivered over GBP 160 million of savings. And this has enabled the operating margin we report today. And importantly, it also provides the foundations for efficient and disciplined growth as we continue to scale. So putting the segment revenues and group costs together, this slide shows the segmental contribution to group profitability. Affluent profit showed a healthy 14% increase to GBP 169 million, and High Net Worth delivered profit of GBP 47 million, broadly in line with the prior year. The operating margin declined marginally in High Net Worth, but improved by 2 percentage points in Affluent. As you've heard before, this part of our business is very scalable. So there's scope for further improvement here. Now let me turn to the balance sheet. As you'd expect, we've maintained a strong solvency ratio and cash position. You'll recall that last year, we raised a provision of GBP 76 million in relation to potential remediation for ongoing advice. We have now started our remediation program. And based on our current expectations of expected remediation and administration costs, we anticipate that this cost -- that this will cost us some GBP 20 million less to complete than we originally anticipated and we have, therefore, reduced the provision by this amount. You can see that come through as a positive contribution to the Solvency II ratio. Together with the utilization of the provision during the year, the provision balance at the end of 2025 was GBP 42 million. More broadly, the solvency ratio reduced marginally over the period, largely due to regular dividend payments and our proposed capital return, which I'll come to shortly. In terms of cash, you'll note the capital contributions into subsidiaries where we capitalized our regulated advice business to cover both the original GBP 76 million ongoing advice remediation provision, and provide funding for modest acquisitions to support our advice and high net worth businesses. The subsequent GBP 20 million provision release from the remediation provision is not reflected in the cash position and will be netted off against future capital contributions into the advice business. On the right, you can see we've got around GBP 270 million of cash available after payment of the recommended final dividend and the proposed buyback. That leaves us with a good buffer to cover contingencies, liquidity management and business investment while retaining balance sheet optionality. So our balance sheet is in good shape. The Board has recommended a final dividend of 4.3p per share, given a total dividend for the year of 6.3p, an increase of 7%. That was modestly ahead of earnings growth with the payout for the year at the midpoint of our current dividend payout range. The total cash distribution for the year was GBP 85 million. This next slide sums up our revised approach to capital allocation. Going forward, we plan to return 70% of adjusted post-tax, post-interest earnings to shareholders. And the other 30% will be retained to support growth, including funding bolt-on M&A as well as investments supporting business growth and development. Of course, we'll keep the amount of capital we have under review. If we do build up further excess capital, we will, of course, consider additional one-off shareholder distributions. As well as the distribution policy, the Board's capital review also looked at our stock of capital and concluded that given the strength of our balance sheet, we currently have around GBP 100 million of excess capital over and above what we are likely to need for the foreseeable future. So we'll return this to shareholders through a share buyback, which will start as soon as practical and which we anticipate will complete before year-end. And given the strength of our business, coupled with this high cash generation, we intend to switch from a dividend payout policy to a distribution policy. From 2026 onwards, we'll distribute around 70% of post-tax, post-interest adjusted profits to shareholders. Within this, we expect to see progressive growth in the ordinary cash dividend in sterling terms which, together with the reducing share count from share buybacks, will lead to progressive dividend per share growth. And starting from our 2026 full year results in March 2027, alongside the final dividend announcement, we'll also set out the amount of any buyback for the year. The buyback will represent the difference between the 70% distribution target and the dividend cost for the year. The interim dividend will be paid in cash and in normal circumstances, I expect this to represent 1/3 of the previous year total cash dividend measured on a per share basis. So for 2026, you should expect an interim dividend of 2.1p per share. Let me conclude with our usual guidance slide. Our expectation is for the operating environment to remain constructive and our margin guidance is unchanged. I spoke earlier in detail about cost expectations for the remainder of the year and dividends, distributions and capital I've already covered in detail. So let me finish by summarizing my 3 key points from our results. First, we delivered solid growth in overall revenue despite a lower interest rate environment. Second, costs are well managed, even as we stepped up the investment for future growth. And thirdly, our balance sheet remains in good shape which has given us the scope to announce the capital return plans I've set out today. And with that, let me hand back to Steven. Steven Levin: Thank you, Mark. I'm now going to talk about the opportunities that we see. We've successfully established the leading position in the advice market, and we're continuing to grow our market share. Furthermore, the market is growing driven by a need for advice in an increasingly complex tax environment, the need for individuals to invest more for their retirement and the demand for financial planning to minimize tax leakage on future intergenerational wealth transfer. As you know, there is a fundamental supply-demand imbalance. There simply aren't enough advisers to meet the overall need. Let me share some data that we've collected from Boring Money to give you a perspective. Our current adviser market is the circle on the left, around GBP 1 trillion of assets across about 4 million people. That's an average investment portfolio of around GBP 240,000. Beyond this, in the advice gap, there are a lot more people who need our help. We need to turn a nation of savers into a nation of investors. There is significant excess cash sitting in the banking system, generating subpar returns and being eroded by inflation. And there's a huge amount of wealth that will be transferred down the generations over the next 20 to 50 years. Work by Boring Money suggests they are around 12 million people with over $800 billion in assets who are currently unadvised and have got low confidence around investing. They need help, and that's the circle on the right. While the average wallet size across this portfolio is about GBP 90,000, that's smaller than our typical advise clients, they're also younger and still accumulating, so they have good long-term growth prospects. Policymakers have woken after the scale of the problem. Their response has been targeted support and a national advertising campaign on the benefits of investing. Both of these are constructive steps. We want to be recognized as a customer champion. A big focus is on breaking down the barriers to brighter financial futures for customers and unlocking the potential of their money. We believe advice and support is key to that. On the left-hand side, our customers with less complex needs that can benefit from prompts and edges from guidance and targeted support to help them make better decisions with their money. And as we move up the complexity spectrum, in the future, we expect simplified advice to reach more clients and at the far end of the spectrum, those customers with the most complex needs will continue to seek holistic personalized advice. With an additional 12 million potential customers, this is a huge market. At its heart, is the need to deliver better outcomes for customers and for society. And Quilter can be a home for clients throughout their financial life cycle from targeted support to simplified to full financial advice, and clients can move up the curve as and when it's relevant for them to do so. Importantly, we believe the role of advisers will remain critical for customers who recognize the value of having a personalized financial plan. There's been a lot of debate in the market recently about the role of AI in advice. Our view is that AI has an important role to play in making advisers materially more productive. But what AI won't do is remove the need for advice. Here's why. First, navigating the U.K. financial landscape is challenging. Each individual is different and most clients don't have the time or confidence to do it themselves, it is very complicated. The U.K. has an incredibly complex tax and pension system that changes on a regular basis. While AI may be able to provide the answers to basic planning questions or provide simple investment advice, when it comes to more complex situations, long-term tax planning, it's completely reliant on the individual knowing the right questions to ask. The role of the adviser is to help clients through the complexities of U.K. income tax, inheritance tax, trust and legacy planning and to provide the reassurance and help to make -- to let clients take actions at the key moments of their financial lives. Clients want the empathy and the coaching that an adviser provides. The more complex or vulnerable their financial situation, the more they want the help of a trusted experts. That human personal relationship and the trust that underpins it is something that AI just can't replicate. Critically, we give a regulated financial advice. This gives customers comfort and strong protections. With AI tools alone, there is no comeback. So how are we going to build on the power of AI for our adviser capabilities? We need technology and AI tools to deliver the propositions and the services needed at scale, and we need a strong brand that's recognized as a customer champion. Let me start with technology and AI. Advisers are crying out for tools that will make them more effective. The stats on this slide summarize some recent research by Next Wealth. Frustratingly, advisers say only 1/3 of their time is actually spent with clients. More than half of advisers say site compliance and regulation as their top challenge. They want streamlined compliance, automated onboarding and better system integration. Nearly half believe AI will positively impact their workload. We agree. So we spent the last 2 years working with advisers to deliver a solution to them to meet this need. As you know, driving up adviser productivity is something we've been working on for years. It started with ensuring adviser alignment and back book transfers. We've now rolled out market-leading AI tools, and I'll say more about this in a moment. The next part is a brand-new end-to-end adviser support system that we're in the final stages of development work with FNZ. It includes further AI capabilities. The aim is to help firms run more profitably, advisers to work smarter and service more clients for clients to have a smooth, intuitive digital advice experience. Our new technology will be all encompassing. We're already rolling out some of the elements ahead of full implementation in early 2027. The goal is full end-to-end technology integration between our platform and the tools that the advisers need to avoid them having to repopulate data fields across applications and allow seamless client data management. We see 3 high-impact ways in which AI will support further growth in our business. First, in enhancing productivity. We've already rolled out an AI solution for advisers that allows them to record, transcribe and summarize meetings and actions, work that took hours now takes 10 to 15 minutes. We expect it to materially expand adviser and paraplanner capacity over time, helping generate additional flows onto our platform and into our solutions, which is where we make our money. Secondly, improving client and adviser engagement through next best actions, client reporting and portfolio insights, helping advisers and investment managers to have higher-quality conversations; and thirdly, operational and process redesign, reducing the steps in the process and speeding up fulfillment while reducing operational costs. These tools will also enhance risk management by making compliance file checking and adviser oversight a lot faster. And a more efficient advice network brings greater scalability and operating margin potential. Of course, we've done all the testing and the research to make sure the systems we're giving to advisers are robust and their client data is safe and secure. Investment in AI is therefore critical to us, and it's incorporated in the guidance that Mark set out earlier. Let's now turn to brand. As we move to a world of digital delivery, it's important that the market knows who we are, and most importantly, what we stand for. So we're investing in the Quilter brand. We launched our brand awareness campaign late last year in conjunction with Quilter Nations series. The strapline is money needs a plan and the feedback has been extremely positive. This is the first step in what is a multiyear effort. We want Quilter to build on our position as a leading adviser brand to being a trusted consumer brand focused on retirement, advice and savings and investments. And ultimately, we want to be recognized as a customer champion. Let me return to our business growth plans and draw things together. Our 3 key profit drivers are platform, solutions and high net worth. We have clear goals for each, which I've summarized on the left. We know exactly what levers we've got to pull to enable us to deliver on them, and I've set these out on the right. Collectively, these will sustain our growth, deepen our competitive position and drive our operating leverage. So to conclude, we're really pleased with our performance in 2025, and we've started 2026 with strong momentum across our business. The messages I'd like to leave you with are: we operate in a large, fragmented and growing market helping us deliver sustainable growth. And there's a new nascent market opportunity that could be significant in time. Our propositions and the breadth of our distribution are both market-leading and they're delivering strong inflows. Our platform and solutions business allows us to generate scale efficiencies and operating margin progression. And through investment in technology and AI tools, we'll be able to augment these existing strengths to meet customer needs across a larger market and deliver faster growth over time. That's why we're excited about the future. All right. Let's open up for questions. We've got a mic in the room, and we'll go to the room first. Jacques-Henri Gaulard: Jacques-Henri Gaulard from Kepler Cheuvreux. The question is on cost. The way you've looked at your '26 guidance looks more like a multiyear program and don't view that negatively at all. It's more you're growing market share. It's working very well. You're going to need to invest probably more. Is there a section of your cash flow of your liquidity that you've just mentioned that you would dedicate the same way that you're dedicating part of your profits back to shareholders? I think it's a very important point because it's a bit ignored in the industry right now. Mark Satchel: Look, I mean, it's included within the overall guidance I provided. I'm not sure if you mean sort of part of the sort of the capital piece of it. I mean most of our costs -- capitalized are very little cost. So most of our costs, we expense as we incur them. So it's kind of driven through the P&L rather than necessarily through certainly the investment that we're making and that sort of stuff. When you look at our balance sheet, we've got very little capital builds up in IT and software development and that sort of stuff. Virtually everything is expensed. So the way that I like to or prefer to treat it is through the P&L, get it all out when it's incurred. Provides better flexibility later on. You don't have a recurring depreciation charge and things like that. So that's how we tend to look at it. But the reason why I've typically guided to inflation plus a few percentage points is there's a few percentage points are already there for that sort of stuff. And in different years, it will be different things and those sort of things. This year, it's sort of it's a slightly higher amount than normal. But if you think about it in overall terms, I mean, effectively -- and maybe if I sort of just maybe just a bit of a broader question on the cost side. I previously guided that I expect our costs to increase by inflation plus a few percentage points. Inflation this year for us is about 4%. That's what our salary increases are on average, et cetera, et cetera. You had a couple of percentage points of that you get into 6 percentage points. The actual guidance I provided today is the same as 8%. So it's really 2% higher than what my previous guidance has been in any event. 2% in our world is about GBP 10 million. And of that GBP 10 million, about half of it is in things like targeted support and Quilter Invest and the investment we're making there. The other half is kind of split between some of the acquisitions we made, so that's more inorganic add-on and a bit more going towards brand build and some tech investments. I mean in the grand scheme of things in pound million terms, it's relatively small amount. Unknown Analyst: Thank you. Three questions. The first one, just to clarify on the new dividend policy. You said that it will grow in absolute terms. Is that on both the per share and a total pound basis? The second question, you mentioned the opportunity in targeted support and simplified advice. Is it possible to give us a sense of where you think the margins on that may land and how long it will take to show in earnings? And the last question, you've had impressive growth in your NPS range in recent years. Any thoughts on competitors entering the market, for example, Vanguard willing to launch a low-cost product... Steven Levin: You take the first question, I'll take the other 2, Mark. Mark Satchel: First one very quickly, per share. Steven Levin: So in terms of targeted support and the margins, so one of the key things about the targeted support solution is that it will be Quilter-based funds. So actually, the margin should be pretty good because we'll get a platform margin, and we will be using our core Quilter Investment solutions. So that's good. It is -- you sort of asked about what would it do to earnings over time. I think one's obviously got to recognize it's a small business that's going to take time to build out and to grow out, and we've obviously got a very substantial business in our advice space. So I think it is going to be -- it is going to build out over time. And we look at this market and sort of say the targeted support market over the next 10 years could be very exciting. There's obviously not going to -- it's not really going to move the dial from a profitability perspective in the next 1, 2, 3 years. But from a flow perspective, hopefully, it will start picking up. And on a medium-term view, we think it's very important, but it should be a good operating margin business. In terms of MPS, our MPS range, WealthSelect is absolutely market-leading. It has got 12 years of first quartile investment performance, a phenomenal track record with a consistent investment philosophy, team approach, et cetera. I think we're quite a formidable competitor. You can see the growth that we've got. We also have -- our MPS is also very broad in terms of its options, possibly the broadest in the market. We've got -- we actually got 56 different portfolios within WealthSelect across different risk profiles, active blend, passive, responsible, sustainable, managed solutions. So a lot of people are coming up with they're launching quite simple offerings. We are very holistic in terms of the support we can provide advisers. And finally, the reporting and tools that we've got around WealthSelect are absolutely market-leading. So we're very comfortable that WealthSelect is in a very strong position and will continue to perform incredibly well. Yes, James. James Allen: James Allen from Berenberg. Could I ask 2 questions. First one, you've obviously done a really good job over the last 2 or 3 years of revamping the business, particularly in Affluent. But playing devil's advocate looking forward. So in revenues, you've still got the investment revenue drag from interest revenues coming down, interest rates coming down. The cost savings plan has now played out and the upsized shareholder returns policy is now out there in the market. So I guess if you're a new investor, where is the scope for outperformance going forward? Second question, just on the private market solutions. There's obviously been a lot of noise in the U.S. over the last few weeks around the kind of duration mismatch between wealth investors in stuff like private credit and real estate funds, which obviously have a much longer duration in their time horizons from an investment perspective. How do you plan to manage that, particularly around kind of redemption windows and things like that? Steven Levin: Sure. Thanks. So I think the first thing that is about our Affluent business is our business has got incredible operational leverage. I mean we have, as we've said before, both our platform and our asset management business, we can add a lot of extra assets without adding much in terms of extra cost to our business, and that will continue to drive strong profitability, and we would expect to see the Affluent operating margin continue to rise over time. So I think that is what is going to drive the sort of future upside as we talk about. The other thing is the size of the market and the size of the opportunity. I mean we've built up a significant market share. We still are focused on driving up our market share even higher and we believe we can. But actually, we look at the market and say we actually really see that the size of the market is continuing to increase. There's reports from independent companies who look and analyze the platform market, looking at the growth, Fundscape data on how much they expect the platform market to grow, for example. It is the place where people have to save and invest. We've got a nation, as I've talked about, of people who are oversaving and underinvesting and that is starting to change. We've got a nation where people have got to take more responsibility to look after themselves. The age of defined benefit pension funds is over. The contributions that people are typically making in this country into pensions through workplace arrangements is too little to reach appropriate replacement ratios. So this is a nation that's got to invest more, and we are incredibly well placed to do that. We are seeing improvements there, but there's more work to be done, including across all the industry, including with some of the government support. But I'm really pleased because we've got the dominant market share position in a business that's highly scalable, and we're going to continue to do things to make our business obviously more efficient. But I think there's a huge amount of upside for those reasons. Your question about private market solutions. So we've launched private market solutions. Ours are focused on private equity, not private credit. They have liquidity options. You are able to take money out in -- you have to give notice and you can take money out. There's a small 5% discount if you withdraw. But liquidity is managed. It's an evergreen solution. So we think it is appropriate. Obviously, we're not recommending clients to put large portions of their money in it. So you put sort of 5% of your portfolio and things like that. And now it is only appropriate for clients in our High Net Worth business, but it's something they have been asking for. And it's not obviously for every client, but we think it is a very attractive sort of thing to have in our toolkit. Yes, David. David McCann: David McCann from Deutsche Bank. Just 2 for me. Steve, maybe interesting remark, and obviously, we've seen it through the increased marketing that they want to resonate more with consumers rather than just advisers. Obviously, the business has come very much from an adviser-driven background. At what point does this potentially cause some kind of internal conflict in the business, particularly with the advisers if you are going down in more of the consumer channel for the reasons you've articulated around targeted support and so forth. And I guess what gives you the right to win in that area when there's a very well-established direct-to-consumer marketplace out there? And the second question, probably for Mark just more of a technical point here. You mentioned inflation exponation at 4% a number of times. Obviously, market expectations are close to 3% for that number. So I just wondered what is driving the 4% forecast for inflation rather than sort of the more market consistent 3-ish. Steven Levin: Thanks, David. Mark will enjoy that question. The -- so in terms of brands, so actually, advisers are very supportive of what we are doing in the brand. It helps them and the advice -- the brand campaign as you'll see is about money needs a plan. It is about people needing to have a plan. So it's very constructive towards advice. The plan doesn't only obviously need an advice, you need an adviser. You can do some of these things with a bit of targeted support. That's why we put those words quite carefully, but that still is a plan. You can't just sit and expect your money sitting in cash to perform for you. The -- we are not, though, looking to go and create a D2C business, just to be clear. We are working with advisers. Our targeted support proposition is about -- I talked about how clients can move through that spectrum. We've talked about how we're using targeted support, in particular through Quilter Invest to work with advisers to incubate clients for the future for them and things like that. So we're doing it very much in a way that is working to our advice core. I think that's one of the strengths that we have. Clients can start in that journey. And then if they need help, we've got one of the strongest adviser businesses and based on penetration in the IFA space to help them along the way. So that's how we look at it. We look at it as absolutely complementary and that is consistent with the feedback that we're getting from advisers as well. Mark, do you want to take the inflation question? Mark Satchel: No. David, thank you very much for that question. Just on the inflation, look, every report that we use to look at our own workforce inflation, which is about 60% of our cost base is salaries probably from about August last year was closer to 4% than it was to 3%. And that's why I'm using our numbers. It's about 4%. 4%, you'll see when our annual report comes out. This is what we're saying is the sort of average salary cost increase of our workforce across our business for this year, going from 25% to 26%, I'm referencing 4%. Using our numbers, that's what I'm getting it from. Steven Levin: Other questions in the room? No. Should we go to the lines or the web? John-Paul Crutchley: Yes. I think we just have nothing on the lines at the moment. We have one at the moment on the web from Mike Christelis at UBS. A 2-part question, one of which you partially answered, but he says, can you provide an update on New Wealth, Quilter Invest and the strategy for that business, which we've touched on it, but maybe I just want to just reinforce the points there. And then he also asked, how has the launch of the smooth managed fund being received by advisers? Steven Levin: Sure. I'm happy to take those. So Quilter Invest, the key thing that we're doing there is we are getting targeted support permissions for Quilter Invest. That is the business that we will be entering the targeted support market in. Those regulatory applications that just opened this week, and we submitted our application to be registered and authorized by the FCA to provide targeted support. So that's what we're doing and working on Quilter Invest. We're continuing to enhance the proposition and to gear up for that. We've built the capability now to do that adviser incubation that I've previously talked about. So advisers can refer clients to Quilter Invest. They can then track those clients and they can see what contributions they make. When those clients want to press a button, I want a bit of help, they go straight back to that same advisers, introduce them, et cetera. So that's the sort of stuff that we've been doing in Quilter Invest, both through our sort of adviser incubation strategy and as we're leaning into targeted support. And then the smooth managed fund that's only just very recently been launched. It was launched in January. And the feedback from the market has been very positive, but these things obviously do take a bit of time. You got it out there. We're doing -- our team out there doing lots of sales presentations and explaining the funds to advisers. It is a lot more transparent than some of the other smoothed managed funds out there, which I think has been very well received by advisers. So we're optimistic about the future there. John-Paul Crutchley: We've got a call on the line from Gregory Simpson from BNP Paribas. Steven Levin: Go ahead, Greg. Operator: We have a question from Gregory Simpson. Gregory Simpson: Just 2 questions. Firstly, on targeted support. I'd imagine a lot of the assets in bank accounts and workplace pensions. And so I'm wondering if you can outline how you access the 12 million adults if you're not a bank or workplace pension provider and don't have that direct relationship with what might be quite unengaged customers. That's the first question. And then secondly, just on AI. Do you think there's an opportunity on Quilter's own cost base from leveraging AI. There's GBP 220 million or so base costs, a lot of support staff. And you talked about inflation plus cost growth in the medium term, but why couldn't that be better if you can leverage AI to sort of manual processes? Steven Levin: Sure. So in terms of support, there is a few things to say. It's obviously a very big market. We think that there are lots of different companies that are going with different strategies. I'm sure the banks are going to participate in the targeted support market as well. But we don't look at this and sort of think there's only one model that is going to work. We've got a different model to the way I think some of the other players are going to participate through our close tie and link with advisers. And we think that gives us a really interesting angle. We are also working in our -- we've got a workplace channel as well, where we do provide support in workplaces and targeted support will also be used there. So we have got a range of distribution strategies, and we think it is an exciting market that there's going to be a lot of people that participate in it and a market of 12 million people is a significant market. In terms of the AI -- the cost base and AI, we are obviously looking at and we are implementing AI solutions across our business. We're implementing things in our call center, in our back office, in various of our -- in our middle office functions, which will look to improve productivity, reduce cost and improve efficiency, et cetera. So we will -- we are looking to things like that. We haven't changed our cost guidance as a result. But obviously, we are looking to make sure that we run our business as lean and efficiently as we can, and AI is one of the tools that we are deploying. Do you want to add anything to that, Mark? Mark Satchel: I'd probably say, Greg, look, I think there is potential in time from getting cost reductions coming from AI efficiencies. But I think given the relative immaturity of all of that at the moment, it's still a little early to actually sort of pinpoint sort of precise numbers or targets or anything else like that on it. I think it's something that will play out in the more medium term rather than having sort of a more short-term impact right now. Steven Levin: Okay. I think we're done. Thank you, everyone, for your time.
Operator: Good afternoon. Thank you for attending the Accel Entertainment Fourth Quarter 2025 Earnings Call. I would now like to pass the conference over to your host, Scott Levin. You may proceed. Scott Levin: Welcome to Accel Entertainment's 2025 Fourth Quarter and Full Year Earnings Call. Participating on the call today are Andy Rubenstein, Accel's Chief Executive Officer; Mark Phelan, Accel's Chief Operating Officer and President, U.S. Gaming; and Brett Summerer, Accel's Chief Financial Officer. Please refer to our website for the press release and supplemental information that will be discussed on this call. Today's call is being recorded and will be available in the Investor Relations section of our website under Events and Presentations. Some of the comments in today's call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties. Actual results may differ materially from those discussed today, and the company undertakes no obligation to update those statements unless required by law. For a more detailed discussion of these and other risk factors, investors should review the forward-looking statements section of the earnings press release available on our website as well as other risk factor disclosures in our filings with the SEC. Any projected financial information presented in this call is for illustrative purposes only and should not be relied upon as being predictive of future results. The inclusion of any financial forecast information in this call should not be regarded as a representation by any person that the results reflected in such forecasts will be achieved. During the call, we may discuss certain non-GAAP financial measures. For a reconciliation of the non-GAAP measures as well as other information regarding these measures, please refer to our earnings release and other materials in the Investor Relations section of our website. Following management's prepared remarks, we will open the call for a question-and-answer session. With that, I would now like to introduce Andy. Please go ahead. Andrew Rubenstein: Thank you, Scott, and good afternoon, everyone. Accel delivered a strong finish to 2025. We closed the year with record financial results, continued operating momentum, new growth opportunities, and an enhanced balance sheet. In the fourth quarter, total revenue increased 7.5% year-over-year to $341 million, and adjusted EBITDA grew 19% to $56 million, both all-time quarterly highs. For the full year, we also generated records in revenue of over $1.3 billion and adjusted EBITDA of $210 million. These results reflect the resilience of our distributed gaming model, growth from our new acquisitions, and our disciplined operating measures and capital deployment. We ended the year supporting more than 4,500 locations and nearly 28,000 gaming machines nationwide, demonstrating the breadth and durability of our platform and its predictable revenue profile. In Illinois and Montana, we continue to optimize our footprint and terminal base, driving steady hold per day improvement and margin expansion. Illinois remains our largest and most established market, and we continue to execute on our strategy to improve unit economics and expand margins through disciplined deployment and route optimization. We are excited by and are closely monitoring developments in Chicago, following public announcements regarding the introduction of video gaming terminals in licensed establishments. As the leading operator in Illinois, we believe Accel is uniquely positioned to participate meaningfully. Our existing regulatory relationships, operating infrastructure, route management capabilities, and strong financial position provide a clear advantage in our ability to service and scale this market quickly and efficiently with our existing platform. As we discussed in more detail in our January 8, 2026, press release, the city estimates 2,500 new locations in Chicago over the long term. We view this as a highly attractive opportunity that would enable Accel to further leverage its fixed cost structure and generate incremental returns at compelling margins. As always, we will remain focused on disciplined execution and creating long-term shareholder value. Turning to our developing and strategic growth markets. We continue to generate positive momentum. In Nevada, terminal count increased 13% year-over-year for the fourth quarter, supported by recent strategic and accretive route expansions. We are encouraged by the trajectory of new placements and believe the market is positioned for steady improvement. After adjusting for the stub period in 2024, Louisiana revenue increased significantly in the fourth quarter. We continue to execute our bolt-on acquisition strategy and optimize the Toucan Gaming platform. Louisiana remains a priority market for consolidation with many tuck-in opportunities that clearly fit our return thresholds. We are well-positioned as a buyer of choice. The market currently has a good pipeline. Nebraska and Georgia delivered strong growth both quarterly and on a full year basis, demonstrating the ongoing expansion and increasing leverage of our operating platform as these markets expand and develop. As our density increases, we expect continued profitability to follow. At Fairmount Park Casino & Racing, we completed our first full racing season and ramped up our casino operations following the April 2025 opening. Customer engagement has been healthy and monthly performance has continued to build as consumer awareness increases. We continue to evaluate the timing and scope of future development phases. As we have highlighted in the past, in addition to being an attractive standalone business, Fairmount diversifies our revenue mix and provides operating flexibility. Reflecting our commitment to shareholder returns and our belief that Accel represents an attractive long-term investment, we repurchased approximately 3.8 million shares of common stock during 2025, including 1.5 million shares in the fourth quarter. Our capital allocation framework, which includes our $300 million revolving credit line, remains disciplined and return-focused, balancing organic investment, bolt-on, and other strategic acquisitions, balance sheet strength, and opportunistic share repurchases. As we look ahead to 2026, our priorities remain clear: drive steady organic growth in our core markets, scale profitability in developing and new markets, execute accretive tuck-in acquisitions, and consistently convert earnings into free cash flow. Before my closing comments, I want to touch on our February 2 press release regarding the leadership transition. As we shared, I've stepped into the chairman role effective immediately, and in August, I'll transition out of the CEO role as Mark takes over day-to-day leadership of the company. This new role gives me more flexibility to leverage my local and national relationships to help Mark and the Accel team capitalize on the attractive growth opportunities in front of us, including expanding into the Chicago VGT market. I'm excited to keep working closely with Mark as we continue to profitably grow Accel. With that, I'll turn the call over to Mark, to review our operations in more detail. Mark Phelan: Thank you, Andy. From an operating standpoint, 2025 was a year of steady execution across each market with continued focus on route quality, service performance, and targeted investment. In Illinois, our team focused on improving location mix, redeploying underperforming assets, and concentrating investment into higher-yielding gaming machine placements. That work continues to drive steady improvements in revenue per machine and overall margin performance, even though it means we largely maintain flat location counts. The rollout of Ticket-In, Ticket-Out technology in Illinois is progressing as expected, with 81% of Accel locations having all gaming machines fully TITO-enabled. While still early in the penetration cycle, TITO is expected to enhance player convenience, provide benefits to Accel in terms of streamlining cash handling, and improve overall operating efficiency. As adoption continues to increase, we believe it will contribute to both revenue stability and cost improvements. Montana continues to benefit from our proprietary content and systems. The strength of that market is not just stability, it's predictability. Our teams there continue to refine gaming machine placement strategy and leverage our in-house technology to support profitability per location. Additionally, our Grand Vision Gaming wholly owned subsidiary continues to develop new content, which allows us to enhance margins through exclusivity, as well as lower our CapEx and increase free cash flow. In Nevada, the focus has been integration, expansion, and operational alignment. During the quarter, we completed the accretive acquisition of Dynasty Games, which added 20 locations and approximately 123 gaming machines across northern Nevada. This transaction expands our footprint into several new communities and further strengthens our route across the state. During the quarter, we also entered into a new route partnership with Rebel Convenience Stores, which adds 55 locations and 424 gaming machines across southern Nevada, starting in January of this year. We leveraged our deep capability across our national teams to accomplish this arduous deployment in only 6 days. The Rebel rollout demonstrates our ability to efficiently launch new locations across markets, including new markets like the City of Chicago, so location owners can begin offering gaming entertainment to their patrons as soon as possible. Accel's Nevada operations now deliver state-of-the-art gaming and technology solutions to more than 600 locations, supporting approximately 3,000 gaming machines. The integration of Toucan Gaming in the Louisiana market has progressed well, and our field teams have been focused on route optimization, gaming machine refreshes, and disciplined bolt-on acquisitions. The pipeline for acquisitions remains healthy, and we're confident in our ability to continue consolidating attractive opportunities that fit our return profile. At Fairmount Park Casino & Racing, our operational teams completed a full racing season while continuing to ramp casino performance following the April 2025 grand opening. We've gained valuable insight into customer behavior, marketing effectiveness, and operating cadence, which is informing how we approach future development phases. Importantly, we are seeing consistent month-over-month engagement growth as awareness of the park builds. Across all markets, our operational approach remains consistent: prudent capital placement, service excellence at the location level, data-driven decision-making, and strong local relationships. That operating discipline is what underpins our financial performance and supports our ability to generate growing free cash flow. With that, I'll turn the call over to Brett, to review the financial results in greater detail. Brett Summerer: Thank you, Mark, and good afternoon, everyone. I'll begin our fourth quarter results and then provide additional detail on our full-year performance on the income statement, cash flow, and balance sheet. As Andy mentioned, for the fourth quarter, total revenue increased 7.5% year-over-year to $341 million, the highest fourth quarter revenue in the company's history. Growth was driven by continued strength in our core markets, incremental contributions from developing markets, and the continued ramp at Fairmount Park. Adjusted EBITDA increased 19% year-over-year to a record $56 million. Importantly, adjusted EBITDA grew meaningfully faster than revenue, reflecting expense discipline and operating leverage across the platform. As our network grows, we continue to see margin expansion driven by route optimization, density improvements, and cost discipline. Operating income for the quarter also improved year-over-year, reflecting both top-line growth and stable overhead. Net income for the quarter was $16 million. As noted in the press release, results benefited from a $0.6 million gain related to the change in fair value of contingent earnout shares compared to a $3 million loss in the prior year period. Excluding this non-cash mark-to-market item, underlying earnings growth remained strong and consistent with our adjusted EBITDA performance. For the full year 2025, revenue was a record $1.3 billion, representing 8% growth compared to 2024. Adjusted EBITDA increased 11% year-over-year to $210 million, demonstrating continued margin expansion and scalability of our operating model. Net income for the year was $51 million. Translated into EPS, this was $0.61 basic or $0.60 fully diluted. Turning to full-year CapEx. Full-year CapEx was aligned with our expectations and remains heavily focused on revenue-producing assets. A significant portion of our capital supports growth initiatives, including new machine placements, route expansions, and the Fairmount Casino opening and track enhancements, with the remainder dedicated to maintaining and optimizing the installed terminal base. This disciplined allocation supports strong returns and sustained cash generation. Based on our current earnings and capital profile, we expect to continue generating meaningful cash flow, which provides flexibility to fund growth, maintain a conservative balance sheet, and return capital to shareholders. Moving to liquidity and leverage, we ended our year with $297 million in cash and cash equivalents and net debt of approximately $311 million, down 1% year-over-year. Our leverage profile remains conservative relative to our recurring cash flow base, providing significant financial flexibility, including our currently untapped $300 million revolving credit line. During 2025, we repurchased approximately 3.8 million shares of common stock, including 1.5 million shares in the fourth quarter. We evaluate capital allocation decisions through a rigorous return-based framework comparing organic investment, bolt-on and strategic M&A, debt optimization, and share repurchases. Looking ahead, our recurring revenue model, disciplined capital deployment, and operating leverage position us to continue converting adjusted EBITDA into cash. We remain focused on maintaining balance sheet strength while pursuing high return growth opportunities. Overall, our financial performance in 2025 extends our long-term record of growth, and we remain confident in our strong liquidity, scalable platform, and disciplined capital allocation to provide a solid foundation for continued growth in 2026. With that, operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Max Marsh with CBRE. Maxwell James Marsh: Andy and Mark, congrats on the new roles. It looks like things are moving ahead in Chicago. IGB just started accepting applications last week. Do you guys view that as just a matter of time? Or are there any political or legislative points of failure until you guys can start generating some revenue in that market? Andrew Rubenstein: Thanks, Max. This is Andy. There is a process that still needs to happen within the city, but the fact that the IGB has accepted -- begun accepting applications is a great sign. So we're still waiting on some of the procedures related to licensing in the city and how the cities will either regulate the gaming or facilitate individual establishments and getting started and obtaining a license from the city. So there is some of that still that needs to happen, but the fact that the IGB is accepting applications is a great start. Maxwell James Marsh: Great. And as we think about the market opportunity in there, should we think about that as similar to the unit economics of the state at large? Or do you guys have the potential to do a little bit better there with your established service routes and relationships in the state? Andrew Rubenstein: So it's kind of a twofold question. Operationally, we have a fantastic platform in order to service, collect, and facilitate play at all the establishments. But the reality is the actual establishments on a whole have less square footage than the establishments we operate elsewhere in the state. Obviously, that's because the city has greater density, real estate is more valuable and the taverns and establishments aren't allotted as much square footage. So we believe that we're in the rest of the state, many of the locations will easily accommodate 6 machines. There may be some constraints on certain establishments to get to that 6 machine. So we're estimating a lower amount of average equipment. We don't have that exact number than we do in the rest of our portfolio. That being said, the density of population is far greater in the city. And so therefore, the average play per machine should be higher than the average play of our existing portfolio. So the final element of all of this is the difficulties of operating in the city in terms of parking, logistics will probably impact our cost a little bit, but we'll be able to offset most of that by the fact that we have a platform that we've got -- we're able to service it from the outside. We will have to establish some type of warehouse facilities and support within the city. But all in all, it should be a very positive impact on our business. Operator: Your next question comes from Jordan Bender with Citizens Bank. Jordan Bender: We've been watching Hawthorne play out over the last several weeks. Curious to get your views around the bankruptcy that track and depending on how that plays out, you could be left with the only operational track in the state. I guess also, what does that kind of mean for your investment at your track, including the casino? Mark Phelan: Jordan, it's Mark. So I'd say as a horse racing fan, it's a tough moment for Illinois horse racing. Hawthorne's decline is painful for everyone who cares about sport racing, particularly in Illinois. And our thoughts are with the Cary family. They carry Illinois horse racing for over a century, and we wish them well and whatever comes next for them. That being said, the pari-mutuel horse racing market is facing significant headwinds nationally as well as in the state of Illinois. But we are, as you point out, still standing and still very much excited about the coming season, which starts in April, and we stand ready to support the Illinois Racing Board in any capacity that they require to help make sure racing operations specific employees, horsemen and all the backside communities have a workable path going forward. Jordan Bender: Great. And then just maybe sticking with you, Mark. As you step into the CEO role, do you have any different views across any aspects of the business, the geographic segments of how they're kind of run today? Mark Phelan: So we kind of have talked a bit in the past about how we break our markets up into core, developing and emerging. I think we're pretty excited about '25, and we're definitely excited about '26 in terms of all those different categories. They all sort of benefit from each other, and there's all sorts of overlap in terms of content and systems, which we think could drive growth in all of them. So I think what we're fundamentally trying to do is shift the route business from a real logistics-heavy business to an entertainment and hospitality business that's more nuanced, more niche and definitely more differentiated with higher margins. I'd say that's really what's driving me in terms of when I take over. But I would point out that Andy has done an amazing job, and there's a big shoes to fill and a huge platform to grow off of. Operator: Your next question comes from Patrick Keough with Truist Securities. Patrick Keough: Congrats on a really nice quarter, and congrats to Andy and Mark on the transition into new roles. For my first question, there's been some route gaining traction in state sessions like Pennsylvania, Virginia, Missouri and North Carolina. Could you talk about how you view any of these as likely to legalize this year? And could you think or talk about how you think about building versus buying to get a foothold in these markets if they go online? Mark Phelan: Patrick, it's Mark. I would say we formally included Chicago in those emerging markets. And thankfully, that's now going to be a reality. So we're pretty excited about that. That being said, there's -- these types of situations don't happen often. And so I'm a little more conservative in terms of the other markets that you mentioned, Pennsylvania, North Carolina, Virginia, Missouri. They all have outstanding legislation in terms of legalizing some form of electronic gaming machines for routes. Each of them has their own nuances, which may or may not make it a higher probability to go legal. But I would just caution a lot of these states, except for North Carolina, have a casino, which is always an issue with trying to pass legislation for VGTs and always makes it very difficult. And it's just naturally difficult to pass gaming laws. So we prepare for the best, but our budget and our expectations are prepared for not having this in this year, if that helps. Your second question in terms of -- yes, in terms of acquiring things, we actually have a pretty good ground game in a lot of these markets like Chicago, for example, where organically, we will acquire stores through our own internal customer acquisition group. But certainly, as Andy showed over the last 17 years, we will ultimately acquire other routes over time as that sort of unfolds. Patrick Keough: Great. And a question on Illinois, if I could. It looks like location count declined again quarter-over-quarter. Could you just give an update on maybe what inning you're in of pruning and where you see this trending over the next few quarters? Andrew Rubenstein: Patrick, it's Andy. So as we've talked about in the past, this is a continuous process of improving and optimizing our Illinois route and having nearly 2,700 establishments. We're always looking at the performance at the bottom and whether or not it makes sense to continue operating in those locations. And as we acquire or win new locations every month or every meeting with the IGB, we take an even deeper look at those locations and oftentimes reallocate our assets to what we expect to be higher-performing positions. So I would expect that with such large numbers, we'll continue doing this. There may be some more loss of locations, but you'll probably see as Chicago comes on for that trend to be reversed as there'll be a significant increase in locations from the Chicago market. Operator: Your next question comes from Steve Pizzella with Deutsche Bank. Steven Pizzella: Also wanted to just say thanks to Andy for the time over the years, and congratulations to you, Mark. First, just wanted to ask how you think about the increased tax returns here moving forward. Have you seen historically a direct correlation with that and increased gaming at your locations? And have you maybe seen any impact thus far recently as returns start to come in? Andrew Rubenstein: Steve, yes. So that typically has got a high correlation in terms of play. February, March, as you can imagine, are usually our best months. And we're -- we don't guide, but certainly, that seasonal impact hasn't changed this year from what we're seeing. Steven Pizzella: Okay. Then how should we think about the growth CapEx in 2026? And how do you think about balancing the buybacks versus some incremental tuck-in acquisitions? Mark Phelan: Sure. So from a capital perspective, maintenance versus growth, the way we define those two is probably important to just refresh everybody on. But the way we define it is growth is a new location we're adding machines to it or it's a location, for example, that has 5 machines and we go to 6 Capital in those 2 instances would be growth. Most of what's left is maintenance. So largely in our maintenance space, we consider a replacement of a brand-new machine in an existing location with -- that is at capacity for machines. Even though it's a brand-new machine, we consider that maintenance. That's a little bit different than other companies, but that's how we think about it. So I want to at least set the table on that. But in terms of like next year and where that's going, if you think about our space and you think about what we just got on talking about in terms of reducing our locations and kind of firing bad customers, so to speak, the need for us to continue to spend a lot to expand our locations in Illinois is low. And therefore, most of the maintenance or most of the capital that we're spending next year in our large market is going to be on that maintenance side. If you think about the other markets, those are investing in growth side. However, those are much, much smaller markets. So when you look at the company as a whole, you see most of it sitting in maintenance capital. And then refresh me of the other question, I'm sorry. Steven Pizzella: I guess how do you think about balancing buybacks versus incremental tuck-in acquisition or maybe something bigger? Mark Phelan: Yes. So I would say our position on that hasn't changed much over the last 6 months or so or even longer than that. But we look at every dollar of investment, and we look at the return on investment we can get from it, and we just measure that against our internal capital returns versus our M&A versus debt payoff and shareholder buybacks and that sort of thing. Given where things are moving and kind of just recent studies, I think M&A tends to be the most attractive if we can get the price right. So that tends to be where we focus our energy on the most. But to the extent that there's nothing in the pipeline or things that we don't like, then we'll pursue alternative activities. Steven Pizzella: I guess maybe if I could follow up real quick. Do you think about the balance sheet any different now moving forward than the current leverage profile historically of the company, which has been fairly conservative? Would you be more willing to take on additional leverage should the opportunities present itself, I guess, or potentially incremental capital return? Mark Phelan: Yes. I think the way that I -- so first of all, again, I would go back to -- we're going to evaluate the deals that they come through. But the way that I think about the fact that we have an untapped accordion feature out there, a revolving feature out there is likely going to be for something that would be significant sort of M&A. That would be the ultimate use for something like that. Most of the stuff we're going to do with our current cash balance and through tuck-ins and that sort of thing. So yes, I wouldn't think that we need to hit that revolver. And I think if anything, we're not in the business of wanting to lever up substantially for any particular reason right now. There's just not enough evidence of it. It would have to be a very some sort of very large deal or something like that, that came up for us to go down that path. Operator: Your next question comes from David Bain with Texas Capital Bank. David Bain: Congratulations, Andy and Mark, for the new roles. I know this was asked kind of early on, but maybe looking at Chicago differently, just given your infrastructure and the personnel dedicated to it, can we expect your market share or really like fair share to potentially exceed what you have in the state, again, kind of just given what you have set up today, you're better able to help locations with licensing, maybe cherry picking, if you will. Is that a fair assumption versus if a new state just opened up? I mean, how should we be looking at maybe it from that perspective? Andrew Rubenstein: So thank you for the question, David. Looking at Chicago, we see ourselves as an obvious leader from our experience, from the fact that we're the most chosen company to do business with in the State of Illinois, and we expect to continue to win in that market. That being said, I don't expect us to greatly exceed our current market share in the City of Chicago. Today, we're in the -- just shy of 30% range of the market. I don't think we're going to be any more than that. But what I do think is the performance per location will be greater than what we show in the rest of our portfolio. And we've seen things happened over the last, and we're now in our 14th year of operation that allow us to better select locations, better to equip them. And I think the performance that we'll achieve will exceed the rest of the portfolio's performance. David Bain: I guess I'll switch gears to TITO. I mean, a high percentage of machines now converted. But what inning do you think we're really in, in terms of the benefit of that transition? And do you still see that as material going forward? Mark Phelan: Yes. Yes. So we have -- it's a great question, David. We have about 81% of the machines upgraded. But what happens is not all the machines are upgraded in every location. And so there's machines that they can take their ticket and utilize for play, and there's ones that they can't. I think once we get closer into the 90s, then you're going to see -- start to see a real benefit. The other thing that really needs to happen is the player has to change its behavior. They're just learning after playing with cash entirely for the last 14-plus years that they can use their ticket to go from machine to machine. I believe that as far as the innings in the game, we're probably third inning by the time we talk again at the end of -- when we announce first quarter earnings, we'll probably be the fourth or the fifth. I think it will start accelerating through the end of the year. And it's something that we're constantly evaluating. We're just starting to optimize because we're getting some confidence that in certain establishments, the customer is comfortable with utilizing the tickets, but it's something that's, again, like third inning in terms of the implementation and results. Operator: Your next question comes from Chad Beynon with Macquarie. Chad Beynon: Just a couple for me. One, just wanted to ask a higher-level question in terms of opportunities maybe in certain markets to partner with other companies, whether it's digital or other consumer companies just to help drive additional revenues to the site or help just acquire customers. Could that be an initiative that could help your yields within any of your markets in the near term? Mark Phelan: Chad, it's Mark. So just to remind everyone, we do partner with a fairly significant gaming operator in Illinois, and that's FanDuel with Fairmount Parks online sports betting license. In terms of other markets, we're always looking for partnerships. Route gaming is really just an extension of local gaming, which if you go to other parts of the world, includes online, includes owning local casinos as well as doing distributed gaming and bars and taverns and things like that. So there's always a possibility. We also do produce our own content through our subsidiary, GrandVision Gaming. And there's always elements of partnering with content producers as content is a big driver of play in our markets. So it's a great question. We're always looking for those partners. As I mentioned before, to really drive away from being a more commodity-like vendor. We really need to specialize in content and payments and loyalty and things like that, and those are sometimes best done through other partners. So we've always got our eye on it. Chad Beynon: Excellent. And then I know you just hit on TITO, but around the W2G jackpot limits, is that something that you think can also help drive additional yields across your fleet? Andrew Rubenstein: So Chad, this is Andy. The answer is yes. But the challenge is the -- in Illinois, you need legislation for the jackpot to be raised. And then you need the manufacturers to redo the software to accommodate it. In terms of priorities, the route markets come far after the casinos because they can make those changes right away and have the leverage to be able to distribute the games with the new jackpots to many, many markets. I expect Illinois probably to be the first one to be able to experience it because it's the greatest opportunity. But -- and probably Nevada will see it because they utilize the same software that's utilized in the casinos. The other markets will follow, but I wouldn't expect a real bump from that in -- we don't expect it to happen in 2026. So eventually, it will help us, but it's kind of next step for the manufacturers. Operator: [Operator Instructions] Your next question comes from Greg Gibas with Northland Securities. Gregory Gibas: Congrats on the results. I wanted to follow up maybe on the opportunity within Chicago, and maybe what you see as kind of the total establishment count for that market. And maybe if you could share a little bit more on estimated timing there. I know that you mentioned they're accepting applications is a good sign. When do you expect to maybe hear more about that developing? Mark Phelan: Well, as Andy said, we're very confident the market will roll out given that the Illinois Gaming Board is accepting applications from locations. There are some rules that need to be promulgated. We're helping Chicago leaders work through that and provide sort of best practices to make and to expedite the rollout. If you really had to push me against the wall to say when we're going to go live, I'd say more likely later in the Q4 for '26 or potentially even Q1 of '27, just given the backlog of applications currently at the Illinois Gaming Board. But again, it depends a lot on how quickly the city can roll out these rules. So we're actually awaiting and we're helping out leadership in terms of helping them do best practices. Gregory Gibas: Okay. Fair enough. And if I could ask, I imagine organic growth is pretty close to the revenue growth. But could you maybe break that out considering, I think, Fairmount and some Louisiana acquisitions closed, I think, late in the prior year? Brett Summerer: Yes. So from a revenue perspective, and we disclosed this, but from a revenue perspective, those 2 acquisitions made up about 5% of our Q4 revenue and about 5% of our full year as well. So in terms of the revenue side, that's about what they are. We don't disclose on the EBITDA side, but those are our emerging investments, so emerging investments in the plays that we have there. So we're not making double-digit growth or anything like that on the bottom line. But on the top line, we've talked before about it, and that's about 5%. Operator: There are no further questions at this time. I will now turn the call back to Andrew Rubenstein for closing remarks. Please go ahead. Andrew Rubenstein: Thank you, everyone, for joining us again today. Accel presents a differentiated investment opportunity with enhanced financial flexibility, expanding market opportunities and a scalable platform capable of delivering steady growth and improving returns over time. I want to especially thank our partners, our shareholders and our team members. Our team members for their dedication and their continued execution. Their hard work is what drives our performance and positions us for sustained success. We appreciate all of you joining us today, and we look forward to updating you again on our progress next quarter. Thank you. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Euroapi 2025 Full Year Results. The call will be structured in 2 parts; first, a presentation by the Euroapi Group management team represented by David Seignolle, CEO; and Olivier Falut, CFO. Afterwards, there will be a Q&A session. [Operator Instructions] I will now hand over to Sophie Palliez, Head of Financing, Treasury and shareholder engagement. Madam, please go ahead. Sophie Palliez: Thank you, Laurent, and welcome, everybody. Before we start this presentation, we would like to emphasize that some of the information we will share with you today is looking forward and not historical. This information is based on projections and assumptions concerning Euroapi's current and future strategy, future financial results and the environment in which we operate. These looking forward statements and information, do not constitute guarantees of future performance. They may be subject to certain risks and uncertainties, which are difficult to predict and generally outside the control and they could cause actual results, performance or achievements to differ materially from those described and/or suggested. That said, let me give the floor to David Seignolle. David Seignolle: Thank you, Sophie, and welcome, everybody. Let me begin on Page 5 with the key takeaways from 2025. Our teams thought on all fronts to protect our market position in an increasingly competitive environment. For example, Vitamin B12 as mentioned here. It was also another year of declining API volumes for Sanofi. Fortunately, on the Sanofi side, this was partially offset by a strong commercial CMO activity, particularly in anti-infective and skin care. At the same time, we saw growth in sales of key APIs with other clients such as opiates, et cetera, et cetera. While the top line was under pressure, we continue to make strong progress on everything that we can control. We sustainably reduced our external expenses and our personnel costs. We maintained strict working capital discipline with another year of improving inventory management, and we continue to invest selectively in CapEx to prepare the company for future growth. All of this reflects a real strengthening of our cost discipline across every function. Despite the top line headwinds, our transformation remains firmly on track. We have executed the initial phase of our plan on schedule in all the areas we control, some even earlier than planned. That includes our product portfolio rationalization, our industrial footprint simplification and our organization and processes. Taking a quick look at 2025 from a financial perspective on Slide 6. Net sales came in at EUR 848 million, with Sanofi sales down 26.4%, but other clients up 9.7% as reported. Our core EBITDA came in at EUR 66.2 million, a 31% increase from 2024, with a core EBITDA margin of 7.8%. Our EBITDA was close to EUR 10 million versus negative EUR 44 million in 2024. CapEx stood at EUR 77 million, with 55% of that allocated to growth and performance projects and supporting the company's return to back on track for sustainable long-term trajectory. Turning in to Slide 7. The challenges we faced this year did not weaken our commitment to sustainability. First, our near-term carbon emission reduction targets were validated by the SBTi. This is a strong confirmation that our trajectory is aligned with the Paris Agreement. Looking at our 2025 emissions, we are already seeing meaningful progress. We've achieved half of our targeted reduction for Scope 1 and 2, and we have already exceeded our target of Scope 3. This is a major milestone for the company. On diversity, given the current reorganization underway, we fell short of our 2025 targets on diversity. However, it is important to keep a long-term perspective in mind. In 2023 and 2024, our diversity ratio increased and even exceeded our objectives. The underlying trend remains positive. And on safety, which is something a bit painful to me, but despite our continuous effort, the injury rate remained stable in 2025. Most incidents were minor often related to slip, trips and falls. But that said, even one accident is one too many. And the Accident Prevention Plan launched in 2025 will continue to be rolled out in 2026 with a stronger focus on record analysis and proactive prevention. With that, I will now hand over to Olivier, who will walk you through our financials in more detail, and I'll come back later to look at the perspective. Olivier Falut: Thank you, David. We'll start the review of the consolidated accounts with the evolution of net sales. Net sales reached EUR 848.2 million in 2025 versus EUR 911.9 million in 2024, representing a decrease of 7%. The current impact on net sales was almost -- the currency impact, sorry, on net sales was almost nil. And the 1.2% perimeter impact is collated to the Haverhill divestment. On a comparable basis, sales declined by 5.9%. If we take a look at the net sales per activity on Page 10 now. API solutions to Sanofi decreased by 34.2% due to, first, an unfavorable comparison base related to the stock clearance of buserelin, which positively impacted 2024 sales of EUR 21 million, and the decline of volume of Sevelamer in H1 2025 and the sales of Haverhill at the end of June 2025. Last, EUR 50 million reallocation of Opella sales to other clients starting in May 2025, following the change in control of Opella. Excluding Opella sales to Sanofi in 2025 compared to 2024 only would have decreased by 25.7%. CDMO sales to Sanofi decreased by 4.9%, higher demand of Pristinamycin and PLLA commercial sale contracts was more than offset by the decrease in revenue from the Phase III BTKi inhibitor project. API solutions to other customers increased by 18.6% benefiting from first and an active cross-selling strategy, then 31 additional new clients in 2025, we generated high single-digit net sales in 2025. Last, the EUR 50 million reallocation of Opella sales without the change, sales to other clients would have increased by 4.5%. CDMO sales to other clients decreased by 13.6% as a result of the downsizing and discontinuation of pre carve-out of mature commercial contracts and the slowdown of early stage CDMO business. Turning to the core EBITDA evolution on Slide 11. Core EBITDA reached EUR 66.2 million in 2025. This represents a 7.8% margin, up from 5.5% in 2024. The evolution in core EBITDA margin was driven by the following elements. The stock clearance of Buserelin in '24 for EUR 21 million or minus 0.9% points; volume impact for minus 1.0 point, which is mainly due to the discontinuation of CDMO contracts; price and mix positively contributed by 1.3 points; a positive 0.3 points from the discontinued products. Industrial efficiency led to an additional 1.2 percentage point of core EBITDA margin, energy and raw material increase the margin by 0.9 points, strengthened financial discipline and lower personnel cost in OpEx allowed to gain 1 point of core EBITDA margin while Brindisi weighted minus 1.4 in '25 and on the other hand, the divestment of Haverhill allowed to gain 0.6 points. Total nonrecurring items on Page 12 now. Total nonrecurring items we stated from core EBITDA -- from EBITDA, sorry, stand at EUR 56.3 million in '25. The vast majority of these exceptional items are directly related to the FOCUS-27 plan. We recorded EUR 36.1 million of idle costs, which is mainly consolidation of the Frankfurt site. We also recognized EUR 6.6 million of internal and external costs related to the transformation of the company. Finally, employee-related expenses, in part linked to the redundancy plan amounts to EUR 13.7 million, which mainly concerned again Frankfurt and the divestment of Haverhill. Looking now at items below EBITDA on Slide 14 -- Slide 13, sorry. Operating income amounts to negative EUR 130.6 million in 2025 compared with negative EUR 120.4 million in 2024. Depreciation and amortization remained broadly stable year-on-year. The increase of asset impairment to negative EUR 77.8 million reflects discontinuation of vitamin B12 productivity project in Elbeuf following the reassessment of its economic potential. And a revision of gross assumptions to align with the latest market dynamics. As we move below operating income now, net financial expenses improved EUR 7.5 million in 2025 versus EUR 19.1 million in 2024. This decrease reflects lower financial expenses following the implementation of the financing plan. The 22.89 sorry, income tax -- sorry, EUR 72.9 million income tax expense includes the depreciation of tax assets following the update of growth assumptions. Taking together, these items results in the net loss of EUR 211.2 million compared to EUR 130.6 million lost in 2024. Turning to working capital dynamics on Slide 14 now. As part of our commitment to improve working capital, we have maintained the progress achieved on both months on hand and DSO since the implementation of FOCUS-27. Months on hand stood at 7 in 2025 and DSO at 36. CapEx now on Page 15. CapEx reached EUR 77 million in 2025, with 9% of total 2025 net sales. 65% of CapEx was dedicated to growth and performance, mainly supporting the capacity increase and efficiency projects on peptide and oligonucleotide, prostaglandins and corticosteroids. 21% of CapEx related to compliance. As a reminder, these investments address safety, quality and environmental topics and a significant share of them are mandatory. 24% of remaining CapEx corresponding to the maintenance of the existing asset base. Moving now to Slide 16, which covers the evolution of the net cash position. We ended 2025 with a net cash position of EUR 68.2 million compared with EUR 24.6 million at the end 2024. Cash flow from operating activities generated EUR 128.5 million of the cash in 2025. This was mainly driven by the working capital, which contributed for EUR 120.1 million. This improvement mainly reflects further reduction in inventory totaling EUR 38.9 million, decrease of trade receivables supported by factoring program launched in March 2025. Out of the EUR 45.4 million reduction of receivables, EUR 26.5 million was factored by year-end, with remaining decrease reflects immense cash collection. Other current assets and liabilities includes EUR 36 million paid by Sanofi to reserve minimum availability capacity for 5 selected products, EUR 21 million upfront grants from the IPCEI program, EUR 6.5 million related to the monetization of research tax credit in France. Including the EUR 77 million of CapEx, it was reviewed in previous slide, free cash flow before financing activities stood at EUR 51.5 million in 2025 compared to EUR 15 million at the end of 2024. Finally, cash from financing activities included a cost of debt of EUR 3 million in significant decrease following the debt for refinancing in 2024. This concludes the review of the 2025 consolidated results, and I will hand it back to David. David Seignolle: Thank you, Olivier. Before moving to full year 2026 guidance, let me walk you through the main operational and business drivers that will underpin sales, profitability and cash development for the year. Net sales will be strongly impacted by the rationalization of the API portfolio that we have engaged in 2 years ago. As we've said, the discontinuation of API accounted for around EUR 70 million of sales in 2025 including EUR 20 million related to stockpiling. Although the manufacturing of these API has been stopped, we still expect a residual EUR 10 million to EUR 15 million revenue from these products in 2026 as we continue sales for existing inventory. This means between EUR 55 million and EUR 60 million headwind in 2026 that we decided upon. The other impact are the continued decrease of the sales to Sanofi and further discontinuation of commercial CMO contracts. Turning to profitability. The industrial efficiencies and additional OpEx savings we anticipate should be offset by unfavorable fixed cost assumption, resulting from lower volumes. Our EBITDA will also be impacted by the restructuring costs that are foreseen in 2026. We will maintain a strong focus on working capital discipline and the CapEx to sales ratio is expected to be around 8% of sales. All in all, on Page 19, due to the impact of our portfolio rationalization and considering the challenging business environment, we expect a decrease of around 10% in net sales in 2026 on a comparable basis. Our own decision to streamline our portfolio accounts for around 90% of that decrease. In this context, we will accelerate our transformation to protect profitability and we expect to maintain the full year 2026 core EBITDA margin broadly in line with financial year 2025. Moving to the next slide and an update on FOCUS-27. On Page 21, let me recall, first, what FOCUS-27 was fundamentally about. It was behind around four structural pillars to reshape Euroapi into a more competitive, more profitable and more resilient company. First, streamlined API portfolio. We are concentrating on highly differentiated and profitable products, reducing exposure to commoditized segments where structural pressure is intensifying. Second, a focused CDMO offer where we are leveraging recognized capabilities and strong technology platforms to position ourselves for complexity, reliability and regulatory excellent matters most. Third, rationalize industrial footprint and disciplined CapEx. We are simplifying our manufacturing network and prioritizing high-return investment and improving asset utilization. Fourth, organizational transformation. We are building a leaner, more agile company, aligned with our strategic priorities and able to compete in a faster-moving environment. These 4 pillars remain absolutely valid today. On Page 22, let's have a look at what has been delivered over the last 2 years. Despite the demanding environment, we have executed the core structural actions of FOCUS-27 and reinforced our fundamentals. On the portfolio, 66% of our sales in 2025 are now coming from differentiated products. This compares to 57% at the end of 2023, and we are on track to achieving our target of 70% by the end of 2027. The planned discontinuation of the low-margin product was almost completed at the end of last year, which will impact our 2026 top line, as already said, accounting for 90% of our top line reduction. Regarding the CDMO goals, 70% of the projects are late stage, improving visibility and reducing the risk. On the industrial footprint, Haverhill has been divested, productivity has improved across all sites. One workshop in Frankfurt has been mothballed and 380 positions have been reduced across the company ahead of our original plan. On the organization and cost base, key functions have been reorganized, R&D has been refocused and close to EUR 20 million of OpEx savings have been delivered over the past 2 years. Overall, the Euroapi today is a leaner and more disciplined organization than it was in 2023. Moving to Page 23. Capital discipline has also been a very strong priority under mothballed FOCUS-2027. This is clearly reflected in our CapEx trajectory investment decreased from EUR 137 million in 2023 to EUR 108 million in '24, EUR 77 million in '25, and I've even mentioned that we will be close to 8% for 2026 from a CapEx to sales ratio starting at 14% back in 2023. This reflects a deliberate shift towards stricter prioritization, higher return of projects and certainly better care and discipline around CapEx expenses. We have continued to invest in strategic platforms such as peptides, oligonucleotides and in high barrier APIs like prostaglandins and corticosteroids. At the same time, we took disciplined actions to discontinue the vitamin B12 capacity project following market acceleration and technical constraints. Moving to Slide 24. Let me briefly step back at where we are on our key KPIs for FOCUS-2027. Since 2024, we have incurred EUR 44 million of transformation and restructuring costs, ahead of the 25% originally mentioned for those 2 years. This reflects the fact that the project -- or the restructuring program is ahead of schedule, but it doesn't change the total expense expected envelope of EUR 110 million to EUR 120 million, although we will do every effort to limit that. On incremental core EBITDA, we had initially targeted EUR 75 million to EUR 80 million incremental by 2027 compared to 2024. However, with '26 and 2027 net sales now expected to be below initial assumptions, additional underactivity is anticipated. As a result, this incremental core EBITDA target will not be achieved in 2027. On CapEx, EUR 185 million has been invested over 2024 and 2025 against an initial EUR 350 million to EUR 400 million envelope for '24 to '27. Although we maintain this envelope, we will be looking for all opportunities to either limit our CapEx to projects, offering the highest return and reinforcing competitiveness or optimizing the CapEx expenses. Let me be clear, this is not about slowing down. It is about allocating capital where the returns are sustainable and defensible. Turning to Slide 25, sorry. As we have just discussed, FOCUS-27 and the transformation of the company are on track. However, over the past year, the business environment has evolved faster than initially anticipated. Competition from low-cost Asian players has intensified increase in price pressure in natural APIs. At the same time, we're also seeing large pharmaceutical companies outsourcing more late-stage and complex projects. This creates opportunities, but competition is obviously selective and execution must be precise. Sovereignty initiatives are promising, they have not yet translated into tangible economic incentives at this stage. But we are working or helping towards this evolving. In addition to this external environment, it is fair to say that we also face internal challenges with early-stage CDMO road map progressing at a slower pace than anticipated and the discontinuation of the vitamin B12 project. This is a context in which we are accelerating and sharpening the execution of FOCUS-27 and launching new initiatives. Moving to Slide 26. On the portfolio side, we will further reduce our exposure to commoditized APIs, structurally pressured small molecules and concentrate our resources on high barrier segments such as prostaglandin, corticosteroids and opiates. On these 3 segments, we have solid competitive advantage that we will leverage including further innovation programs that we have mentioned before. This includes technology edge and strong market position in prostaglandin as well as strong expertise and flexible capacity in corticosteroid and opiates. On operations, we'll continue improving operational performance, standardizing and improving our processes, for example, through leveraging technology. We will also strengthen the commercial CMO business. We can offer a reliable and sovereign manufacturing to customers looking for derisking their API supply chain. This will help securing volumes and improved capacity utilization in our sites. On the organization front, we will further streamline structure, simplify processes and align skills and capabilities with a more demanding environment. We have done a lot since the launch of the plan, but we see further opportunities to improve our operating model towards the fit for purpose and leaner organization. In parallel, we are launching additional initiatives, First, we will enhance commercial excellence and expand our API customer base in under-leveraged territories. Let me give you 2 examples. North America, which is the largest and fastest-growing API market worldwide accounted for only 8% of our total sales in 2025. If we go south to Latin America, we only serve 10% of the top drug product players over there. Second, we will refocus the CDMO business on strategic customers and/or complex molecules notably P&O, peptides and oligonucleotides. This means we will stop deleting our commercial efforts and contrate on strategic customers and products that we can succeed upon and increase focused on complex molecule projects, for example, high added value peptides and oligonucleotides projects, including RNA therapy. First, we will optimize our supply chain to structurally reduce our costs while maintaining end-to-end console. This is one very important way to increase competitiveness and adapt to the current environment. Our objective is obviously to adapt the operating model to a structurally tougher market and restore a sustainable path to profitable growth. Moving to our long-term ambition as a conclusion. While we recognize that the recovery is taking longer than initially anticipated, reflecting structural evolution of the market, we are taking the necessary actions to build a more competitive, sustainable and financially resilient operating model. Looking towards the near future, our positioning is clear. We aim to be a European-based sovereign supplier of complex API, a reliable CMO partner and a trusted CDMO player for new drug development. At the same time, this positioning must be supported by a sustainable operating model with a competitive -- cost competitive supply chain, a lean and capital-efficient industrial footprint and obviously an agile organization. Our long-term strategy is anchored in discipline and certainly value creation. This is where our focus is now in the interest of all our stakeholders. Thank you for your attention, and we are now ready to answer your questions. Operator: [Operator Instructions] We have a first question from Clement Bassat from Portzamparc. Clément Bassat: Basically, I have four. The first one about the top line. So what is your 2025 base top line? I assume it is your published figure, minus EUR 70 million from discontinued API, which leads to EUR 778 million. And this would imply a top line '26 of EUR 700 million following your expected 10% decrease in tip line, just to confirm if I am correct. Second question, so regarding the EUR 78 million impairment on Vitamin B12, does this include a portion of the CapEx invested from the current FOCUS-27 plan? And are you considering further impairment in 2026 following the discontinuation of the other API. Third question, just to confirm, you are maintaining restructuring costs at EUR 100 million. This is only cash related, spread through 2027. And finally, your CapEx was limited to EUR 77 million in 2025. So this decrease is a decision to preserve cash or just to adjust to your expected future top line? David Seignolle: Thank you, Clement, for all the questions. Let me -- I may ask you to repeat some at some point, just to be precise. But let me start with answering and maybe Olivier will step in at some of those. So the top-line assumptions that you have made, if I followed, I think, are not the way we think about those. There is no such comparable basis at EUR 778 million, which you mentioned, removing 10% of that getting to EUR 700 million. What we are looking is around 10% versus comparable basis, which you would only reduce the sales of Haverhill in 2025. So you can make the math. I don't want to make it for you. We have not mentioned any specific numbers, but we are not seeing such a drastic drop as you calculated. On the -- I'll come back to the B12 impairment question. Yes, the investment of B12 was part of the EUR 350 million to EUR 400 million total envelope. Most of these investments on B12 were made in '23 and '24, some even earlier -- sorry, in '24 and '25, some even earlier to that to that period. So the impairments are related to that. There is no such plan to further impairment in 2026. There has just been the adjustment of these impairments plus the impairment we did on the terminal value of the company. And there is no such thing to do, to do anything else. I wasn't clear on the restructuring. I'll leave you to come back to it afterwards. And finally, the CapEx of EUR 77 million in 2025. I think it's a bit of both. I think the company has been used to spending far too much money on CapEx in the past, probably referring back to the time that we were a large pharma company where the cash was not a problem. I think over the last couple of years, we have learned to be more disciplined with spending cash, spending CapEx, looking at different ways to fix problem than to invest in new equipment, maybe in some cases, reutilizing elements or not looking for the gold-plated solutions, but more the practical solution that a CDMO or CMO organization needs and not a large pharma. So there is no such thing to say that we want to limit to the further growth. I think we're still committed to investing significantly in the future. And for that, we have a couple of projects such as IPCEI or the morphine project where we are looking at new ways of manufacturing the morphine and all of these projects being either funded by -- partially funded by France Relance and the IPCEI program. And there will be significant investments, but that will come at the right time. All in all, we need to look at a sub EUR 800 million revenue company should not be spending EUR 100-plus million on a yearly basis. Yes, clement, can you go back to the question three on the restructuring, please? Clément Bassat: You are maintaining restructuring cost of EUR 100 million, but I have in mind that restructuring costs are composed with cash and idle costs. So EUR 100 million for me, I understand this is only cash related expected in 2026, 2027 and maybe also 2028. Just to confirm, you are talking just about cash-related amounts. David Seignolle: Yes. So that is exactly -- the last part of your sentence is correct. It's talking about cash amounts. And it's only covering '26 and '27. We are obviously, as I said, have different views on the top line for 2026 and 2027 at this stage than was originally anticipated. And as a result, if we need to adapt the organization to those new levels, we will have to do. But there will be a time to engage in those discussions if they need to happen. Operator: Now we have a question from Zain Ebrahim from JPMorgan. Zain Ebrahim: Zain Ebrahim, JPMorgan. So my first question is just in terms of the China API increased competition that you're seeing. It sounds like Vitamin B12 is a key segment where you're seeing that competition, maybe anti-infectives as well. But can you talk through which divisions or product categories you're seeing that competition in? And how much of the headwind you're expecting in 2026 is due to price reduction on those product categories versus volume lost to some of the extra competition? That's my first question. Maybe I'll pause there and then I can ask my follow-up. David Seignolle: All right. Thank you. So look, I think the -- unfortunately, this is a strong industry as we see or China has entered into a strong industry-wide program, and we see that across various industries and it's valid in ours, and they are looking at every single product. The reality is we have the small commodity programs -- products, sorry, that are very much impacted because in this specific case, not only they are benefiting from large volumes from very low cost of labor, low energy costs, significant new equipment with, I mean, state-of-the-art, et cetera, et cetera, plus in some cases, subsidies by the government. So in those cases, it's quite difficult to compete. Yet for whomever wants to supply and to get materials from Europe, we will maintain, and we have some of these customers. Now, I believe the trajectory over the next couple of years on those type of products is going to continue to decrease, and we will have to fight back and to provide answers in the cases we can. For the specific categories, I think it's all over the board. The reality, though, is we have quite a strong value proposition on the typical strength category of products that we have in the company. Prostaglandin, we are the global leader in prostaglandin by either the number of products that we look, by the experience and history that we have and the quality of our products, and we aim to maintain that. We are actually reinforcing this offering by looking at different further improvements or innovation projects on site. We have launched, as you know, a strong capacity increase to support the growth in the future, and we continue to accelerate down this path. The second element to that would be the opiate, where not only we benefit from a somehow protected market with all those morphine and derivative products, but we have -- we are working towards significant innovation projects in the future, as mentioned before, and these are benefiting not only for subsidies, but will be supported from our side, from CapEx investment to increase in the future. We don't necessarily foresee challenge on the price on that specific category either. And then finally, the corticosteroids. I think the corticosteroid is maybe a little bit of a different animal. We are -- there is a lot of players in the world. We are the only one, except with one other site in the U.S., which is fully integrated from A to Z of manufacturing of corticosteroids outside China. This is a strength, especially when we talk about sovereignty. We have discussed about sovereignty through COVID and challenges. We see sovereignty through shelf nowadays. We see some geopolitical issues now, which may endanger some logistic routes further in the next couple of weeks and months. So we still believe that this is not going to be simplified in the future and our sovereign solution will be helpful. That being said for corticosteroid, yes, we are challenged on price. Yes, we will probably do some efforts because we have significant projects to innovate and to improve our value proposition to cut costs significantly through new chemical routes in the future. That is what IPCEI actually want the, Work Package 2 of IPCEI is about, and that's a strong avenue for us to reinforce our value proposition in the future. I can't just further comment on the impact of volume or price related to our 2026 earnings. You had a follow-up? Zain Ebrahim: That's very helpful. Yes, my follow-up was on the discontinuation of APIs is helpful in terms of the quantification of the headwind to '26 sales. So should we expect any further discontinuations in addition to what you've already planned? It was 13 API before, I believe. So just any further discontinuations, given the portfolio prioritization that you're undertaking? And can we expect to return to sales growth? Could we see that in the -- it sounds like obviously '26, you've given guidance. For '27, you said it's below expectations, but when can we expect to see that? David Seignolle: Yes. So that's a couple of questions. Let me just get them in order. So are we expecting further discontinuation of products? No. The answer is no. Now this being said, you never know what's going to happen. I think, it's healthy for any company to look at their portfolio regularly. At this stage, we have not decided to further prune our portfolio. Actually, we are looking at growing that. And that's part of our additional activities for commercial that we mentioned. We are looking to new geographies. We are looking to seeing if we can have additional offerings and how we would progress on that specific front. When are we expecting to grow was the second part of your question? Well, the earlier, the better, obviously. What we are seeing for 2026 is still some reduction, as we mentioned. I just want to come back to the fact that 2025 saw a significant reduction in Sanofi's sales. But we just mentioned we gained 31 new clients and the sales to other clients and Sanofi was up close to 10%. So let's -- it's definitely a way forward that while we want to maintain some level of Sanofi, we know that the inherent share of the Sanofi business for the future is to reduce. On that specific front because maybe the question is going to come and I can anticipate it. We are -- we have an MSA up until 2027 that we are working towards extending. We have already five products that are extended until 2032. One specific with Opella now until 2031, and we are working towards concluding the terms of the extension of the other products beyond 2027. So whilst we -- our focus is to manage the reduction of Sanofi over time, we are heavily focused on selling to other clients, cross-selling, acquiring new, et cetera, et cetera. And there is -- and the first elements of the strategic move we did last year with merging the 2 organizations commercial into one and led by an expert in commercial operations in the CDMO and CMO space in our industry with the arrival of Frederic Robert in our organization is proving us right. The problem is, as you very well know, it takes time to bring new clients in and register those. So I would hope to see a continuous momentum into acquiring new clients and new sales into '26 and 2027. Operator: [Operator Instructions] Sophie Palliez: Maybe we can move to the questions that we have from the website. There's a bunch of them. So I'm going to try to summarize them by key subjects. The first subject is about the CDMO business. Our analysis of the reasons of the slowdown of the pace versus what initially expected? And maybe what type of future we see in the CDMO business and how we managed to recover specifically growth in that field, so CDMO. David Seignolle: All right. So the CDMO, as I think mentioned earlier, was -- is indeed lower than anticipated, definitely not at the level where the equity story of the IPO was at. I think over the last couple of what we've learned over the last couple of years is, one, we need to be focused. We can't answer 250, 300 RFPs every year with the organization we have, with the resources we have, the sites and R&D labs that we have because that prevents providing the right attention to the clients, to the requests, the RFPs, understanding the exact needs, et cetera, et cetera. So that's why we decided to be a lot more focused into either not the very, very early preclinical stage and to specific areas in which we know we have a competitive advantage. There is, we have 2 main R&D labs that support the CDMO, one in Frankfurt, which has very strong expertise on the P&O side and in Budapest, which can very much work on complex small molecules, such as the prostaglandin and others. In fact, we are still working with providing very complex and strategic projects for the future, such as, for example, developing the backbone of any future development of a large American Big Pharma. That's the first learning. The second learning we had is, it's a lot more complicated than one would think to get into the CDMO world. CDMO world and the clients know that you get into a lot more questions that you need to answer around what kind of raw material will I be using? What kind of processes will I develop? How can I scale up? What will be the implication and the challenges that I will see. Navigating in all this ambiguity hand-in-hand with the customer is not something that this organization was used to in the past with working with one internal client only, which was Sanofi at the time. So all of this takes time to build the capabilities. And I believe we are doing the right things. We are bringing the right talent, and we are working more hand-in-hand with the customers across all of this. For the future, what we see -- well, we see continuous, let's say, difficulty to navigate in this space because there are a lot of players. There are a lot of actually even Asian players that are coming in with different, let's say, approach to the business than European have. However, there is still place for all of us to work to provide local manufacturing, local scale-up with the right expertise and certainly proximity to the customers. The key point is we will also be thinking CDMO and CMO very much differently. The CDMO is everything that I said, working very much in research and development, aligned or accompanying the customer through this journey of their own development. While CMO is a very simple tech transfer, smooth tech transfer type of approach with a reliable supply chain of existing commercial products. Those CDMO and CMO, as we want to differentiate, require a different set of skills. Different set of skills, either by our commercial and customer-facing individuals, and also on the site with very lean and effective and efficient, certainly operations on the ground. And as a result, we will approach those two businesses very differently moving forward to be able to answer our customers. Sophie Palliez: One question is about core EBITDA in 2015, which improved significantly despite revenue declining. How much of the improvement is actual versus temporary cost savings? Olivier Falut: I guess on this area, the answer is quite simple. In terms of cost savings and improvement of the organization and the model, pretty much everything is sustainable. We improved the structure in terms of industrial footprint. We improved the model in terms of organization, in terms of SG&A. The R&D have been also redesigned. So I would answer clearly that the whole is sustainable, provided, that as I comment before, there is one-offs that are not sustainable, obviously, like the Buserelin issue, meaning impact of 2024. But for the rest, it's pretty much sustainable. David Seignolle: Those EUR 20 million of OpEx that we have mentioned are definitely here to stay and will remain as is. This is part of a new structure, a new baseline of our costs and everything that is being done at the site or in procurement and et cetera, will continue to bring efficiencies on a yearly basis. Sophie Palliez: Question on Asian imports. How can you compete against Asian imports? And where is your -- what do you think you have a sustainable edge to compete against those Asian imports? David Seignolle: So the -- how we can compete? I think there is, where and how, I guess, was the question, right? The key point is, we will not be able to compete on everything. And as customers just want price, I think it will be difficult, just on that pure front. This being said, difficult doesn't mean impossible. And as I mentioned earlier, we have a significant amount of our portfolio that is today still very much competitive and for which we further -- we have further innovation program to reinforce this competitiveness in the future, which will either allow us to increase commercial margins or to provide more competitive offerings to our customers. The second part is -- of the question was... Sophie Palliez: What are competitive edges in decisioning? David Seignolle: So that I mentioned. And then I think the second element is the fact that we are based in Europe. And as I mentioned, I think a lot of customers want reliable supply. Our reliable supply, our very China-independent supply chain, even for raw materials is actually today the only one available in Europe, let's face it. So for whomever customer in Europe or in the U.S. that want risk-free supply chain, China-independent supply, well, we are here available. This being said, I think on all those customers that want pure pricing, not really caring either about ESG or pricing, that's where I think we need to look at things maybe a bit differently. And that's what is mentioned in the cost of our supply chain improvements that we want to do in the future. It could very well be that buying some raw materials or intermediates in a lower-cost country could be coming handy for us, not by depleting our sites, but by able to reduce the pricing that we will, in turn, be able to offer to our customers, increasing those volumes and actually, at the end, probably having higher volumes in this specific site that is manufacturing the API than we used to have. So I think we need to be able to play on both levels. One is top-notch player of premium quality APIs; two, being a European source, sovereign source to China independent supply or sovereign supply; and three, for those customers that want price, let's play here as well. Sophie Palliez: What is the current level of capacity utilization across your main API sites? And what level could you consider as normalized for the business? And do you have an objective in midterm? David Seignolle: So look, on the capacity utilization, I don't think we comment on that, but we would expect around, let's say, ballpark half of our capacity, a bit more half of our capacity being utilized at this stage. There is no surprise, if I say -- to any of you, if I say that in the chemical industry in Europe, given the cost structure and everything, all our -- all my peers, let's say, would agree that 75% to 80% utilization is a minimum to have sustainable long-term perspective. In our situation, we know that at this stage, given the elements of underutilization that we have, which hurts or will hurt or which at least offsets all the efficiencies we are bringing from a cost standpoint, any additional volume that will fill up this available capacity will not only generate commercial margin, but also reduce those underutilization that hit our P&L. So we are working on that. And I think that's why we are discussing very heavily now, how do we increase our offering in terms of portfolio, how do we augment that and how do we play more on the CMO or European-made CMO type of market because I think that can be win-win for both customers and ourselves. Sophie Palliez: So do we have any questions online? Operator: We do not have any more questions online? Sophie Palliez: Okay. So maybe one last to conclude on -- from the webcast. If you had to prioritize one key execution risk that could derail the execution of the plan, what would it be? David Seignolle: I think the key point today is we need to have everyone on the top line. We have proven over the last 2 years that we can -- that whatever we can control, we can simply deliver. And the teams have done an outstanding job across sites, across organization in the last 2 years to actually prove that. And that's why our -- despite the whole headwinds we've seen, our core EBITDA has increased significantly between '24 to '25 and that we landed 2025 with actually a positive EBITDA. And those, as we said, are sustainable measures that will keep yielding results in the future, and we expect further actually on that. Now we need the whole organization to be working top line. And what I mean the whole organization is we need to be able to support our commercial folks that go and talk to customers on a daily basis. We need to provide them with high-quality materials with a competitive value proposition. We need to equip them with top-notch products, maybe provide them more products, provide with the right CMO value proposition, CDMO and R&D expertise. And definitely, when they need support and when they are able to seize clients, we need to be 100% on time, delivering against customer expectations. So I think the key point here is restoring growth will come by having a full organization focused on growth in the future to support the commercial folks delivering on that ambition. Sophie Palliez: Thank you. So I think if there's no more question online, this will end our webcast today. Thank you for attendance. Thank you for the questions. And as usual, the Investor Relations team and the management remains at your disposal, should you have any follow-up questions. Thank you, and have a good day.
Karen Chan: Good morning, everyone. Thank you for attending the DFI Retail Group 2025 Full Year Results Presentation. I'm Karen Chan, Strategy and Investor Relations Director. Joining us today is Scott Price, Group Chief Executive; and Tom Van der Lee, Group Chief Financial Officer, who will be providing remarks on our full year results, followed by a Q&A session. Today's presentation is being webcast in its entirety. In addition, the full text of our results announcement and slide presentation are uploaded on to our IR website. And before we start, I would like to remind you of the following regarding information to be provided during the presentation. The information about to be presented is for information purposes only and is not intended to be investment advice for any person. There's no intention to imply for any dealings in any securities. There may be forward-looking statements mentioned in the presentation materials, which include statements regarding our intent, belief, expectation with respect to DFI Retail Group businesses operations, market conditions, et cetera. You're expressly advised not to rely on these forward-looking statements as they are subjective views, which are subject to risks and uncertainties. And with that, I'll pass it over to Scott. Scott, please. Scott Price: Good morning, everyone. Thank you, Karen. A pleasure to be here talking about our full year of 2025 results and also sharing with you some of the insights that we gleaned from the second half of the year versus the last time we gathered here. We're seeing a more confident customer in the second half of 2025. They're still careful. They're still not going back to, I think, the spending pre-COVID. But we are seeing customers willing to invest in Convenience, invest in their own wellness and also fun, which has been quite interesting. So some of the headlines, we're now up to about 115,000 daily e-commerce orders. So again, that focus upon Convenience. A lot of that is coming from our 7-Eleven China business. A significant increase in what we would call the wellness category within Health and Beauty, where customers, in particular, around derma, supplements are interested in functional value, in particular, a younger customer that I think are more focused upon wellness than particularly previous generations. Collectibles and characters across, I think, not only our 7-Eleven, but also our Own Brand. Cute always works, and we're seeing it as an opportunity for us to grow. I think that we had good strong like-with-like growth. I'll talk about that in a couple of minutes. Good progress overall on the business. And I think from a financial viewpoint, very pleased with the strength of our balance sheet now as we have paid down debt and are in a net cash position. And as we look forward to 2026, I think as Tom will share towards the end, our overall guidance, I think that we're having now an opportunity to benefit from really 18 months of hard work pivoting our business to far more of this customer-centric value plus, again, areas where they're willing to spend a bit money. We obviously have to focus upon becoming a modern retailer, which means the digital -- and the role of digital within our business is critical. We'll share some of the statistics there. We are very much focused upon financial returns, the TSR, our return on capital employed. So a key metric that we're using is increasing our revenue and profit per square foot across the business, which is a great metric within retail to really test how you're doing and continuing to invest in our digital ecosystem, which I'll describe in a little bit more detail. In terms of overall results, which have been released, revenue from our core operating subsidiaries up 0.5%. Now that was 0.8% in the second half. So again, we're seeing this recovery across the total portfolio after a couple of years of challenging revenue. Underlying profit up 34.7%. We have absolutely focused upon everyday low cost across the entirety of the business, which has continued to drive a much higher growth in profit than revenue. I mentioned net cash position at $538 million to $70 million. That is after paying a very significant special dividend of $600 million. So 58.3%. We announced a full year dividend of 10.7% after approval from our Board of Directors yesterday. Overall, we're seeing some interesting trends. High-value tourists are coming back to Hong Kong. We see now in many of our tourist stores great growth. I'll talk a little bit about that, in particular, Health and Beauty. So tourist locations versus the previous tourists who prided themselves on coming to Hong Kong and spending nothing, bring their own water, their own food. We're now seeing a return of high-value tourists, which is a great sign. Good mix now from cigarettes to ready-to-eat, little bit more detail in that shortly. Food growth benefited from the Singapore consumption, the government prior to the elections gave each citizen SGD 600, and that obviously benefited the Food as we saw in our performance there. Great progress in IKEA. We'll talk about that in a few minutes. I mentioned the doubling of our e-commerce transactions. And again, the total shareholder return for the year was 93%. So I'm going to turn it over to Tom for a little bit more detail. Tom Cornelis Van der Lee: Thank you, Scott. Let me take you through the financials for 2025. Starting with the income statement. We closed 2025 with the underlying profit of $270 million, up 35% year-on-year. And with this, we delivered the top end of our guidance. This performance was driven by consistent like-for-like recovery, margin improvement across most formats and decisive portfolio actions, notably the divestment of Yonghui, Robinsons and Singapore Food. For clarity and comparability, we present 2 additional views here. First, a restated 2024 base, reflecting only the comparable periods for divested businesses. Second, a reset 2025 view, assuming full year deconsolidation of Singapore Food and Robinson Retail. And this provides a clearer picture of our going-forward earnings profile. On revenues, revenue from subsidiaries were $8.9 billion, up 0.5% year-on-year on an organic basis, excluding divested businesses for the comparable period. Maxim's revenue, our associate, up 0.4% on improved mooncake sales and Southeast Asia restaurant performance, offset by weaker sales in Hong Kong and Mainland China. Subsidiaries underlying profit, $183 million, up 19% on a comparable basis. All formats improved their operating margin with the exception of Convenience due to reduced cigarette volumes. Our financing costs reduced as we paid down almost all our debt. The share of underlying profit from Maxims, up 9% due to stronger sales and lower costs. And the underlying profit is $270 million, as said, 35% up year-on-year or 18% up year-on-year on a restated comparable basis, excluding the loss-making Yonghui in 2024. The nontrading items, $36 million, they primarily reflect the losses of the divestment of Yonghui and Robinsons Retail, partially offset by the disposal gain on Singapore Foods. These items are all nonrecurring. The ordinary dividend per share, the $0.14 here, that's based on our new dividend policy, which we announced last year of 70%. The special dividend, $0.4430 we paid out last year. I think overall, full year 2025 represents a clear inflection point for the group. We transitioned from a portfolio-driven structure to a much more focused operating company with stronger earnings quality, lower leverage and a greater strategic flexibility heading into this year 2026. Going to the sales summary. As outlined in our Investor Day, growth, margins and returns are the key building blocks for us driving TSR. Turning to sales here on this page. We continue to see sales recovery across the format in 2025, reflecting improving execution and early signs of demand recovery. Overall, consistent like-for-like recovery, reaching 2% in the second half of 2025. Turning on to the formats. On H&B, we saw an almost 7% growth driven by continued share gains in wellness, stronger tourist traffic in Hong Kong and the growing e-commerce presence in Southeast Asia. Convenience, the total sales declined 1.5% due to cigarette volume reduction following a tax increase in Hong Kong in February 2024. Excluding cigarettes, sales increased 1% as we focus on growing higher-margin non-cigarette categories with RTE being the main focus. Food, sales were broadly flat, excluding the divested businesses as price reinvestment supported volume and transaction amid value-focused consumer environment. Home Furnishings, although sales declined 3.5%, a clear improvement from a decline of 12% in 2024. And that's driven by price resets, range rationalizations and accelerated digital penetration. And as said, Maxim grew 0.4% due to stronger mooncake performance and Southeast Asia restaurants. Breaking this down a bit more detail into half year numbers, so you can see the trends here better. Sales and like-for-like trends continue to improve throughout 2025 with a clear step-up in the second half across all formats, reflecting strong execution and stabilized demand conditions. On Health and Beauty, Health delivered sustained like-for-like growth, supported by continued share gains in wellness and the growth of tourist arrival in Hong Kong as well as this e-commerce I mentioned earlier, in Southeast Asia, particularly Indonesia and Vietnam, so double-digit like-for-like sales growth in 2025. A very strong performance in these 2 markets. On Convenience, sales remained pressured by cigarette volumes declines for the tax hikes, although a clear improvement here is seen in the second half of 2025, and that's driven by continued growth in higher-margin non-cigarette categories, particularly RTE. In South China, like-for-like sales were impacted by the intense subsidy competition from food delivery platforms, particularly in the first half of 2025. As we continue and grow RTE with margins about 4x as much as cigarettes, we expect the financial impact from cigarette sales decline to moderate from 2026 onwards as we anniversary the full year cycle of the cig tax increase. On Food, stable like-for-like despite a challenging trading environment. In Hong Kong, pricing reinvestment in the core basket items drove volume up 2%. Singapore Food, as Scott commented, benefited from the government consumption vouchers, which were only redeemable at supermarkets and hawker centers. And Cambodia delivered a very strong like-for-like, both in sales and also improved underlying margins. In Home Furnishings, you can see also here a clear improvement compared to 2024 and also the second half is much better. And that reflects all our efforts on price reductions, better entry price range options and we rationalized the noncore items throughout the portfolio. As a result, you can see that the volumes in the second half are growing. Sales might not grow yet, but the volumes -- underlying volumes in the second half for IKEA has been growing. If we then turn on to the operating profit by format. And you can see here also quite strong results and also a good recovery in the second half. Starting with Health and Beauty. The operating profit here reached $228 million, up 9% year-on-year, driven by strong performance on sales across all our markets. And the margin improved 20 basis points to 8.7%. Convenience, operating profit of $97 million, although down 6% due to the low reported cigarette sales, although the second half here also returned to profit growth, driven by the favorable mix towards higher-margin RTE categories. Food operating profit reached $62 million, a 15% year-on-year increase, driven by earnings recovery mainly in Singapore Food following the distribution of the government consumption vouchers we led to higher sales. Again, here, Hong Kong pricing investment drove volume growth but did not impact our margin because we offset the lower prices with better sourcing in our business. And last, Home Furnishings. Here, we can see improved margins year-on-year despite slightly lower sales, and that's because of significant cost optimization across labor, supply chain and rent across most of our markets. As a result of that, we had a $10 million uplift in profit for IKEA or Home Furnishings in 2025. Turning to the total subsidiary operating profit and the underlying profits. Starting with the subsidiary operating profit. The operating profit is post-IFRS increased 7% year-on-year, driven by broad-based improvements in subsidiary profitability with operating margin now 4.2%, up 30 basis points. The underlying profit, as mentioned earlier, is up 35% to $270 million, supported by stronger subsidiary earnings, as you see above, lower financing costs. We moved from a net debt to a net cash and a higher contribution from associates following the divestment of the loss-making Yonghui. The reported SG&A costs are slightly up, but on a like-for-like basis, they are down. There are a few one-offs, which are not recurring, and you will see this year that costs are coming down on the SG&A line. Turning to cash flow. Strong cash flow, $430 million cash -- operating cash flow, up almost 30% year-on-year. And our free cash flow grew 78% to $281 million in 2025, both because of underlying profit improvements, improved working capital efficiency and the interest savings, which I highlighted earlier. CapEx. Our CapEx was clearly below our guidance and ended at $149 million. Of the CapEx we spent, 50% of the CapEx is spent on stores and refurbs, 30% on digital and IT and the remaining supply chain stability and maintenance. We, however, remain committed, as you will see later in the guidance, to invest $200 million to $220 million per year, again, focused on store renewals and technology, particularly AI, as we will highlight later. Following the $1 billion of divestment proceeds, we moved from a net debt to a net cash even after returning $600 million to shareholders via a special dividend. And that move to the return to shareholders, as you can see here. Our total ordinary dividend is $0.14 in 2025, up 33%, and that reflects a stronger earnings, but also the increased payout from 60% guidance to 70% policy. We returned $740 million to shareholders, including $600 million special dividends, while we strengthened the balance sheet. We delivered a total shareholder return of 93% in 2025, driven by earnings recovery, portfolio simplification and disciplined capital deployment. And with this, we've outperformed our retail peers and major global indices. And last, the ROIC (sic) [ ROCE ] improved to 9.4% with a clear pathway to 15% by 2028 as we announced during our Investor Day. And with that, I would like to turn it to Scott for strategy and business updates. Scott Price: Thank you, Tom. For those who attended our Investor Day, this framework was presented. And the strategic deliverables are really just the anchoring structure by which we focus our investments and as well the priorities for each one of our formats in the business. We talk about the key deliverables in 2025, retail excellence, being really good retailers. We have, I think, a portfolio that brings synergy across, but each one has a different assortment. We have thousands of products in each one of our stores. The reaction to the inflationary environment meant that we really had to focus upon repivoting. So we had a good, I think, 12 to 18 months of really resetting our customer proposition and being really good retailers. In Health and Beauty, curating the range moving out of commodities, much more into functional value product lines. We're seeing great progress there. On Convenience, moving away again from tobacco into far more of the RTE, ready-to-eat. Food, really strengthened our proposition there as well the value to customers. And on Home Furnishings, enhancing the value of the product lines as well accessibility by the way that we have gone to market, in particular, in Southeast Asia, Indonesia on platforms. Access to customers, we have targeted, I think, appropriately, if we focus upon TSR and ROCE, the Convenience and the Health and Beauty range. There may be stores available in Food, Cambodia, 1 or 2 stores potentially in IKEA, in Taiwan. But for the most part, the majority of our store growth will come from those smaller format, high return and low CapEx because of the franchise model. Omni digital, more than 90 digital channels, that's apps, loyalty programs, the launch of our DFIQ vendor platform, all increasing the mechanisms by which we build a more powerful digital P&L moving forward. Good initial progress on media. So as you go through our stores, you'll see screens, you'll see advertising. Our proposition rather than going with Alphabet or Meta, we're going to have a higher purchase conversion because that new product launch is going to be right next to the product as opposed to seeing it late at night on your phone and trying to remember it the next morning. I think the retail media is quite a powerful opportunity for us as we presented in the Investor Day. And we continue to make progress. I think in terms of divestments, pretty comfortable with the portfolio as it stands today, now ensuring that we redeploy our capital moving forward into the highest value opportunities for shareholder return. We go through some of the formats in particular. I'm not going to go through each one of the aspects here. Tom unpacked the sales and the operating profit in detail. But overall, just this growing wellness focus upon, I think, the generation that traditionally has been the silver hair, they call it, I put myself in that category. But this next generation is far more health focused. And we are finding then an opportunity to pivot towards a younger generation on the health. We still have beauty, appropriate beauty, but it's functional beauty, hair care that has a far more beneficial derma as opposed to more traditional cosmetics. Hong Kong, Macau, again, tourists coming back. Our tourist stores had a 9% revenue growth in 2025, the second half higher than the first half. So we see that as an improvement. We exited the stores in China, return on capital invested being a huge driver of that and then focusing on the GBA strategy. A good increase in sales with Vietnam and Indonesia, a 10% and greater like-for-like growth across our stores. Own Brand, a critical part of delivering value while also good functional, I think, benefits to customers through our products, 35% improvement in gross profit productivity. We did close the nonperforming stores. Any healthy retailer continually assesses things change relative to pattern, competitive landscape. At any given time, you're looking at a single-digit percent of your store portfolio to ensure that you stay healthy. And a 38% growth across e-commerce in the Health and Beauty area. On Convenience, it was a year of transition, I think. So first, a good portion of our sales traditionally came from tobacco. 31% of our sales were tobacco-related transactions. Generally, that's a 1 or maybe a 2-item basket, and we shared that in the Investor Day. They're low margin. So there's a huge opportunity to pivot to ready-to-eat and also, I think, collectibles, creating fun transactions for customers who come into our stores to buy something new and generally then a larger basket. The innovation that we look at for ready-to-eat, it seems like half the population of Hong Kong goes to Japan at least twice a year, if not more often. And so again, that Japanese themed ready-to-eat excellence, and that is one of the benefits of the franchisor. Our penetration now, excluding cigarettes at 33% of sales, ready-to-eat, a substantially higher margin than traditional tobacco. Asians prefer hot food, and we see, in particular, in China. So across our stores, we're launching out food bars, which really is a small quick service restaurant. The challenge that we had is with that proposition, when you saw a bit of that platform battle that occurred, we were not part of that subsidy drive for the big players who apparently were trying to kill each other. And not making any money at it, from what we can see. But we were excluded from that, but we were picked up by the platforms from August as a quick service restaurant, and we saw obviously the value in that, in particular, when it came to those e-commerce click and collect, order online as you've gotten onto the train, pick up at the 7-Eleven near your office, bring that breakfast or that lunch back into the office. We also see, again, franchisee penetration is a great way for us to drive our ROCE with a lower CapEx intensity in terms of revenue growth. We've got, I think, good progress by the team. I think always want more faster, broader, bigger, our 7-Eleven team is looking very nervous right now, but I'm pleased with the progress and looking forward to more. Moving on to Food. Food was a huge year of pivot. The news last year, everyone going north to buy their groceries. And to me, that was a substantial risk. I see a huge opportunity for us based upon the deep knowledge of our Food team and the experiences they bring to drive basically affordable food in Hong Kong. We should not become the food desert that you see in many capital cities around the world. Hong Kong, I think, is unique in that way. So we have embarked upon pretty substantial investment in re-sourcing our product line to be able to eliminate traders, middlemen, all the ones who were adding an incremental margin and go direct across many of the product lines. We strategically identified 3 to 4 competitors in Shenzhen. We identified the 200 most common items in the basket. We shopped that basket and then we came here to Hong Kong. It was 18% more expensive at the beginning of last year. We achieved a 1% difference during Chinese New Year. As a result, with increased profit, we now are able to really, I think, bring forward quite a very powerful proposition in terms of the confidence that Hong Kong customers can shop here. They're not going to get a better deal in Shenzhen as well. We saw that in the volume growth. So we had a 2% volume growth as a result of all these efforts and a good solid start to the year during Chinese New Year, which tells me we are on the right path moving forward. Those strategic price investments, et cetera, while protecting margin we've seen in the results, again, second half better than the first half. Tom mentioned the Singapore government vouchers. We also, I think, have a unique opportunity in Cambodia, a business that was pretty small, not really doing much, all of a sudden became very interesting to us as a part of the portfolio. And we now plan 50 new stores, has a very good margin and a very good return on capital employed. So an interesting business. And we completed the Singapore divestment. Frankly, I think we divested at the right time. I think ex those Singapore vouchers from the government, the business will not be, I think, as attractive. And similar to Hong Kong to Shenzhen, you have the same challenges between Singapore and Johor Bahru, in particular, as we open up the train lines and ease up on the border, you're going to see a lot of those baskets going north. So I think our timing was very good. On Home Furnishings, excellent progress. Look, all of our formats were challenged by this change in customers, but I'd say IKEA was the most challenged by the macroeconomics. The fact that we do not have a high level of real estate transactions in 2025. Look, when people don't move, then they don't do home renovation and they don't buy heavy furniture, which meant that a good part of our portfolio assortment was challenged in 2024 and 2025. But we've made really good progress focusing on what matters. And so sensible, I think, investments for customers coming in, in particular, our marketplace area. But with that understanding of a different economic relative to the basket and the margins for the businesses, the team did an outstanding job of really cutting costs, which meant that despite challenged revenue we delivered, I think, quite a strong profit position. Taiwan continues to be a very good market for us with greater than 10% profit margins. We are quite unique in Indonesia. IKEA, the franchisor has only approved 2 markets around the world to test platforms. So we have a mainly Jakarta-based Indonesia, IKEA business with 1 store in Bali. We went on to Shopee in Indonesia and now are able to offer a good relevant part of our assortment to the entire country of Indonesia. which, of course, as in archipelago of 200-plus islands with 200-plus million consumers. So find that as an interesting opportunity moving forward. Again, those are more of those sensible splurges around portable items. No one's ordering a leather sofa online. So it's an appropriate assortment. And then scaling our Food business. Everyone loves a good Swedish meatball. We now, through research, we now know that 45% of our customers visit IKEA for food. And so you'll see that we have increased the overall proposition as well, importantly, reset the stores to make it more convenient to engage in our food assortment. On our digital, great progress on the digital ecosystem you see across here in terms of driving our online penetration, driving launches. And as a result, we had outstanding economic results. So our retail media grew 400%, 1,000 new in-store digital screens, which we are now making available to our vendors to invest in a media present. We now have 13 million active users. We now have 100 million-plus visits to our store each month. So that's, in essence, 20 million transactions a week now across the DFI portfolio, which is a very powerful data source and now 33 million loyalty members across all of our programs in the markets in which we operate. Yuu continuing to expand across platforms. We're now on Foodpanda with access to the data, which is very important as you think about when you interact with the overall platform. So this is another area where the media -- the digital media team and the data team know that we can do so much more, and I'm looking at them. And so we want to move faster, bigger, harder. He shake his head yes, which is a good thing. So with that, I'm going to turn it over to Tom to review our business outlook. Tom Cornelis Van der Lee: Thank you, Scott. On to the full year 2026 outlook. Starting with the revenue. Excluding Singapore Food, which we deconsolidated last year December, we expect to grow our top line organically by 2% to 3% as we continue to gain market share across our formats. The underlying profit expect that to grow to between $270 million to $300 million. And that implies a 13% to 25% growth, excluding the discontinued Singapore Food and Robinsons. So we go from $230 million restated last year basis to $270 million to $300 million. CapEx, we are further we're going to spend about $200 million to $220 million this year, half again on new stores and store refurbs, about 25% to 30% on digital and IT. And split on formats, about 65% on Health and Beauty and on Convenience, the remainder on Food and IKEA. The dividend payout, the policy we announced last year, 70% payout and our return on capital employed will go from 9.4% to between 11% to 13% for 2026. And with this, I hand over to Karen for the Q&A. Karen Chan: And with that, we'll open up the floor for Q&A. [Operator Instructions] First question, Jeffrey. Ming Jie Kiang: I'm Jeff from CLSA. So my first question would be regarding the organic revenue guidance, 2% to 3% for 2026. Presumably, we exited 2025 with a similar momentum. So can you walk us through maybe year-to-date, what you are seeing across different formats on the revenue momentum? And my second question would be on the guidance for -- sorry, CapEx for 2025. So it is quite meaningfully below the previous guidance we've received. So I just want to understand, was this some timing difference? Or was this something that happened that makes the CapEx has been low? Just anything would be helpful on that front. Scott Price: So I'm going to cover the first one. And Tom, who knows my view on the second one, will cover our performance on CapEx because I'm not a happy camper. But in any event, we had a solid start to the year across all formats and saw positive total and positive like-for-like consistently. I really do think 2025 was a very important year for us relative to the change in proposition, much more value-based, much more attuned to the customers relative to what they're willing to spend their money on. So very pleased in line with guidance is what I would say. And I think we can do more. Collectively, we gained share across most of the banners in 2025. I would like to see that continue into 2026. Tom, how do we feel about CapEx? Tom Cornelis Van der Lee: Let me try to answer this. I think -- first, understand is a big impact of Singapore Food. So we divested Singapore Food. And as we announced the divestment, we stopped most of our CapEx. There's no point to invest. But still, even without that, we're still materially below our guidance. And here, I think we have to significantly improve our planning. There is still a culture of holding on to your budget to the last minute and then realizing you can't spend it. So we have to improve planning. We have to make sure that if we give you a guidance that we are going to spend it because the spend is not just for spend's sake, it's to make sure we drive revenue and drive profits. So that has to improve this year so that we get back to our guidance $200 million to $220 million because we don't want to miss opportunities to get the top line and bottom line improved. Scott Price: As I said to our Board of Directors yesterday, as God is my witness, we will spend and invest the midpoint of our CapEx guidance in 2026. Karen Chan: Next question, please. Brian? Unknown Analyst: This is [ Brian ] from Citi. So I have 2 questions. My first question is that I see that 2026 guidance is actually not far away, I mean not too far away from 2028 guidance. So I'm getting a feel that we are getting more optimistic on the overall performance in the midterm. So I just want to check how you feel about that? And are we revising any of our medium target that we released in December? That's the first question. The second question is that just looking at 2026 alone, for each business format, is there any quantitative or qualitative the main target, main missions that you need to achieve in 2026? Scott Price: Tom, why don't you cover the first one? Tom Cornelis Van der Lee: On guidance, we've laid out the guidance in our Investor Day in December. And we said we want to underpromise and overdeliver, right? So we've seen good progress last year. This year, we expect also significant improvements on the back of improved underlying performance as well as lower cost. And on the back of that, we'll see how 2027 goes for that. But we are quite confident that we can at least meet and hopefully, at some point, exceed the guidance we've given you last year December. Scott Price: In terms of the by format, [ con call ], we were very thoughtful around how we positioned the Investor Day by format strategy. And again, in a customer-first environment, that retail excellence and being laser-focused on a winning proposition for customers, communicating that and ensuring that we are modernizing our digital proposition. I think in 2026, to Tom's point, we want to underpromise and overdeliver. '26, based upon the first few months and this sense of renewed customer confidence gives me good hope. But look, we live in a challenging world. Who knows what oil prices are going to do, what that could do to energy costs. Therefore, do we go back to a far more value-oriented customer. Some of that splurging may end. There is great strength in being a daily essential retailer, but it's not without its challenges relative to consumer confidence and people saying, you know what, I'm going to spend 10% less and save that or I need to paycheck to paycheck, put more into paying my electricity bill. So I'm cautiously optimistic, but it's way too early to change midterm guidance. Karen Chan: Any questions? Ben? Unknown Analyst: This is [ Ben ] from UBS. So I have 2 questions from my side. So first one is it's been 2 months after the Investor Day. So just wondering if you could share some updates with us on the e-commerce penetration and also the progress made on retail media, specifically 2 months into 2026. And then the second one would be regarding on -- in Hong Kong market. You know that Chinese e-commerce platform has been aggressively penetrating the market with cost subsidies. So how long do you expect this to last? And what would be our strategy? Scott Price: So on the -- again, it's been roughly 73 days. So a little early to change our minds in terms of, again, the midterm guidance. E-comm penetration, we made great progress. I think it was 140 basis points up to 6.2%. And look, we are after fair share. I'm not trying to win in the digital world. As you think about overall spend, what percent is e-commerce, we want to have a fair share of that. So we don't want to be left behind. The market interaction is wildly different. In Hong Kong, for example, it is some of the lowest e-commerce penetration in the world because there's one store every 20 meters. So why would you wait for someone else as well, there's a substantial for families, number of helpers who get sent out to do a lot of the shopping. Where I see us needing to focus is instant commerce. That will grow. You see this through the platforms. People forgot something, they want something quickly and as well retail entertainment or retailing -- no, that's not what it is. Retail entertainment, there used to be a word for it, I have forgotten, apologies. But people do shop online because it's interesting and it's an assortment that you can't necessarily get in the store. So I think we are in a good shape to continue to drive our e-commerce penetration relevant to the market share. It will grow because in markets like in Indonesia, it's very high. Access to goods in stores and brick-and-mortar is very limited, same as I think in Vietnam, where we see much higher growth. We will keep up and focus on that fair share, not ready to change the environment. In terms of the platform battle that took place in the North, I think that is calming down a bit. We actually, other than really the Guangdong impact to our 7-Eleven business, didn't necessarily see across the rest of our format portfolio a significant impact. I don't think trying to get across the border, a lot of those products don't move very well through the approval process with some of the ingredients, et cetera, in particular, in Health and Beauty. What we see is actually a reverse opportunity, which is there is a very large amount of our product line here in Hong Kong that's very interesting. Certainly, we see it through the Mainland to be able to now digitalize that and make that available in Guangdong. So we see the -- actually rather than necessarily a risk, we see it as an opportunity for us to be able to grow our business through some of those assortments being made available for purchase. We've expanded now the Yuu loyalty program into Guangdong. So I think that is a first step in being able to create a digital ecosystem that is far more in line with the retail porous border that's envisioned with the Greater Bay Area. Karen Chan: Okay. We'll move to online questions. Question from Jayden Vantarakis of Macquarie. He has 3 questions here. First, at the recent Investor Day, management provided clear segment and market targets for M&A. Are there any updates to share? Second, how is the progress on the franchising model for Guardian in Indonesia? And third question, margin improvement at IKEA is stronger than expected relative to what has been shared at the Investor Day. So what has gone well during second half of 2025? And is there more room for higher margins in 2026? Scott Price: Tom, I'll leave the margin improvement to you. So on the M&A, we're very clear what we will and what we will not do on M&A. I think that what we divested relative to minority positions will tell you very clearly what we don't want to do. We only want operating businesses that bring scale synergy to our existing business to allow us to continue to deliver on improved ROCE and improved TSR. This is a situation where we're in the market. We continue to look, I think, more strategically in the Health and Beauty and the Convenience store area, but would not say, I think, no to interesting affordable options in digital. The affordable piece is a little bit more challenging given the multiples on which many of the digital assets trade. So we will follow the policy. We will follow the procedure. M&A activity is episodic. And so we'll update you at the appropriate time. On Indonesia, we have 2 trial stores. You have to get the model right. You have to be able to ensure that a franchisee can make a living income and that this is a good return on investment for them. So you cannot go out with a proposition that has not been trialed and tested. So we trialed 2 stores. We're pleased with it. We'll do another 40 stores this year in terms of the Indonesia franchise stores. This is a model that you perfect over a couple of years before you really go after the substantial growth. So pleased with the pace, and it is, as referenced, in line with our commitment that we made during the Investor Day in December. IKEA margin... Tom Cornelis Van der Lee: On IKEA. So... Scott Price: Other than brilliant leadership by the IKEA team, right? Tom Cornelis Van der Lee: Absolutely. Martin and team did a fantastic job last year. But if you look at 2025, the big improvement in underlying profit is because of lower cost. So labor cost, rents, but also supply chain, so significantly lower cost in IKEA. Part of the lower costs, we have invested in lower pricing. So we saw that volumes are picking up, although sales are still down last year. So we now need to make sure that sales are up. And if sales are up, we will expect better results, but that will take some time. Investing in margin and investing in price will take time before it turns into higher sales numbers. But the initial signs are positive. So hopefully, we'll get at least a revenue stabilization in 2026, and then we'll see higher profits in the following years. Karen Chan: Your next question comes from Meg Kandy of CGS International. Congratulations on an exceptional year. Now with a strong foundation built looking forward into 2026, can you give us some color of the levers you're tapping for further shareholder return from here onwards? Scott Price: Tom? Tom Cornelis Van der Lee: On shareholder return, I think what we announced earlier is, for us, the most important driver is top line growth, right? So growth, and you see that the first 2 months of this year, we are in line with our guidance. And hopefully, some will exceed. So growth is a key driver. And we do that with the right pricing, the right ranging and the right stores. In addition to that, we started last year with a large cost optimization project. And we've seen the results in IKEA, but also across all our formats and also on our SG&A, our costs are coming down. So you can expect this year that SG&A on group level is coming down. That's another lever where you can see profits come to be increased. But in the long term, it's sales and margin. In the medium term, you'll see costs coming down. Scott Price: And probably what I would add to that is there needs to be an incremental value to this portfolio versus the breakup value. Otherwise, what's the point of it. And where I see value is across 3 areas. First, it's cost optimization. We have relentlessly focused on being able to ensure that we're an everyday low-cost operator. As a result, we are able to, I think, operate at a lower overhead as a percent of revenue than any nearby competitor by format. So that's first and important. The second is the synergy of the digital ecosystem. It is -- would be very expensive for all of our individual formats to try and create their own ecosystem, which means the e-commerce platforms and the e-commerce transactional capability, their own loyalty program, their own ability to drive retail media as well data monetization. And then the third is the value of the data holistically that we're able to bring through our loyalty programs. So we know customers better than anyone else and the ability to partner with vendors and be able to say through purchase behavior in IKEA, we understand that this is a young family about to have a child. That helps Health and Beauty personalize offers that are relevant to prenatal and then baby assortment moving forward. So the ecosystem to me is going to be a huge driver of this TSR moving forward relative to investing in a competitor who does a single format only. Karen Chan: Thank you, Scott. Next question comes from Adrian Loh of UOB Kay Hian. Congratulations on the strong set of results. For the Convenience business, you had around 100 net new stores in South China 2025. What are your targets for this in the near to medium term? Second question, on the M&A front, is there any more divestment on the horizon or we're feeling more comfortable with the portfolio we are standing at right now? Scott Price: Tom, why don't you cover the CVS? Tom Cornelis Van der Lee: As we shared in our Investor Day, the medium term 2028, our goal is about 2,400 stores by 2028 in Southern China and overall about 4,000 stores for 7-Eleven as a whole for all our markets. We did open last year 100 stores net. We did close some stores, those were loss-making. And we do always -- we open more stores and we close a few so making sure that the overall portfolio remains healthy. Scott Price: On the divestment side, I think that we have for the most part, eliminated the parts of the business that have been dilutive in terms of TSR and ROCE. It was not too many years ago. I think it was 2023. We had a 1.7% ROCE. We're now up to a 9%. And as Tom said, we aim for a 15% by 2028. In general, I think we've got the right portfolio. I think we have to keep a pulse as changing customer behavior. If we see a substantial move away from stores into digital, we may rethink maybe some of our store commitments moving forward and pivot more towards revenue coming out of the e-commerce, which we are on a good path to make neutral to accretive versus an in-store margin. So overall, I think we're in good shape, but we constantly evaluate. We've had a great year when it comes to TSR. We want to continue to maintain that great opportunity for the capital markets to use DFI as a mechanism to invest broadly in retail in Asia because we're multi-format, multi-country. Karen Chan: Your next question comes from Selviana Aripin of HSBC. Could you share your thoughts around the impact of inflationary pressure, such as higher oil price on your guidance in 2026? And if you could share some thoughts around sensitivity to oil prices, that would be helpful. Scott Price: Maybe, Tom, you add on. So just we've looked at it. We've actually looked at our supply chain. We've looked at our sourcing. We have modeled a 20% increase in oil prices. The reality is that as a large-scale daily essential, that as a percent of our net product is not substantial. We now have over 50 country of origins from which we source. We have the ability to pivot in terms of not only geographically where we source, but also, I think, through the right mix, able to mute any impact on customer pricing. If it becomes substantial at any given time, clearly, there'll be an inflationary impact. I think we would like to be the last to raise prices as a strategy. I think there's other things that we can do to protect the bottom line while also being able to serve our customers. Tom Cornelis Van der Lee: I think to add on, if we model a 20% increase in oil price for this year, we will still stay within our guidance. So it has an impact, and we'll do all we can to minimize the impact, but it will remain within the guidance. Karen Chan: Your next question comes from [ Tong Honxi ] of DBS Bank. Congrats on the strong results. Two questions here. First, given the recent Dingdong acquisition by Meituan, is there any change to your Hong Kong Food strategy? Second question, in Malaysia is your second largest geography outside of Hong Kong. Your biggest competitor is planning a listing this year with a valuation as high as USD 5 billion, which could bolster the firepower for expansion. Could you share your views that, that will affect, if at all, your overall competitive environment? Scott Price: In terms of the DDL, we actually are involved and engaged and are very aware of what that transaction. We have an exclusive relationship here in Hong Kong. We have their commitments. Frankly, we are a valuable customer to them. They are not a direct competitor to us in Hong Kong. So we see no conflict nor issue from that. In terms of how we look at the listing of AS Watson. I was raised in retail by Walmart. And it always was a bit perplexing to me, but now appreciate this view that says you want a really strong competitor. It is to your value to keep you on your toes constantly looking as to how you can be better. So if a listing helps them become a stronger competitor, net, I think we have an opportunity to, one, have a benchmark, but also it just ups our game as well as we move forward. So I don't see that as really a threat. We'll watch with interest, but we're focused on ensuring that we beat everyone, including those admirable competitors at serving our customers. Karen Chan: Thank you, Scott. Any questions from the floor? Unknown Analyst: I guess I have a follow-up question on the DFIQ. I know we are like 70 days after the presentation during Investor Day, but that we've launched the DFIQ portal, right? And for the DFIQ media, we also increased the revenue by fourfold. So are we like that serious about the 1% revenue contribution by 2028? And how do you see about the EBIT margin? Because if it's like more than 50%, then we have a meaningful contribution to the bottom line by 2028? Scott Price: So as we think about our TSR model, I'm very well aware that an omnichannel retailer has far superior P/E multiples than the traditional brick-and-mortar only. As we map our way forward, we are pioneers in this area. There is no substantial retail media player in the markets in which we operate today. DFIQ is a critical enabler for us to be able to create a seamless ability for vendors to go through DFIQ and access-specific screens in specific locations in the Health and Beauty in certain markets. At some point, I'd call us retail media 1.0, 2.0 is also going to get to a time a day relative to traffic patterns, et cetera, et cetera. We believe, again, through conversion of immediacy, a much higher effective proposition for a very substantial above-the-line media budget, including digital penetration coming across to us. It's been 90 days. Internally, the team knows more and more and more and more. If I were to say what is the area where we would potentially relook at midterm guidance, it's going to be in this area because it is so new. I do think in the future, I'm talking 5 to 10 years from now, 15 years from now, my North Star would again be the progress that Walmart has made in this area. We will never have digital as a reporting operating unit. It's too complicated and it's artificial. It's embedded across our formats. But speaking about what is the penetration of sales growth and profit growth from the digital proposition is an area that we're focused on as we progress forward. So I'd say watch this page, too early to guide anything other than what we said in December. Karen Chan: Thank you, Scott. If there are no further questions, this will conclude our session for today. Thank you very much for your participation, and we look forward to seeing you in our next analyst presentation.
Colin Hunt: Good morning, and welcome to the presentation of AIB Group's results for 2025, a landmark year for our company. I'm going to spend some time outlining the macroeconomic backdrop and giving an overview of the progress on our '23 to '26 strategy before handing over to Donal, our CFO, who will bring us through the details of our financial performance. 2025 was another year of successful delivery by AIB Group against our strategic objectives, priorities and targets. We're pleased to be delivering a profit after tax of over EUR 2.1 billion, representing a RoTE of 25%. In a looser monetary policy environment, our NII remained resilient, coming in ahead of expectations at EUR 3.75 billion. The strength of our financial performance and the scale of organic capital generation allowed us to grow our business, to invest in our business and to propose total distributions of EUR 2.25 billion, payout ratio of 105%, while still delivering an exceptionally strong capital outturn with CET1 ending the year at 16.2%. And 2025 was the year that AIB returned to full private ownership, having returned a cumulative circa EUR 21 billion to the Irish state. So it was a landmark year, a year of progress and closure, a year that positions us to build an ever better, ever stronger, trusted AIB in the interest of all our stakeholders and the economies and the communities that we serve. We remain resolutely committed to the sustainability agenda, an agenda that sits at the core of our strategy and at the very heart of our purpose. We're making good progress towards meeting our long-established 2030 targets with almost EUR 23 billion of green and transition lending deployed since 2019. And last year's new green lending reached an all-time high for us of 43% of all new lending, well on track to hit the 70% target we've set for ourselves. We're also continuing to decarbonize our own business with 92% of our electricity needs sourced from our virtual power purchase agreement from the output of 2 solar farms. The scale of the environmental and social lending opportunity and our excellent credentials in this space create the platform for continued success in ESG bond issuance, and I'm very proud of the fact that AIB is now one of the world's leading issuers of ESG paper globally. Our confidence in the outlook for AIB in 2026 and beyond is underpinned by continuing solid and consistent performance by the Irish economy. Growth in modified domestic demand surprised somewhat on the upside in 2025, and is expected to hover around 2.5% to 3% over the next few years, a rate of expansion that is reasonable in an Irish context and stellar compared to our neighboring economies across the Irish sea and indeed further afield. Our population continues to grow, and it's likely to exceed 6 million in the next decade. And our labor force exceeded 2.8 million people at the end of last year, representing an increase of an incredible 59% since 2000. And now that demographic bounty is a key driver of Ireland's economic success, and it creates a very positive operating backdrop for AIB, Ireland's leading financial institution. And while we've seen remarkable growth in the numbers of work in the country's GDP, the balance sheets of the country, businesses, households, individuals are all very conservatively positioned. Net government debt fell to 40% of gross national income last year and the downward trajectory is expected to remain a feature of the budgetary landscape over the coming years. Now the government is in a very strong position to deliver on its ambitious national development plan, which will see EUR 275 billion deployed in building a world-class public and social infrastructure here over the next decade. And meanwhile, households continue to delever with debt to disposable income running at about 40% of the post-GFC peak with the savings ratio running at 15%, an indicator of which is very well reflected in our own liabilities performance. Ireland remains a preferred destination for foreign direct investment. Now we will, of course, continue monitoring the international trade climate, but it's only fair to say that the performance in 2025 surprised on the upside, both in terms of investment and also in terms of export volumes. I made mention already of the government's NDP, a plan which will see a much needed ramping up of infrastructure -- of investment in critical infrastructure. And if this country is to consolidate and sustain its economic progress, we need to close existing gaps in housing, water, energy and transport infrastructure, and we need to do it at pace. We look forward to continued progress on the delivery of new housing with 2025 seeing over 36,000 new homes being completed. And that was the best output performance since the GFC, but it's still well a drift of the level of housing completions needed to satisfy demand. And we expect to see housing output continuing to grow year in, year out with the level of completions forecasted 45,000 in 2028, representing an increase of some 25% on the 2025 performance. But given the scale of unsatisfied demand that's out there, housing supply is going to have to reach levels well ahead of in-year structural demand if the market is to return to equilibrium. So challenges remain, but we are seeing good progress, and we are optimistic about the supply outlook and the opportunities that creates for our lending businesses, both in mortgages and development finance. Now looking back to the lending performance last year, new lending was 2% higher than in 2024. We saw a 4% decline in new mortgage lending in a growing market with our mortgage market share falling to 30%. Now I've remarked on many occasions that we do not target mortgage market share per se. Instead, we are focused on writing the right business at the right price. That said, it is important to note that not all mortgage market shares are the same. And we have a strong preference for having direct relationships with our customers as they embark on the biggest financial decisions of their lives. In the direct-to-consumer market, we remain by some distance, the leading player with a market share of 46% and the pipeline for the early months of 2026 looks very good. Personal lending was 4% ahead and now 88% of personal loans are applied for digitally across the group. Total property lending saw an increase of 25% of the subdued base of recent years. Corporate lending had a good performance with new lending up 8%, but this was offset by a quieter year for Climate & Infrastructure Capital in a noisy external environment. A number of deals which we expected to close in December tipped into January, and that business is off to a very good start this year. Now given the macro backdrop and the strong and visible pipeline ahead for the operation divisions, we are confident in our ability to deliver a medium-term lending growth CAGR of 5% out to the end of 2027. Our franchise remains exceptionally strong, and we are very pleased to be now serving more than 3.4 million customers with more new customers choosing AIB than any other financial institution in Ireland. And the trust that our customers, both long-standing and new place in us is underpinned by the resilience of our digital offering with level 1 service availability running at 99.99% in 2025 and by the strength of our physical presence with AIB having the largest branch network in Ireland. And that community engagement is key to our relationship with our customers, particularly for the very biggest moments in their financial lives who know that we are digitally trustworthy and we are there in person when it really matters. I'm pleased with the response of our customers to our enhanced savings and investment offering through AIB Life and Goodbody with total AUM now comfortably exceeding EUR 18 billion with plenty of growth in the pipeline. On a stand-alone basis, AIB Life is now showing real traction with AUM reaching EUR 3 billion, which was a 20% increase in 2025. Now as Ireland ages and government policy evolves, we believe there is potential for significant additional growth in savings and investments in '26 and beyond. We remain the bank of choice for new account openings with the group enjoying a market share of 49% of the flow and 40% of the stock of current accounts in 2025. Our Corporate and Business Banking franchise remains exceptionally strong, and we're going to continue to invest in secure and speedy digital enablement over the years ahead as we meet the evolving needs of these critical parts of Ireland's economic success. And of course, we remain the country's leading green bank, standing we will maintain as we grow the share of green lending and broaden and enhance the range of green products and services across the group. Looking now at the first of our strategic priorities, the focus on customers, their expectations and their needs is key to the long-term success of AIB. Through a data-driven approach to customer segmentation, we understand those expectations and needs like never before. And that unrelenting focus on our customers is paying dividends in the form of Net Promoter Scores with all-time highs in 5 of the 6 key customer journeys being recorded in 2025. Meanwhile, service levels in our customer engagement centers remain very strong, and we continue to invest in delivering an easier, more engaging and protective relationship with our customers. And we will use AI extensively to help us deliver that high-quality relationship of real trust. ABBYY, our AI digital assistant, whom we launched in December of 2024, is engaging now with an ever greater number of customers. Covering 66 customer journeys, ABBYY has assisted over 1.3 million customers since her rollout, and the feedback has been very positive, with particular reference being made to the speed and the ease of dealing with our digital assistant. 80% of our customers who call our engagement centers choose to continue dealing with ABBYY. We are continuing to make steady progress on our second strategic priority, greening our business. We're playing an active role in financing the transition to a more sustainable future. We've now deployed almost EUR 23 billion of the EUR 30 billion Climate Action Fund. And we lent an additional EUR 6.3 billion in new green and transition lending in '25, with the greatest contribution coming from retail banking, predominantly in the form of green mortgages, which now account for 62% of all new Republic of Ireland mortgage lending. Across corporate and business banking, we are the leading player in financing sustainable lending to the engines of economic development, while Climate and Infrastructure Capital is continuing to play an important role in funding solar, wind, bioenergy, waste-to-energy assets in Ireland, Britain, the European Union and in North America. The loan book in this division has now expanded to more than EUR 6 billion, and we expect to see further significant growth in '26 and beyond. And notwithstanding our ambition to be a champion of the transition to a greener future, the scale of the opportunity is simply enormous and continues to grow, allowing us to be highly selective in choosing the technologies and the geographies where we are willing to put the group's capital to work. Our third strategic priority speaks to ever greater operational efficiency and resilience, and I am very pleased to report accelerating progress right the way across the organization. We've invested significantly in resilience because it is fundamental to customer trust, and trust is the prerequisite for any credible digital ambition. We're continuing to strengthen, simplify and streamline AIB with a 40% decline in the number of legal entities within the group and ongoing decommissioning of legacy applications and increased digital automation of customer contact. We've invested wisely in AI with Copilot now deployed across the organization and the first wave of internal agentic assistance is now being deployed. We're making great progress in enhancing credit decisioning through nCino, which now handles 2/3 of all new SME lending. Our platforms remain resilient with world-class Level 1 service availability and 0 critical cyber incidents in 2025. And the rollout of push notifications on our app is making a material difference to the quality of our everyday customer engagement. There is so much more to come with our next-generation app set to launch in the summer. And by design, it will be more agile and flexible than any other app previously deployed by us, and it will be capable of rapid and high-frequency enhancements. Allied with the imminent launch of Zippay across the Irish retail banks, our customers are going to enjoy and experience a significant improvement in the quality of their digital interaction with us over the coming months. Now this foundation gives us the right to accelerate. Our new digital platforms can scale confidently because the underlying estate is stable, secure and well governed. The pace of technological change that we're seeing is unprecedented in the history of banking. Now our team has demonstrated clearly and consistently the efficiency, security, resilience and customer experience gains that they are capable of delivering. And given that track record of achievement and the speed of change that is now readily apparent, we believe that we can credibly build the future faster at AIB. Our annual investment in the business has increased from an average of EUR 300 million recent years to EUR 350 million last year and will rise to EUR 400 million this year and beyond. And the bulk of that increase is devoted to strategic projects, which will allow us to continue enhancing our customer experience, our digital agility and the resilience and the durability of our systems. We will build the future faster here and in so doing, continue to earn the trust of our 3.4 million and growing customer base. We are now well embarked on the final year of the strategic cycle. And while we're very focused on delivering on our targets for 2026 and continuing to generate attractive shareholder returns, our minds are inevitably turning to the next strategic cycle, which will bring us to 2030. And as we move through the months ahead, our plans and our targets will take more concrete form and we'll seek Board approval for what comes next in December before we share the full details with our investors and the analyst community. Now it would be premature of me at this stage to outline the set of performance indicators and parameters, which will guide the next phase of AIB's development. However, they will, I believe, be fully reflective of my own 2030 ambitions for this organization. I want AIB to be the best bank in Europe and the most trusted brand in Ireland. Now these may be audacious aspirations, but they're grounded in what we have already achieved together. We have made huge progress in recent years in reshaping and transforming the group in the interest of all our stakeholders. We have the leading customer franchise. We're generating shareholder value, including a RoTE of 25% and return on assets of 1.4%. Our organization is in great shape with 370 basis points of organic capital generation and EUR 2.25 billion return to our shareholders. And I'm very excited about what I know it can and will deliver over the months and years ahead. Now 2025 was a landmark year. We delivered against the commitments we set for ourselves. We performed ahead of expectations, and we did so with positive momentum across the business. However, 2025 was a milestone. It wasn't a destination. We've come a huge way in recent years with a strong capital base, a very clear strategic ambition and a market-leading position. AIB is well positioned for the future, and I remain convinced that our best days still lie ahead as we work relentlessly to build a better, stronger, more resilient AIB in the interests of all those who put their trust in us. Donal? Donal Galvin: Thank you very much, Colin, and good morning, everyone. I'm very happy and pleased to be able to deliver the financial highlights for AIB for 2025. We've delivered a profit after tax of EUR 2.1 billion with a return on tangible equity of 25% and earnings per share of EUR 0.933. Our total income was EUR 4.5 billion, which was down 8% on the year. That's broken down between a net interest income reduction of 9% and net fee and commission income increase of 4%. Our costs were slightly lower than expected at EUR 1.99 billion, which is up 1% on the year, and that gave us a cost/income ratio of 44%, and our FTEs were 3% lower year-to-year. Our gross loans increased 2% or 3% on an underlying basis to EUR 72.3 billion, and that included EUR 14.7 billion of new lending, which was up 2% year-on-year. Our asset quality remains resilient and our ECL coverage remains at 1.6%. We had an ECL charge of EUR 172 million, which represents a 24 basis points cost of risk. And our NPEs finished the year at 2.2% of gross loans, which is the lowest for a number of years in AIB. Our funding position remains exceptionally strong. We have customer deposits of EUR 117.2 billion, and that represents a 7% increase on the year, which is well ahead of our own expectations. Within wholesale markets, we issued AT1, Tier 2, Euro senior and Dollar Senior, leaving us with a very strong funding position. Our capital at the end of the year, our CET1 was 16.2%, well ahead of regulatory requirements, but that incorporates very strong organic capital generation of 370 basis points and very strong performance on RWA optimization initiatives. Our total distributions for the year are EUR 2.25 billion, representing a 105% ratio. EUR 263 million was already paid in November as an interim. We have a EUR 988 million proposed final ordinary cash dividend. And we've announced and already begun to execute a EUR 1 billion on-market buyback. I'll say on the income statement, I don't want to really repeat myself too much. Obviously, income was down 8%, as I previously mentioned. But notwithstanding that fact, we can see earnings per share flat year-on-year. Total cash dividend per share of EUR 0.5858 is up 58%. So really strong performance there, we feel on the returns. Our bank levies and regulatory fees were EUR 114 million in the year, and that includes EUR 94 million for the Irish banking levy. As we look into 2026, we don't expect any material exceptional items and our bank levies and regulatory fees, we currently estimate will be around EUR 140 million. Net interest income of EUR 3.748 billion, down 9%. I'll just try to walk through the moving parts here. There's a 42 basis points benefit from our structural hedge program. Obviously, related to this, a 45 basis points reduction in net interest margin from cash held with central banks. Customer loans and investment securities are down 22 and 19 basis points, again, just reflecting those lower interest rates. And on the liability side, we had a strong benefit from wholesale funding costs of EUR 119 million, and we had an associated cost of EUR 88 million as customers termed out some of their deposits. Our Q4 exit NIM was 2.69%, and it ends the year overall at 2.73%. This is an important slide, I think, for us to show how we have managed our interest rate exposure through the last number of years. Obviously, interest rates going from minus 50% up to 4% and landing down at 2% has meant that we have been -- have had to proactively manage our balance sheet. As we give our guidance for 2026, the assumptions that we make is that we'll have an ECB deposit rate of 2% and that deposit beta will remain at 20% as it was throughout 2025. We're very comfortable with our NII resilience, which we believe we have shown over the last number of years. And what gives me the great confidence going into '26 and beyond is that we have a growing and granular deposit base, which we have seen grow significantly over the last number of years. We see growth in all of our core markets of around 5% per annum, and we very proactively manage our balance sheet. We do this through our structural hedge program. I think last year, in the midyear, I would have referenced a EUR 15 billion increase in our structural hedge in 2025. Already this year, in the last number of days, we have executed an additional EUR 10 billion of structural hedge. The average yield on that was 2.3% and the average life was 5 years. So the impact that has is reducing our NII sensitivity to 100 basis point move or shock from EUR 378 million down to EUR 286 million. Some of the other moving parts with the structural hedge are that we expect to have EUR 6 billion of swaps maturing in '26, EUR 6 billion of swaps maturing in '27. Throughout '24, '25 and even earlier this year, I've talked about wanting to extend the duration, which is now expected to be 5% -- 5 years by the end of 2026. So we expect at the end of '26 to have a received fixed yield of 2.3% on euros and 2.7% on sterling. In addition, as we've talked about before, we have a large quantum of fixed rate mortgages of around EUR 21 billion. They have a yield of 3.1% and a weighted average life of 1.9 years, and that's relevant because we leave them unhedged, really to add a little bit of natural duration to our balance sheet. So I've really tried to summarize the position for year-end. We'll have an average life of 5.1 years on our euro hedge, and that will remain in place over the next number of years. And our received fixed yield is around 2.3%, so at stroke in the money. So looking through that and looking at that, that's what really underpins and gives us the confidence for our NII guidance to be circa EUR 3.8 billion in 2026. Other income was EUR 756 million, and our net fees and commissions were up 4% in the year. I think the main standouts really was in our cards business, which was up 11%, our wealth and insurance business, which was up 7%. And as we've talked about previously, this is a huge area of focus for the organization going forward. We have EUR 18.3 billion of AUM, as Colin would have mentioned, a number of years ago. Obviously, that would have been a much lower number or approximately 0. But obviously, post the acquisition of Goodbody, post the start-up of our joint venture with AIB Life, we feel we have a very strong foundation. So the Goodbody AUM is EUR 15.3 billion, which grew by 7% in the year. The AIB Life AUM is EUR 3 billion, which grew 20% in the year. I think in the coming years, what you should expect to see in this area is AUM growth of 10% per annum and revenue growth of 15% per annum. But that is going to be a massive area of focus for the organization linked to the huge customer numbers that we have, obviously, linked to a lot of the activity we are embarking on with respect to digitalization and personalization. Other income, some of the other line items can always be a little bit more volatile. I try to just update and guide as the year progresses. But overall, for 2026, other income greater than EUR 750 million. Our cost performance was strong in 2025, outturn of EUR 1.99 billion, which is up 1%. A few different moving parts here. Staff costs were down 1%, mainly due to reduction in headcount. G&A expenses up 6%. We're seeing some inflationary impacts there, higher business volume impacts there and also higher OpEx-related investment spend. So not all of our technology spends get capitalized, some also goes through our OpEx, and you will see it here. And our depreciation number is down 3% on the year, as we really tightly manage the execution of our big programs. So overall, that gives us a cost/income ratio of 44%. Like I said, our FTE reduction was down 3%, ending the year with 10,207 employees. And this is a trajectory we expect to maintain in the coming years. We believe that we'll be able to do it on an organic basis, obviously, as we go through the next number of years. Colin mentioned that we were going to increase our investment spend from EUR 300 million to EUR 350 million, up to EUR 400 million now in 2026. And we're going to really look to accelerate our digitization, which will enable faster innovation, scalability, enhanced security and obviously, operational efficiency. As a result of this, you can expect to see our depreciation grow by 3% or 4% per annum, but that is obviously going to be partially offset by ongoing cost-saving initiatives and efficiencies that come from the rollout of these large programs. But for 2026, we expect our cost to increase by 2%. With respect to asset quality, we had an ECL charge of EUR 172 million for the year, which represents a 24 basis points cost of risk. I'll just really simply break it down into 3 different areas. We had a write-back of EUR 52 million from macros, and that's really reflecting the fact that the way we saw the different range of outcomes post Liberation Day, the outturn, particularly in Ireland, ended up being significantly better. We had a EUR 210 million net charge relating to underlying credit performances, which is really just the normal movement of credit between stages. And lastly, with our PMA, we had a small charge of EUR 14 million in the year, leading us overall to that charge of EUR 172 million. So we have an ECL stock of EUR 1.1 billion and an ECL cover rate of 1.6%. We have PMA of EUR 254 million represents around 26% of our ECL stock. So notwithstanding all of the volatility that remains in the world at the moment, we feel we are very, very conservatively provided. So for 2026, we expect a cost of risk within the range of 20 to 30 basis points, and I look to narrow that as the year progresses. Main movements on the balance sheet side. Obviously, loans increased 2%, liabilities increased 7%. That obviously gives us an excess liquidity position. So what you're seeing here is an increase in the amount of investments we make in the treasury world. We bought an additional EUR 2.4 billion worth of bonds in the sovereign and supranational space in the Eurozone. And for 2026, I think you can expect to see that grow by another EUR 4 billion or EUR 5 billion. Loans to banks was EUR 48 billion, which included EUR 36 billion at the CBI and GBP 3.8 billion with the Bank of England. Overall, our loans increased by 3% on an underlying basis or 2% on a reported basis. Big FX impacts in the year, slight impact from some disposals in the year. But overall, I think we are more confident now than ever that we will be able to reach and achieve our 5% asset growth targets for '26 and '27. What we saw in 2025, I would say, was our wholesale businesses performed very strongly. Property market, still a little bit muted, recovering from the interest rate changes and valuation shock. Our personal consumer business performed very, very strong. And on our mortgage business, we saw growth overall in the year. As I look to 2026, I think what you can expect to see is growth in all of these areas, just slightly more. So our funding and capital position remains very strong. LDR of 61%, LCR of 204% and a net stable funding ratio of 163%. Our MREL ratio was 35.2% in excess of our requirements. So very, very strong foundation there. But I think the big story on the liability side or the balance sheet side for 2025 was really deposits and the deposit growth. So notwithstanding the fact that we had a movement of around EUR 2.4 billion of our customers moving to term, we actually had an increase overall in our current account and demand deposits. So 7% growth was an exceptionally strong outturn, though we do expect that to temper somewhat in 2026, more in line with modified domestic demand. There's no other reason there, no competitive environments that we're necessarily concerned about. It's just we feel that 2025 was maybe an unusually large growth area, but that remains to be seen, and we will obviously be able to watch that quarter-by-quarter. Capital generation for 2025 in AIB was exceptionally strong. We started the year at 15.1%. And then early in Q1, we had a Basel IV impact of 120 basis points. We had organic capital generation of 370 basis points from our business activity. We have a reduction of 390 basis points for distributions, as we've talked about. We engaged with the government and we canceled the warrants that they were granted in 2017 around the time of the IPO, and that had a cost of 70 basis points. Given our strong business performance, we had really strong DTA utilization benefit of 40 basis points. with some other equity movements of 20 basis points cost, which is really just AT1 coupons. And then in other RWA movements, we have a number of RWA optimization items where we had a strong outperformance. That includes execution of a mortgage SRT in quarter 4, the sale of our 49% shareholding in AIB Merchant Services and also the implementation of a new IRB model for our Climate and Infrastructure Capital business, which also had a positive benefit. That doesn't even incorporate the EUR 1.2 billion directed buyback that we did with the government in the first half of the year where we bought back EUR 1.2 billion of stock at a price of EUR 6.25 because that was obviously deducted from the prior year's returns. So the outturn of 16.2% is very strong, over 6% of capital generated in the year, which is really, really strong, and we're very happy with that, obviously, comfortably above all of our buffers. With respect to how we think about capital, same as prior years, come in on the 1st of January and drive a stronger business performance as is possible. So obviously, 370 basis points was the outturn for 2025, but I think you should be thinking even for the medium term, greater than 320 basis points on a sustainable basis and our deferred DTA benefit of circa 35 basis points steady state going forward. We're going to invest in our business in 2 ways. Number one, increase our investment spend and change in technology up to EUR 400 million. And we're obviously going to utilize more of our capital as we grow our balance sheet on a 5% annualized basis. We will continue to optimize our balance sheet wherever we can in whichever format we can. So we will do this through SRTs, where we've already issued 2 transactions, 2 different asset types. Obviously, the corporate transaction was done in '24. The mortgage -- AIB mortgage transaction was done in '25. And in 2026, we will look to execute an SRT transaction within our project finance or Climate and infrastructure capital portfolio. IRB model adoption and development is an ongoing theme. We do expect to have 80% of our balance sheet on IRB models by 2028. I've mentioned the benefit from the project finance model. 2026, we have 2 different portfolios, which we're hoping to review and conclude that being EBS mortgages and commercial real estate, but it's a little bit too early to know what the outturns there are going to be. And lastly, we look to deliver market-leading distributions. We've paid out over 100% in 2024 and 2025. We've paid out EUR 6.5 billion in distributions since 2023. For our ordinary dividend policy, we look to pay a sustainable dividend within a 40% to 60% payout range. Our ordinary dividend will be paid in cash. Our interim dividend will be paid up at 1/3 of the prior year's ordinary distribution -- ordinary dividend per share. With respect to additional distributions, we have capacity for above policy payouts, subject to annual review and necessary approvals. We have optionality to utilize share buybacks, special dividends or a combination of both as we look to move towards our medium-term target of greater than 14%. So wrapping it all up, our 2025 performance, we feel was strong, already achieved or outperformed our 2026 targets. 2026 guidance will be interest income circa EUR 3.8 billion, other income greater than EUR 750 million. Costs are expected to grow by 2%. We expect a cost of risk between 20 and 30 basis points. Loans will grow by 5%, and we expect deposits to grow by 2% or 3% and we will deliver a return on tangible equity greater than 20%. So for 2026 and beyond, we expect to deliver a strong performance in the final year of our strategy. Moving into the next strategic cycle, we have a lot of positive momentum in our business. Sustainable business growth and returns, strong organic capital generation, increased investment in our business and market-leading shareholder distributions. Our medium-term targets continue to guide the business and will be refreshed for our next strategic cycle this time next year. Thank you all very much. Colin Hunt: Thank you very much indeed, Donal. And now we're going to take some time for questions, and we're going to the phone lines. Colin Hunt: The first question comes from Denis McGoldrick in Goodbody. Denis McGoldrick: Just 2, please, if I may. So firstly, you're guiding to circa EUR 3.8 billion NII for 2026. Can you talk us through the moving parts within that year-on-year, along with any color you could give on NII beyond this year, please? And then secondly, you delivered 7% deposit growth in 2025. But could you talk us through the mix within that between interest and noninterest-bearing and how you see that evolving this year? Donal Galvin: Thanks, Denis. I'll take that one. Look, on the liability side, I think it's fair to say that the savings ratio in Ireland is a little bit higher than what people would have imagined. And I think the impact on the Irish banking system was pretty consistent. Notwithstanding that fact, we do think that the deposit market will normalize in 2026, which is why we think that the increase will be 2% to 3%. So it seems like a big drop, but I would argue that that's more due to 2025 outperformance, but we will be able to keep an eye on this on a quarterly basis. I think we don't expect any particular change in mix. Our deposit beta in 2025 was around 20% 2026. We expect to see something similar. So I would just use the same mix as you go forward. And overall, with NII, really nothing new here. I think -- I mean, taking the year-end position of 2025, believing and putting that 5% growth over the coming years, I think, is how you will be able to get closer to the numbers I have. Indeed, as I look at -- if I look at consensus for 2026, '27, '28, I've obviously given you '26 numbers, which are slightly better than consensus. '27 is in and around where we see things. I think 2028 consensus seems a little bit light on loans and obviously, on associated interest income. But for all of those years, '27, '28 will be greater than 20% return on tangible equity as well. I can certainly commit to that. Colin Hunt: Thank you very much indeed, Donal. We're now going to Diarmaid Sheridan at Davy. Diarmaid Sheridan: Two, if I may, please. Just firstly, on the capital and distributions. Could I just invite you to maybe talk to us about when you expect to get to your greater than 14% target, please? And I guess, Donal, you provided some of the outlining measures. But just given how strong capital generation is, I mean, unless you're significantly exceeding your distributions that you've exceeded -- that you've delivered in the last couple of years, it's kind of hard to see how it gets to that level without something maybe from an inorganic or maybe is there something we're missing? The second question just on new lending, just in terms of what the key drivers to get from to bridge from that kind of 2% to 5% growth. I appreciate underlying 3% in '25. And specifically, just on the mortgage market, I get the point you make around the direct channel. Clearly, the broker channel has become a much more significant part. I just challenge you as to whether it's sensible to remain out of that channel? Or is that an area that you're comfortable not to play a significant role in. Colin Hunt: Well, first of all, we don't remain out of the mortgage channel out of the intermediary channel. We have a presence there through Haven. And we've had a big prioritization of green mortgages in the past number of years. And in the final quarter of last year, we made some adjustments to our non-Green mortgage rates. We haven't really seen a huge increase in the size of the intermediary channel in the past number of years. But we do prioritize our direct relationship with our customers. That's what we want to maintain that direct relationship with our customers. But certainly, on foot of the quality of our digital engagement, quality of our in-branch advisory service, the length and breadth of the country and given those price adjustments we made for non-green rates in the closing quarter of last year, what we're seeing coming through now in terms of pipeline is very, very encouraging about the volume of mortgage growth we're reporting in 2026. Donal Galvin: Diarmaid, yes, I think with respect to the capital question, the -- moving towards our medium-term target of 14% being ambition for quite a period of time. That obviously as a baseline represents the amount of capital the organization thinks that it needs to run the business successfully, which is why we are focused on trying to get to that as soon as we possibly can. I would say 2025 was more around a significant outperformance on the capital front than any reluctance to return capital. I mean, and I'd say every of the big initiatives that we worked on, we came out on the right side of that, which isn't always the case. But generating 6% of CET1 in any particular year is a particularly large amount. But look, that's what we worked hard to do. And on any opportunity where we get to look at our balance sheet or any of our activities and make things more efficient, we are going to do that. Even if it drags me or pulls me further higher away from 14%, we will do that, okay? So we executed a mortgage SRT in quarter 4, cost me money, generated 25 basis points of CET1, but it was an implied cost of equity of 3% or 4%, okay? So we will continue to look to do the right things to optimize our capital. And on an annual basis, that's what puts us in a stronger position as possible to move towards that 14%, give our stakeholders, the regulator, the Board, the comfort and confidence for us to maintain payouts similar to the last number of years. Colin Hunt: Thanks, Diarmaid. Now we're going to Sheel Shah at JPMorgan. Good morning. Sheel Shah: Two questions from my side, please. Firstly, on the distributions. So the dividend payout ratio looks to be at the top end of your target range. Can I ask how you're thinking about the split of distributions going forward into '26 and beyond. Would you expect EPS to, for example, grow considering that we're already at the top of the payout ratio range and maybe attributable profits may be taking a bit of a step down next year? And then secondly, can I ask about the investment spend and maybe sort of leaning towards the mobile app and your data insights. Could I ask how much sense do you have of the number of AIB customers that can be potential wealth customers. And how much leakage do you have in terms of AIB customers that maybe go to other providers for services? I'm wondering how much of this you can capture within the group going forward? Colin Hunt: I'll take the second question and then Donal can do the distributions. Do you want to go first, Donal? Donal Galvin: Yes. Look, with respect to the distributions, I mean, from the half year, obviously, we knew the position that we were going to be in, by and large, financially speaking. So I mean, the way we try to look at our distributions, we'll talk to investors, we'll engage with the regulator and then we'll have our own particular thoughts on what the right mix is. This is the first year for us, obviously, being out of state ownership. We announced a new dividend policy, obviously, last year as well, and we were very focused on ensuring that we delivered cleanly, clearly and consistently against that. . So then the makeup with respect to the buyback and the cash dividend, it was -- I mean, a number of factors we had to take into account, one of them being market liquidity as well. We do a buyback that was particularly larger, it might even be difficult to execute within a particular year as well. So that's something that goes into our thoughts. We came out for the first time last year, and we said we'll pay a cash dividend within the range of 40% to 60%. And we decided to pay out at the top end of that range for 2025. Obviously, that's a strong indication of our desire to deliver strong returns to our shareholders. But look, on a go-forward basis, the most important thing, having a conversation around distributions, it goes back to how we think about capital and how we manage ourselves. When we come in on the 1st of January, work hard, deliver on the plans, then you'll generate strong returns. Like without doing that, you're not even having a conversation. So that really is our focus, and then we look and analyze the best makeup of returns in the last quarter of the year. Colin Hunt: Thanks very much indeed. In relation to the app, yes, we have 3.4 million customers, 85% of our customers are digitally active. The app is in the final stages of development. In fact, we have a pilot out there, which is getting very, very positive reaction at the moment, and we look forward to launching it in the summer months. And it's going to be a significant change to what we currently offer. It's going to be far, far more intuitive, far, far easier to navigate, far, far better functionality, and it will encompass all aspects of your relationship with AIB Group. The simple truth is that we really didn't have savings and investment products in the wealth space until we acquired Goodbody and until we established AIB Life. And we've seen our AUM now grow to the point of 18.3%. There's significant further gains to be made there. I've absolutely no doubt about it over the next number of years, and the app is going to make a difference in that regard as well. But that isn't the sole reason that we're increasing our investment spend. What we're looking at is a progressive transformation of our architecture. We've built a data warehouse in the cloud, world-class. We are investing in a new credit life cycle management system. We are building a unified mortgage platform, all of which will allow us to respond to our customers' needs in a far, far more agile, rapid and secure way because ultimately, this is about trust. We're going to turn now to Aman at Barclays. Good morning. Aman Rakkar: I wanted to just come back on capital, please. There's quite a few moving parts in terms of capital generation going forward. In particular, the SRTs and potential headwinds. So I think previously, you've kind of called out CRE, the kind of give back of the CRE component within Basel as a potential headwind. I don't know if you could kind of give us a kind of updated take on whether you still think that is the case. And if you could, in any way, quantify that, that would be really, really helpful. And I just wanted to just ask a bit more about SRTs and around the quantum -- like is there a limit on the amount of SRTs aggregate or cumulative SRTs that you'd be looking to have out at any one point in time? I just want to get a sense of the kind of ongoing run rate of SRTs beyond the kind of existing stock when we're thinking about building out capital from here? Donal Galvin: Yes. Look, with respect to commercial real estate, huge beneficiary from Basel IV effective rough numbers, the risk weightings went from around 100% down to 80%. I don't think that I'm going to have line of sight on that outturn until probably the end of 2026. And I don't actually expect an inspection until 2027. But I'm naturally just going to assume that we'll be given up some of that, but I can't quantify that at the moment. With respect to SRTs, the way we think about those and the way I've talked about this from the start, I want to have a program set up on multiple asset classes executed over multiple years. The reason I want to do this, it's not necessarily for capital generation, okay? We have plenty of capital. And obviously, with every SRT, I'm moving away from 14%, but it's really, for me, an RWA optimization tool and a risk management tool. It helps us at entity level or a business level manage returns. So corporate transaction done successfully in '24, AIB mortgages in '25. Similar sizes, like we look to target 20, 25 basis points of CET1 per transaction. We don't look to be very aggressive and do massive jumbo deals, okay, because it's -- that is not the exercise that we're trying to execute. 2026, we look at our Climate & Infrastructure business. It has a newly approved project finance model, a slotting approach. I'm going to imagine it will be -- there will be less inefficiencies. So the SRT may be less effective than others that we've done. It's just I want to have that asset class in an SRT program, which will help us risk manage it going forward. Beyond that, I will look at commercial real estate. I need to understand all of the data that we're getting from our IRB analysis, and then that will help me figure out how we want to target that market. That's more than likely going to be 2027. And then EBS mortgages as well is another area and another portfolio that I want to look at. I need to wait for the EBS to complete and conclude its own IRB on-site inspection, again, so we can see what the underlying data is telling us. I think they're the main asset classes that I want to get up and running. I want to have them up and running. They will endure. They will remain in perpetuity, certainly as long as they're allowed. I think the question sometimes comes up if different firms maybe max out, let's say, quantums, et cetera, then there's kind of questions from the regulator around associated counterparty risk. But we kind of want to do regular smaller transactions, very diverse investor base over the coming years. But each transaction look to save 20 to 25 basis points of CET1. Each transaction probably going to cost EUR 10 million, EUR 15 million. Cost of equity to date has been very, very attractive for us, but they are the kind of metrics you should be thinking about. Colin Hunt: Thanks very much indeed. And now we're turning to Guy Stebbings at BNP. Good morning, Guy. Guy Stebbings: I think most of my questions are covered. But just one bigger pitch question for Colin. You talked about wanting to be the best bank in Europe in sort of longer term. Could be seen sort of quite an ambitious statement. I guess best bank means different things to different people. So just interested in terms of what sort of metrics you would be thinking about when benchmarking this as such. Colin Hunt: Yes, it's an interesting question and one that was predicted to be landed on top of me today. Ultimately, this is -- we won't decide if we're the best bank in Europe. It will be our stakeholders that do. So whatever -- how do our customers regard us? How do our shareholders regard us. How do our employees regard us and of course, very importantly, how do our regulators look at us. And so it will be a compendium of their views that will determine if we will be a judge to be the best bank in Europe. I know what the team here are capable of. I know the scale of the ambition that we have, and I am very confident that we are going to do our utmost to be ranked amongst all those stakeholder groups as the best bank in Europe. And we'll obviously be updating you in 12 months' time when we have the actual parameters and metrics around how we are going to evaluate that. But it will be in the eyes of the various important stakeholder groups that we deal with every single day. Now turning to Rob Noble, Deutsche Bank. Robert Noble: Two for me, please. So the Climate Capital segment is the one that's growing fastest and presumably will grow fastest going forward as well. There's quite a pickup in Stage 3 loans and the cost of risk has stepped up. So what's going on in this division? And what sort of returns do you see that part of the business generating compared to the group as it scales up. And then just a follow-up on all the capital questions. At the bottom line, what sort of RWA growth you're expecting in 2026 pre the unknown IRB changes? And then do those IRB changes, do they affect your Pillar 2 requirement at all? And could that potentially lead you to lower the 14% core Tier 1 target? Donal Galvin: Rob, thanks for the questions. I'll take that. With respect to Pillar 2, let's wait and see. Overall, we have very detailed programs in place, working with the regulator where we're trying to close out various items on the to-do list. We've been very, very, I would say, efficient in closing those down and over the last number of years have seen a slow, steady improvement in our add-ons, but we are very ambitious in this area as obviously, our add-ons are one of the key ingredients to our medium-term targets. With respect to climate capital, a few different things there. So I mentioned that we have a new slotting model, which is approved, which is really what is used for the bulk of the activities in that area. We've begun to roll that out in quarter 3 and quarter 4. But looking through it all, if it had a -- if that business had a risk weighting density of around 90% pre that model, post the model, it's around 75%, okay? So that's one of the key inputs that you need for your returns analysis. The margins on the business are pretty consistent in different jurisdictions. And I would probably think about that being like a 2.2% margin business or certainly, that's what we model for when we're looking at the business and its growth and its trajectory. Costs are very low, obviously, given it's a very small professional wholesale team. And then it comes down to the cost of risk. For 2025, that division stand-alone had a very high cost of risk of around 110 basis points. Within that, there was around EUR 0.5 billion, EUR 500 million worth of fiber type transactions, all originated around 2019, 2020. And that's to do with the rollout of fiber throughout Europe, okay? Ireland, U.K., France, Germany, Italy, et cetera. So all of those deals are now -- or a lot of them, some are performing exceptionally well, such as in Ireland. U.K., not so much, delays from COVID, et cetera, et cetera, they are coming through now. So we took a few PMAs, quite an amount of PMAs, really just to ensure that in all eventualities, we were really well provided for. So you are seeing refis and equity recaps happening in that business at the moment. But if you took out that fiber portfolio, the cost of risk for that book was probably 5 or 6 basis points. Certainly for our planning assumptions, we use a cost of risk of less than 20 basis points. So if you put all that together, you can see the growth trajectory, and you can see that this is an accretive business for AIB and very heavily supported and strategically important for us. Colin Hunt: Thank you. Now I go to RBC. Good morning, Pablo. Unknown Analyst: I wanted to ask on fee income first. So you're guiding to AUM CAGR of 10% to 2028 with related revenue growth above that at 15% per year. So could you just please provide a bit more detail on what will drive that revenue growth going forward besides the demographic trends that you have already mentioned and perhaps also what the required investment -- additional investments are in that part of the business going forward? My second question was more on your deposit growth. I know that you've mentioned you expect that deceleration to -- from the 7% that you saw in 2025 to be more in line with the evolution of MDD. And I believe you also mentioned that you didn't necessarily expect a material headwind from changes in the competitive environment in Ireland. So I just wanted to check what you have been seeing in the last months in this year as well. And if you expect any material disruption given potential new entrants into the market, the ongoing transaction in Ireland, et cetera? Donal Galvin: Yes. Look, on the wealth, the way we're set up, and I'll just try to explain the guidance we gave you a little bit there. We imagine 10% AUM growth. I'd like to imagine that, that is on the conservative side. We have 2 businesses, high net worth within Goodbodys and then more mass market through AIB Life. Goodbody is obviously -- I mean, if we're able to acquire any smaller roll-up businesses in that space, we're really aggressively looking to pursue that avenue. And that will be, I would say, in Ireland, we would say EUR 1 million up of net worth. The AIB Life business has performed really, really well. It only started up a number of years ago. That is now fully functioning within the AIB construct. So it's a joint venture with Great-West Lifeco, where there's 140 advisers operating throughout the country and working through AIB branches with AIB colleagues. I think the statistics were maybe 40,000 face-to-face meetings or 35,000 face-to-face meetings last year with our customers. And we do expect this to just grow as we continue to roll out new products. And obviously, as the population matures and also educates a bit more on wealth products. So that's what gives us the confidence in this area, massive area of focus for us, not just with respect to customer acquisition, but also connectivity with our mobile presence and mobile banking apps as well, making that as easy as we possibly can for customers. On deposits, it's -- look, it's where -- I'm trying to be as open and clear about this as possible. And I will admit over the last number of years, I have underestimated liability growth for the organization. We're certainly very comfortable with our position in the market, okay? 49%, 50% of all new accounts being opened, and that's a huge area of focus for us, 40% of the stock. So we have no concerns necessarily over competitive threats in this area. It's just we felt that at some stage, a normal savings ratio deposit impact is going to come to pass. I was expecting a slightly different outturn in 2025. Obviously, I was wrong, and it was an outperformance. So let's see how it turns out in 2026. Is it conservative? I mean, who knows. But certainly, that's what our econometric models would show us. And indeed, if it's wrong, I'm sure we'll know it at the next quarterly Central Bank of Ireland report in any case. Colin Hunt: Now we're past the top of the hour, and we're going to draw matters to a close there. Thank you so much indeed for your attendance and for your questions this morning. If you have any other questions or any points of clarification, please do reach out to Niamh, to Siobhain, to John and Bernie on the IR team, and we look forward to engaging with you and indeed our investors face-to-face as the roadshow commences later on today. Thank you so much indeed.
Operator: Hello, everyone. Thank you for joining us, and welcome to the RJET Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now hand the call over to Keely Mitchell. Please go ahead. Keely Mitchell: Thank you, Warren, and thank you, everyone, for joining Republic's First Earnings Call subsequent to the Mesa merger. On with me today are David Grizzle, Chairman and Chief Executive Officer; Matt Koscal, President and Chief Commercial Officer; and Joe Allman, Senior Vice President and Chief Financial Officer. I will kick off our call today, reading the safe harbor disclosure, and then I will turn the call over to David for some opening remarks to discuss the strengths of Republic and our position within the regional airline industry. Following David, Matt will walk us through the Mesa merger and integration, key differentiating investments that have positioned Republic for the long term and our focus on long-term strategy. Following Matt, Joe will take us through the financial results, the fleet and provide guidance for 2026. We will then open the call for Q&A. In the Investor Relations section of our website, you will find the earnings press release and slide presentation to accompany today's discussion. This call is being recorded and will be available for replay on our Investor Relations website. Today's discussion will include forward-looking statements regarding Republic Airways' future performance, strategic initiatives and market outlook. These statements reflect our current expectations and beliefs based on information available to us today, but they are subject to various risks and uncertainties that could cause actual results to differ materially from our projections. The aviation industry operates in a dynamic environment with inherent risks, including regulatory changes, economic fluctuations, weather-related disruptions and evolving market conditions, that can significantly impact our operations and financial performance. Additionally, our business is subject to the operational and financial health of our major airline partners, labor market conditions, aircraft availability and other factors beyond our direct control. For a comprehensive understanding of the specific risks and uncertainties that may affect our business and financial results, I encourage all participants to review our detailed disclosure in our filings with the Securities and Exchange Commission, including our Form 10-K to be filed with the SEC. These documents provide important context and detailed information that supplement today's discussion and are/or will be available on both the SEC's website and in the Investor Relations section of our company website at rjet.com. Additionally, throughout this webcast, we will also present and discuss non-GAAP financial measures. Reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures to the extent available without unreasonable effort appear in today's earnings press release and presentation, which are available on our Investor Relations website. And now I will turn the call over to David. David Grizzle: Thank you, Keely. Good morning, everyone, and thank you for joining us on the call today. Before I dive into our presentation, I would like to give a thank you to our more than 8,400 Republic and Mesa associates across the network. These aviation professionals persevered through a challenging quarter navigating the longest U.S. government shutdown in history and significant winter weather disruptions, which have extended into the new year. Moreover, our associates who support our frontline associates have done extraordinary work to bring our merger with Mesa to the finish line and to set us up for success in the future. In the midst of all of this, we delivered strong results for the quarter and full year 2025. Let's start with the key messages about Republic Airways we will discuss today. Republic is a leader in operational excellence, and we have a highly experienced senior leadership team with 100-plus years of collective aviation industry experience. The leadership and vision of our executive team is focused on continuing to position the airline for long-term sustainable performance. We have made targeted investments in training infrastructure, technology and fleet growth that enhance reliability and expand our ability to support partners at scale. Our vertically integrated workforce pipeline gives us a structural advantage in a constrained labor environment. We maintain a strong balance sheet with an improving debt profile supporting financial resilience. And in 2026, as we execute the Mesa integration, we expand our scale, increased strategic relevance and position the company for greater breadth and long-term value creation. We reported Q4 results to date with an adjusted EPS of $0.54 and total revenue of $464 million, up 21% in Q4 versus the similar period in the prior year. With the closing of the transformational merger with Mesa, Republic Airways is now back in the market as a publicly traded company. For those who are new to the Republic story, we are the largest Embraer jet operator, with 306 E170 and E175 aircraft, which as a single fleet type drives operational simplicity. We maintain long-standing partnerships with American, Delta and United with our fleet diversified across those key partners. We operate 12 crew bases mostly in the Eastern U.S. and carried 21 million passengers in 2025, supporting 1,300 daily departures and more than 370,000 safe arrivals. Our operational performance remains our most important differentiator as evidenced by our delivering nearly 100% controllable completion and approaching 10 hours per day of utilization for each contract aircraft. In fact, in 2025, we had 349 days of perfect controllable operations, which is no small feat. Our 2026 financial projections reflect the execution with revenue reaching a $2 billion run rate with Mesa included on a full year basis. Projected adjusted EBITDAR strengthened to $380 million, underscoring operational leverage and improving profitability. Our business model is built on contractual revenue streams that significantly mitigate demand risk. Under these agreements, our partners are responsible for ticket pricing and demand management, while we are responsible for providing safe, reliable and cost-efficient operations. Our customers also bear 100% of the fuel risk. This structure allows us to focus relentlessly on operational deployment and cost discipline which are the core drivers of value in our model. Over the past 3 decades, Republic has consistently evolved its fleet, scale and structure, while remaining anchored in operational excellence in the CPA business model. We transitioned from a turboprop-focused operator in the late 1990s to an early adopter of larger regional jets, expanded through strategic acquisitions and ultimately sharpened our focus exclusively on contract regional flying. Today, with a unified E170, E175 fleet and the Mesa merger positioning us for greater scale and market share, we enter our next chapter as a stronger, more focused and strategically relevant regional partner. Regional airlines are the backbone of the U.S. air transportation system, serving 95% of the nation's airports that provide scheduled passenger service and providing the only source of scheduled air service to 64% of those communities. Regional airlines operate seamlessly behind the major airline brands and have undergone significant consolidation over the past 1.5 decades. In 2009, there were 16 top independent regional airlines competing in the market. Today, that number has narrowed through just four fully scaled independent operators. This consolidation highlights Republic's position as one of the few independent regionals supporting the largest brands in commercial aviation. Now I'd like to turn the call over to Matt, who has been a standout leader of public for over a decade and a great partner to me. As we announced in December, the Board expects to promote Matt to CEO within this calendar year. He has been instrumental in building our culture, strengthening relationships with our valued customers and driving operational excellence. In addition to his responsibilities as President and Chief Commercial Officer, Matt is also spearheading the Mesa integration. Matt? Matthew Koscal: Thank you, David. Republic is a high-density operator in the most competitive and capacity constrained markets in the country. In the New York City area, Republic records the highest number of arrivals surpassing even several mainline carriers. We also rank among the top 3 operators in both the Washington, D.C. region and Boston. This scale demonstrates Republic's ability to operate reliably and efficiently in some of the densest and most operationally complex aerospace in the U.S. Our presence in these core hubs underscores our strategic importance to our major airline partners. It also means that our flights can be more impacted by air traffic control issues than others. And therefore, the geography where we operate is an important factor when comparing our performance to others in the industry. This slide shows our current routes and reinforces the prior slide that we are highly concentrated in the Northeast corridor. With the Mesa merger, we enter our next chapter with greater scale, adding a new hub in Houston providing new access to international markets in Mexico. On the right side of the slide, we show our history of operational excellence over a 3-year period. Despite our concentration in heavily congested markets, Republic consistently delivered an industry-leading number of days with a 100% controllable completion factor. Republic Airways' long-term business plan is anchored in stable multiyear capacity purchase agreements or CPAs, built on the Embraer platform. We operate 275 Embraer aircraft with an average age of 13 years. Plus we have 31 aircraft in non-operating leasing relationships, bringing the total committed fleet to 306 aircraft. The fleet is diversified across American, Delta and United under a mix of debt finance, partner control and owned aircraft structures, demonstrating flexibility and shared investment with our major airline partners. Our contract exposure is also well staggered with average expirations extending to late 2028 for Delta, 2030 for American and into 2034 for United. Overall, we have long-duration revenue visibility and balance sheet optionality embedded within Republic's partnership-driven model. Of the 306 committed aircraft, 31% are debt financed with obligations generally aligned to the CPA contract terms, reducing refinancing risk underscoring a fleet strategy that supports long-term balance sheet strength and flexibility. 34% of the aircraft are owned outright with no encumbrances, providing significant collateral and financial optionality. The remaining 35% are partner controlled, meaning they operate without carrying the associated financial burden. Overall, nearly 70% of the fleet is either unencumbered or operated without direct financing obligations, underscoring a more conservative capital structure and reduced financial risk profile. Our team of aviation professionals deliver exceptional operational safety and reliability and truly demonstrate trust, respect and care for our passengers and partners. Republic as a company rooted in a distinctive culture of employee engagement and operational excellence. Our strong culture positions us as an Employer of Choice in the regional airline industry. Combined with our industry-leading Workforce Development Academy, LIFT, we have created a differentiated talent pipeline that supports long-term staffing stability and operational consistency. We have made targeted investments in training infrastructure, technology and fleet growth that enhance reliability and expand our ability to support partners at scale. Our vertically integrated workforce pipeline gives us a structural advantage in a constrained labor environment. The combination of Republic and Mesa creates a scaled regional platform with approximately 8,400 associates producing in excess of 865,000 block hours on a fleet of 306 aircraft. The combined company will operate 12 crew bases and serve 142 destinations, expanding scale, network breadth and scheduling flexibility. Together, the merger enhances scale, opportunities for our associates and operational relevance across our major airline partners. Now let's talk about the Mesa integration. The Mesa integration is structured around four clear work streams designed to deliver operational, financial and regulatory alignment over 2026 and 2027. First, we are consolidating back-office operations, including HR, compliance, finance and supply chain. This work is well underway and we expect it to be substantially completed by Q3 of 2026. Second, we're consolidating strategic operations and IT systems into a single cohesive infrastructure. We expect this work stream to be complete, except for our dedicated IT op systems by the end of 2026, with strengthened internal controls. Third, we are focused on fleet health restoration and full E175 harmonization to drive maximum utilization, compliance consistency and improved maintenance and inventory management across the combined fleet. This is a 2-year project. We expect to complete 40% of this work by the end of the year and finish the fleet harmonization by year-end 2027. Fourth, we are pursuing harmonization of the operating certificates in order to align manuals, maintenance programs and operational oversight so that we can create one unified airline from an FAA perspective at the optimal time. Finally, we are harmonizing labor agreements and seniority lists with a goal of implementing joint collective bargaining agreements with each of our organized labor groups. As we execute these initiatives, we expect to align our workforce, fleet and operations to compete more aggressively for future CPA flying. While integration costs are incurred during the transition, the end state supports stronger margins, greater efficiency and enhance long-term value creation. Now I'd like to turn the call over to Joe to walk us through Q4 and full year 2025 results, which include the 36 days of Mesa results since the merger closed. Joe? Joe Allman: Thanks, Matt, and good morning, everyone. It's great to be here with you. This morning, we reported fourth quarter GAAP net income of $5 million on 42.6 million weighted average diluted shares or $0.12 per diluted share. Our effective tax rate was 70% for the quarter, which is well above what we would consider normal. The effective tax rate for the quarter and the full year 2025 was negatively impacted by the non-deductibility of certain items. Total revenue for the quarter was $464 million, up 21% year-over-year, supported by a 23% increase in block hours and an 8% increase in overall average daily utilization per scheduled aircraft. This strong financial performance was despite the 3% lower completion factor for the quarter. During the quarter, we experienced 3,200 more non-controllable cancellations over Q4 2024 due to a combination of factors: the government shutdown, severe winter weather and air traffic control staffing. During Q4, we incurred $15 million in merger-related items. We expect integration activities to continue throughout 2026 and to be substantially completed by the end of 2027. Q4 net income, excluding the merger-related items and with an adjusted tax rate of approximately 29% was $23 million or $0.54 per diluted share. Pretax income adjusted for merger-related items was $32 million, up 14% year-over-year. Adjusted EBITDAR for the quarter was $83 million, up 27% over the same period. The improved year-over-year financial performance is attributable to the growth in Republic's fleet through the addition of new E175 aircraft at United and the removal and transition of some of those aircraft to a long-term operating agreement at American. In addition, the average daily utilization per scheduled aircraft increased and the quarter included the 36 days of Mesa's operations. Moving to the full year 2025 financial performance highlights which again only includes the 36 days of Mesa contribution, I'm going to talk to adjusted results, which exclude non-recurring costs related to the separation of our prior CEO and merger-related items. Please see our reconciliations for details. GAAP net income was $76 million on 40.7 million weighted average diluted shares or $1.87 per diluted share. Adjusted net income was $114 million. Adjusted pretax for the year was $161 million, and adjusted EBITDAR was $342 million up 31% from $260 million in 2024. Total operating revenues for the year were $1.7 billion, up $200 million or 13% year-over-year. Our adjusted effective tax rate was 29%. The company's overall fleet growth of 67 aircraft increased demand for higher fleet utilization and the 36 days of contribution from Mesa are the primary drivers of the improved financial performance, combined with our disciplined cost management. Our financial performance reflects not only strong operational execution, but also the continued trust our airline partners place in our services. Now turning to the balance sheet. We generated $322 million in cash from operations, up $226 million in 2024. After a step down in CapEx in 2024, investment increased in 2025 to support fleet growth. Despite increased investment, leverage improved meaningfully from 3.2x at the end of 2024 to 2.7x as of December 31, 2025, reflecting a healthier leverage profile. Our goal is to be below 2.2x by the end of year 2026 and with a long-term target below 1.5x. Net debt trends demonstrate active balance sheet management and strong growth with flexibility to prioritize additional paydowns as integration progresses. Our improving financial foundation supports a defined Embraer delivery schedule through 2029 with 26 future unallocated deliveries after the last three United placements are taken for this year. These aircraft provide visible capital-efficient growth opportunities for us in the future. Overall, the combination of lower leverage and committed fleet deliveries enhances our strategic flexibility and long-term value creation and we remain focused on maintaining our balance sheet strength. Now let's turn to guidance. For 2026, our guidance centers on black hour production, total revenues and adjusted EBITDAR as the primary operating and financial performance indicators. Block hours are expected to grow to 865,000 or more, reflecting a full year of Mesa flying and improved fleet utilization as maintenance harmonization progresses, and we have the full year effect of the aircraft added to our American relationship in 2025. This block hour growth should lead to revenues in the range of $2 billion, driven by higher aircraft availability and a full year of combined operations. Adjusted EBITDAR is positioned to expand to $380 million as utilization improves and integration activities begin to taper. Capital allocation remains a key focus with defined expectations for CapEx of about $90 million net of new financings tied to scheduled aircraft deliveries and other necessary operational and infrastructure CapEx and disciplined debt extinguishment of $165 million. Overall, we see 2026 as a transition year, balancing integration execution and debt reduction while positioning the platform for stronger earnings power into 2027 and beyond. And now I'd like to turn the call back to David. David Grizzle: Thank you, Joe. Republic's return to the public markets highlights the company with established market share and a clear path to continued growth. Our business is supported by a diversified set of long-term CPAs, a unified and efficient fleet and industry-leading operational reliability. Our proprietary workforce development model and employer of choice culture provides a structural advantage in a constrained labor environment. Strengthened financial positioning and balance sheet discipline further enhance flexibility or expansion. Our integration of Mesa will position Republic as an Airline of Choice as participants in the regional airline industry continue to further consolidate. Backed by a seasoned leadership team, Republic is well positioned to execute on multiple growth levers and drive sustained profitability. We appreciate the support of our employees, our partners and our shareholders. And we look forward to delivering on the commitments we have outlined today. Thank you again for joining us today and for your interest in Republic. Warren, we are ready to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Savi Syth with Raymond James. Please go ahead. Savanthi Syth: I was wondering with the transition this year and next, if you could quantify either the drag that you expect as a result of it? Or maybe put it another way, how much you can unlock once the transition is completed on the other side? Matthew Koscal: Savi, it's Matt. Great to hear you on the call. Yes, we aren't breaking that out specifically in our guidance. I can tell you though, our guidance for 2026 includes what we anticipate the drag to be. Where it could be accelerated is if we're able to achieve some of the milestones more quickly than we have planned, we absolutely would do that just to unlock the benefits of the enhanced operations. So as we go through the year, what we've got baked into our model is what we anticipated based off the work streams that I outlined in the prepared remarks. And as we go through the year, we'll give you updates on how we're tracking towards those milestones. If we think we're going ahead of schedule, we'll let you know what we think that increased drag looks like. Savanthi Syth: That's helpful. And just on the pilot side, you called out the kind of the unique tools that you have from a pilot supply building side. I was curious what you're seeing in terms of attrition, supply? And then also, just, I guess, during this transition period, are you seeing kind of elevated training or other things that we should take into account? Matthew Koscal: Yes. No, as we look at the pilot supply side, first and foremost, we feel really good about where we sit with our vertically integrated strategy, starting with LIFT, looking at the infrastructure that we've built out over the last several years with our campus, cadet, ambassador programs. Both of those initiatives have provided us with a really deep bench of folks who are waiting for class states today. As we look at the opportunity that we've had here with the training center, it's made us a clear Employer of Choice in the regional space. It's definitely been a magnet for us being the place that pilots want to come and begin their career and continue to move on and experience the opportunity to upgrade the captain. As we look at the attrition trend, last year, we had abnormally low attrition as we come into 2026, and we look at the hiring forecast from our mainline partners, we're expecting what we would call pre-COVID normal levels of attrition, which is healthy for us. It allows us to get back to a normal level of upgrades, which provides for that healthy career progression for our pilots, and we feel really good about what the trend looks like right now for 2026 and going into 2027. Operator: Your next question comes from the line of Michael Linenberg with Deutsche Bank. Please go ahead. Michael Linenberg: I just have two quick ones here. Joe, as I heard you talk about the future deliveries. I know you said that you have thee left for United and then there's another 26 that unallocated through 2029. Can you just -- I may have missed this, but can you give us a sense of what that CapEx is for 2026, maybe 2027, if you have to break it out between aircraft CapEx, non-aircraft CapEx? Joe Allman: Yes. So we have slightly higher CapEx in 2026 related to just some of the build-out of the integration with Mesa, some completion of the construction here at the Carmel campus and the three aircraft deliveries. We highlighted, I think, $90 million or so net of new financings on a gross basis, that's about $170 million. As we look into 2027 and beyond, I think we can -- I'll tell you, on a steady run rate basis, the business probably needs about $45 million of investment just in rotable spare parts, IT infrastructure systems, and that's probably a conservative number. I think when we look at the aircraft deliveries, I think it's a little premature at this stage. But I would tell you, we're working with the airline partners to identify placement opportunities and certainly refleeting or replacement aircraft is an option, but the realities are we're working with all three airline partners and the OEM on the timing of those deliveries and when they'll occur. The first delivery just to give you a sense, is really scheduled there in middle part of Q1 of 2027. Michael Linenberg: Okay. Okay. Great. And just my second question, just there was a lot of movement around with the integration and the ownership of your three partners now that the dust has settled, what are those positions? What are their percentages? And is there any -- are there -- are they subject to change? Like is there any sort of earn-in or earn out? I'm just trying to get a feel for that. Matthew Koscal: Yes. So there hasn't been any major change in our ownership structure from the premerger Republic shareholders. We've had a great working relationship with our existing shareholders, while we are in the private sector, had constant dialogue with them, and they've been great partners and very supportive of the investments we've made to put us in this position of strength as we sit here today. We'll continue dialogue, open dialogue with them to understand their needs long term and where they want to be and we'll be prepared to respond accordingly. But we don't have any further guidance on that sitting here today. Operator: [Operator Instructions] Your next question comes from the line of Catherine O'Brien with Goldman Sachs. Catherine O'Brien: I was just wondering, can you talk about how the conversations with partners on future growth opportunities have changed post merger, if at all? And then just in general, how would you characterize the demand for your product this year versus maybe the last couple, accelerating, stable, decelerating? Just trying to get a sense of the demand environment and how the merger might have changed on some of the tenor of those conversations? Matthew Koscal: Yes. No, thank you for the question. And the merger environment hasn't changed any of the conversation tone with our codeshare partners. We've got a long history of working with each one of our three codeshare partners. They've been incredibly supportive of our entire processes, both a private company and through the merger. As you know, we actually provide service, as we talked about in my prepared remarks, in some really difficult environments of operation for them. And we do that better than anybody else has done in the past or we believe can do today. So there continues to be strong demand for what we do, and in particular, where we operate. We see really bullish signals as we went into building our plan for 2026 on demand. You're seeing some of the same things we're seeing from our codeshare partners that they're building demand in different markets, in particular, Chicago this year, we're prepared to respond to the increased need there. But the tone hasn't changed at all as we transitioned from a private company into the public company sector. Catherine O'Brien: Okay. Great. Maybe just one more quick one on growth. One of your competitors last year placed a prospective order for E175 without having them signed up for partners at the time of the order. Is that something you would consider? Or you're looking to more move in lockstep with your partners as they commit to additional shells potentially in the future? Matthew Koscal: Yes. No, great question. We actually do have flexibility in our future order book. So as we look at our skyline of delivery today, we take the last three deliveries here for our United commitment this year. And then we've got 26 flex aircraft in our order book that allows us to be in a position to respond to demand in a variable fashion as it develops for our codeshare partners. I think historically, if you look, that would be something that we would not have done. But sitting here today, recognizing the strength of our balance sheet, the strength of our business portfolio and the need of our code-share partners being variable, we felt it's important to be able to respond to those demand signals when they develop. And we remain confident that as we continue to work in conversation with our codeshare partners and our OEM that we've got the flex to move that order to around appropriately to align it with the demand. Operator: There are no further questions at this time. I will now turn the call back to David Grizzle, Chairman and Chief Executive Officer, for closing remarks. David Grizzle: Thank you very much, Warren. And thank you all for joining us this morning. We are pleased to be back in the public markets, and we look forward to building our relationships with you going forward. Thank you all very much. Have a great day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Yu Guo: Good morning, everyone. I am Guo Yu Godfrey, MMG Chief of Staff. Welcome to our 2025 Annual Results Investor Conference. Today, there are 55 participants on site and 123 online. A quick note for our investors attending in person. Inside your seatback, you will find the Chinese version of the results presentation booklet. Please contact my colleagues at present. First, I would like to introduce the leadership attending today's meeting. Mr. Cao Liang, Chairman of the Board; Mr. Zhao Jing, Chief Executive Officer and Executive Director; Mr. Qian Song, Chief Financial Officer and Executive Director; Mr. Wang Nan, Chief Operating Officer; and Ms. Guan Xiangjun, Interim Executive General Manager of Commercial and Development. In addition, Mr. Troy Hey, Executive General Manager of Corporate Relations; Mr. Chen Xuesong, President of Las Bambas; and Mr. Xia Weiquan, President, Africa, also joining the meeting online. At the same time, we are honored to have the Chief Non-Executive Director of the company, [ Mr. Leung Cheuk Yan ] with us; and Non-Executive Director, Mr. Yue Wenjun, who is also present today. Please take note of the disclaimer on the screen. Today, we will report on the company's 2025 performance review, financial results, strategy and outlook. The management team will be available to answer your questions after the presentation. Now I would like to invite Mr. Zhao Jing, Chief Executive Officer of the company, to speak. Jing Zhao: Thank you, Guo Yu. Welcome, everyone, to today's results conference. I'm very pleased to see so many investors, analysts and friends from the media here in person. And I also thank those joining us online. Let's now begin today's presentation. First, I would like to report on the company's safety performance. Safety has always been a core value at MMG and our commitment and focus in this critical area have never wavered. In 2025, the company's significant events with energy exchange frequency was 0.8 per million hours worked. Total recordable injury frequency was 2.1 per million hours worked. While our safety performance consistently ranks favorably among peer companies of the International Council on Mining and Metals, safety indicators showed a slight increase compared to 2024. Therefore, we emphasize that the company will continue to focus on risk management and advance the prevention and control of high potential injury events. In practical terms, before any task begins, all potential risks, especially those involving personal safety must be fully identified and effective control measures implemented in advance. Work can only proceed when risks are under control. Safety is not just a slogan on the wall. It is embedded in how our work is planned and executed and the commitment to ensuring every employee returns home safely. Going forward, we will continue to maintain the highest standards. Next, I will cover the company's operational performance. I still recall that at last year's results conference, our company leadership mentioned, thank you, investors, for crossing the winter with us. Spring is about to arrive. Looking back now, for MMG, 2025 can be described as a spring of blossom and the harvest of fruit. It marked our first bountiful year. As you may remember, at the end of 2022, our Las Bambas mine faced 3 consecutive months of transport disruptions. It was a difficult period for the company, and it was during that challenging time that I took on my role at Las Bambas. Now thanks to the efforts of the company's management and all employees. We can see the light at the end of the tunnel. Las Bambas has achieved 3 consecutive years of stable operations. And in 2025, its copper production ranked among the global top 10. At the same time, production of other metals, such as zinc, gold and silver has also advanced steadily. Building on the strong momentum in the metals market, our financial performance has also seen significant improvement. In 2025, we set new historical records. Full year revenue reached USD 6.22 billion, a 39% year-on-year increase and full year net operating cash flow reached USD 2.69 billion, a 67% year-on-year increase, driven by revenue growth. Our net profit after tax reached USD 955 million, a 161% year-on-year increase with net profit attributable to shareholders reaching $509 million, a strong lift from $162 million in 2024. At the same time, our balance sheet continued to improve. In 2025, net debt fell to USD 3.35 billion, gearing ratio further down to 33%, both hitting historic lows. It is a fundamental truth in our industry. A mining company's long-term growth is built on its resource base. For this reason, resource replenishment has always been a core strategic priority for MMG. We consistently strengthen our foundation through ongoing exploration of existing mines and through high-quality external acquisitions. According to the company's resources and reserve statement as of June 30, 2025, our copper equivalent resources are close to 27 million tonnes with copper resources about 18.6 million tonnes. Geographically, our resources are diversified across a global asset portfolio spanning South America, Africa and Australia. This broad spread effectively reduces our exposure to risk in any single region and then significantly enhances our overall operational resilience. Exploration is a strategic imperative for MMG, essential for both unlocking resource potential and maximizing asset value. Our growing operating cash flow enabled us to increase exploration spending across all our mines in 2025. We'll continue to prioritize these efforts to drive resource growth and ensure long-term sustainability. In terms of sustainable development, in 2025, we officially joined the United Nations Global Compact, embedding the highest standards of human rights, labor and the environment into our corporate culture. At Las Bambas, our 3 years of stable operations signify not only continuity in production and transport, but also our commitment to the symbiotic existence of the environment and the community. Through the Corazon de Las Bambas project, we support local enterprise development, leveraging the government's works for taxes policy. We support local education and infrastructure construction, ensuring that development dividends truly benefit thousands of households. In Australia, the Rosebery mine has been operating for 90 years. Since 1936, the vitality of this mine has been sustained, not only by the professionalism and dedication of generations of miners, but also by the long-term -- long-standing trust and cooperation of the local community. We're guided by the principle that corporate value is built on the foundation of social responsibility. From the Andes to Africa to Australia, we are committed to responsible operations that deliver sustainable value for the long term. With a diverse portfolio spanning copper, zinc, gold, silver, molybdenum, lead and more, MMG is well positioned to navigate volatile markets. And 2025 was a year that put that diversity to the test and delivered. The metals market was marked by strong performance across the board. Copper prices rose 44%, gold climbed 65%, and silver surged an impressive 148%. These gains were driven not only by industrial demand, but also by the growing role of metals as financial hedging assets. Copper, our core metal illustrates the structural shift underway. The energy transition from EVs to AI data centers has made copper the lifeblood of the new industrial economy. Yet new supply faces mounting challenges, social and environmental approvals, geopolitical pressures and rising extraction costs. The result is a widening global supply gap. In this environment, our diversified and resilient portfolio is a distinct advantage. We are embracing the new cycle with confidence, well positioned to create sustainable value for our shareholders. Our vision for copper is clear to build a scalable, future-oriented portfolio that delivers long-term value. This starts with maintaining stable operations at our existing sites while driving strategic growth through disciplined expansions and new developments. Our twin-track strategy in South America and Africa is the backbone of that vision. Las Bambas provides a foundation of stability and cash flow. In Africa, we are unlocking the full potential of Khoemacau. Construction of the 130,000 tonne expansion is on track for first half 2028 commissioning. And this year, we begin a pre-feasibility study for a potential 200,000 tonne expansion, a clear signal of our conviction in the asset. While organic growth is our core focus, we're also actively pursuing external opportunities. Through disciplined M&A, technological innovation and early-stage positioning, we'll continue to strengthen our resource base and expand our growth horizons. There's a clear thread running through our zinc strategy. We see beyond the metal itself. We are transforming from a pure zinc producer into a multi-metal value creator while embedding low-carbon principles into everything we do. At Dugald River, we are steadily advancing the green energy transition, bringing clean energy to the heart of operations. At Rosebery, we are unlocking value from byproducts so much so that precious metals now contribute more than zinc, rewriting the story of this historic mine. That concludes the operational update. Now I'd like to hand over to Mr. Qian to walk us through financials. Song Qian: Thank you, Mr. Zhao. Good morning, honorable investors and analysts on site and online. I will present the financial performance and related outlook. As Mr. Zhao just mentioned, 2025 marked a historic breakthrough across multiple financial metrics for the company, driven by higher metal prices and increased production. Full year revenue reached USD 6.2 billion, up 39% year-on-year. EBITDA hit USD 3.4 billion up 67%, with EBITDA margin expanding to 55%, positioning us at a highly competitive level within the industry. Net profit after tax was around USD 960 million, up 161% year-on-year. Operating cash flow and free cash flow exceeded USD 2.7 billion and USD 1.6 billion, respectively, injecting strong momentum into our growth. On this foundation, our balance sheet continued to strengthen. Net debt fell to USD 3.4 billion, a historic low. Our gearing ratio improved by a further 8 percentage points to 33%, building an even more stable foundation for our future strategic initiatives. Now let's take a closer look at the financial performance of each mine. In 2025, Las Bambas delivered EBITDA of USD 2.83 billion, a 78% increase year-on-year with EBITDA margin of 64%. Ores from the Ferrobamba and Chalcobamba pits are blended with throughput reaching record highs and copper recovery consistently above 90%. With the mine achieving the scale effect of 400,000 tonnes of annual copper production, unit operating costs fell by 26%. Combined with higher copper and precious metal prices, this generated very strong cash flow. The Las Bambas joint venture declared its first ever dividend to shareholders with total distribution of USD 1.854 billion, of which MMG's share was USD 1.159 billion. Since March 2023, Las Bambas has now achieved 3 consecutive years of stable production with a very solid operational foundation. This steady step-by-step progress has brought Las Bambas to a major milestone from stable operations to dividend returns. It has truly become the engine and cornerstone of the company's value. At Khoemacau, following a profitable first full year after its 2024 acquisition, EBITDA reached USD 167 million in 2025, a 43% increase year-on-year. A new mining contractor is now fully mobilized and construction of the paste fill plant is progressing steadily. These efforts continue to strengthen the mine's operational foundation, paving the way for future capacity expansion. On February 6, 2026, construction of the 130,000 tonne expansion project officially began. Once commissioned, the mine's C1 cost is expected to fall below $1.6 per pound, positioning it among the global cost leaders and opening new avenues for future profit growth. We are fully focused on breaking through production bottlenecks and unlocking growth momentum with operational progress and market opportunities now moving in sync. At Kinsevere, EBITDA reached USD 100 million, up 49% year-on-year. This reflects higher production, lower cost, the continued ramp-up of the expansion project and the positive impact of higher copper prices. After a clear-eyed assessment of the challenges, including cobalt export quotas, power supply volatility and fiscal and tax uncertainties in the DRC, the company recognized an asset impairment of USD 290 million. We believe this impairment creates the conditions for Kinsevere to improve its asset base, shed past burdens and move forward with greater agility to unlock future value. We are confident in overcoming the power supply bottleneck and building strength through these challenges. On one hand, we're taking multiple measures to secure power supply, including continued deployment of a 12-megawatt diesel generator set and battery energy storage system, while actively expanding our power cooperation with SNEL. On the other hand, upgrades to core facilities are progressing in an orderly manner, including flotation line, roaster and electrowinning tank house, laying a solid hardware foundation for higher capacity and optimized costs. Now turning to the financial performance of our 2 zinc mines. In 2025, the Dugald River mine produced 183,000 tonnes of zinc, a 12% increase year-on-year, a new record since commissioning. Recovery rates remained consistently above 90% and core throughput exceeded 2 million tonnes for the first time. This strong production performance, combined with higher zinc and silver prices drove mine EBITDA to USD 176 million, up 4% year-on-year. The Rosebery mine continued to demonstrate the unique value of its multi-metal model, driven by strong prices for byproducts such as gold, silver and copper, mine EBITDA reached USD 168 million, a 36% increase year-on-year. Notably, mine EBIT also exceeded USD 100 million, 2.5x that of 2024. This multi-metal synergy has added significant depth to this century-old mine, positioning Rosebery to move steadily toward its next century. This concludes the summary of our asset financial performance. In 2025, we saw not only a significant increase in copper prices, but also month-on-month gains in precious metal prices. With effective cost control across our mines, gold and silver made substantial contributions to the C1 cost credit becoming an important pillar of our profitability. Supported by strong operating cash flow from stable operations and a favorable market environment, we will steadily advance our CapEx plans. In 2026, CapEx is planned between USD 1.6 billion and USD 1.7 billion, focused on 2 key areas. First, securing the presence, sustaining CapEx to strengthen our existing operational base focused on core mines such as the Ferrobamba mining area and the tailings storage facility expansion at Las Bambas, providing a solid foundation for stable production. Second, investing in the future. Approximately USD 400 million is planned for the Khoemacau expansion project in 2026, using growth capital to drive our future growth engine. The project's total capacity intensity per tonne of copper is expected to be controlled below USD 15,000. Every investment we make is aimed at more stable output, better costs and more sustainable growth. While advancing our CapEx plans, we remain firmly committed to maintaining a healthy balance sheet. Two key initiatives contributed to this in 2025. First, the inaugural dividend from the Las Bambas JV, of which MMG's share was USD 1.159 billion. Second, the successful issuance of a $500 million zero coupon convertible bond, replacing existing shareholder loans. Leveraging these initiatives, we made several early debt repayments, including the early repayment of USD 500 million in debt for the Khoemacau JV, further reducing our interest-bearing liabilities. As of the end of 2025, our gearing ratio reached a new low, and our asset liability structure was further optimized. Compared to our peers, our gearing ratio is now below the industry average. A healthy balance sheet is the foundation that allows us to navigate cycles and achieve stable long-term growth. Now let's warmly welcome Mr. Cao Liang, Chairman of MMG, to address us. Liang Cao: Good morning, everyone. It's a pleasure to be with you today. This year's report is particularly meaningful for me. In my new role, I am deeply focused on governance and long-term strategy on behalf of the Board and our major shareholder. And I'm genuinely proud of what we've accomplished, steady progress and real results across the business. So I would like to thank Mr. Xu Jiqing, our former Chairman, for his effort and contribution to the company's development. Now on this slide, you can see our overall corporate governance framework. For MMG, our tangible strengths are clear, high-quality assets and operational excellence. But our true competitive edge comes from something less visible, yet more fundamental, our mature high standard governance principles and the professional international multilingual management team. This is the very foundation of our stable and long-term development and the key driver of our continued success. We have built a strong, reliable and effective corporate governance framework. The Board oversees the company's strategies and policies, ensures adequate capital and management resources to support their execution and provides comprehensive oversight of financial controls and compliance. Our Board committees such as audit and risk management, and governance, remuneration, nomination and sustainability provide strong support for strategic decision-making and risk control. At the operational level, the Executive Committee manages day-to-day operations and reports business progress to the Board. With extensive international mining experience, our senior management team ensures seamless coordination across asset operations, acquisitions, business development and stakeholder engagement. This year, we established the Innovation and Technology Steering Committee to guide the strategic direction and governance of our technology portfolio, driving digital transformation and smart innovation to power the next phase of growth. Looking ahead, we will harness the collective energy of our Board, employees, partners and stakeholders to build a truly global mining enterprise. With an open mind, we will build consensus. With pragmatic action, we will meet challenges. And with firm conviction, we will create lasting value together. And here on this slide, you can see our vision. Building on the solid governance framework, MMG's management has a long-term vision to create a leading international mining company for a low-carbon future. As the flagship overseas mining platform of China Minmetals Corporation, MMG plays a critical role in supporting its major shareholders' strategic goal of achieving over 1 million tonnes of copper production by 2030. On this journey, we'll advance on 3 fronts. First, driving operational excellence through innovation, controlling costs rigorously, maximizing efficiency and unlocking value through technology. Second, deepening organic growth, focusing on copper and strengthening our production base through optimization and expansion of existing assets. Third, positioning for external growth, building a robust pipeline of opportunities with an emphasis on early-stage projects to create new possibilities and growth momentum. With these measures, I'm confident that MMG will navigate any future metal market cycle with resilience and live up to the trust of every shareholder. For 2026, our goals are clear and our priorities are focused. On the production front, we expect full year copper output of 490,000 to 530,000 tonnes, and zinc output of 220,000 to 240,000 tonnes. To achieve this, we'll focus on 4 priorities: strengthening operational excellence, advancing stable growth, building financial resilience and delivering sustainable returns to our shareholders. Finally, on behalf of the Board, I want to express my sincere gratitude to all employees, shareholders, partners and friends for your continued trust and support. Thank you all. Unknown Executive: Thank you, Mr. Cao. And thank you to all our leaders for their presentations. MMG attaches a lot of importance to market value management and shareholder return. We're of the view that market value is not only the market's fair judgment of our company's value. If we do a good job in market value management, it is also an important communication platform with investors. By listening to the market and investors, we can better understand market expectations, and we can also integrate internal and external wisdom. Now in 2025, altogether, we have organized 164 investor communication sessions. And then we also organized on-site visits to Las Bambas. For the whole year, there are more than 2,000 investors whom we have communicated with. So this is a reflection of the IR department's work. Looking into 2026, so on the screen, you can see 6 points. So we will continue to do a good job. We will work hard to achieve win-win for the company as well as investors. Yu Guo: Now we will move on to Q&A session. You are most welcome to ask questions. First question, the lady on the second row here. Hanyin Yang: Management, I am Hannah from MS. Congratulations on the company's outstanding results this year. I have a few questions. First, this year, well, it is March now. And then in Peru, it is quite close to the election. So regarding Las Bambas, can you comment on the overall operation and also some update on the Peru election? Second question, for Phase 2 Khoemacau, it was approved, and it is expected that it would be commissioned in the first half 2028. In relation to the amount of resource and production volume, do you have concrete plan and goal for the 15th Five-Year Plan? In Canada, for the copper zinc mine, will there be some projects that will be started? Third question. So regarding the Brazil acquisition, what is the latest status? Do you have any time line that you can share with us? Jing Zhao: Thank you for the questions. First question is about Peru and Las Bambas operation and also the impact from their election. Well, Mr. Chen is now responsible for the operations of Las Bambas. I will defer to him. And then later on, I will elaborate. And then the next question is about Phase 2 of Khoemacau production volume. And then we will ask Mr. Chen to answer and Mr. Wang can supplement. And then regarding Brazil acquisition, Ms. Guan can comment. Okay. Mr. Chen, please. Can you please answer the question on Las Bambas? Xuesong Chen: Okay. Thank you very much for your question. For Las Bambas, for 3 consecutive years, we achieved very stable operation. In 2025, we had very good production outcome. As you said, in Peru, in April this year, they would have election. In order to stabilize operation, together with the local communities and various tiers of government, we had already entered communication -- forward-looking communication and continuous dialogue. At the same time, we have put in place a contingency plan. On site, we have established a strategic mine reserve so that for our mine, even under special circumstances, it can still achieve stable production. Besides, we will continue to pay attention to external situation and make adjustments to our strategies in order to guard against risk. In this way, we can ensure the security and stability of our annual production. Jing Zhao: Thank you for the question. Let me supplement. Las Bambas has been operating in Peru for more than 10 years. And over the past 10 years, we had seen the changeover of government and President a number of times. So our major work is to ensure stable relation with local communities and government. At the same time, there is also local project in Las Bambas to enhance our community relations. So basically, we focus a lot on making all preparations with local communities and local government. As I said earlier, in order to guard against risk, we have done a lot of preparation to stabilize production. For example, reserve and also supplies of important materials are being ensured so that we have the room -- enough room to guard against risk. That's the first question. Xuesong Chen: Next question about Khoemacau Phase 2. Regarding Khoemacau Phase 2 project, in -- at the end of Q1 2028, it would achieve 130,000 tonnes of capacity scale. And then during 15th Five-Year Plan period in 2026, in the first year of the 15th Five-Year Plan, we already started the Khoemacau 200,000 tonne pre-study or examination. So by 2030, we believe that we are able to achieve the production scale of 200,000 tonnes. Jing Zhao: Mr. Nan, please, can you supplement? Nan Wang: Yes. Yes. Let me supplement. Regarding resource volume at Khoemacau, since MMG's takeover, we have already started a lot of exploration work. At present, a lot of exploration equipment and personnel have already entered the site and have started work. So we firmly believe that in 2026 and the years thereafter, through all the exploration work of target areas and actual exploration work as well as exploration work by drones, we will be able to expedite our work. Hanyin Yang: Well, regarding the company's mines, well, not only about Khoemacau reserve and production target, I would like to also ask about the other mines during the 15th Five-Year Plan. Jing Zhao: For the 15th Five-Year Plan, we are now devising the strategies. And when we have clearer guidance, then we can let the market know. The next question is about the Brazil Nickel project. Ms. Guan, please. Xiangjun Guan: Thank you for the question. Now actually, last year, in October, our company announced to the market an update on our exploration work. As said earlier, regarding the project, we have put in place a 3-year exploration plan. So through these 3 years exploration work, we hope to be able to enhance the Izok and High Lake mines resource volume. Based on current exploration result, especially the work done last year, progress is very satisfactory. However, we will do further analysis so that our resource volume this year can be better realized in the exploration report. Regarding our work this year, we'll continue our exploration work, and it will continue in the coming 2 years. Regarding the development plan, for this asset, resource volume has a good foundation. However, it is close to North Pole. So there is a lack of infrastructure. So in the past almost 10 years period all along, we have been urging the Canadian government to work more on infrastructure, including roads and ports. And when various governments pay more attention to critical metals, the Canadian government had also enhanced this item in their agenda. So recently, we have expedited our work with the Canadian government and also local indigenous villages communication. So we can only develop this project with the support of local government and indigenous communities. So regarding this project, it is going to be of a longer term. Comparing with the Botswana expansion project, this is going to be of longer term. Early this year, well, you can see a better relationship between China and Canada. This is a good timing. It is favorable to our further studies and further plan of this project. The second project is about Brazil Nickel, okay? At present, we are in the process of EU's approval. And at present, we are working closely with another working partner to get the approval. So we hope that within first half this year, we can get the approval from EU and then we can complete the settlement of this project. Thank you. Yu Guo: Okay. The gentleman on the first row, please. Unknown Attendee: Congratulations on your good results. I have 2 questions. I'm a reporter. For Las Bambas, last year, copper concentrate produced 410,000. This year, the target is 400,000 tonnes. So it is rather conservative as a target. Is it related to the election? What will be copper price like in 2026? Are you going to spend some CapEx on the expansion of other potential projects? Jing Zhao: Thank you for your questions. You talked about 410,000 tonnes Las Bambas production volume and this year's estimate. Well, Mr. Qian can comment and then our CFO will talk about CapEx. Song Qian: Thank you. Let me -- thank you for your question. In 2026, we believe that regarding our production volume guidance, it is going to be a reasonable one. Based on existing resource volume and foundation, we will maintain a high level production. So we will optimize the Ferrobamba and Chalcobamba pits. At the same time, for the process plant and also related facilities and technology, we will make investment. So we are now in the process of assessment of various options. When we achieve critical progress, we will disclose to the market. We think that the existing production volume guidance is a reasonable one. It is not a very conservative one. Jing Zhao: Right. Mr. Qian, please. Song Qian: Regarding copper price outlook, well, we are positive, especially for the long-term copper price increase. But for short-term copper price, we will not make a concrete judgment. That's the first point. Secondly, regarding CapEx, in 2026, our CapEx will be at USD 1.6 billion to USD 1.7 billion. Now we have taken into consideration the market environment with rapid increase in copper price, how can we deliver maximum return to shareholders? We'll seize this opportunity to increase production volume as soon as possible. So we are thinking of different solutions in different angles to increase our production volume. At Las Bambas, our plan is that next year, we will increase CapEx by USD 800 million to USD 850 million on upgrading and revamping existing production facilities. And just now, we already reported that at the existing process plant and also the extraction plants, we will build infrastructure. And for existing infrastructure, we will redevelop and relocate them. At the same time, at Khoemacau, we plan to complete the Phase 2 expansion project. And in February this year, that had started already. For the whole year, that will mean an increase of expenses by USD 400 million. Unknown Attendee: Just now in your booklet, you stated that by 2030, you will achieve copper production volume of 1 million tonnes. So is it possible that there are some potential expansion projects that have not been announced yet? Do you have that consideration? Jing Zhao: At present, for China Minmetals Group, there is a strategic goal by 2030 to achieve 1 million tonnes. And for MMG, as an important overseas resource developer and operating platform of China Minmetals, we will try our best to help the group to achieve this goal. However, we still have to look at our existing operation of our good quality assets and do a good job. At the same time, we will also identify internal organic and inorganic growth potential. We will let the market know right away as long as we can satisfy market disclosure requirements. Yu Guo: Okay. The lady on the second row, please, can you please briefly introduce yourself? Unknown Analyst: Management, I am from -- I'm [ Merriam ] from Merrill Lynch. Congratulations on the outstanding results. I have a few questions. First, just now, you said that very quickly, you will formulate a 5-year plan. So do you have a concrete time line in which month or in which quarter will it be released? Second, regarding your dividend policy, what is your dividend policy? This year, if copper price continues to remain high and if cash flow improves, then this year, is there the possibility of dividend payment? Third question, you have a USD 170 million loss from a kind of hedging. So what is your hedging policy in relation to your mines? And in the future, how do you see this situation to evolve? My fourth question is, at present, in Congo, regarding cobalt, will there be production? And you still have quota of a few hundred tonnes. So how are you going to deal with it? Jing Zhao: Thank you for your questions. First question is about MMG's 5-year strategic plan. So as I said earlier, we have started to formulate our coming 5-year plan. And now we have to look at the overall group and various mines strategies for the coming 5 years. We are working on it now. And at appropriate time, we will make disclosure. Regarding dividend and hedging, Mr. Qian will answer. And for cobalt in DRC, I will ask Mr. Weiquan to answer. Song Qian: All right. Regarding dividend policy of our company, we attach much importance to shareholders' return. At the same time, we will put in place very prudent long-term asset allocation framework so as to ensure a stable return for shareholders, and we can also meet future capital needs. Every year, the Board assesses our company's financial position and make decision on dividend. At present, if you look at the order of capital allocation, first of all, we have to support organic and extension growth projects so as to make sure that given the current environment, we can make sure that our production is favorable to our long-term value and shareholders' return. Capital will be invested into projects that are higher than investment cost in terms of exploration and expansion. At the same time, we want to lower our debt level. And number three, we will try to remove obstacles in paying dividend. According to Hong Kong laws, listed companies can only pay out dividend from retained earnings. As of end 2025, we have accumulated retained loss of more than USD 500 million. So the number has already decreased by about USD 200 million. In 2025, our main mine, Las Bambas already distributed dividend to direct shareholders. And it had already reduced the accumulated loss to the parent company. So when conditions are right, we will carefully consider the situation, and we will then make decision to pay dividend to shareholders. Jing Zhao: And then regarding to value preservation, well, the management considers this as a very prudent risk management measure. We will also strictly comply with internal control process of MMG. By doing value preservation hedging, we can ensure certainty of cash flow. So we do not only consider market circumstances, we will also consider overall operation of the company. MMG's goal in hedging and value preservation is to ensure that we will not be affected by downside risk, especially when the market is volatile. We want to ensure safe cash flow. At the same time, we can enjoy the benefit from upside in the market. So for our annual strategy, we do not have a ceiling in terms of hedging. We want to make sure that it would be -- that there would not be excessive hedging. At the same time, we do not allow speculative hedging activities. I would like to supplement that when it comes to such measures, it is part of our approval process every year, it has to be evaluated and it has to be scrutinized. And based on our operating plan and risk situation every year, we will make decisions. So we are very prudent in risk management. So we are positive in relation to the long-term fundamentals. At the same time, we'll consider short-term factors that may lead to short-term volatility. Those factors are also carefully considered by us. So all the hedging decisions will be in line with our annual strategy devised by the Board. We want to make sure that these 2 are consistent, and we will make sure everything will be stable. Yes. Now the Board approves an annual hedging strategy. And in fact, we do have a preestablished ceiling or upper limit, and we won't go beyond that ceiling or upper limit. That is the point I would like to correct on. Now Mr. Xia, please. Weiquan Xia: Regarding DRC, cobalt sale quota and also Kinsevere production. In 2025 for Kinsevere, we have got 75 tonnes of cobalt quota. In 2026, based on existing communication, we believe that the quota will be 30 tonnes per month. And the annual quota document has not been released yet. Our company will actively communicate with the government to strive for more quota. As of the end of February 2026, regarding the 2025 quota, there are 30 tonnes of cobalt metal that had been already packed into vessels. And for 2025 and 2026, if all cobalt quotas are sold, then based on the cobalt price in February 2026, we believe that Kinsevere can achieve a USD 25 million revenue. And then regarding production strategy, given the current market environment, whether our company will resume cobalt production, that will depend on the market and also regulatory changes. We'll also consider the government's quota policies. So we are prepared. We are ready to resume cobalt production any time. Yu Guo: Next, the gentleman on this side, please. We have adequate time today. So don't worry, you will all have opportunities. Jingshan Feng: Management I am Feng Jingshan, Jimmy from Citi. Congratulations on your outstanding results. I have 3 questions. First question for Mr. Zhao. Looking at your 15th Five-Year Plan, you have the plan to produce 1 million tonnes of copper. So will it be mainly from internal growth or you need to do M&A? And then what is the project progress in Peru? And then what will be your interface with MMG in relation to spin-off or stripped mine resources, will they be incorporated into MMG or China Minmetals Group? That's my question. Jing Zhao: Thank you for your question. This is a challenging question. Starting last year, we set this goal of 1 million tonnes of production. So now we are producing 500,000 tonnes within MMG. And then there are a few 10,000 tonnes in other areas. So that explains the remaining 500,000 for 1 million. So basically, they are from the few greenfield projects. You mentioned those projects or assets and there are some stripped assets. And just now, you also talked about Glencore in Peru. Those are also greenfield projects. So they are some major components. Apart from greenfield, we do not rule out M&A. So regarding 1 million tonnes, I think there are 3 parts. One is the existing -- the other -- the existing ones that are under production, the other is those that are within exploration. The other is the existing ongoing projects. So for the Peru projects, I think 10-odd years ago, around in 2008 and 2009, we made some acquisitions. And there has been a certain time period in the past that we plan to develop it, but it is in the south of Peru, and it is to the north of Las Bambas, but then there are different community concerns. But during the development process, there are community issues in nearby mines. So we were not able to continue to work. So our work was suspended in 2012. And then at that time, we also did some maintenance. After the past 10-odd years, there are other mines near that project. And later on, neighboring community relations have improved. So the overall community situation has improved. Our relationship with the government has also improved. A few years ago, copper price was only $2. Now it's $5 to $6 already. So all these are favorable factors. And now for the majority shareholder, we have taken note of these positive changes. So starting last year, we started to do some study and research, and we have formulated teams. Now we have got a 20-odd person team. There are Chinese and also foreigners in the team. So gradually, we have been ironing out some issues, and we have also renewed some scientific studies. Can we complete the work within the 15th Five-Year Plan period? We will do our best. We cannot guarantee. But then actual conditions have seen quite big improvement. So can they be incorporated into MMG's resources? Well, we have to wait and see. You talked about 3 other copper assets. One is in Pakistan, 20,000 to 30,000 tonne production volume. There is one in Afghanistan and Pakistan. So in 2008 and 2009, that was acquired in Pakistan, that project was newly explored. It is quite heavy grade or heavyweight one. Well, we are not that familiar with those projects. They are related to another listed company, but those projects are up to 10 million level in production. And will they be incorporated into our listed company and also whether Glen will be incorporated into MMG, our focus is to operate our existing assets well. There are 3 mines that are in production. The 3 are copper mines, 2 are zinc mines, and then there is a greenfield project in Canada, Izok Lake. So for these projects, we want to stabilize production volume. We want to enhance their assets. And then there are also early-stage exploration and so on. We have to work well in cost control and CapEx. We are already very busy with all these work. Besides, we need to maintain good relationship with local communities and governments so as to ensure stable, highly efficient operations. On this basis, we will also consider M&A, not only assets within our group, but also external assets. And then we will comply with all the rules. So we will do all necessary due diligence and assessment. We will comply strictly with all the requirements of the Hong Kong Exchange. And then under the supervision of all nonexecutive directors, we will make sure to deliver transparent disclosure. Jingshan Feng: My next question is about CapEx in 2026. Just now you said that there would be a bigger increase of CapEx for Las Bambas. Regarding subsequent CapEx, how should we consider its continuity? So in the future, will it be more or less the same in 2026? Or will it go back to the past level? So for future production volume at Las Bambas, will there be some room for increase in the future? Looking at 2026 CapEx, there will be some increase. Looking at current copper price, your free cash flow is quite adequate. So in 2026, regarding debt reduction and dividend, how are you going to split the free cash flow, the remaining free cash flow? Song Qian: Thank you, Jimmy. Regarding CapEx, well, every year in our budget, we will consider the next year's CapEx plan, and we will also disclose to the market. For future years arrangement, so we have to wait till the process being completed in the second half before we can disclose. And then you also asked a question about -- okay, yes. Yes. As you said, strong market growth delivers to the company very good cash flow performance. And regarding utilization of cash flow, as I mentioned earlier, we will follow the order that I mentioned. We have to first make sure that we can deliver the organic growth projects. And at the same time, we will also do exploration and development of neighboring areas to make sure that existing operating projects can stabilize production. And finally, we'll consider to improve dividend policy limitations so that our company will gradually possess the conditions to pay dividend to investors. Jingshan Feng: My last question is regarding your one-off expenses and loss. In the second half of the year for impairment and hedging, if these are accelerated, then profit is very good. For one-off loss, just now you talked about your policy of hedging. In 2026, given your expectation about copper price, this year, regarding your hedging policy, how will it be executed? Yes, I know that there is upper limit, but how -- what will you consider in the execution of strategies for hedging loss in 2026, how do you see will be the profitability? For impairment for Kinsevere, there was one big provision. In the future, regarding the other mines, what is your expectation about impairment? And will there be further impairment risk for Kinsevere? That's all from me. Song Qian: Okay. Let me continue my answer. Thank you, Jimmy. For hedging loss, well, my view is our company wants to make sure the stability of our cash flow. At the same time, we want to enjoy the benefits from market upside. This is the major goal. So the inevitable result will be the hedging. We want to make sure that it will be opposite to our sales direction. So when price increases on one hand, my profit increases fast. I want to make sure that at the same time, for the hedging work that I have done, it may lead to a loss. It will lead to a loss. This is for sure. So looking into the future, we will still put in place a sound risk control policy to make sure that while we enjoy benefit from market upside, we can still avoid or prevent some uncertain factors that may lead to important threats done to our cash flow. So we want to guard against that. So that is our basic policy. It will not change. Your second question is about impairment. Regarding impairment at the end of each year, according to rules, listing company rules, we will do an impairment test on all our mine assets. The principle is to compare the recoverable amount and the book amount. If recoverable amount is lower than the book value, then that part will have to be subject to impairment. At the end of last year, we have prudently assessed various mines, and we realized that for DRC, as reported earlier, the cobalt policy -- sales policy has changed, and there are issues about power supply, and there is also unstable fiscal policy. So for the recoverable amount, there is a gap of USD 290 million. So that's why we made the impairment. Apart from that, for all the other mines, we have rather adequate headroom. We have quite adequate room. So at the moment, we do not see any impairment risk. For Kinsevere, power supply is such that we are trying our best to resolve the problem. Production system is ramping up for copper production. So I believe that in 2026, at present, we do not see any big need of impairment. Yu Guo: The gentleman on the third row, please. Unknown Analyst: Management, I am [ Lu Zhen Xiang ] from BOCI. I have 2 questions. First, regarding Las Bambas. This year, CapEx was quite big. So for this mine, how long will this high CapEx last? And for this mine, how much is the maintenance CapEx besides -- this mine has started dividend distribution. So what is its dividend policy apart from CapEx? Is it true that dividend will be paid out as much as possible? My second question is, some time ago, I read some media reports saying that the DRC government may raise electricity tariff. So regarding Kinsevere, do you see an increase in tariff really? Jing Zhao: Okay. Thank you for your questions. Regarding Las Bambas expenses and dividend, I will defer to Mr. Qian. For electricity tariff, Mr. Xia can answer. Song Qian: Thank you, Mr. Zhao. Thank you for your questions. Regarding Las Bambas, expenses are all maintenance expenses. There is no growth expenses. As I said earlier, for the 2 major mines of ours and the process plant facility, the TSF and so on, all these need maintenance expenses. The purpose is to maintain the production capacity of 400,000 tonnes at the TSF. As said earlier, at Las Bambas, since our takeover, the original owner designed capacity was only 300,000 tonnes. But in our hands, we adopted different ways to increase production steadily so as to reach 400,000 tonnes. But the grade of the mine is being lowered, and we are doing our best to stabilize production. So for these measures, they also entail maintenance CapEx. So that's the reason. If the market maintains the current strong trend, then it can generate strong cash flow. And as you said, if there is no other expansion or neighboring M&A, then we will try our best to distribute dividend as much as possible. So dividend will be given priority. Jing Zhao: Regarding electricity tariff, Mr. Xia, please. Weiquan Xia: For DRC government, right now, the tariff is around USD 0.10, and we have not received any update in relation to tariff increase. Unknown Attendee: Congratulations to you, management. Last year, your results were very good, your cash flow, your liabilities level all performed well. So that is the result of many years of work at Las Bambas after there was a problem. Mr. Zhao had done very good work to achieve this result. So I'm grateful. I am an individual investor. Last year, in October, I attended this event as well. So it has been less than a year, but you have achieved a lot. I have a question about supply, global supply. At present, copper price rises fast, especially this year, no matter whether you talk about year-on-year or half-on-half basis, there was a big increase. So will this increase mean very fast increase in CapEx globally so as to increase supply? Now my concrete question is, first, will there be big investment into the capital market? If yes, then this increase in capital investment, of course, there will be a lagging behind effect. A few years later, it would lead to a meaningful increase in supply. So there would be an increase of a considerable scale in supply, right? Besides, we will consider also scrap copper and also existing mines. So with an increase in production volume, there may be a lowering in grade. So overall speaking, in the coming 5 years or even longer period, how will be supply like 5 years later, that is in 2030? For MMG in 2030, according to my calculation, comparing with last year, there will be an increase by 200,000 tonnes. So within the coming 5 years, if copper price stays high or if there is a big growth, then I think the situation will be very good. So my question is basically about supply. Unknown Executive: Thank you. Thank you for your question. Last year, we had much communication. Thank you very much for your support. Regarding CapEx, well, you asked a very difficult question. I will try to answer it because it is more of a macro level. Regarding investment, well, copper as a metal has many financial attributes. Looking at the current industrial demand, it is not satisfied yet. So in the future, if you look at AI, big data centers, electricity and other industries demand, there would be continuous increase in revenue. And in the past 10 years, many big mining companies invested not as much as what we have expected into project development and infrastructure. So in the past 10, 15 years, there have not been many newly developed mines. So -- as a result, well, copper price will have to reach a certain high level in order to motivate these mining companies to put in big CapEx. So based on what you said, the current price is still not enough to lead to very fast increase in CapEx, right? Well, apart from rise in copper price, other costs also rise quite significantly. So various mining companies will have their own judgment about their psychological copper price or to which level the copper price has to reach before they make big investment. And based on development timetable of various recent projects, the development cycle is getting longer and longer, sometimes more than 10 years. And that also includes getting local approval. For Las Bambas and our Peru projects, we have seen that. So for a new project, from formation of the project, including all the environmental assessment and all the audits and so on, the whole journey is very long. There may be other sudden happenings. So we think that very often such cycle will be longer than 10 years. So we believe that certain conditions have to be met before an increase in investment. Different companies will have different judgment. Some may have mines with better endowments, and they would advance their investment. But for other situations, well, the cycle may be longer. So now do we need to do more exploration since the cycle has lengthened? Well, different cycles are investing more into maintenance and operations and exploration in order to achieve growth. Now you talked about scrap copper as well. In fact, for steel and iron, we have seen the situation already. Different metals have different cycle. So when the demand-supply equilibrium is reached, well, we have attended some other association meetings, but it seems that copper -- the copper equilibrium has -- will not be reached so quickly. So -- I don't know whether Ms. Guan will supplement. Unknown Executive: Let me supplement. Looking at current dynamics in the market, basically, people or everybody likes copper, everybody likes to increase resource volume and production volume of copper. For newly increased resource volume, it will save CapEx by working on green projects and M&A. But looking at current recent market transactions for BHP, hoping to acquire British and American resources or the merger with Teck and also some time ago, there were also some very hot transactions. Everybody wants to increase its exposure to copper through these transactions. So right now, for our greenfield projects and mature greenfield projects, there is a lag. So as a result, for big mining companies, they'd rather do M&A between companies rather than identifying new greenfield resources to develop. So regarding transactions, for mature projects, there is still inadequate mature projects in the market. That's the point I would like to add. Jing Zhao: Well, I have 2 points to share with you. Unknown Executive: Well, because of time, can you please be concise? Jing Zhao: Yes. First point, for MMG, as said earlier, in 2030 or last year, there was an increase in volume by 200,000 tonnes. So based on what you said, the ratio of increase is quite big. This amount, 200,000 tonnes doesn't sound big, but then in fact, the impact is already quite good, right? So another point is regarding injection of assets. At present, looking at current copper price, operating cash flow this year should see an increase by more than USD 1 billion. Then in that case, you should have the strength to acquire some assets, other group's assets. So as a minority shareholder, I hope that this can be accelerated. So what do you think? For your first point, what is your actual -- what is your specific question? Okay. As we reported earlier, we give priority to existing expansion projects. For example, to stabilize the 400,000 tonnes production of Las Bambas and also Khoemacau, 200,000 tonnes. This is now underway. So these developments are quite certain in our existing pathway. You mean the increase of 200,000 tonnes? That also includes the volume in Southern Africa. So it is within our plan already. Regarding injection of assets and M&A, Ms. Guan, can you comment? Xiangjun Guan: Regarding injection of assets, our view is this. For our company all along, we define our company as a growth company. So we will actively consider various M&A opportunities apart from organic growth. So we will consider other M&A targets, but we do not limit ourselves to assets owned by the group. We consider a wider scope. So we will assess our existing resource and reserve volume. At the same time, we will have to consider various risks and the economic considerations as well. So we do not rule out possible M&A of group assets. But if there are other opportunities better than existing assets within the group, then we will attach different priority. So we will assess the economic value of various projects that will be given more priority. Jing Zhao: Well, in 2024, we acquired Khoemacau. So you can see that basically, we will select a region with better potential to do M&A, and we rely on our own operation and exploration capability to do a better job. And of course, we will give a lot of deep thoughts and consideration. So in the future, regarding future M&As, they will be in line with our current M&A strategies. Any further questions? Last question, please. Unknown Analyst: Management, I am from Huaxin Securities. I have a question regarding Las Bambas. Last year, the cost was USD 1.14 C1 cost. So this year, it's slightly higher than last year, right? So what is the consideration? Is it because of the mining grade coming down? Or is it because an increase in logistic costs? So the recovery rate from the milling or process plant would be higher, right? So that's my question. Jing Zhao: Mr. Qian, C1 cost of Las Bambas, please. Song Qian: So you are asking about C1 cost, correct? Well, you may have realized from estimates and long-term investors of our company will know that our guidance, our production guidance and so on, our budget are relatively conservative because we want to make sure that even if there are unfavorable changes in the market, all our estimates and budget and assumptions can support our company's long-term development. So they will deviate a bit from our actual cost as a result. Last year, our guidance indicators are higher than the actual C1 cost metrics. So given the same price assumptions, if we adopt the current market price, then for Las Bambas, actual production cost may be lower than our guidance by USD 0.20 to USD 0.30. Yu Guo: Okay. We will give this lady an opportunity. Unknown Analyst: I'm [ Zhu Wei ] from Goldman Sachs. I have a question about strategies. Now how do you evaluate M&A opportunities in the market? 2 years ago, you said that after Khoemacau, copper price has been breaking record. And so how are M&A opportunities of copper right now? Apart from copper, well, you have also acquired Brazil Nickel. So for other basic metals and gold and precious metals, which will be your focus in M&A? Jing Zhao: Ms. Guan, please? Xiangjun Guan: Greetings. Well, talking about our strategies, well, the timetable is longer. From short-term M&As perspective, in the coming 3 to 5 years, if we look at commodities, we like copper most. But as you said just now, in the market, everybody likes copper. This is a consensus, so to speak. So right now, if we want to acquire a large-scale producing copper asset in a good region, then basically, there is no such opportunity right now. So what we need to consider is -- so we may have to lower our target a bit from this high year's target. So we will focus more on Latin America and Africa. There are certain risks relatively speaking, but we have mature experience in these regions. So we like those projects with a certain scale. But then if you look at projects that are being built right now, there are still some opportunities. For greenfield projects, we like more mature greenfield projects. So no matter whether we are talking about permit available or the studies being completed to a more mature stage. So from a project point of view, we do have some targets that we are looking at. But for some of the targets, we think that within the near future, they may be available in the market. But right now, they are still not. So we are still doing technical assessments. From commodities point of view, we like best -- we like copper best. You also mentioned precious metals just now. For us, we will consider precious metals and also concurrent copper and gold assets and so on. But precious metals within the short term are not within our consideration. Jing Zhao: Okay. Because of time, once again, thank you all for your interest and support for our company. And MMG is happy to develop a brighter future together with long-term capital and patient capital. We have prepared some snacks outside for you to enjoy. So thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, welcome to the PALFINGER IR Call Earnings Release Full Year 2025. I'm Lorenzo, 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 Felix Strohbichler, CFO. Please go ahead, sir. Felix Strohbichler: Thank you. Good morning, ladies and gentlemen. A warm welcome to our presentation of the results of the financial year 2025 for PALFINGER AG. First of all, let me remind you a little bit about what is PALFINGER about. So PALFINGER is a true global player with a revenue of EUR 2.34 billion revenue in 2025. We are present worldwide with engineering centers with 30 production sites and, of course, thousands of sales and service points around the world with around 12,000 employees at the end of 2025. What makes us stand out? What is the equity story of PALFINGER? PALFINGER is, at the same time, technology leader and industry leader. So it's not just about being the top player in terms of technology, but also leading the market in volume at the same time. Second topic is PALFINGER is highly resilient. We have a very broad product portfolio. We are globally present. We have a huge industry diversity. And due to local value creation, we are much less dependent on developments like tariffs, et cetera, compared to other players. Third point is PALFINGER is clearly a growth company. On the one hand, there is a momentum in Europe and a big potential or even a huge potential in Europe, and we focus on growth markets like North America, APAC and Marine. And of course, there is a major growth potential in the Service segment, which is also over proportionately profitable. And when we talk about profit, also the earnings potential of PALFINGER is significantly above current levels because we can still increase our profitability, not only through growth, but also through digitization, standardization and optimization of our footprint. I mentioned resilience. On this slide, you can see our customer segmentation. And obviously, this is very well balanced. The first and the most important industry segment is infrastructure. And obviously, this is a growing segment, and we expect more to come here, not only from Germany, but also from other markets. And then you see that the second biggest industry segment is Marine, and then it's very well balanced between 7% and 11% of share of our revenue for each customer segment. I also would like to highlight the public sector and railway in this sector, we also find the defense share of revenue. On the next slide, you see, again, our product portfolio. You know it, it has not changed. On the one hand, we have solutions on trucks and rail cars like different sorts of cranes, aerial work platforms, hook loaders, tail lifts, et cetera. On the other hand, we have our Marine Solutions from very large offshore cranes on oil rigs to wind cranes on wind farms, targets and boats Wind System and Slipway Systems, for example, for defense applications and what all those solutions have in common are the digital solutions, which make our products connected and which bring us even closer to our customers. Last year, we launched our new Strategy 2030+, reach higher and the key pillars of this strategy are 3 strategic directions. On the one hand, lifting customer value; secondly, balanced profitable growth; and last but not least, execution excellence. These 3 strategic directions are backed by in total 18 programs to drive our growth and profitability, and we have defined 5 key must-win action themes, which are also mentioned here. On the one hand, it's to further improve our positioning as customer-focused technology and market leader. Secondly, a massive expansion of service and spare parts business with a big impact on profitability. Third point is aerial work platforms have to become an additional core pillar of PALFINGER in our portfolio. In execution excellence, we focus on supply chain optimization, footprint optimization and setup of our global footprint in an even better way. And last but not least, process system and data optimization is a key lever for the future to be able to leverage also artificial intelligence and possibilities of the future. Coming now to our segments. As you might recall, we have 3 segments. On the one hand, the segment Sales and Service, which includes all the Sales and Service activities, then we have the segment Operations with all factories for assembly and manufacturing. And last but not least, we have the segment Other nonreportables. I will come to this later. Starting with the segment Sales and Service. Let me walk you through the individual markets which had quite a different development last year. Even within EMEA, we didn't see a unified picture. On the one hand, we have already a very good development in Southern Europe over the last years. In Northern Europe, we could see a good improvement in 2025. Germany had also come back a little bit from a very weak situation in 2023 already at the end of 2024. However, the infrastructure package in Germany did not show any positive effect yet in 2025. Hopefully, we will see something in 2026. Coming to North America, obviously, the tariff situation, especially Section 232 had an impact on the demand. This was actually the biggest impact of the tariffs and also, of course, the tariffs which could not 100% be passed on to our customers, lead in total to reduced profitability. In LATAM, on the other hand, despite of the volatile situation in Argentina, we could report a record revenue in LATAM. In APAC, we also have a very different development within the region on the one hand. In China, we didn't see any major economic recovery since COVID. On the other hand, India is the key growth driver in APAC, big growth rates, a very attractive market and a market we will invest in heavily in the years to come. The Marine business has an excellent performance, driven by major orders from offshore wind, oil and gas, cruise ships and other segments. So everything is performing very well. So we have a consistently good order intake, and there is no sign of a change here. And last but not least, as you might recall, we have a setup in Russia, which is completely ring-fenced, acting autonomously. Here, we have now a major impact of the sanctions in 2025, which means that there was a decline in revenue and also in earnings, not making losses, but also no contribution to the bottom line for PALFINGER. So coming now to the KPIs of the segment Sales and Service. First of all, you can see the external revenue was on the same level, so very stable. EBIT margin went up by 9.5%. However, we also have to acknowledge that if you look at the 2 segments, allocations and transfer pricing have an important effect. This is why I recommend to rather focus on the group numbers. However, what is important to mention is mainly the numbers you see at the bottom of the slide. First of all, order book development. You recall that in the COVID phase or post-COVID phase, there was a huge demand. We had an order backlog of 1 year in 2022. In 2023, we still had a very quick order book at the end of the year, and this even spilled over to a certain extent into 2024. We had a good start in 2024 due to the backlog from the past. And in 2025, we managed to keep the order book almost stable, so only a very slight decline despite of the fact that we don't benefit anymore from the backlog of the post-COVID time. So this means that the order intake is more or less on the same level as the output, and we have a reach of 4 to 5 months visibility, which is a very good situation to be, which is also in line with the customers' demand in terms of delivery times. Our Service business share went up from 15% in 2023 now to 17.4%, in line with our strategy to push the Service business share. And of course, this development should go and we want to exceed the 20% mark within the next years. Coming now to the segment operations. First of all, we have seen here capacity adjustments in both directions. On the one hand, we had to expand, fortunately, our capacity in Europe, especially for aerial work platforms and for loader cranes. On the other hand, due to the tariff policy and the dampened demand, we had a lower capacity utilization in the United States and of course, also reduced output in the CIS due to the economic situation in Russia. Coming to the numbers of the segment operations. First of all, let me highlight the external revenues. This is extremely stable, so the same level as last year, which also shows because we already had almost EUR 200 million in the past that the overall economic situation is still somehow on a low level. And this, of course, also translates into the profitability of production of third parties. So of course, the main activity in the segment operations is production for our segment Sales and Service, but in the external revenue, we only see production for third parties. I already mentioned when I talked about the EBIT of Sales and Service that there are always shifts in terms of transfer pricing and allocation. So the reduction you see here is to a large extent also due to a shift of allocations. Coming now to the segment Other nonreportable segments. This includes, on the one hand, the holding activities, so strategic initiatives for the whole group. And on the other hand, it includes the segment Tail Lift, which is too small to be reported separately. In the external revenue line, you see the development of the Tail Lift business. Unfortunately, in 2025, the market was extremely difficult in Germany as well as in the U.S. for reasons everybody knows, which led to a decline in external revenue. The EBIT line was stable in this segment with around EUR 44 million negative, of course, because this is a cost center to a large extent for the holding project. What does this mean now for the group numbers? 2025 was the third best year in history in terms of revenue and EBIT despite a very volatile environment, especially in North America and CIS. So we managed actually to almost compensate the situation in North America and CIS with positive developments in Latin America, in APAC, in Marine and also to a certain extent, in EMEA. So the revenue was almost the same, minus 0.9% reduction to EUR 2.339 billion. EBIT at EUR 174.3 million, which is a decline of 6%. However, what is the most important topic for our investors, shareholders is the consolidated net result. You can see only a very small decline of 3%. So we can report here EUR 96.7 million of consolidated net result, which in combination with the good cash flow we will come to in a minute, allows us to propose a dividend of EUR 0.90, which is together with the dividend in 2024, the second highest dividend ever in PALFINGER's history. On the right hand, you see the revenue share of PALFINGER, so 60% EMEA, around 1/4 North America and the rest split between LATAM, APAC and CIS. And here, you can also see that CIS is constantly reducing the importance in terms of overall revenue going now down to 4% in the total picture. I already mentioned that free cash flow has been positive. I have to correct this. Free cash flow has been great. It's the best free cash flow ever in PALFINGER's history, EUR 181.5 million of free cash flow compared to the already very good free cash flow of last year of EUR 120 million. How was this possible? The starting point with the EBITDA is more or less the same. However, we had another positive impact in the working capital with EUR 57 million. And we have also been rather low on the investing activities with around EUR 100 million. There will be some compensation of this relatively low number in 2026. However, in total, this is a very big success to come with this high number of free cash flow. Of course, a good cash generation, a good operational performance also helped a lot to improve our balance sheet. The equity ratio has gone up to 43% coming from 35%. Gearing ratio at very healthy 50%. Net debt to EBITDA, the KPI banks are looking at 1.71 is a great number, far below 2.0. So a very good set of balance sheet KPIs. Even more impressive is if you look at the last line of this slide, the net debt has been reduced by more than EUR 200 million to a level of EUR 460 million. So we came down from EUR 662 million to EUR 460 million within a year. You also see that the interest rate has again come down, however, comparing to the years 2020, 2021, when we were talking about 2%, it's still relatively high. And despite of the fact that we have repaid quite a few debt positions in the last 12 months due to the good cash flow, we still have a very good remaining term debt of 3.17 years. So I mentioned that the operational performance was a major lever to lead to this very strong and rock-solid balance sheet. The second big pillar was the sale of treasury shares, which was implemented in summer last year. So we placed shares for proceeds of EUR 100 million, which support the implementation of our Strategy 2030+. So this will help us with the expansion of our service locations, our mobile service in North America, with our investments in defense projects. We opened last autumn our spare parts hub in North America. We are going to further expand our service locations in EMEA, and we are also going to invest in a new plant in India, just to name a few out of the strategic initiatives in our Strategy 2030+. Of course, next to this increase in room for maneuver, it also helped to improve our equity ratio, gearing, et cetera, the whole balance sheet. And this measure also increased the free float to nowadays 43.8%, which was the basis for the inclusion in the ATX. And I'm very happy to be able to report that yesterday, it was made official that PALFINGER will be part of the ATX index as of 23rd of March. On the bottom of this slide, you see the share price development last year. So a plus 30% share price increase within 2025, also another increase in 2026 despite of the actual developments in the Middle East. And what this ATX inclusion will lead to is improved visibility. So PALFINGER now officially ranks among the top 20 stock titles on the Vienna Stock Exchange. Index funds will have to invest in PALFINGER, which further increases our liquidity and in total, this should give us easier access to international investors because now it's more or less official that the liquidity of PALFINGER has now reached a healthy level, which is attractive for our investors. Coming now to the outlook, first of all, for 2026. So we have an order backlog, I mentioned it before, of about 4 to 5 months. So we already have a visibility into summer and beyond the first half of 2026. So from today's perspective, we can say that for the first half year, we expect revenue as well as EBIT to be slightly above the prior year level. We are also confident for the full year. So we do see that in the first months of the year, for example, in Germany, order intake has gone slightly up. It's not yet the full recovery. So what we need in order to achieve our financial targets by 2027 is a further recovery in Germany and also an upswing in the U.S., which we do not yet fully see. This has to happen now in the coming months to be able to get to the EUR 2.7 billion revenue, 10% EBIT margin and more than 12% ROCE by 2027. We have set ourselves ambitious financial targets for 2030 in our strategy reach higher. We want to reach more than EUR 3 billion, and please do not forget more than -- this is important to highlight at the 12% EBIT margin and 50% ROCE, of course, as the #1 for crane and lifting solutions in our industry. Where do this -- where does this growth come from? On this chart, you can see the contributors to the growth. And obviously, Service with a very high impact also on profitability is a very big lever. But also recovery EMEA is a big potential for us because EMEA is still far below its potential. Aerial work platform is another big pillar, also a key initiative for us where we expect a lot of growth. And then we have other activities like TMF in North America, which is important for us. In APAC, we will invest in the plant in India. In Latin America, we expect further growth. And then you can also see Marine and Defense. And you would, for example, expect that Marine and Defense would show a larger share. You have to account for the fact that a lot of the revenue in Marine, but also in Defense is allocated to Service because these are very service-intensive parts of our business. On the next slide, this is translated into the profitability improvement levers. So this is just the additional profitability where should it come from. And obviously, it's the same level as on the last chart, but there is an additional lever, which is footprint and efficiency optimization, which will also help us to get to the profitability targets on top to the growth initiatives. All those initiatives are based on growth with basic or let me say, normal development of the world. On top of this, there are some global investment programs on the horizon, which account in total to EUR 2.8 trillion. And these create huge opportunities to PALFINGER, even if not all the EUR 2.8 trillion will be probably spend, not everything will go in industries where PALFINGER will benefit from, but still there will be some business, some substantial business for PALFINGER in these initiatives. Just let me highlight the fiscal package in Germany, EUR 500 billion. Rearm Europe, EUR 800 billion, InvestEU, almost EUR 400 billion, REpower Europe. The U.S. Stargate Project, EUR 500 billion, which, by the way, shows major effects already for us. So we deliver a lot of cranes, which are linked to this U.S. Stargate Project for infrastructure, for artificial intelligence. And last but not least, reconstruction of Ukraine will also need EUR 500 billion of investments in infrastructure, housing, et cetera, and PALFINGER is very well positioned to benefit from this. And this is something which should support us also in the years to come. Thank you for your attention. I'm looking forward to your questions. Operator: [Operator Instructions] The first question comes from the line of Markus Remis from ODDO. Markus Remis: Congrats to the ATX inclusion. First question relates to the order intake. If you could shed some light on the development early in the year, as you pointed out, the dynamics will be very, very crucial to get to 2027. So how was the beginning of the year with -- maybe with a special focus on the U.S. and the situation in that market? Felix Strohbichler: First of all, I can say that in EMEA, we had 2 strong months, January and February. However, it's too early to say that this is now a sustainable development. This is why I'm still cautious. However, the first 2 months were clearly above previous year's numbers. And this makes us also confident that we have a good chance here to see an improvement in the coming months. However, it's a little bit early after 2 months to say this is now really a start of a recovery. We also have, of course, some geopolitical developments at the moment where we need to look what this means. But coming back to your question, very clearly, the first 2 months actually were higher than in the last year and showed a good momentum, especially in EMEA. In the U.S., the situation is still a little bit calm. So here, we clearly need more momentum to be able to get to the 2027 targets. Markus Remis: Can you also give us an indication where the North American market stands in terms of order intake year-on-year? Felix Strohbichler: Year-on-year, the order intake is stronger because it's a low basis. But again, in order to reach our target, we need here a stronger recovery in the U.S. Markus Remis: Okay. Okay. Very clear. Then the second question, staying with the U.S. We've seen Hiab putting out some news that they're going to expand in the -- especially in the Service market. Can you share your thoughts on how your competition is shaping up at the moment? Felix Strohbichler: Well, of course, it's always difficult to talk about competition. What we can see is because Hiab is publishing, of course, also their order intake and their service revenue by region that we are winning market shares in every region compared to the Hiab numbers, which also underlines the fact that PALFINGER is putting the right focus on customer proximity, pushing Service business, investing in our Sales and Service setup. Hiab in the last years has been extremely cost focused, which also is translated, of course, in the profitability, which really has to be acknowledged as outstanding. However, our customers obviously seem to feel a difference here between a supplier who is investing in Sales and Service and the supplier who is rather focused on cost cutting also in areas where customers can feel it. And I think this is probably the main difference between the approaches of Hiab and PALFINGER in the last 24 months. Markus Remis: Okay. Okay. Sorry, I have again to stay with the U.S. I think in the last year, you had a burden of roughly EUR 15 million related to the tariffs. So if I remember correctly, it's kind of already including the countermeasures. What's kind of the scope for 2026 and especially now that, I mean, again, Trump has changed the tariff framework. How does that impact your outlook? Felix Strohbichler: Yes. So first of all, if we look at the tariff implication in the meantime, we had, of course, the chance also to analyze in detail what was the real impact. And even if we don't disclose the final number, actually, the tariff implication was a little bit smaller than we had anticipated and estimated. So in fact, the amount we had to pay in total in tariffs was still a significant double-digit million EBIT amount, but not as high as anticipated and estimated. The major impact was actually the decrease in the market. So the lower demand, demand was compared to the budget, an even bigger impact than what remained in terms of tariffs because the tariffs could be compensated, of course, to a certain extent with measures like price increases, et cetera. There is still a gap which is significant. And this gap will be closed on the one hand with measures in terms of supply chain, but I guess this will be even faster as soon as the North American market picks up every supplier and every competitor will, of course, strive to pass on cost increases of the past, which has not been fully possible in a rather low market environment. So I think that this year, we can talk about still an impact, but it won't be a game changer for PALFINGER. So probably it's a double-digit million EBIT amount, but not a high one. So a low double-digit million amount, maybe the impact. And as soon the market recovers, of course, this will further decrease with countermeasures, especially with price increases. Markus Remis: Okay. And then the last question relates to your cash flow. So I mean, congrats on the development here, but partially, it was helped by factoring, at least as far as I can see, about half of the working capital improvement came from factoring. Can you outline your strategy here going forward now that the balance sheet is arguably on a much more solid footing? Is it going to stay at these levels? Or do you now see the leeway to reduce factoring again? Felix Strohbichler: I think actually, we do not have plans to reduce factoring. However, if you look at the total picture of our balance sheet, it's now extremely healthy. We have no intention to make the picture worse. As you know, our strategy is clearly organic growth. There are investments, of course, involved and the next years will still be years of rather heavy investments. So we are talking about investment volumes of about EUR 150 million per year for the 3 years to come as we have some strategic projects on the go. But in total, our balance sheet will at least remain on this solid level. And the plan is, of course, for the years to come to even further improve it despite of the growth initiatives as there is no M&A included, at least not on a major scale and nothing which would change the picture to the negative. Operator: The next question comes from the line of Daniel Lion from Erste Group. Daniel Lion: I would like to follow up a little bit on the order intake situation and then going forward, in order to meet '27 targets, when would you expect to -- that it would be necessary to see a tickup in order intake in order to make '27 realistic? Felix Strohbichler: Yes. So it will be very clear in the second quarter. So at the latest in the communication of our half year results, it will be clear or hopefully, it will be clear based on the order intake, if we can ramp up capacities. And this is actually the starting point, and this is the decisive factor. When do we dare to ramp up capacities to be able to reach an output of EUR 2.7 billion in 2027. We will only there to ramp up capacities if there is a healthy order intake over several months. So this is, so to say, the preconditions. If in summer, we do not sit on an order book, which makes us confident that we can increase our capacity and our output to this level, then probably it will become difficult because we need some lead time to ramp up capacities and output. Daniel Lion: So this would mean just to put it some figures indicatively does it mean like 20% intake in order intake at least or like 10% to 20%, 15%, I don't know, what range would you require in order to step up capacity expansion? Felix Strohbichler: Yes. This is not so easy to answer because it's depending on product lines. So of course, it's depending on regions and product lines. And in some areas, we have even overcapacity like in the U.S. So it's relatively easy to ramp up in other areas, it's perhaps a little bit more complex. So it's not like one number, which has to come in. It's a mix of factors. It's also a product and regional mix question. But of course, we need some improvement. And in the U.S., for example, if we say a 10-plus percent increase is already significant and helps a lot. In EMEA, it's even not 10% because the basis is relatively high. But if we assume that there would be a 10% improvement in the U.S. and in Europe, I would feel confident to say that we could increase capacity. Of course, this is not a strict message. But as an indication, I would say a 10% increase would give us the necessary confidence to increase capacity to the required level. Daniel Lion: Can you maybe also look back at '25, can you quantify the FX impact to some extent, especially the U.S. dollar, just to get a feeling of sensitivity in case we see some shifts or changes here in '26? Felix Strohbichler: We have around 25% of our revenue in the U.S. or in U.S. dollars. So it's above EUR 500 million. Of course, if we have a fluctuation of exchange rate by 10%, it's a EUR 50 million impact in the one or the other direction. However, this is not completely true because if, for example, we have a change in exchange rate, we have some products where we have components exported from Europe, where also all our competitors are exporting from Europe, like, for example, for the loader crane, in such case, we adjust the prices and the USD effect is not as big because it's translated into higher prices than in U.S. dollars. So it's not a 100% effect, probably it's a 70% effect. Daniel Lion: What about EBIT level? Felix Strohbichler: Can you repeat the question? Daniel Lion: What about EBIT level, EBIT margin level? How do you see the impact there? Felix Strohbichler: You mean in the U.S.? Daniel Lion: From FX, yes. Felix Strohbichler: Yes, the impact of the exchange rate is limited because on the one hand, we have products which come from Europe and where also competition is coming from Europe. So here, there is more or less no major impact. Of course, in absolute terms, for the revenue share of USD, which is translated where also the EBIT line is translated, of course, the EBIT share goes down as well as the revenue share. So this is more or less the same factor. But in terms of operational EBIT margin in the region, the impact is very limited. Daniel Lion: Okay. And then a situation on the -- or a question on the situation in Middle East. Do you see any direct impact or maybe indirect impacts on the business in the near term or going forward? Felix Strohbichler: Well, first of all, of course, we have stopped our operations. We have some offices there and also some Service activities. So of course, we are not asking people not to go to work, but this is not an impact you will see in the year-end or even not in the quarterly results, but this is, of course, the first obligation of the management to make sure that we protect our people. In terms of business, of course, now we see energy prices going up. PALFINGER is not that energy intensive. So this is also not the major impact. In terms of supply chains, we also do not expect any impact. I think the biggest impact would actually be if there is a longer-term conflict. If the global economic outlook would deteriorate, of course, this would also have an impact on PALFINGER. Apart from this, we do not expect a major impact on PALFINGER if the war ends rather soon, of course, we rather have to take into consideration. We have seen this, for example, in Israel with the destruction, I have to say, of the Gaza Strip that we see a huge improvement of demand in Israel. And historically, Iran, for example, was a core market for PALFINGER with 70% market share in the ancient times. So if the sanction should go away, if there would be a regime change, this could be a major opportunity even for PALFINGER. So of course, we hope that in the midterm, this could even turn out as an opportunity. Daniel Lion: And last one on Defense demand and development. Could you provide some more insight how your revenue share is and how you expect this to develop in the coming, say, 1, 2, 3 years? Felix Strohbichler: Sorry, you were talking about Service revenue share? Daniel Lion: No, Defense. Felix Strohbichler: Defense, sorry, connection is not always that good. So the Defense share at the moment is at roughly 2%. We expect it to grow to 4% and you have to take into consideration that the Defense business is very service intensive. So this helps not only in the Service revenue share of Defense, but also helps, of course, in the growth of Service business. And the profitability, obviously, is relatively high also because the investments to be able to participate in this business, the risk also to enter this business and eventually not to get the tender is higher. So also the profitability has to be higher. Operator: The next question comes from the line of Lars Vom-Cleff from Deutsche Bank. Lars Vom Cleff: Two quick follow-up questions, if I may. One is a quick housekeeping question. Tax rate for '26, I think '25 was 23%, 24%. Is that a fair assumption for '26 as well? Felix Strohbichler: Well, we had quite some good tax rates in 2024 and 2025. So I would, for a model, not recommend to take this number, but I think slightly below 25% is a good assumption going forward. Lars Vom Cleff: Okay. Perfect. And then, unfortunately, so far, you're only providing us with a qualitative guidance on the first half and the full year. I mean, if we take slightly up year-on-year for the first half and compare it to the current Bloomberg consensus, which looks for a revenue increase of 3% and an EBIT increase of 7%, does that cause sweaty palms Or is that something you can live with? Felix Strohbichler: Well, I would say that in terms of EBIT improvement of 7%, this is aggressive for the first half year. In terms of revenue increase, it's rather modest. Operator: The next question comes from the line of Lasse Stueben from Berenberg. Lasse Stueben: Could you provide just some color on the Q4 EBIT margin? That was a bit weaker. I understand Q4 has some seasonality impacts, but if there's any kind of operational sort of reasons why the margin was lower there. I'm guessing probably caused by the U.S. But any color would be helpful. And then the second point is just on working capital and CapEx. The colleague already mentioned the factoring in the working capital. Are you expecting a further reduction in sort of working capital as a share of revenue in the coming years? Or is this kind of the level where you feel comfortable? And if you could remind us on the level of CapEx spending planned for the next 2 to 3 years, that would also be helpful. Felix Strohbichler: Okay. So first of all, development of the quarter. So if we compare EBIT level of Q4 2025 to Q4 2024, it was a significant increase. And I think you were comparing now Q4 to which quarter because I do not see now where you see the deterioration in the fourth quarter. So the EBIT margin, of course, if you look at the EBIT margin, it went down. However, there are several effects in there. It's mainly in the contribution margin. So it was a mix effect to a certain extent, but this is not a substantial change. It's rather, I would say, a timing issue. Lasse Stueben: Okay. That's clear. And then on working capital and CapEx. Felix Strohbichler: Well, in working capital, of course, we have some good opportunities in the last 2 to 3 years to compensate for the massive increases in working capital in the post-COVID times. This effect to counteract with measures against the high increases is going away more and more. So we still have some small pockets where we believe that we still have overstocked some topics, which we can further reduce. But now it's going more into hard work to consistently optimize our stock levels. So here, the potential to reduce working capital with further inventory reductions is getting more and more limited. So you won't see this big lever in terms of free cash flow for working capital in the years to come. So the main lever to further improve our free cash flow is actual profitability. It's the -- it's a starting point of the cash flow statement rather than working capital reductions even if there are still some opportunities to further improve. But as I said, this is now rather small compared to what we have seen in the past few years. And then you were asking about CapEx development. Last year was relatively low at EUR 100 million. At the beginning of last year, I mentioned probably EUR 130 million, which was our budget and which was our plan for several reasons. Some investments took a little bit longer than planned. Unfortunately, this doesn't mean that these investments will disappear. It will just take a little bit longer and the time shifts. So these investments will happen now in 2026, which means that we are expecting around EUR 150 million of CapEx in 2026. And it will remain -- the CapEx level will remain on a similar level also until 2029 as we have some major CapEx programs ongoing also linked to our Strategy 2030+. Operator: The next question comes from the line of Miro Zuzak from JMS Investment. Miro Zuzak: I have mainly 2 questions. The first one is on order intake. I mean you do not report order intake, but you do backlog and sales. And if I take just the difference between the 2 numbers, basically, I can give -- calculate a proxy on order intake. Now if I look at Q4, the number has sequentially come down. So Q1 and Q2, Q3 were very strong against, let's also say, a lower base. Q4, the base was a bit more difficult, but still it was now negative. And you mentioned before that you expect H1 2026 to be above H1 2025. Does this refer to order intake or sales? Maybe you can also comment on what I just said, whether it's correct or not. Maybe take the second question afterwards. Felix Strohbichler: Yes. So first of all, you talked about our order book development, and it's a matter of fact that the last months of the last year were not overproportionately strong. However, the output, especially in December was very strong. So we had a strong fourth quarter in terms of revenue. And this was, so to say, the combination of those 2 effects where you saw this decrease in order book in the fourth quarter. Now looking at our guidance for the first half year, when we say slightly better, as I said before, talking about revenue, but also EBIT and of course, also order intake because even if now we have more or less the first half year already in hand. So of course, you can always have some surprises. But in terms of order book, the first half year is quite safe. But still, we also expect an improvement in order intake compared to the last year, also because the first 2 months were actually a good start. Miro Zuzak: Okay. Cool. The second question is basically relates to your 2027 guidance of 10% EBIT. And then trying to model the 10% in the next 2 years, basically. If I look at the last 2 years, I see that the gross margin was good and has improved in 2025 by 80 basis points, which is in line with basically your aspiration of improving operational efficiency and so on. But if I look then at the OpEx cost, I see that more than that is basically eaten up by the Service cost and also R&D cost and also G&A costs, basically in percentage of sales, all these 3 lines, they worsened 2025. And if you now make the bridge to the 2027, the 10%, what is basically the mix between these 2, let's say, 2 lines, the COGS line and the OpEx line. Where does the improvement of 250 basis points come from? Felix Strohbichler: So first of all, the beauty of the last 2 years was that the tailwind wasn't really there. So we had no increase in revenue, but 2 years in a row, a slight decrease in revenue. At the same time, we had a strong inflation, especially on the personnel cost. So even if material costs have remained quite stable or in some cases, have even come down, inflation on personnel cost was a major impact in absolute terms in Europe and in the U.S. in relative terms, even stronger than also, for example, in countries like in the Eastern European production sites. So this was one impact. The second impact was we have a growth strategy, and we are investing to grow the company to more than EUR 3 billion. And this is nothing you can do overnight. So this requires investments with a certain confidence in the future. Unfortunately, these investments are not only CapEx, it's also OpEx. It's like implementation of our EP system globally. It's a lot of R&D investments we have done. And all those things, unfortunately impact structural cost. This is a big delta, as I also mentioned before, to our competitor Hiab. They are, of course, in the same market. Their reaction is different. they have started to dramatically cut cost. PALFINGER has taken the decision to further invest in the future. And the main lever for the profitability increase is actually to benefit from the growth we have been preparing ourselves over the last 2 years. So this is the main lever to get to the 10% EBIT margin because we have the structures in place to get there. But in the last 2 years -- and not only in the last 2 years, probably in the last years, you can see that PALFINGER has invested in structures, in Service sites, et cetera. And in early phases of such investments, it's a cost and not a benefit. Miro Zuzak: And to answer then the question, that would mean that the improvement mainly comes from the OpEx lines because... Felix Strohbichler: Within the time frame of 1.5 years, it can only come from the top line because such a short-term cost improvement on the structural cost would not be possible to such an extent, not without cutting arms or legs. Operator: We have a follow-up question from the line of Markus Remis from ODDO. Markus Remis: The first one would be on Russia. What's kind of the expectation for that business? You indicated a roughly breakeven situation in 2025. So what's kind of the scope for revenue development? And is there a risk of Russia falling into losses? And then the second question is a very specific one. In Q4, I see that in the holding and nonreportable segment, EBIT was negative at EUR 14 million, which is quite a hefty number, almost double or more than double of last year and also sequentially compared to Q3, the loss doubled. Were there any specifics that you would like to outline here? Felix Strohbichler: Actually, I would have to look it up because it's not one single impact, but what happens typically in Q4 that certain positions take effect or provisions are made. So it's not an operational topic. This is rather an accounting and timing issue. There was no special event in Q4, which would have led to this change in the result. Markus Remis: Okay. And on Russia? Felix Strohbichler: Yes. So for Russia, if you ask me for an outlook, this is, of course, very difficult to say. As we are also not controlling those entities, we rather report the numbers and get the information, so to say, and then report with the wisdom of hindsight. However, what I can say is that in 2025, the situation was really difficult. The management managed to turn around the liquidity situation to achieve a clearly positive cash flow in the second half of the year after a negative first half year, the profitability was slightly positive, and we already see a slightly positive development. But of course, if I talk about the positive development, I mean that we expect a slightly positive situation and no losses, we won't see double-digit EBIT margins in Russia. So I cannot answer the question based on fact figures and my knowledge deep inside the market. But what I can say is that from today's perspective, and this is also reflected in our budget, we expect that the entities will remain stable in terms of liquidity and also stable in terms of profitability. And the good thing is that we have a very experienced management there, and they have proven in the meantime, in some cases, over decades that they know what they are doing. Markus Remis: Okay. And maybe a very nice one to have it specifically mentioned here. When you say regarding the first half, you say, okay, revenues should be higher. And then the notion on the earnings, should also be EBIT and margin be higher or just EBIT? Felix Strohbichler: So as I said, we expect the revenue to be higher and also the EBIT to be higher, the revenue a little bit more than the EBIT, but this is what is our guidance now for the first half year. Markus Remis: Okay. So slightly lower EBIT margin then? Felix Strohbichler: Slightly lower EBIT margin or almost stable, but probably a slightly lower EBIT margin, but a higher revenue and also slightly better EBIT. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Felix Strohbichler for any closing remarks. Felix Strohbichler: Yes. Thank you very much for your attention and for your questions. I just want to remind you once again at the end of this call, PALFINGER is a very attractive company as a market and technology leader with a lot of growth potential and earnings potential with a highly resilient setup. So please keep -- stay tuned, and we have good opportunities for the future, and I'm confident that at the half year, we will have the next good news for you. Hopefully, we hear each other in 3 months again for the quarterly call. Thank you. Bye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your line. Goodbye.
Operator: Good afternoon, everyone, and welcome to eHealth, Inc.'s conference call to discuss the company's fourth quarter and fiscal year 2025 financial results. [Operator Instructions] I will now turn the floor over to Eli Newbrun-Mintz, Senior Investor Relations Manager. Please go ahead. Eli Newbrun-Mintz: Good afternoon, and thank you all for joining us. On the call today, Derrick Duke, eHealth's Chief Executive Officer; and John Dolan, Chief Financial Officer, will discuss our fourth quarter and fiscal year 2025 financial results. Following these prepared remarks, we will open the line for a Q&A session with industry analysts. As a reminder, this call is being recorded and webcast from the Investor Relations section of our website. A replay of the call will be available on our website later today. Today's press release, our historical financial news releases and our filings with the SEC are also available on our Investor Relations site. We will be making forward-looking statements on this call about certain matters that are based upon management's current beliefs and expectations relating to future events impacting the company and our future financial or operating performance. Forward-looking statements on this call represent eHealth's views as of today, and actual results could differ materially. We undertake no obligation to publicly address or update any forward-looking statements, except as required by law. The forward-looking statements we will be making during this call are subject to a number of uncertainties and risks, including, but not limited to, those described in today's press release and in our most recent annual report on Form 10-K and our subsequent filings with the SEC. We will also be discussing certain non-GAAP financial measures on this call. Management's definitions of these non-GAAP measures and reconciliations to the most directly comparable GAAP financial measures are included in today's press release. With that, I will turn the call over to Derrick Duke. Derrick Duke: Good afternoon, everyone. In 2025, eHealth delivered strong results, achieving meaningful earnings growth in a complex and rapidly evolving environment. We consistently exceeded expectations, raising annual guidance 3x. We closed the year with another highly successful annual enrollment period, helping hundreds of thousands of seniors navigate one of the most disruptive Medicare Advantage cycles in recent memory, an outcome that speaks to the differentiated value of our platform, brand and the trust that we've built with consumers and carrier partners. We've also strengthened our balance sheet entering 2026 with enhanced financial flexibility and a longer-term commitment of capital to execute our strategic priorities. The Medicare Advantage market is in the midst of a structural reset. Carriers continue to experience elevated medical cost trends and regulatory pressure, which has resulted in meaningful benefit changes, plan eliminations, carrier market exits and a more targeted approach to growth. Millions of Medicare customers were impacted by these changes in '24 and again last year. eHealth has provided crucial help to these populations as they've been forced to reassess their coverage options. On the distribution side, these trends have introduced pockets of commission suppression and reshaped carriers marketing sponsorship programs, among other changes. At the same time, carriers have been narrowing their distribution relationships, placing greater emphasis on quality, retention and other key measures of consumer experience. They are severing ties with brokers not performing to their standards and deepening relationships with distributors that provide the most value. eHealth has consistently ranked high on key quality metrics that are important to our carrier partners. These shifts have challenged the industry, but they also affirmed an important theme. When consumers face complexity, they seek trusted guidance. And when carriers need targeted high-quality growth, they value partners that can support their objectives. eHealth operates uniquely at that intersection. Now let me turn to our 2025 operational review. In 2025, annual revenue grew 4%. GAAP net income was almost 4x 2024 net income and adjusted EBITDA increased by 40%. These strong results were driven by focused execution throughout the year, but especially during AEP. We were exceptionally well positioned to enter the 2025 annual enrollment period. This included a more tenured adviser force, stronger branded channels and an expanded member retention program. Our AI screener piloted earlier in the year was scaled during AEP, bringing additional efficiency to our model and helping to reduce customer wait times. This technology was well received by our consumers and performed on par or better than human screeners in terms of transfer rates and conversions. We believe this technology further differentiates eHealth in the marketplace and opens the door for further consumer-facing AI applications in health insurance distribution. As anticipated, this AEP generated substantial consumer activity on par with the prior year. Demand on our platform was strong as our Medicare Matchmaker value proposition resonated with consumers. eHealth also successfully navigated changes in carrier inventory that resulted from plan eliminations, commission suppression and other key factors impacting product selection. We continue to offer quality, affordable plans in our key markets. During AEP, our direct branded channels exceeded enrollment expectations. In response, we strategically reduced spend on third-party affiliate leads. Direct channels typically deliver higher enrollment margins and stronger retention. Their increased share of our marketing mix positively impacted in-period earnings, and we expect that they will continue to strengthen financial performance beyond '25 by increasing book persistency and supporting LTV growth. We delivered on our 2025 annual plan for enrollment volume and revenue while significantly exceeding earnings expectations, driven by favorable LTV to CAC dynamics in our Medicare business and disciplined fixed cost management. We also demonstrated continued strength in our commissions receivable, which ended the year at a record high. Beyond Medicare Advantage, we made progress towards diversifying our revenue base. Our hospital indemnity plan, or HIP sales achieved exceptional growth with approved application volume surging over 400% year-over-year in the fourth quarter of 2025. Medicare Supplement also performed well during AEP, delivering 39% approved application growth in the fourth quarter. While carrier dedicated revenue and sponsorships declined year-over-year in the fourth quarter, reflecting broader market pressures, our core agency platform more than absorbed this impact through strong operational execution. As planned, after AEP completion, I initiated a comprehensive strategic review of the organization. Our macro outlook suggests that many of the conditions that shaped the past 2 years will persist into 2026. While we anticipate growth mandates reemerging in 2027, we believe that this year, carriers will continue pursuing targeted strategies and emphasizing margin protection. We expect to see further exits on the distribution side, consolidating sector leadership with platforms that have scale and strong carrier relationships that are able to deliver high-quality book of business. Additionally, it is our belief that brokers who are able to deliver consumer value beyond onetime enrollment support will be at a material advantage. We continue to hold conviction in the longer-term growth potential of the Medicare Advantage market. The number of Americans turning 65 will be peaking at over 4 million per year with the Medicare eligible population reaching over 80 million by 2034. MA penetration is also expected to increase, reaching over 60% by 2030 compared to approximately 54% in 2025. We believe eHealth is well positioned to lead this growth on the distribution side by leveraging the strength of our brand, deep carrier partnerships and our differentiated omnichannel platform. Seniors are becoming increasingly tech savvy, and this administration is placing a particular emphasis on the role of technology in modernizing and improving Medicare. We believe eHealth already has a lead as an industry technology innovator, which will provide us with a competitive advantage in this environment for years to come. With that, we view 2026 as a bridge year, a year to become more focused in our execution, maximize the return on our platform and improving operating cash flow generation to ensure that when the market shifts back to growth, we are in a strong position to accelerate. More specifically, our 2026 focus will include developing our lifetime advisory engagement model, concentrating Medicare enrollment efforts on our highest margin and persistency marketing channels, broadening our non-MA portfolio, including ancillaries and ICHRA and continued cost discipline, including the optimization initiatives we implemented last month. Let me expand on the lifetime advisory model, which is a major element of our strategy going forward. We are providing our licensed advisers with additional opportunities to solve consumer needs through an ongoing trusted relationship. This model blends the relationship-driven approach of local field agents with the scale, breadth and technology advantage of an omnichannel model. Based on consumer focus groups we conducted, beneficiaries place high value on engagement-based models that combine choice with access to a trusted adviser, someone who understands their personal situation and coverage needs. This model leverages eHealth's brand proposition and valuable beneficiary base and aligns with exactly where carriers are placing value, high-quality enrollments that persist. The seasonal nature of our business provides meaningful opportunities for advisers to deepen member engagement throughout the year, conducting need assessments, identifying gaps in coverage, managing plan changes proactively and offering relevant ancillary products. As part of this strategy, eHealth will be expanding the portfolio of ancillary products and services we offer to our beneficiaries, building on meaningful growth we achieved with hospital indemnity plans last year. In '26, we expect to add critical illness, final expense and similar products while driving greater attach rates with our existing ancillaries such as dental, vision and hearing. We plan to build on this effort in 2027 and '28 by adding additional adjacent services that leverage eHealth's core competencies and help Medicare beneficiaries maximize the value of their coverage. This strategy is expected to drive increased member lifetime value, improved retention and most importantly, build on eHealth's brand equity and member loyalty. Furthermore, the favorable cash flow dynamics of these ancillary products make them an important element of our diversification and overall financial goals. What does this mean for this year's financial outlook? Because we're prioritizing operating cash flow and quality, we expect Medicare enrollment volumes and noncommission revenue to decline relative to 2025. Despite lower revenue and enrollment volume, earnings, excluding net adjustment or tail revenue are expected to remain roughly flat and EBITDA margin ex tail is expected to improve year-over-year. This reflects the positive impact of our cost reduction efforts as well as focusing member acquisition spend in the highest margin marketing channels. On cost savings, we enacted headcount and vendor consolidation in January of this year. We expect these actions to lower our 2026 fixed operating cost by approximately $30 million compared to 2025, a decrease of roughly 20%. We also plan to reduce our variable spend by over $60 million for an overall year-over-year spend reduction greater than $90 million. As a result of strategic changes and significant cost measures we have implemented, we believe we can drive meaningful improvement in operating cash flow in 2026. Cash flow is our North Star, and we are committed to reaching breakeven operating cash flow this year, a $25 million year-over-year improvement with positive operating cash flow targeted for 2027. John will share our guidance ranges and key drivers in his prepared remarks. In diversification, our approach will be similarly focused and disciplined. We are prioritizing ICHRA, including a partner-driven SaaS model, which allows us to extend our platform to brokers with strong employer relationships. This strategy is capital efficient, leverages our core capabilities and positions us in a growing market where employers are increasingly looking for greater control over benefit expense and a personalized approach to coverage selection. During 2026, we are taking important steps to position us for success once the reset cycle has been completed in Medicare Advantage and as ICHRA continues to gain adoption with employers. We expect to continue to invest strategically and in a focused way in key capabilities required to grow profitably in these areas. Our technology remains an important differentiator and growth enabler. We see significant potential to improve our operational and financial performance by further scaling of AI screening and introducing additional AI applications in both our back and front office. The goal is to prioritize revenue growth in 2027 on a profitable and operating cash flow positive basis. It's important to note that while we are taking a more measured approach to demand generation this year, we expect our commissions receivable to remain around current levels in the beginning of 2027, driven by favorable retention trends and our relationship-driven approach to managing our book of business. We have also taken a measured approach to our capital structure by first augmenting our liquidity, extending maturities and lowering our cost of capital with the revolving credit facility that we entered into at the end of 2025. Our next priority is to unlock value for all of our stakeholders by addressing our convertible preferred equity. Further, as we have discussed in the past, our industry is dynamic, and there have been significant developments over the past several quarters. We regularly evaluate these developments and the strategic opportunities that may present themselves to us. To that end, we have had discussions with others in our industry, and we expect to continue to have discussions. Those discussions may not result in any meaningful developments, but we think it is important for us to be active in this regard. To summarize, our 2026 strategy will be focused on 3 priorities: reset Medicare into a cash flow generative relationship-driven business, deliver a broader set of products to customers and the advisers who serve them and pursue measured partner-driven ICHRA growth, including a SaaS-based model. And now I'll turn the call over to John, who will discuss our '25 results in greater detail and provide our 2026 annual guidance. John Dolan: Thank you, Derrick, and good afternoon, everyone. In fiscal 2025, we significantly improved profitability, driven by greater enrollment margins in our Medicare business, the continued strength of our commissions receivable and cost savings across all expense categories. We leaned into elevated consumer demand during the first and fourth quarter enrollment periods and pulled back in the seasonally low middle quarters, deploying a more flexible operating structure in our telesales organization. I will now walk through our 2025 financials, followed by a discussion of our 2026 guidance and underlying assumptions. Please note that all comparisons I make will be on a year-over-year basis unless otherwise specified. Fourth quarter revenue was a company record $326.2 million, up 4%, driven by Medicare and ancillary product commissions, partially offset by lower noncommission revenue and individual and family product commissions. For the full year, total revenue of $554 million also increased 4%. Within our Medicare segment, we achieved fourth quarter revenue of $319.6 million or an increase of 5%. Underneath that, fourth quarter Medicare Advantage submissions in our agency model declined slightly at 3%, but were more than offset by a meaningful increase in the LTVs for all Medicare products. An 11% increase in our Medicare Advantage LTV was especially impactful, reflecting favorable retention, particularly the performance of the prior year's fourth quarter cohort, an indicator of the quality of our book. The 3% decline in fourth quarter Medicare Advantage agency submissions is reflective of our strategic decision to concentrate demand generation in our direct branded channels and decreasing marketing spend in channels with lower underlying margins. We're seeing encouraging early signs on retention. Based on current data, our January 2026 Medicare Advantage cohort is performing significantly better in year-to-date retention compared to last year's cohort. This continues the strong pattern of year-over-year improvement we've seen in early-stage retention. Over the past 2 years, retention in the key early weeks of January Medicare Advantage cohort has improved by a cumulative 700 basis points. On the ancillary product side, hospital indemnity plans, which are typically cross-sold as part of the Medicare sales process, grew significantly in the fourth quarter and full year. 2025 annual approved members exceeded 30,000 and was up more than 5x compared to 2024. For the full year, Medicare segment revenue of $531.2 million grew 6%. Fourth quarter positive net adjustment revenue or tail revenue was $3.9 million, almost all of which came from our Medicare segment. This compares to $7.6 million in total fourth quarter tail revenue last year, $5.9 million of which came from the Medicare segment. For the full year 2025, total tail revenue was $44.4 million compared to $22.7 million a year ago. The tail revenue we recognize reflects cash collections in excess of our original LTV estimates. There continues to be a significant unrecognized positive adjustments related to our Medicare book of business beyond our initial constraint. Turning to Medicare profitability. Fourth quarter LTV to CAC ratio was 2.2x, improving meaningfully from 2x in the fourth quarter of last year. We believe this is a clear indication that the marketplace is rewarding quality and that our multiyear investments in brand building, consumer experience and retention are delivering tangible returns. Fourth quarter Medicare gross profit of $178.3 million grew 12%, while for the full year, Medicare gross profit grew 21%. Our Employer and Individual segment revenue and profit decreased for both the fourth quarter and full year 2025. This segment is undergoing a transition from being primarily driven by individual and family plan sales to being focused on the employer market and specifically the ICHRA solution. On a consolidated basis, total fourth quarter operating expenses were $200 million, a decrease of 1%. Fourth quarter marketing and advertising and customer care and enrollment costs decreased 3%, while general and administrative and technology and content combined increased 6%. As I mentioned before, for the full year, our total operating expenses were down 4% with every category of fixed and variable spend declining compared to 2024. Fourth quarter GAAP net income was $87.2 million, a decrease from $97.5 million in the fourth quarter of 2024. This year-over-year reduction was primarily due to a higher effective tax rate during Q4 2025, partially offset by higher total revenue in the quarter. Full year 2025 GAAP net income was $40 million, an increase of almost 300% compared to $10.1 million a year ago. Fourth quarter adjusted EBITDA was $132.9 million, an increase of 10% and full year adjusted EBITDA was $97.3 million, an increase of 40%. We ended the year with $77.2 million in cash, cash equivalents and marketable securities compared to $82.2 million at the same point last year. This includes the net impact of the $125 million credit facility we announced in January after transaction costs and $70.7 million used to repay our existing term loan. As a reminder, the first quarter is our seasonally highest cash collection quarter as commission payments related to AEP enrollment cohorts mostly begin in January. Total commissions receivable as of December 31, 2025, were $1.1 billion, up 12% compared to December 31, 2024. Moving to our 2026 guidance. As Derrick outlined, this year, we are intentionally prioritizing operating and cash flow and margin over enrollment volume in line with our carrier partner strategies. We plan to continue concentrating our marketing spend on our highest quality channels, those with the strongest expected persistency and LTV to CAC profiles. Our demand generation strategy will also focus on the periods with the highest returns, the first quarter and most significantly, the fourth quarter. In the middle quarters, we plan for our licensed advisers to combine new enrollment activity with work towards deepening relationships with our existing members and ensuring member needs are fully met by offering ancillary products and services. On the cost side, in January, we implemented fixed cost reductions expected to generate approximately $30 million of fixed cost savings, combined with over $60 million of planned reductions in variable spend in 2026 versus 2025. As a result, the midpoint of our guidance reflects a year-over-year improvement in earnings margins, excluding tail revenue in both periods, even as revenue moderates. Importantly, our guidance also reflects our objective to achieve breakeven operating cash flow in 2026, representing roughly a $25 million year-over-year improvement at the midpoint. We expect to achieve this despite anticipated declines in BPO and sponsorship revenue in the current environment, which are fully baked into our 2026 guidance. As a reminder, the cash inflows of our business are largely driven by incoming commission payments from carrier partners, the timing of which can be difficult to control, which is reflected in the guidance range. We believe achieving operating cash flow breakeven this year will establish a critical foundation for positive operating cash flow in 2027 and positive free cash flow over the next 2 years. With that, we expect total revenue to be in the range of $405 million to $445 million. We expect GAAP net income to be in the range of $8 million to $25 million. We expect adjusted EBITDA to be in the range of $55 million to $75 million, and operating cash flow is expected to be in the range of negative $10 million to positive $12 million. These ranges include the assumption of positive net adjustment revenue in the range of $0 to $20 million. Taking a long-term view, the underlying goal of our financial strategy this year is to become increasingly targeted with our capital deployment. We plan to lean into the most profitable business opportunities and quarters, maximizing the return on our industry-leading omnichannel platform. We appreciate your continued support, and I'll now turn over the call for your questions. Operator, please open the line for Q&A. Operator: [Operator Instructions] Your first question comes from Ben Hendrix from RBC Capital Markets. Michael Murray: This is Michael Murray on for Ben. There's obviously a major MA payer that's trying to limit membership growth this year, and that's impacted some of your peers. Is this what is causing your softer top line outlook? Or is it also related to your reduced investment in lower-margin third-party marketing channels? Any color would be helpful. Derrick Duke: Yes. Thanks for the question. This is Derrick. I would say that our -- I think you have it right as it relates to your second point on our reduced revenue outlook for 2026. We're prioritizing our higher-margin branded marketing channels, which higher quality, higher retention as evidenced by the performance of our book. It also is in -- recognizes the difficult macro environment we're in and the difficult choices that carriers are making as it relates to improving their own margins. And so we're choosing to also focus on our margins in 2026 as we -- as I said in my remarks, as we consider this a bridge year. Michael Murray: Okay. That's helpful. And then your MA LTV saw a nice increase in 4Q on improved quality and retention. Were there any changes to your constraints or persistency assumptions there? And should we expect similar rates in 2026? John Dolan: Michael, it's John Dolan. Thanks for the question. Yes, Yes. Sorry, just -- would you ask the question one more time? Michael Murray: Yes. Were there any changes to your constraints or persistency assumptions in your MA LTV? And should we expect similar rates in 2026? John Dolan: Thanks for repeating the question. No, there's no change in our constraints for MA product or any products this quarter. We did make a change earlier in the year on product, but that was the only change that was made during the year. And as we look forward into 2026, we're expecting slightly improved LTVs. Operator: Your next question comes from Jonathan Yong from UBS. Jonathan Yong: Just thinking about kind of what's embedded in your outlook, are you assuming that payers will continue to suppress commissions for the bulk of the year as you kind of move forward and as we get into the next AEP cycle? Or is this really just kind of the pullback that you are proactively taking because you're assuming that the payers will be focused more on margin and try not to grow their book? Derrick Duke: Yes, it's a great question. Thank you. I don't -- the way we think about year-over-year commission suppression is that we believe again, as we said in our prepared remarks, that this year will be disruptive similar to the prior years. We don't have any indication at this point that it will be any more disruptive than what we've seen. So it's certainly not an indication that we think that it's worsening from that perspective. And again, our pullback really is more about what we're doing to address our own margins. And as we think about where to invest capital and focus again on those branded channels that we've proven now, right, over a period of time that are higher quality, higher persistency and will lead to a more meaningful relationship with our members. Jonathan Yong: Okay. And kind of on this pullback that you're doing, I guess it is a little surprising given over the last couple of years, you have successfully navigated kind of this dynamic environment. and now we seem to be downshifting in terms of the growth profile. I guess what's the reasoning for that, just given that you have successfully navigated the environment for why make this change now? And then is there any disruption that will occur from this in terms of members perhaps not utilizing eHealth kind of moving forward or some of your payer partners thinking that the pullback is a negative aspect from that perspective? Derrick Duke: Yes. Thank you. So I'm going to answer the second part of the question first. We don't believe there's any potential adverse outcomes for members or our carrier partners. The way we view the pullback is it's a chance -- again, our carrier partners for 2 years running now, and again, we expect for a third year are making difficult choices to address their margins, and it's time for us to do a similar thing. And while -- by the way, thank you for your comment about successfully navigating prior periods. But I will say it hasn't been easy. Like it's been a difficult road for us to navigate. I've said on prior calls that size and scale matter. And I think our results prove that our size and scale has been one of the reasons that we have been able to successfully navigate those changes. But again, as we move forward with headwinds that we've talked about historically because of the disruption that we believe this was the right time to continue the move into the investment in our branded channels. Again, that's not new. We're just expanding the percentage of our spend into those branded channels versus prior years for -- again, for good reason. So it's calculated. We're doing this on purpose as we -- again, in my prepared remarks, as I said, as we focus on moving to a lifetime advisory model with our members that ultimately will allow us to achieve what we've laid out as it relates to higher attachment rates on ancillary products and services that meet the needs. I also think it's important to know and understand that at least at this point, we believe carriers in addressing their margin channels likely will reduce benefits. that will also give us an opportunity to add additional products and services to fill those voids or those gaps, if you will, as those MA product benefits change. Operator: Your next question comes from George Hill from Deutsche Bank. Unknown Analyst: It's [ Maxi ] on for George. The CMS enrollment data in February showed continued slowdown in the growth of MA market, but SNP enrollment growth remained very strong and even accelerated significantly this year. Could you talk about the degree to which you serve SNP versus regular plan population? And are you guys over or underinvest here to capture the growth in the segment? And also please remind us if there is any different commission structure for the SNP population. Derrick Duke: Yes. We don't break out and we haven't provided information publicly about those cohorts around how many SNP members versus non-SNP members we have. I think generally, again, we would say that we -- our broad platform, our broad carrier relationship and the number of MA plans on our platform. Again, as a reminder, we have, I think, roughly 50 different payers on our platform with thousands of individual plans across hundreds of geographic locations. So certainly, within there, we have those SNP plans available, and we'll continue to have them available, and we'll meet the need of the consumer. Whoever the consumer is and what their need is, our focus is on making sure that we align them with the right plan to meet those needs. Operator: Your next question comes from George Sutton from Craig-Hallum. George Sutton: I wondered if you could give us a little bit more granularity on the $30 million of fixed cost savings. What areas are being affected by that move? And then also any additional details on the $60 million reduction in variable spend? Is that purely the lower margin channel spend? Or is there more to it? John Dolan: Sure. George, it's John Dolan. Thanks for the question. The $30 million of the cost savings is really coming from all areas of our fixed cost the fixed marketing and advertising technology and content and G&A functions. Nothing -- I wouldn't highlight any one area specifically. With respect to the variable spend, our focus was taking a look at the lower margin areas first and reducing those. So as I think Derrick covered in his prepared remarks, our goal is to spend into the areas that have the best persistency in LTV to CAC. George Sutton: So Derrick, there was a suggestion that you had that you would look for 2027 to become another growth period. I'm just kind of curious, obviously, it sounds somewhat hopeful sitting here today. I'm curious what drives that thought process? Derrick Duke: Yes. I think it's, George, based on demographics as agents continue to hit sort of their annual peak over the next couple of years in the 4 million to 4.1 million. We know from McKinsey data that roughly 70% of those new agents are choosing Medicare Advantage plans. CMS themselves believe the penetration rate for MA products will get to 60% by 2030. So we believe that, right? We believe that the value proposition is strong for consumers. And we believe that carriers will get their margins corrected, if you will, if that's the right way to think about it. And once they stabilize that, they'll be in a position to return to sort of a growth mode. And when they do, we'll be prepared to return to that growth mode with them. George Sutton: Got you. You mentioned having active discussions with others in the space. I'm curious and many of whom are in a similar boat, what are you looking for? Are you looking for more capabilities through M&A/combinations? Are you looking to buy books of business? Just curious what the general plan would be there in terms of how you would benefit? Derrick Duke: Yes. Thanks for the question. I would just say at a high level, sort of in the proverbial 30,000-foot view. It's my belief and our belief that when we're -- when any kind of market is in a period of volatility and disruption the way our market is today that it makes sense for us to be thoughtful about what those opportunities could be and how they present themselves. And so it could be yes to all of the types of things that you mentioned. And we're trying to be thoughtful and mindful to be able to take advantage of opportunities as they present themselves. Operator: There are no further questions at this time. I will now turn the call over to management for closing remarks. Please go ahead. Derrick Duke: Thank you for joining us. We appreciate the time that you spent with us today and that you invest in the coverage of eHealth. We're proud of the results for the fourth quarter of 2025 and the full year of 2025, and we're excited about the future. We're excited about where we're going to increase our capabilities to meet the needs of our members and to also meet the needs of our carrier partners. Look forward to speaking to you in the future. Have a great evening. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Euroapi 2025 Full Year Results. The call will be structured in 2 parts; first, a presentation by the Euroapi Group management team represented by David Seignolle, CEO; and Olivier Falut, CFO. Afterwards, there will be a Q&A session. [Operator Instructions] I will now hand over to Sophie Palliez, Head of Financing, Treasury and shareholder engagement. Madam, please go ahead. Sophie Palliez: Thank you, Laurent, and welcome, everybody. Before we start this presentation, we would like to emphasize that some of the information we will share with you today is looking forward and not historical. This information is based on projections and assumptions concerning Euroapi's current and future strategy, future financial results and the environment in which we operate. These looking forward statements and information, do not constitute guarantees of future performance. They may be subject to certain risks and uncertainties, which are difficult to predict and generally outside the control and they could cause actual results, performance or achievements to differ materially from those described and/or suggested. That said, let me give the floor to David Seignolle. David Seignolle: Thank you, Sophie, and welcome, everybody. Let me begin on Page 5 with the key takeaways from 2025. Our teams thought on all fronts to protect our market position in an increasingly competitive environment. For example, Vitamin B12 as mentioned here. It was also another year of declining API volumes for Sanofi. Fortunately, on the Sanofi side, this was partially offset by a strong commercial CMO activity, particularly in anti-infective and skin care. At the same time, we saw growth in sales of key APIs with other clients such as opiates, et cetera, et cetera. While the top line was under pressure, we continue to make strong progress on everything that we can control. We sustainably reduced our external expenses and our personnel costs. We maintained strict working capital discipline with another year of improving inventory management, and we continue to invest selectively in CapEx to prepare the company for future growth. All of this reflects a real strengthening of our cost discipline across every function. Despite the top line headwinds, our transformation remains firmly on track. We have executed the initial phase of our plan on schedule in all the areas we control, some even earlier than planned. That includes our product portfolio rationalization, our industrial footprint simplification and our organization and processes. Taking a quick look at 2025 from a financial perspective on Slide 6. Net sales came in at EUR 848 million, with Sanofi sales down 26.4%, but other clients up 9.7% as reported. Our core EBITDA came in at EUR 66.2 million, a 31% increase from 2024, with a core EBITDA margin of 7.8%. Our EBITDA was close to EUR 10 million versus negative EUR 44 million in 2024. CapEx stood at EUR 77 million, with 55% of that allocated to growth and performance projects and supporting the company's return to back on track for sustainable long-term trajectory. Turning in to Slide 7. The challenges we faced this year did not weaken our commitment to sustainability. First, our near-term carbon emission reduction targets were validated by the SBTi. This is a strong confirmation that our trajectory is aligned with the Paris Agreement. Looking at our 2025 emissions, we are already seeing meaningful progress. We've achieved half of our targeted reduction for Scope 1 and 2, and we have already exceeded our target of Scope 3. This is a major milestone for the company. On diversity, given the current reorganization underway, we fell short of our 2025 targets on diversity. However, it is important to keep a long-term perspective in mind. In 2023 and 2024, our diversity ratio increased and even exceeded our objectives. The underlying trend remains positive. And on safety, which is something a bit painful to me, but despite our continuous effort, the injury rate remained stable in 2025. Most incidents were minor often related to slip, trips and falls. But that said, even one accident is one too many. And the Accident Prevention Plan launched in 2025 will continue to be rolled out in 2026 with a stronger focus on record analysis and proactive prevention. With that, I will now hand over to Olivier, who will walk you through our financials in more detail, and I'll come back later to look at the perspective. Olivier Falut: Thank you, David. We'll start the review of the consolidated accounts with the evolution of net sales. Net sales reached EUR 848.2 million in 2025 versus EUR 911.9 million in 2024, representing a decrease of 7%. The current impact on net sales was almost -- the currency impact, sorry, on net sales was almost nil. And the 1.2% perimeter impact is collated to the Haverhill divestment. On a comparable basis, sales declined by 5.9%. If we take a look at the net sales per activity on Page 10 now. API solutions to Sanofi decreased by 34.2% due to, first, an unfavorable comparison base related to the stock clearance of buserelin, which positively impacted 2024 sales of EUR 21 million, and the decline of volume of Sevelamer in H1 2025 and the sales of Haverhill at the end of June 2025. Last, EUR 50 million reallocation of Opella sales to other clients starting in May 2025, following the change in control of Opella. Excluding Opella sales to Sanofi in 2025 compared to 2024 only would have decreased by 25.7%. CDMO sales to Sanofi decreased by 4.9%, higher demand of Pristinamycin and PLLA commercial sale contracts was more than offset by the decrease in revenue from the Phase III BTKi inhibitor project. API solutions to other customers increased by 18.6% benefiting from first and an active cross-selling strategy, then 31 additional new clients in 2025, we generated high single-digit net sales in 2025. Last, the EUR 50 million reallocation of Opella sales without the change, sales to other clients would have increased by 4.5%. CDMO sales to other clients decreased by 13.6% as a result of the downsizing and discontinuation of pre carve-out of mature commercial contracts and the slowdown of early stage CDMO business. Turning to the core EBITDA evolution on Slide 11. Core EBITDA reached EUR 66.2 million in 2025. This represents a 7.8% margin, up from 5.5% in 2024. The evolution in core EBITDA margin was driven by the following elements. The stock clearance of Buserelin in '24 for EUR 21 million or minus 0.9% points; volume impact for minus 1.0 point, which is mainly due to the discontinuation of CDMO contracts; price and mix positively contributed by 1.3 points; a positive 0.3 points from the discontinued products. Industrial efficiency led to an additional 1.2 percentage point of core EBITDA margin, energy and raw material increase the margin by 0.9 points, strengthened financial discipline and lower personnel cost in OpEx allowed to gain 1 point of core EBITDA margin while Brindisi weighted minus 1.4 in '25 and on the other hand, the divestment of Haverhill allowed to gain 0.6 points. Total nonrecurring items on Page 12 now. Total nonrecurring items we stated from core EBITDA -- from EBITDA, sorry, stand at EUR 56.3 million in '25. The vast majority of these exceptional items are directly related to the FOCUS-27 plan. We recorded EUR 36.1 million of idle costs, which is mainly consolidation of the Frankfurt site. We also recognized EUR 6.6 million of internal and external costs related to the transformation of the company. Finally, employee-related expenses, in part linked to the redundancy plan amounts to EUR 13.7 million, which mainly concerned again Frankfurt and the divestment of Haverhill. Looking now at items below EBITDA on Slide 14 -- Slide 13, sorry. Operating income amounts to negative EUR 130.6 million in 2025 compared with negative EUR 120.4 million in 2024. Depreciation and amortization remained broadly stable year-on-year. The increase of asset impairment to negative EUR 77.8 million reflects discontinuation of vitamin B12 productivity project in Elbeuf following the reassessment of its economic potential. And a revision of gross assumptions to align with the latest market dynamics. As we move below operating income now, net financial expenses improved EUR 7.5 million in 2025 versus EUR 19.1 million in 2024. This decrease reflects lower financial expenses following the implementation of the financing plan. The 22.89 sorry, income tax -- sorry, EUR 72.9 million income tax expense includes the depreciation of tax assets following the update of growth assumptions. Taking together, these items results in the net loss of EUR 211.2 million compared to EUR 130.6 million lost in 2024. Turning to working capital dynamics on Slide 14 now. As part of our commitment to improve working capital, we have maintained the progress achieved on both months on hand and DSO since the implementation of FOCUS-27. Months on hand stood at 7 in 2025 and DSO at 36. CapEx now on Page 15. CapEx reached EUR 77 million in 2025, with 9% of total 2025 net sales. 65% of CapEx was dedicated to growth and performance, mainly supporting the capacity increase and efficiency projects on peptide and oligonucleotide, prostaglandins and corticosteroids. 21% of CapEx related to compliance. As a reminder, these investments address safety, quality and environmental topics and a significant share of them are mandatory. 24% of remaining CapEx corresponding to the maintenance of the existing asset base. Moving now to Slide 16, which covers the evolution of the net cash position. We ended 2025 with a net cash position of EUR 68.2 million compared with EUR 24.6 million at the end 2024. Cash flow from operating activities generated EUR 128.5 million of the cash in 2025. This was mainly driven by the working capital, which contributed for EUR 120.1 million. This improvement mainly reflects further reduction in inventory totaling EUR 38.9 million, decrease of trade receivables supported by factoring program launched in March 2025. Out of the EUR 45.4 million reduction of receivables, EUR 26.5 million was factored by year-end, with remaining decrease reflects immense cash collection. Other current assets and liabilities includes EUR 36 million paid by Sanofi to reserve minimum availability capacity for 5 selected products, EUR 21 million upfront grants from the IPCEI program, EUR 6.5 million related to the monetization of research tax credit in France. Including the EUR 77 million of CapEx, it was reviewed in previous slide, free cash flow before financing activities stood at EUR 51.5 million in 2025 compared to EUR 15 million at the end of 2024. Finally, cash from financing activities included a cost of debt of EUR 3 million in significant decrease following the debt for refinancing in 2024. This concludes the review of the 2025 consolidated results, and I will hand it back to David. David Seignolle: Thank you, Olivier. Before moving to full year 2026 guidance, let me walk you through the main operational and business drivers that will underpin sales, profitability and cash development for the year. Net sales will be strongly impacted by the rationalization of the API portfolio that we have engaged in 2 years ago. As we've said, the discontinuation of API accounted for around EUR 70 million of sales in 2025 including EUR 20 million related to stockpiling. Although the manufacturing of these API has been stopped, we still expect a residual EUR 10 million to EUR 15 million revenue from these products in 2026 as we continue sales for existing inventory. This means between EUR 55 million and EUR 60 million headwind in 2026 that we decided upon. The other impact are the continued decrease of the sales to Sanofi and further discontinuation of commercial CMO contracts. Turning to profitability. The industrial efficiencies and additional OpEx savings we anticipate should be offset by unfavorable fixed cost assumption, resulting from lower volumes. Our EBITDA will also be impacted by the restructuring costs that are foreseen in 2026. We will maintain a strong focus on working capital discipline and the CapEx to sales ratio is expected to be around 8% of sales. All in all, on Page 19, due to the impact of our portfolio rationalization and considering the challenging business environment, we expect a decrease of around 10% in net sales in 2026 on a comparable basis. Our own decision to streamline our portfolio accounts for around 90% of that decrease. In this context, we will accelerate our transformation to protect profitability and we expect to maintain the full year 2026 core EBITDA margin broadly in line with financial year 2025. Moving to the next slide and an update on FOCUS-27. On Page 21, let me recall, first, what FOCUS-27 was fundamentally about. It was behind around four structural pillars to reshape Euroapi into a more competitive, more profitable and more resilient company. First, streamlined API portfolio. We are concentrating on highly differentiated and profitable products, reducing exposure to commoditized segments where structural pressure is intensifying. Second, a focused CDMO offer where we are leveraging recognized capabilities and strong technology platforms to position ourselves for complexity, reliability and regulatory excellent matters most. Third, rationalize industrial footprint and disciplined CapEx. We are simplifying our manufacturing network and prioritizing high-return investment and improving asset utilization. Fourth, organizational transformation. We are building a leaner, more agile company, aligned with our strategic priorities and able to compete in a faster-moving environment. These 4 pillars remain absolutely valid today. On Page 22, let's have a look at what has been delivered over the last 2 years. Despite the demanding environment, we have executed the core structural actions of FOCUS-27 and reinforced our fundamentals. On the portfolio, 66% of our sales in 2025 are now coming from differentiated products. This compares to 57% at the end of 2023, and we are on track to achieving our target of 70% by the end of 2027. The planned discontinuation of the low-margin product was almost completed at the end of last year, which will impact our 2026 top line, as already said, accounting for 90% of our top line reduction. Regarding the CDMO goals, 70% of the projects are late stage, improving visibility and reducing the risk. On the industrial footprint, Haverhill has been divested, productivity has improved across all sites. One workshop in Frankfurt has been mothballed and 380 positions have been reduced across the company ahead of our original plan. On the organization and cost base, key functions have been reorganized, R&D has been refocused and close to EUR 20 million of OpEx savings have been delivered over the past 2 years. Overall, the Euroapi today is a leaner and more disciplined organization than it was in 2023. Moving to Page 23. Capital discipline has also been a very strong priority under mothballed FOCUS-2027. This is clearly reflected in our CapEx trajectory investment decreased from EUR 137 million in 2023 to EUR 108 million in '24, EUR 77 million in '25, and I've even mentioned that we will be close to 8% for 2026 from a CapEx to sales ratio starting at 14% back in 2023. This reflects a deliberate shift towards stricter prioritization, higher return of projects and certainly better care and discipline around CapEx expenses. We have continued to invest in strategic platforms such as peptides, oligonucleotides and in high barrier APIs like prostaglandins and corticosteroids. At the same time, we took disciplined actions to discontinue the vitamin B12 capacity project following market acceleration and technical constraints. Moving to Slide 24. Let me briefly step back at where we are on our key KPIs for FOCUS-2027. Since 2024, we have incurred EUR 44 million of transformation and restructuring costs, ahead of the 25% originally mentioned for those 2 years. This reflects the fact that the project -- or the restructuring program is ahead of schedule, but it doesn't change the total expense expected envelope of EUR 110 million to EUR 120 million, although we will do every effort to limit that. On incremental core EBITDA, we had initially targeted EUR 75 million to EUR 80 million incremental by 2027 compared to 2024. However, with '26 and 2027 net sales now expected to be below initial assumptions, additional underactivity is anticipated. As a result, this incremental core EBITDA target will not be achieved in 2027. On CapEx, EUR 185 million has been invested over 2024 and 2025 against an initial EUR 350 million to EUR 400 million envelope for '24 to '27. Although we maintain this envelope, we will be looking for all opportunities to either limit our CapEx to projects, offering the highest return and reinforcing competitiveness or optimizing the CapEx expenses. Let me be clear, this is not about slowing down. It is about allocating capital where the returns are sustainable and defensible. Turning to Slide 25, sorry. As we have just discussed, FOCUS-27 and the transformation of the company are on track. However, over the past year, the business environment has evolved faster than initially anticipated. Competition from low-cost Asian players has intensified increase in price pressure in natural APIs. At the same time, we're also seeing large pharmaceutical companies outsourcing more late-stage and complex projects. This creates opportunities, but competition is obviously selective and execution must be precise. Sovereignty initiatives are promising, they have not yet translated into tangible economic incentives at this stage. But we are working or helping towards this evolving. In addition to this external environment, it is fair to say that we also face internal challenges with early-stage CDMO road map progressing at a slower pace than anticipated and the discontinuation of the vitamin B12 project. This is a context in which we are accelerating and sharpening the execution of FOCUS-27 and launching new initiatives. Moving to Slide 26. On the portfolio side, we will further reduce our exposure to commoditized APIs, structurally pressured small molecules and concentrate our resources on high barrier segments such as prostaglandin, corticosteroids and opiates. On these 3 segments, we have solid competitive advantage that we will leverage including further innovation programs that we have mentioned before. This includes technology edge and strong market position in prostaglandin as well as strong expertise and flexible capacity in corticosteroid and opiates. On operations, we'll continue improving operational performance, standardizing and improving our processes, for example, through leveraging technology. We will also strengthen the commercial CMO business. We can offer a reliable and sovereign manufacturing to customers looking for derisking their API supply chain. This will help securing volumes and improved capacity utilization in our sites. On the organization front, we will further streamline structure, simplify processes and align skills and capabilities with a more demanding environment. We have done a lot since the launch of the plan, but we see further opportunities to improve our operating model towards the fit for purpose and leaner organization. In parallel, we are launching additional initiatives, First, we will enhance commercial excellence and expand our API customer base in under-leveraged territories. Let me give you 2 examples. North America, which is the largest and fastest-growing API market worldwide accounted for only 8% of our total sales in 2025. If we go south to Latin America, we only serve 10% of the top drug product players over there. Second, we will refocus the CDMO business on strategic customers and/or complex molecules notably P&O, peptides and oligonucleotides. This means we will stop deleting our commercial efforts and contrate on strategic customers and products that we can succeed upon and increase focused on complex molecule projects, for example, high added value peptides and oligonucleotides projects, including RNA therapy. First, we will optimize our supply chain to structurally reduce our costs while maintaining end-to-end console. This is one very important way to increase competitiveness and adapt to the current environment. Our objective is obviously to adapt the operating model to a structurally tougher market and restore a sustainable path to profitable growth. Moving to our long-term ambition as a conclusion. While we recognize that the recovery is taking longer than initially anticipated, reflecting structural evolution of the market, we are taking the necessary actions to build a more competitive, sustainable and financially resilient operating model. Looking towards the near future, our positioning is clear. We aim to be a European-based sovereign supplier of complex API, a reliable CMO partner and a trusted CDMO player for new drug development. At the same time, this positioning must be supported by a sustainable operating model with a competitive -- cost competitive supply chain, a lean and capital-efficient industrial footprint and obviously an agile organization. Our long-term strategy is anchored in discipline and certainly value creation. This is where our focus is now in the interest of all our stakeholders. Thank you for your attention, and we are now ready to answer your questions. Operator: [Operator Instructions] We have a first question from Clement Bassat from Portzamparc. Clément Bassat: Basically, I have four. The first one about the top line. So what is your 2025 base top line? I assume it is your published figure, minus EUR 70 million from discontinued API, which leads to EUR 778 million. And this would imply a top line '26 of EUR 700 million following your expected 10% decrease in tip line, just to confirm if I am correct. Second question, so regarding the EUR 78 million impairment on Vitamin B12, does this include a portion of the CapEx invested from the current FOCUS-27 plan? And are you considering further impairment in 2026 following the discontinuation of the other API. Third question, just to confirm, you are maintaining restructuring costs at EUR 100 million. This is only cash related, spread through 2027. And finally, your CapEx was limited to EUR 77 million in 2025. So this decrease is a decision to preserve cash or just to adjust to your expected future top line? David Seignolle: Thank you, Clement, for all the questions. Let me -- I may ask you to repeat some at some point, just to be precise. But let me start with answering and maybe Olivier will step in at some of those. So the top-line assumptions that you have made, if I followed, I think, are not the way we think about those. There is no such comparable basis at EUR 778 million, which you mentioned, removing 10% of that getting to EUR 700 million. What we are looking is around 10% versus comparable basis, which you would only reduce the sales of Haverhill in 2025. So you can make the math. I don't want to make it for you. We have not mentioned any specific numbers, but we are not seeing such a drastic drop as you calculated. On the -- I'll come back to the B12 impairment question. Yes, the investment of B12 was part of the EUR 350 million to EUR 400 million total envelope. Most of these investments on B12 were made in '23 and '24, some even earlier -- sorry, in '24 and '25, some even earlier to that to that period. So the impairments are related to that. There is no such plan to further impairment in 2026. There has just been the adjustment of these impairments plus the impairment we did on the terminal value of the company. And there is no such thing to do, to do anything else. I wasn't clear on the restructuring. I'll leave you to come back to it afterwards. And finally, the CapEx of EUR 77 million in 2025. I think it's a bit of both. I think the company has been used to spending far too much money on CapEx in the past, probably referring back to the time that we were a large pharma company where the cash was not a problem. I think over the last couple of years, we have learned to be more disciplined with spending cash, spending CapEx, looking at different ways to fix problem than to invest in new equipment, maybe in some cases, reutilizing elements or not looking for the gold-plated solutions, but more the practical solution that a CDMO or CMO organization needs and not a large pharma. So there is no such thing to say that we want to limit to the further growth. I think we're still committed to investing significantly in the future. And for that, we have a couple of projects such as IPCEI or the morphine project where we are looking at new ways of manufacturing the morphine and all of these projects being either funded by -- partially funded by France Relance and the IPCEI program. And there will be significant investments, but that will come at the right time. All in all, we need to look at a sub EUR 800 million revenue company should not be spending EUR 100-plus million on a yearly basis. Yes, clement, can you go back to the question three on the restructuring, please? Clément Bassat: You are maintaining restructuring cost of EUR 100 million, but I have in mind that restructuring costs are composed with cash and idle costs. So EUR 100 million for me, I understand this is only cash related expected in 2026, 2027 and maybe also 2028. Just to confirm, you are talking just about cash-related amounts. David Seignolle: Yes. So that is exactly -- the last part of your sentence is correct. It's talking about cash amounts. And it's only covering '26 and '27. We are obviously, as I said, have different views on the top line for 2026 and 2027 at this stage than was originally anticipated. And as a result, if we need to adapt the organization to those new levels, we will have to do. But there will be a time to engage in those discussions if they need to happen. Operator: Now we have a question from Zain Ebrahim from JPMorgan. Zain Ebrahim: Zain Ebrahim, JPMorgan. So my first question is just in terms of the China API increased competition that you're seeing. It sounds like Vitamin B12 is a key segment where you're seeing that competition, maybe anti-infectives as well. But can you talk through which divisions or product categories you're seeing that competition in? And how much of the headwind you're expecting in 2026 is due to price reduction on those product categories versus volume lost to some of the extra competition? That's my first question. Maybe I'll pause there and then I can ask my follow-up. David Seignolle: All right. Thank you. So look, I think the -- unfortunately, this is a strong industry as we see or China has entered into a strong industry-wide program, and we see that across various industries and it's valid in ours, and they are looking at every single product. The reality is we have the small commodity programs -- products, sorry, that are very much impacted because in this specific case, not only they are benefiting from large volumes from very low cost of labor, low energy costs, significant new equipment with, I mean, state-of-the-art, et cetera, et cetera, plus in some cases, subsidies by the government. So in those cases, it's quite difficult to compete. Yet for whomever wants to supply and to get materials from Europe, we will maintain, and we have some of these customers. Now, I believe the trajectory over the next couple of years on those type of products is going to continue to decrease, and we will have to fight back and to provide answers in the cases we can. For the specific categories, I think it's all over the board. The reality, though, is we have quite a strong value proposition on the typical strength category of products that we have in the company. Prostaglandin, we are the global leader in prostaglandin by either the number of products that we look, by the experience and history that we have and the quality of our products, and we aim to maintain that. We are actually reinforcing this offering by looking at different further improvements or innovation projects on site. We have launched, as you know, a strong capacity increase to support the growth in the future, and we continue to accelerate down this path. The second element to that would be the opiate, where not only we benefit from a somehow protected market with all those morphine and derivative products, but we have -- we are working towards significant innovation projects in the future, as mentioned before, and these are benefiting not only for subsidies, but will be supported from our side, from CapEx investment to increase in the future. We don't necessarily foresee challenge on the price on that specific category either. And then finally, the corticosteroids. I think the corticosteroid is maybe a little bit of a different animal. We are -- there is a lot of players in the world. We are the only one, except with one other site in the U.S., which is fully integrated from A to Z of manufacturing of corticosteroids outside China. This is a strength, especially when we talk about sovereignty. We have discussed about sovereignty through COVID and challenges. We see sovereignty through shelf nowadays. We see some geopolitical issues now, which may endanger some logistic routes further in the next couple of weeks and months. So we still believe that this is not going to be simplified in the future and our sovereign solution will be helpful. That being said for corticosteroid, yes, we are challenged on price. Yes, we will probably do some efforts because we have significant projects to innovate and to improve our value proposition to cut costs significantly through new chemical routes in the future. That is what IPCEI actually want the, Work Package 2 of IPCEI is about, and that's a strong avenue for us to reinforce our value proposition in the future. I can't just further comment on the impact of volume or price related to our 2026 earnings. You had a follow-up? Zain Ebrahim: That's very helpful. Yes, my follow-up was on the discontinuation of APIs is helpful in terms of the quantification of the headwind to '26 sales. So should we expect any further discontinuations in addition to what you've already planned? It was 13 API before, I believe. So just any further discontinuations, given the portfolio prioritization that you're undertaking? And can we expect to return to sales growth? Could we see that in the -- it sounds like obviously '26, you've given guidance. For '27, you said it's below expectations, but when can we expect to see that? David Seignolle: Yes. So that's a couple of questions. Let me just get them in order. So are we expecting further discontinuation of products? No. The answer is no. Now this being said, you never know what's going to happen. I think, it's healthy for any company to look at their portfolio regularly. At this stage, we have not decided to further prune our portfolio. Actually, we are looking at growing that. And that's part of our additional activities for commercial that we mentioned. We are looking to new geographies. We are looking to seeing if we can have additional offerings and how we would progress on that specific front. When are we expecting to grow was the second part of your question? Well, the earlier, the better, obviously. What we are seeing for 2026 is still some reduction, as we mentioned. I just want to come back to the fact that 2025 saw a significant reduction in Sanofi's sales. But we just mentioned we gained 31 new clients and the sales to other clients and Sanofi was up close to 10%. So let's -- it's definitely a way forward that while we want to maintain some level of Sanofi, we know that the inherent share of the Sanofi business for the future is to reduce. On that specific front because maybe the question is going to come and I can anticipate it. We are -- we have an MSA up until 2027 that we are working towards extending. We have already five products that are extended until 2032. One specific with Opella now until 2031, and we are working towards concluding the terms of the extension of the other products beyond 2027. So whilst we -- our focus is to manage the reduction of Sanofi over time, we are heavily focused on selling to other clients, cross-selling, acquiring new, et cetera, et cetera. And there is -- and the first elements of the strategic move we did last year with merging the 2 organizations commercial into one and led by an expert in commercial operations in the CDMO and CMO space in our industry with the arrival of Frederic Robert in our organization is proving us right. The problem is, as you very well know, it takes time to bring new clients in and register those. So I would hope to see a continuous momentum into acquiring new clients and new sales into '26 and 2027. Operator: [Operator Instructions] Sophie Palliez: Maybe we can move to the questions that we have from the website. There's a bunch of them. So I'm going to try to summarize them by key subjects. The first subject is about the CDMO business. Our analysis of the reasons of the slowdown of the pace versus what initially expected? And maybe what type of future we see in the CDMO business and how we managed to recover specifically growth in that field, so CDMO. David Seignolle: All right. So the CDMO, as I think mentioned earlier, was -- is indeed lower than anticipated, definitely not at the level where the equity story of the IPO was at. I think over the last couple of what we've learned over the last couple of years is, one, we need to be focused. We can't answer 250, 300 RFPs every year with the organization we have, with the resources we have, the sites and R&D labs that we have because that prevents providing the right attention to the clients, to the requests, the RFPs, understanding the exact needs, et cetera, et cetera. So that's why we decided to be a lot more focused into either not the very, very early preclinical stage and to specific areas in which we know we have a competitive advantage. There is, we have 2 main R&D labs that support the CDMO, one in Frankfurt, which has very strong expertise on the P&O side and in Budapest, which can very much work on complex small molecules, such as the prostaglandin and others. In fact, we are still working with providing very complex and strategic projects for the future, such as, for example, developing the backbone of any future development of a large American Big Pharma. That's the first learning. The second learning we had is, it's a lot more complicated than one would think to get into the CDMO world. CDMO world and the clients know that you get into a lot more questions that you need to answer around what kind of raw material will I be using? What kind of processes will I develop? How can I scale up? What will be the implication and the challenges that I will see. Navigating in all this ambiguity hand-in-hand with the customer is not something that this organization was used to in the past with working with one internal client only, which was Sanofi at the time. So all of this takes time to build the capabilities. And I believe we are doing the right things. We are bringing the right talent, and we are working more hand-in-hand with the customers across all of this. For the future, what we see -- well, we see continuous, let's say, difficulty to navigate in this space because there are a lot of players. There are a lot of actually even Asian players that are coming in with different, let's say, approach to the business than European have. However, there is still place for all of us to work to provide local manufacturing, local scale-up with the right expertise and certainly proximity to the customers. The key point is we will also be thinking CDMO and CMO very much differently. The CDMO is everything that I said, working very much in research and development, aligned or accompanying the customer through this journey of their own development. While CMO is a very simple tech transfer, smooth tech transfer type of approach with a reliable supply chain of existing commercial products. Those CDMO and CMO, as we want to differentiate, require a different set of skills. Different set of skills, either by our commercial and customer-facing individuals, and also on the site with very lean and effective and efficient, certainly operations on the ground. And as a result, we will approach those two businesses very differently moving forward to be able to answer our customers. Sophie Palliez: One question is about core EBITDA in 2015, which improved significantly despite revenue declining. How much of the improvement is actual versus temporary cost savings? Olivier Falut: I guess on this area, the answer is quite simple. In terms of cost savings and improvement of the organization and the model, pretty much everything is sustainable. We improved the structure in terms of industrial footprint. We improved the model in terms of organization, in terms of SG&A. The R&D have been also redesigned. So I would answer clearly that the whole is sustainable, provided, that as I comment before, there is one-offs that are not sustainable, obviously, like the Buserelin issue, meaning impact of 2024. But for the rest, it's pretty much sustainable. David Seignolle: Those EUR 20 million of OpEx that we have mentioned are definitely here to stay and will remain as is. This is part of a new structure, a new baseline of our costs and everything that is being done at the site or in procurement and et cetera, will continue to bring efficiencies on a yearly basis. Sophie Palliez: Question on Asian imports. How can you compete against Asian imports? And where is your -- what do you think you have a sustainable edge to compete against those Asian imports? David Seignolle: So the -- how we can compete? I think there is, where and how, I guess, was the question, right? The key point is, we will not be able to compete on everything. And as customers just want price, I think it will be difficult, just on that pure front. This being said, difficult doesn't mean impossible. And as I mentioned earlier, we have a significant amount of our portfolio that is today still very much competitive and for which we further -- we have further innovation program to reinforce this competitiveness in the future, which will either allow us to increase commercial margins or to provide more competitive offerings to our customers. The second part is -- of the question was... Sophie Palliez: What are competitive edges in decisioning? David Seignolle: So that I mentioned. And then I think the second element is the fact that we are based in Europe. And as I mentioned, I think a lot of customers want reliable supply. Our reliable supply, our very China-independent supply chain, even for raw materials is actually today the only one available in Europe, let's face it. So for whomever customer in Europe or in the U.S. that want risk-free supply chain, China-independent supply, well, we are here available. This being said, I think on all those customers that want pure pricing, not really caring either about ESG or pricing, that's where I think we need to look at things maybe a bit differently. And that's what is mentioned in the cost of our supply chain improvements that we want to do in the future. It could very well be that buying some raw materials or intermediates in a lower-cost country could be coming handy for us, not by depleting our sites, but by able to reduce the pricing that we will, in turn, be able to offer to our customers, increasing those volumes and actually, at the end, probably having higher volumes in this specific site that is manufacturing the API than we used to have. So I think we need to be able to play on both levels. One is top-notch player of premium quality APIs; two, being a European source, sovereign source to China independent supply or sovereign supply; and three, for those customers that want price, let's play here as well. Sophie Palliez: What is the current level of capacity utilization across your main API sites? And what level could you consider as normalized for the business? And do you have an objective in midterm? David Seignolle: So look, on the capacity utilization, I don't think we comment on that, but we would expect around, let's say, ballpark half of our capacity, a bit more half of our capacity being utilized at this stage. There is no surprise, if I say -- to any of you, if I say that in the chemical industry in Europe, given the cost structure and everything, all our -- all my peers, let's say, would agree that 75% to 80% utilization is a minimum to have sustainable long-term perspective. In our situation, we know that at this stage, given the elements of underutilization that we have, which hurts or will hurt or which at least offsets all the efficiencies we are bringing from a cost standpoint, any additional volume that will fill up this available capacity will not only generate commercial margin, but also reduce those underutilization that hit our P&L. So we are working on that. And I think that's why we are discussing very heavily now, how do we increase our offering in terms of portfolio, how do we augment that and how do we play more on the CMO or European-made CMO type of market because I think that can be win-win for both customers and ourselves. Sophie Palliez: So do we have any questions online? Operator: We do not have any more questions online? Sophie Palliez: Okay. So maybe one last to conclude on -- from the webcast. If you had to prioritize one key execution risk that could derail the execution of the plan, what would it be? David Seignolle: I think the key point today is we need to have everyone on the top line. We have proven over the last 2 years that we can -- that whatever we can control, we can simply deliver. And the teams have done an outstanding job across sites, across organization in the last 2 years to actually prove that. And that's why our -- despite the whole headwinds we've seen, our core EBITDA has increased significantly between '24 to '25 and that we landed 2025 with actually a positive EBITDA. And those, as we said, are sustainable measures that will keep yielding results in the future, and we expect further actually on that. Now we need the whole organization to be working top line. And what I mean the whole organization is we need to be able to support our commercial folks that go and talk to customers on a daily basis. We need to provide them with high-quality materials with a competitive value proposition. We need to equip them with top-notch products, maybe provide them more products, provide with the right CMO value proposition, CDMO and R&D expertise. And definitely, when they need support and when they are able to seize clients, we need to be 100% on time, delivering against customer expectations. So I think the key point here is restoring growth will come by having a full organization focused on growth in the future to support the commercial folks delivering on that ambition. Sophie Palliez: Thank you. So I think if there's no more question online, this will end our webcast today. Thank you for attendance. Thank you for the questions. And as usual, the Investor Relations team and the management remains at your disposal, should you have any follow-up questions. Thank you, and have a good day.