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Robert Blum: From the company are Fei Chen, Chief Executive Officer, and David Kowalczyk, the company's Chief Financial and Chief Operating Officer. Before I turn the call over to management, let me remind listeners that there will be a Q&A session at the end of the call. To ask a question through the webcast portal, simply type your question through the Ask a Question feature in the webcast player. Before we begin with prepared remarks, we submit for the record the following statement. This conference call may contain forward-looking statements. Although the forward-looking statements reflect the good faith and judgment of management, forward-looking statements are inherently subject to known and unknown risks and uncertainties that may cause actual results to be materially different from those discussed during the conference call. The company, therefore, urges all listeners to carefully review and consider the various disclosures made in the reports filed with the Securities and Exchange Commission, including risk factors that attempt to advise interested parties of the risks that may affect the company's business, financial condition, operations, and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, the company's actual results may vary materially from those expected or projected. The company, therefore, encourages all listeners not to place undue reliance on these forward-looking statements, which pertain only as of this date and the date of the release and conference call. The company assumes no obligation to update any forward-looking statements to reflect any events or circumstances that may arise after the date of this release and conference call. With that, I would like to turn the call over to Fei Chen, CEO of LiqTech International, Inc. Fei, please proceed. Fei Chen: Thank you, Robert, and good day to everyone on the call. 2025 represented a meaningful step forward for LiqTech International, Inc. For the whole year, revenue increased 13%, driven by a 49% increase in total systems and aftermarket revenue, and we made improvements to drive efficiencies across much of our business. That shift toward higher value system sales is central to our long-term strategy and reflects growing adoption of our silicon carbide membrane technology across multiple end markets. We were a few shy of our original revenue guidance. This was primarily due to continued delays with a large OEM in the gas order that remains active in our pipeline. The project is still under discussion, but as we have consistently communicated, the timing of large oil and gas projects is difficult to predict. That said, we understand that we cannot be unpredictable. Our focus needs to be, and is, on building a diversified systems portfolio with stronger visibility and an improved margin profile going forward. In many ways, this has been consistent with our approach since I took over as CEO: to focus on more predictable parts of our business, such as swimming pools, which will be a key driver going forward. We are certainly amplifying this approach in terms of how we allocate our resources. Our commercial pool business was a standout performer in 2025 and delivered the strongest year in the company's history. We shipped 34 pool systems during the year, a new record for LiqTech. Of those, 24 systems were delivered in 2025, with the remaining 10 scheduled for delivery in early 2026. Pool system revenue totaled $2.6 million for the year and was the percentage driver of growth within our systems segment. All systems shipped during the year were based on our proprietary ClariFlow commercial pool filtration platform. ClariFlow is designed to meet the increasingly complex operational, regulatory, and space requirements facing modern aquatic facilities. Compared to conventional media filtration, our system delivers stable and reliable water quality while enabling greater automation and operational efficiency. Its compact and modular design makes it particularly well-suited for retrofit installations where equipment room space is limited—an increasingly important consideration for operators upgrading aging infrastructure. The required number of system sales reflects growing customer acceptance and increasing confidence among both operators and distribution partners. We see clear momentum as facilities prioritize water quality, automation, and space efficiency, and ClariFlow is emerging as a compelling alternative to traditional filtration methods. We have also made structural improvements to the pool system itself. Our newer modular design is standardized and cost efficient, which improves gross margins and simplifies installation. Unlike oil and gas systems, which often are highly customized to specific customer needs, pool systems are increasingly becoming repeatable, off-the-shelf solutions. This makes the market segment both more scalable and profitable. From a distribution standpoint, we recently expanded our relationship with Bandwidth in the UK into an exclusive distribution agreement, subject to minimal annual system volumes. In addition, we are seeing interest from US-based swimming pool companies. In these days, we are working on the final details for the first US swimming pool project. We see the potential opening of a very attractive growth market. All told, we have shipped pool systems in six different countries in 2025 and look to extend that this year. Based on the guidance we have provided, we expect pool revenue of approximately $5 million to $6 million in 2026, which compares to $2.6 million in 2025, reflecting continued mass adoption and delivery of systems already in backlog. Turning to water for energy. Oil and gas remains an opportunity, but it continues to present timing challenges. We are engaged with multiple providers, both large and small, and the delayed order that impacted 2025 guidance remains under discussion. As mentioned, these systems are typically highly customized, which not only makes timing unpredictable, but also impacts our margin profile. While we continue to pursue this segment and see potential opportunities with partner companies such as NASA in the Middle East, and ongoing trials through Razorback Direct in North America, we are going to be disciplined in how we allocate resources, and we are no longer basing our operating plan on difficult-to-predict customer timing, no matter how promising they may be. Where we are seeing encouraging and increasing tangible traction is within broader water-for-industry applications. The successful delivery and commissioning of our advanced membrane-based filtration system for oily wastewater at North Star BlueScope Steel has been a key proof point. The system was designed to resolve recurring filtration disruptions of polymer membranes caused by high oil content and variability in wastewater, which has given our customer costly and difficult experiences. Our system has demonstrated strong performance. This project has reinforced our belief that industrial wastewater treatment can become a larger and more stable contributor to our business. Industrial systems tend to be more standardized than oil and gas projects, which supports better margins and shorter sales cycles. We are seeing increased interest across multiple industry verticals, and to support this growth, we added dedicated sales resources to expand our industry presence in the US. In further support of our US growth strategy, we also opened a dedicated service center in Texas in partnership with Halo Systems this past November. This facility enhances our ability to support customers in the water-for-energy and water-for-industry segments by providing certified technicians, spare parts availability, remote and on-site technician support, and system maintenance and repairs. To scale in the US market, localized service is critical. The service center not only strengthens customer support but has already begun to contribute to new business development by increasing customer confidence in our long-term commitments to the region. Going ahead, we believe we will see strong contributions from the industrial side of the broader energy segment, with upside opportunities from the more specific oil and gas markets. In total, we are expecting water-for-energy and water-for-industry-related revenue of $5 million to $8 million. This compared to $4.1 million for this market segment in 2025. We are happy to see that our marine segment is building momentum, particularly through our joint venture in China. During 2025, we broke ground on a new marine-focused R&D center in Mentong and completed a regional spare parts warehouse to strengthen service capabilities for our growing marine customer base. These investments are designed to support the development and localization of marine silicon carbide membrane water treatment units for dual-fuel engine vessels, on-board water purification, and reuse. By increasing local assembly and sourcing within China, we are improving supply chain resilience and cost competitiveness in the market. We strongly believe that silicon carbide membrane technology will continue gaining adoption in new marine vessels equipped with dual-fuel engines, driven by its durability, chemical resistance, and energy efficiency. We ended the year with three marine orders for eight commercial vessels in backlog, scheduled for delivery throughout 2026. Marine revenue, including service sales, was approximately $1.5 million in 2025, and we are targeting approximately $4 million in 2026, reflecting good market adaptation of our membrane filtration technology. Looking at the broader systems business, including pool, water for energy, water for industry, and the marine side, our expectation is that we will generate revenue of $14 million to $18 million. This would be up from $8.2 million in systems revenue in 2025, showing growth of about 70% to 120%. This is a key reason why we are so excited about the future. Beyond our systems business, we also have our legacy DPF and membrane business and the plastics business, which remain stable contributors to our operations. Combined, this segment represented approximately $8 million in revenue in 2025. We expect this part of our business to remain reasonably stable in 2026, and in a cautious outlook, anticipating total revenue from the two groups combined to be slightly increased to $9 million in revenue. Looking at 2026, we expect revenue in the range of $23 million to $27 million and positive full-year 2026 adjusted EBITDA in the middle to high range of the revenue guidance, assuming constant currency. Growth is expected to be driven primarily by continued expansion in pool systems, industry applications, and marine. The range in our revenue guidance largely reflects the continued unpredictability of oil and gas project timing. Our strategic focus remains clear: scale standardized, higher-margin system platforms. We are maintaining disciplined cost control and operational efficiency with the goal of near-term profitability. Let me now turn the call over to David to review the financials in more detail. I will then make a few closing comments and look to open the call for your questions. Robert Blum: David? David Kowalczyk: Thank you, Fei, and good day, everyone. Let me take some time diving into the financial results in a bit more detail and add some color to what was in the press release. Please note that I will keep my remarks focused primarily on the year-over-year changes. Let us start with revenue. Revenue for the year came in slightly above $16.5 million, up from $14.6 million a year ago. Broken down by verticals, sales for the year were as follows: systems and aftermarket sales of $8.2 million compared to CHF 5.5 million in the prior year; DPF and ceramic membrane sales were $4.0 million, down from $5.6 million in the prior year; and finally, plastic components revenue came in at $4.1 million compared to $3.4 million last year. The increase was mainly due to increased deliveries of systems to pool, energy, industry, and marine water treatment, and components plastics, partly offset by decreased sales of filters. The increase in deliveries of system was mainly driven by increased deliveries within pool filtration industry systems. The increase in components mainly within machine building for the food industry. The decrease in sales of filters was primarily driven by a refocusing of our strategy to capitalize on subsegments where we see increased future demand for DPF outside automotives. As Fei mentioned, the delta between our recent expectations for 2025 and actual results was primarily due to the delay in a larger oil and gas system, which remains in our pipeline that we have not yet received the purchase order for. Turning to gross margins, margins for the year were 7.6%, compared to 1.7% in 2024. As we continue to be below our optimal revenue level, we continue to have fixed production costs that are not being fully absorbed, and thus lower-than-normalized gross margins. A couple of key notes are that part of the increase in gross margins was due to the higher level of overall revenue, as our contribution margins are typically on average in the 40% area. We do have some fluctuations between market segments, as you know, however, this was offset by the investment of resources into deliveries of containerized oil and gas systems to the US, which contributed to lower-than-usual margins, reflecting a strategic decision aimed at demonstrating the validation of our value proposition associated with our technology and seeding the market for future growth. As we move forward, a key focus will be on leveraging our standardized systems, which inherently are higher margin. This means more focus on pools, industrial applications, marine applications, and membrane sales. Turning to OpEx. Total operating expenditures for the year were $9.6 million compared to €9.7 million last year. Breaking it down, selling expenses for the year were CHF 2.7 million compared to CHF 2.7 million last year. This development was partly driven by full-year effects of savings made in 2024, lower accounts receivable write-offs and provision needs. These effects were partly offset by costs associated with our newly formed joint venture in China, costs for outbound distribution including tariffs to the US, and expenditures related to external sales consultancy services, which also increased in 2025. General and administrative expenses for the year ended December 2025 were $5.7 million compared to $5.7 million in 2024. Underlying development in local currencies, Danish kroner, was a 4% improvement compared to 2024. This development was due to savings made in 2024, partly balanced by filling the CFO position and other open positions. Research and development expenses for the year were $1.2 million compared to $1.4 million in 2024. The decrease was primarily due to a more focused R&D strategy, with fewer ongoing projects and reduced average number of employees engaged in external research and development activities. For the year, adjusted EBITDA was negative $5.0 million compared to negative CHF 6.1 million last year. Turning to our guidance for 2026, we are expecting revenue to be in the range of $23 million to $27 million. As we break this down, we are anticipating that our broader water-for-energy and water-for-industry business will be between $5 million and $8 million. We believe our pool business will be in the range of $5 million to $6 million. Our marine business would be about $4 million, of which 60% will be from new systems and 40% from our recurring service business. And finally, our legacy DPF and plastics business will be about $9 million. We target a positive full-year 2026 EBITDA in the mid to high range of the revenue guidance, assuming constant currencies. And finally, from a cash perspective, we ended the quarter with £5.1 million in cash. Everything else was pretty much in line with our normal operating procedures from a balance sheet perspective. And with that, let me turn it back to Fei. Fei Chen: Thank you, David. To close things out before I turn over to questions, our silicon carbide filtration platform is central to how we address increasingly complex global water challenges. Built on advanced ceramic membrane technology, our solutions are designed to operate reliably in some of the harshest and most demanding treatment environments, from produced water in energy applications to commercial pool systems and heavy industry wastewater streams. As European customers meet strict environmental regulation while lowering water usage and energy intensity, we provide practical, high-performance solutions that support long-term sustainability goals. The momentum we generated in 2025, including record pool system sales, progress in produced water, marine system deployment, and industry installations such as our project with a major steel producer, demonstrates the expanding global recognition of our technology's value. As we look ahead, our direction is well defined. We are prioritizing growth in our most attractive verticals, particularly food industry applications and marine. We are remaining disciplined in execution across the organization. At the same time, we remain firmly focused on scaling the business to achieve profitability and positioning LiqTech International, Inc. for durable, profitable growth over the long term. Again, thank you everyone for your support. This week, as Robert said, we would be happy to take any questions. Robert Blum: All right. Thank you very much, Fei and David, for those prepared remarks. I want to remind everybody that is listening to the webcast player: to ask a question, simply type in your question through the Ask a Question feature in the player there. We will do our best to get to as many questions here as possible. There are a few already in the queue here, Fei and David. So the first one here is: when can we expect revenue from the large oil and gas order pushout to be booked? David Kowalczyk: That is a good question. And, of course, as we mentioned, it is a bit, you can say, in the hands of the customer. But we definitely would expect, you can say, the oil and gas project to materialize in this year, essentially, 2026. We do not know the precise timing, but ideally Q2 finalization. Robert Blum: Okay. Very good. The next question here is: do tariffs affect your US oil and gas business? Are your products competitively priced? Fei Chen: This is a very good question, and because the tariffs are a moving target, we really have our focus on that. Up to now, we have been able to have very good discussions with our customers, so we do not need to take all the tariffs on ourselves alone. Going forward, we are definitely looking at what is the best way for us to handle the tariffs and how we are able to keep our competitiveness. As we mentioned before, we are working very focused on the cost reduction of our product and also on standardization and efficiency, and that will somehow balance the tariff impact on our technology. Robert Blum: Okay. Very good. Again, a quick reminder to everyone: simply type your question into that Ask a Question feature in the webcast player if you do have any questions here. A couple of questions here pertaining to your need for capital here in 2026. Fei Chen: As you have heard today, we actually have laid out a very clear growth plan with a revenue guidance of $23 million to $27 million in 2026. So we are definitely evaluating how we are able to support this strong growth plan, and that means we are working at different financial options. Robert Blum: Okay. Very good. And it looks like this may be the final question, barring any last minute ones that may come in. And I think you have touched on this a few times, but to reiterate, what are the drivers of your 2026 revenue outlook of $23 million to $27 million? Fei Chen: This is a very good question also, as we used some time in our earnings call about this. What we really have to say to ourselves is we have to be really focused on a broader and diversified perspective and also work more on the verticals which have more risk visibility and higher predictability. So we are actually looking at growth in basically all our system segments. The pool system will have $5 million to $6 million coming this year, and the marine will grow from $1.5 million to $4 million. We said water for energy and water for industry will be $5 million to $8 million. There is a bigger range there because the oil and gas projects are more difficult to predict the timing. And the DPF and plastics plus the membrane area, we expect a slight increase from $8 million to $9 million. So, as you can hear now, the drivers are from the different verticals, and this gives us much more reliable, predictable revenue growth compared with before. Robert Blum: Okay. Very good. I am showing no further questions in the queue. So with that, I would like to turn the call back over to Fei Chen for closing remarks. Fei Chen: I would like to say thank you to all of you for being with us today. We look forward to communicating with you soon again. Thank you. Robert Blum: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Greetings, and welcome to the National Health Investors, Inc. Fourth Quarter 2025 Earnings Webcast and Conference Call. At this time, all participants are on a listen-only mode, and a question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please note this conference is being recorded. I will now turn the conference over to your host, Mr. Dana Hambly, VP of Finance and Investor Relations. Sir, the floor is yours. Dana Hambly: Thank you, and welcome to the National Health Investors, Inc. conference call to discuss the results for 2025. On the call today are D. Eric Mendelsohn, President and CEO; Kevin Carlton Pascoe, Chief Investment Officer; John L. Spaid, Chief Financial Officer; and David Travis, Chief Accounting Officer. The results, as well as notice of the accessibility of this conference call, were released after the market closed yesterday in a press release that has been covered by the financial media. Any statements in this conference call which are not historical facts are forward-looking statements. NHI cautions investors that any forward-looking statement may involve risks or uncertainties that are not guarantees of future performance. All forward-looking statements represent NHI's judgment as of the date of this conference call. Investors are urged to carefully review various disclosures made by NHI in its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in NHI's Form 10-K for the year ended 12/31/2025. Copies of these filings are available on the SEC's website at sec.gov or on NHI's website at nhireit.com. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in NHI's earnings release and related tables and schedules which have been furnished on Form 8-K to the SEC. Listeners are encouraged to review those reconciliations provided in the earnings release together with all other information provided in that release. I will now turn the call over to our CEO, D. Eric Mendelsohn. D. Eric Mendelsohn: Good morning, and thanks to everyone for joining us today. We completed the year with a solid fourth quarter that generated normalized FFO per share growth of 8.9% compared to last year. The SHOP platform is central to our investment thesis, and was a core contributor to the quarter as total NOI increased by 125% year over year and 48% sequentially. Cash rental income from our triple net portfolio increased by approximately 7% primarily due to acquisitions while interest income declined by 19% in the fourth quarter due to loan payoffs and pay downs. Reflecting on the full year results, we delivered growth in normalized FFO per share of 10.6%, and total FAD growth of 13.7%. This exceeded the midpoints of our initial 2025 guidance by approximately 6% and 5%, respectively. SHOP NOI increased by approximately 57% compared to 2024 with 7.6% same-store growth and $6 million from transitions and acquisitions. Our cash rental revenue increased by approximately 10% year over year with contributions both internally and externally. We announced investments of $392 million in 2025, which was well above our initial guidance of $225 million and was our most active year since 2016. This included investments of $218 million in the fourth quarter alone, setting the company up nicely for strong acquisition growth in 2026. In fact, we have already closed on one deal this year for $105.5 million, our largest SHOP acquisition to date. We have an active pipeline of over $488 million with an additional $111 million under signed letters of intent. The industry tailwinds for senior housing have never been more favorable, and there is little evidence to suggest that this will change in the next several years. According to NIC MAP, there were fewer than 25,000 units under construction in the fourth quarter, which represents just 2.2% of total inventory and the lowest level since 2012. This shows no signs of reversing as new unit starts are less than 1% of inventory, the lowest level since NIC MAP started reporting this information in 2008. Meanwhile, demand is accelerating as the first baby boomers turned 80 this year. NHI is well positioned to capitalize on this long-term generational growth. We continue to methodically invest in our SHOP capabilities as we significantly expand our presence in private-pay senior housing operations, where we see the greatest risk-adjusted returns. We are adding to talent rapidly. We currently have 35 employees which is a 46% increase from our average employee count in 2022 when we established our SHOP platform. Including the recent February acquisition, we have increased our SHOP investment by 106% in the last 12 months to approximately $740 million. This has increased our annualized SHOP NOI contribution to 12% of total annualized NOI from 4.5% at the end of 2024. As outlined in our guidance, we expect that 70% of our investment activity this year will be allocated to SHOP which, coupled with strong organic growth, should continue to drive SHOP NOI contribution exponentially higher. Similar to our approach in the triple net portfolio, we are targeting SHOP investments at need-driven senior living communities in secondary suburban markets where we have a better understanding of the local dynamics that most impact operations. We are seeking partners that have demonstrated an ability to deliver outstanding resident satisfaction which we believe is achieved by attracting and retaining mission-driven employees. Frankly, we have been overwhelmed by the interest in partnering with NHI which creates a larger talent pool for us and lowers new investment risk. From a financial standpoint, our target markets tend to see fewer buyers than the primary markets, allowing NHI to find stabilized properties at attractive yields in the 7% to 8% range. We expect near-term NOI growth in the first few years in the high single-digit to low double-digit range, which produces strong rates of return in the low to mid-teens. This is very conducive to supporting growth. NHI's financial strength is bolstered by our fortress balance sheet. Our leverage is less than four times net debt to adjusted EBITDA and we have plenty of dry powder. Our demonstrated ability to access attractive debt and equity capital creates a real competitive advantage for NHI in maintaining and growing the pipeline as market participants can be confident in our ability to finance deals quickly and with limited closing risk. Regarding our 2026 outlook, we issued guidance last night that included normalized FFO per share growth of 1.2% at the midpoint. This is clearly not where we view the core growth rate of the company. Recall that in 2025, results benefited from several items that we do not view as recurring, which John will address in more detail. When adjusting for these items, we estimate that our normalized growth rate is in the 5% to 6% range. The midpoint of our 2026 NFFO per share guidance implies a two-year CAGR of approximately 6%. Further, this year's guidance includes approximately $111 million of dispositions of nonstrategic assets. While we are continually reviewing the portfolio, the early-year timing and unusually large size of the dispositions impact this year's growth by an incremental and estimated 1.5%. From a big-picture perspective, NHI is in great position to drive exceptional long-term FFO per share growth and create sustained value for shareholders. We are investing in the people and resources necessary to scale our future growth, particularly in SHOP, with estimated NOI growth of over 105% in 2026 before consideration for new investments. Our financial strength gives us flexibility to pursue significant external growth. And the senior housing industry fundamentals have never been more attractive. In short, we are as enthusiastic as we have ever been. Before I turn the call over to Kevin, I want to welcome our newest board member. We announced this week that Lily Donahue has joined the NHI Board of Directors. As many of you know, Lily served as the CEO of Holiday Retirement from 2016 to 2022, overseeing a portfolio of more than 300 independent living communities in 46 states. She brings an extensive and diverse set of skills to the NHI Board. Her deep experience in senior living operations obviously makes her a great fit for us in these early stages of our growing SHOP platform. I will now turn the call over to Kevin. Kevin? Kevin Carlton Pascoe: Thank you, Eric. Starting with investment activity and the pipeline, NHI had a great year in 2025 with $392.4 million in investments at an 8.1% average initial yield. As Eric noted, the fourth quarter was particularly active, with investments of $217.5 million, and 2026 is off to a solid start. In February, we announced our largest SHOP acquisition to date of $105.5 million for nine properties in Kentucky, South Carolina, and Tennessee. We expect an initial NOI yield for the first year in the high single-digit range when including routine CapEx. Allegro Living Management is the new manager for these properties, so we expect some transitional impacts in the first year but forecast solid double-digit growth in year two. Allegro is an affiliate of Spring Arbor Management, whom we have worked with since 2024, and has extensive experience in these suburban markets that Eric described earlier. Our total investment with Spring Arbor is now $227 million, and we are looking at opportunities to continue to grow with them. On that note, the pipeline is as active as ever which gives us confidence that we can meet or exceed last year's total investments. We currently have $110.6 million under signed letters of intent, primarily in SHOP, and we are evaluating an incremental pipeline of $488 million, all in senior housing. This figure excludes any portfolio deals, but I will add that we are reviewing several of these large potential investments. We expect that the acquisition environment will remain incredibly strong for several years which necessitates that we understand how each of our properties either fit or does not fit within NHI's strategic outlook. As a part of this ongoing process, we have planned dispositions of seven buildings with six different operators. These properties are not strategically important, so we believe that we can better reallocate our resources to focus on relationships with much more growth potential. Turning to our operating performance, total SHOP NOI increased by 124.9% compared to 2024 due to the transition of seven properties on August 1 and the acquisition of four properties on October 1. The same-store NOI on the 15 legacy Holiday properties declined by less than 1% year over year but increased 8.7% sequentially from the third quarter. For the year, our same-store NOI increased by 7.6%, and our 2026 guidance contemplates a 7% to 8% increase, which is more heavily weighted to the second half of the year as occupancy recovers and the 16 units we discussed last quarter come back into service in May. The 11 properties that we transitioned and acquired contributed $4.1 million to the fourth-quarter SHOP NOI and are performing in line with expectations. We expect double-digit NOI growth from this group as it enters the same-store portfolio later this year and early next. Across the triple net portfolio, we are generally experiencing the continuation of solid trends with no rent concessions, continued collection of deferred rents from Bickford in excess of expectations, stable occupancy, and EBITDARM coverages. Cash lease revenue increased approximately 7.2% year over year driven primarily by acquisitions, successful transition of properties formerly operated by SLM, and annual escalators. Deferral collections of $1.9 million actually decreased by 17% compared to the fourth quarter of last year, which we regard as a success as our outstanding balances have largely been collected at this point, and we do not expect to report on this metric going forward. While total collections declined, the Bickford repayment increased by 38% to $1.5 million in the fourth quarter, and they had an outstanding balance of $7.6 million at December 31. We continue to expect that Bickford's cash rental revenue will increase in total dollars at the April 1 rent reset, and we will be able to provide more details on the next conference call. The pipeline continued to be active with triple net senior housing deals as we do not think every property is a fit for SHOP. We are also getting more creative with certain targeted lease underwriting to maintain flexibility for potential SHOP conversions. As an example, we purchased a property in Jamison, Pennsylvania for $52.1 million, which is now operated by Priority Life Care. Priority is a new relationship for NHI, but they are a well-established operator with over 60 properties across 12 states. The lease is unique as it is a five-year lease at an initial yield of 8%, plus a revenue participation feature that could add another 25 to 50 basis points. There are also provisions in the agreement that would convert the property to SHOP, which we anticipate potentially triggering. That concludes my remarks, and I will now turn the call over to John to discuss our financial results and guidance. John? John L. Spaid: Thank you, Kevin, and hello, everyone. This morning, I will provide details on our fourth quarter and full-year results, review our financial strength, including our updated leverage policy, and conclude with our financial outlook for 2026. I will be using average diluted common shares for all per-share results. For the quarter ended 12/31/2025, our net income per share was $0.80, a decrease of 15.8% from the prior year. Recall that in the prior-year period, we recognized a $6.3 million noncash gain related to derivative accounting for forward equity sales agreements, as well as a $5 million gain on sales of real estate. For the twelve-month period ended 12/31/2025, our net income per share was $3.02 compared to $3.13 in the prior year. Our NAREIT FFO results per share for the fourth quarter and full year compared to the prior-year periods decreased 1.6% and increased 2.2% to $1.22 and $4.65 per share, respectively. The prior-year period's NAREIT FFO benefited from the aforementioned $6.3 million gain from derivative accounting. Our normalized FFO results per share for the fourth quarter and full year increased 8.9% and 10.6% to $1.22 and $4.91 per share, respectively, compared to the prior-year periods. Several one-time items helped us achieve these strong normalized FFO results. During the year, we recognized gains from equity method investments of $3.7 million, up from $400,000 in the prior year. We also recognized a $3.4 million benefit to our credit loss reserves compared to a credit loss expense of $4.6 million in the prior year. Finally, we recognized $3.9 million in cash rental income upon lease terminations, which excludes noncash write-offs of straight-line rents receivable and excludes noncash rental income related to operations transfers attributable to the third-quarter SHOP transition properties, which benefited both normalized FFO and FAD. FAD for the fourth quarter and full year compared to the prior-year periods increased 11.1% and 13.7% to $57.9 million and $232.1 million, respectively. As Kevin noted, NOI from our 26-property SHOP segment for the quarter ended December 31 increased 124.9% to $7.3 million compared to the prior-year period. Our 15-property same-store SHOP portfolio NOI declined 0.9% to $3.2 million from the prior-year fourth quarter but was sequentially up 8.7% from the third quarter. Subsequent to the end of the year, we added an additional nine properties to our SHOP segment, which brings our total investment in SHOP to $740 million. Our 2026 guidance released last night included our NOI expectations for these properties to be $39.6 million at the midpoint. We believe that the 5.4% yield on our current in-place SHOP invested capital continues to represent substantial NOI growth upside for the company. I will talk more about our 2026 guidance in just a moment. Interest expense for the fourth quarter was down 6.4% year over year, while weighted average common diluted shares were up 5.4% to 47.9 million shares as a result of the company's greater use of equity in lieu of debt to fund new investments over the last year. Cash G&A increased 39.9% to $6.6 million compared to the year-earlier period, while legal expense declined $400,000. During the quarter, we closed on new investments totaling $217.5 million. For the year, we made $392 million in new investments, the highest level since 2016. This volume reflects both the success we have with converting existing loans into fee simple ownership as well as the redeployment of over $93.3 million in other loan investment payoffs during the year. Our net deployment of new investment capital represents a 42% increase year over year. During the quarter, we settled approximately 600,000 common shares from our Q2 2025 forward ATM equity activity with proceeds of approximately $46.2 million at an adjusted forward price of $71.87 per share after fees and forward costs. At 12/31/2025, we have remaining escrowed forward equity proceeds of approximately $44.5 million available to us in exchange for the future delivery of 600,000 common shares at an average price of $69.23 per share. We ended the year with $19.6 million in cash on our balance sheet, $496 million in revolver capacity, and also had $315.8 million available on our ATMs assuming the settlement of our forward equity sale agreements. Our balance sheet ended the fourth quarter in great shape. Our net debt to adjusted EBITDA ratio was 3.8 times for the quarter, and our available liquidity was approximately $875 million attributable to the cash on our balance sheet, excess revolver, forward equity, and additional ATM capacity. We are also announcing today a change in our leverage policy. We are lowering our leverage policy from a range of four times to five times to a range of three and a half times to four and a half times net debt to adjusted EBITDA. Our lower leverage policy reflects the importance we place on our investment grade rating, and also reflects the changes to our debt service coverage ratio in this higher-for-longer interest rate environment. Let me now turn to our dividend and guidance. As we announced last night, our Board of Directors declared a $0.92 per share dividend for shareholders of record 03/31/2026, payable 05/01/2026. Last night, we introduced our full-year 2026 guidance, and I previously touched on some of our SHOP expectations. For 2026, we expect NAREIT FFO and NFFO per share at the midpoint to grow 6.9% and 1.2%, respectively. We expect total FAD at the midpoint to grow 7.8% to $250.2 million. Our full-year 2026 guidance includes $230 million in additional future investments, at an average NOI yield of 7.8%, comprised of approximately 70% SHOP investments, which we believe is a conservative assumption for the year. Excluded from our guidance is any assumption for the early resolution of our NHC lease, which matures 12/31/2026. Negotiations are ongoing; we expect to have more to report as the year progresses. Capital markets activity in our initial 2026 guidance currently only reflects the settlement of our remaining forward equity and the retirement of our upcoming debt maturities using proceeds from our revolver. However, we expect our capital markets activity to adjust as required to meet the company's liquidity needs due to changes in the timing and the amount of our investments and dispositions. So once again, thank you for joining our call today. That concludes our prepared remarks. Operator, please open the lines for questions. Operator: Thank you. At this time, we will be conducting our question-and-answer session. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. It may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is coming from Farrell Granath with Bank of America. Farrell Granath: I first just wanted to start off with a question on the same-store SHOP guidance for 2026. I know that last quarter, there was some commentary around taking corrective measures and that we could potentially expect double digits in 2026 in that same-store portfolio. So curious if this initial guidance is reflective of just what you are seeing today? And how should we think about the timing of these corrective measures, which could potentially provide upside to that guidance? Kevin Carlton Pascoe: Sure. This is Kevin. I would tell you overall, the way we conduct ourselves is we want to deliver something that we feel very confident that we can achieve, and there should be opportunity within the portfolio from there. So it is a bit of an under-promise, over-deliver. We do have some things that are going to take place in the back half of the year. We mentioned that we have one building where 16 units are coming online. That building is nearly 100% occupied. So that will be additive. Those units do not come on until May, and then we expect that it will grow through the balance of the year. We are not expecting everybody to move in all at once. We have got a number of things that we are focused on with the portfolio. We are focused on sales pipeline, building the funnel. Typically the first part of the year is a little bit softer with holidays and coming out of the winter. So we do expect better results in the second half of the year. Farrell Granath: Great. Thank you. And also just touching on your SHOP pipeline, especially seeing the momentum that you picked up in the second half of ’25 and then now what we have seen under LOI and in the pipeline for ’26. Is it fair to expect that momentum can continue going forward into ’26 at the level that you are potentially able to achieve now? Kevin Carlton Pascoe: That is our expectation. We give you guidance based on what we have and what we feel like we have reasonable visibility into and what we can execute on. But as you noted, we outpaced the expectation that we set at the beginning of last year and we are working to do the same this year. Operator: Thank you. Our next question is coming from Austin Todd Wurschmidt with KeyBanc Capital Markets. Your line is live. Austin Todd Wurschmidt: Just, Eric, I wanted to go back to NHC, and I am wondering if it feels like the lease negotiations with the group are moving forward and maybe more importantly, constructively moving forward? And what is the probability that you think you will reach a resolution in the next, you know, three to nine months? D. Eric Mendelsohn: Hey, Austin. This is Eric. We are in the thick of it right now, so I would describe our posture as we are in a quiet period regarding NHC. Austin Todd Wurschmidt: Understood. Appreciate that. And then from the SHOP challenges that you guys have faced, and you have talked about where you would have expected annualized NOI to restabilize a couple of years ago. Has that changed your approach to either underwriting new deals or how you are structuring management agreements to provide any added flexibility moving forward? Kevin Carlton Pascoe: Sure. This is Kevin. I would say it definitely impacts the way we think about deals, but we are also focused on more senior housing campus-style products, ones that have assisted living and memory care. You recall these are former Holiday properties that we are not the only ones that have had some issues with. But making sure that we have a bit of that continuum—where the need-driven component is a part of the deal—is something that we are focused on. As you touched on, our management agreements are such that we do have flexibility should we need to make a change. That is never our desire. Changes are very disruptive to the property, but if we need to, then we have that ability. Austin Todd Wurschmidt: Got it. And then just last one. Eric, you had highlighted the targeting of secondary suburban markets for deals. What is the long-term growth profile for those markets just given the demand and affordability? And how would you characterize the labor pool for the markets that you are focused on? D. Eric Mendelsohn: Thanks. Great question, Austin. We definitely pay attention to labor. For example, we tend to avoid Indiana because it has a tough labor market, and the buildings there tend to run a lot of agency labor. But it is no secret that there is a lot of migration from coastal areas to places like Tennessee and other places in the Midwest where housing and cost of living are more affordable. So for the time being, as we look at Bickford and other Midwestern operators, they are able to staff their buildings with full-time employees and not have to utilize any agency labor. Austin Todd Wurschmidt: And just from a growth profile perspective for those types of assets, how do you think about that over time? D. Eric Mendelsohn: When you look at our pipeline, we are pleasantly surprised at the number of deals and opportunities we are seeing now that we are gung-ho on SHOP and RIDEA. So growth for us is more of an issue of managing it and underwriting it responsibly rather than trying to find it. Austin Todd Wurschmidt: Okay. Thanks for the comments. Operator: Thank you. Our next question is coming from Juan Sanabria with BMO Capital Markets. Your line is live. Juan Sanabria: Good morning. Just hoping you could help us think about the SHOP growth and the guidance for ’26. Recognizing there are some struggles with the ex-Holiday portfolio, can you compare and contrast what is not in the same-store pool and how that is performing versus the same-store pool, and kind of the expectations on occupancy and rate so we can get a more holistic picture rather than just focus on same-store? Kevin Carlton Pascoe: Sure. This is Kevin. I will try and address your question—if I miss something, please re-ask. When we are looking at what is not in same store right now, recall that two of them are transitions: one transitioned from triple net to SHOP, and another is a transition to a new operator. We did have some transitional impacts through the second half of 2025, and on the newest we will have some transitional impacts that we experience in 2026. There has only been one of those that retained the current manager, and that group is performing to expectation. We feel very good about where they are at from an operations standpoint. Overall, we are making sure they are putting in the right systems and people. We feel like they have done a very good job of that. They are building their funnels. We are able to pass through some rate increases, but we are doing that responsibly to make sure that we are not losing occupancy while we go through these transitions. If we look at this, it is more of a forward look—there might be a little bit of noise in the near term. Overall, the transitions have gone pretty well. Pulling one out, the transition we did last year performed better than expectation through the second half of the year. We just finalized our budgeting process and have some solid growth expectations for them this year. You will see those roll into the same-store starting fourth quarter of this year. So you will have a little more incremental visibility on that piece here in the next couple of quarters. Juan Sanabria: That is helpful. And maybe going back to Austin's question in a different way: Holiday is maybe a unique situation, but what have you learned that you think prepares you better to deal with the growing pains in SHOP or under transitions, etc., that should give us confidence about investment activity in SHOP as you look to grow pretty significantly with the compelling supply/demand opportunity? D. Eric Mendelsohn: Hey, Juan. This is Eric. I would just remind everyone that the Holiday SHOP was more of a science experiment that we backed into when Holiday sold to Atria and Welltower. We have put a lot of CapEx in those buildings. We have changed managers. And as we compare them to the same Holiday buildings that are at Ventas and Welltower, from what we are able to surmise, we are doing as good or better than they are with those buildings. Our new SHOP portfolio, the not-same-store group, I feel very positive on. I would also point out that it is assisted living and memory care, not just independent living. And these buildings are performing well from the get-go. We look at them with an eye towards double-digit growth, and we verify that with the operator when we do our pro formas and budget for year two growth. As Kevin said, I think you will start to see our same-store perk up in the third and fourth quarter when the one Holiday building has units that come online and when the Sinceri buildings become same store. Juan Sanabria: And just last question for me. How should we think about the pricing power and the ability to drive rate in some of these secondary markets? I am not sure about the affluence around some of these assets or the ability to drive pricing with the target customers. Kevin Carlton Pascoe: Sure. This is Kevin again. Every market is different. We are underwriting the local market fundamentals of each building that we are looking at, so each one is different and it is hard to generalize. One thing I will say is based on the margins where they are at, if you can increase rates 5% a year and hold your expenses to less than four, that is going to be 7% to 8% growth. We think that is very achievable, and we think there is potential for additional growth beyond that on the revenue line in a lot of these. We like our chances here. We are building a very good portfolio. We like our operating partners and their ability to pass through those increases, if not more. That is kind of in line with what we have seen with our triple net portfolio as well. So I think we can do as good or better. As John mentioned in his comments, we can continue to get some margin expansion as we grow the SHOP segment. That is going to add additional growth for us. Juan Sanabria: Thanks for that. Appreciate it. Operator: Our next question is coming from William John Kilichowski with Wells Fargo. Your line is live. William John Kilichowski: Good morning. This is Jesus on for John. Thanks for taking the question. Just to switch gears a little bit on the $111 million of dispositions in guidance. It looks a little bit higher than what we were expecting. Can you walk us through what is driving the higher volume, specifically what assets are being sold? And is it primarily capital recycling going to SHOP, or including other non-core assets? Kevin Carlton Pascoe: This is Kevin. It is really an operator relationship situation coupled with the underlying asset not being core to NHI. The profile of the communities is largely senior housing, but they are not relationships we are going to grow. They are triple net in nature. And they are intensive from an asset management standpoint. We feel if we can move the capital to the relationships where we are going to have additional growth—not only from a triple net or a SHOP deal that we do from the proceeds, but also where we are going to get additional volume out of that customer—and be less intensive from an asset management standpoint, that gives us a little more efficiency. We have hired a fair amount of folks for asset management. We are building out our bench and our analytics competencies. We feel good about where we are at, but we need to make sure we are focusing them on the pieces that are going to be meaningful to NHI. And that is really what these dispositions are born out of. Generally, we like to hold on to income, but I think this is the right decision to make sure that we are focusing our team. William John Kilichowski: That is great. And just a quick follow-up on NHC to the extent you are able to comment. If you do renew the lease, how does that impact what you could reposition or sell versus earlier discussions where you were talking about rotating into SHOP from this portfolio? Would it be an all-or-nothing scenario? D. Eric Mendelsohn: Could you ask that again? So if we do renew the lease, then what? William John Kilichowski: How does that impact what you could reposition versus sell, I guess? Because you were talking about some dispositions potentially being involved with this and rotating some capital. D. Eric Mendelsohn: Fair question. If we were to sell some of the buildings, those proceeds would be redeployed, and the answer is yes, it would be redeployed into SHOP. William John Kilichowski: Thanks, guys. Operator: Thank you. Our next question is coming from Rich Anderson with Cantor Fitzgerald. Your line is live. Rich Anderson: Hey, team. Thanks. Good morning. So the 7% to 8% SHOP same-store NOI guidance—just to clarify, that is still just the 15 legacy Holiday assets. Is that correct? Kevin Carlton Pascoe: Yes, Rich. Yes, that is correct. Rich Anderson: Okay. And I think you said your longer-term view on SHOP growth is sort of high single-digit, low double-digit. Is that also correct? You sort of get a step up after you address some of the issues that are going on in the legacy portfolio. Is that the right way to think about it? John L. Spaid: Yes. Rich Anderson: Okay. I am obviously leading up here. So at 9.3% of the portfolio today, SHOPs as of the end of the year, what is your target in terms of how big SHOP can become as a percentage of the total? And do you still think, from a growth perspective—because you are seeing SHOP growth approaching 20% from some of your larger peers. That has a lot to do with occupancy lift. Is your same-store offering more of a rate growth versus expense growth phenomenon and less about occupancy lift? How are you approaching the same-store profile of SHOP going forward and how big it could be in a couple of years from now? D. Eric Mendelsohn: In terms of growth of NOI for the company, we have told people that last year we doubled from five to roughly 10. And this year, we could easily double that again to 20, with an eye towards getting it up to 30 or beyond in terms of percentage of SHOP. I still feel like that is achievable and on track. I understand we have some catching up to do, but as you can see by our pipeline numbers, it is easier to find new deals when you are looking for SHOP and RIDEA, not so much with leases. In terms of same-store growth, I think the opportunity is one of margins. We see on the Holiday portfolio a lot of margin opportunity, and on the new not-same-store portfolio, rate opportunity and, frankly, experienced operators taking over from mom-and-pop operators who are not getting the margins that they could. Rich Anderson: Okay. So it is a—again, a lot of your peers are getting this occupancy lift, which is not a forever situation. Yours is more of a stabilize and margin story, and something in the 10% range on a foreseeable future type of— Kevin Carlton Pascoe: That is fair. John L. Spaid: Okay, Rich. This is John. Let us just be honest about the makeup of our SHOP portfolio. It was comprised of the Holiday assets, which Eric touched on before. It is also comprised of these assets that we transitioned away from Discovery to Sinceri. That was the whole point of my discussing the return on invested capital that we are currently experiencing. We strongly believe in the potential of these assets. We have to unlock the margin to improve that, and that is why we are talking about that. And at the same time, growth will help us improve our metrics over time as well. Rich Anderson: Switching gears. On the outlook for this year, and the $7.6 million of remaining Bickford rent repayment left. Do you expect that all to be paid back in the next year or two? What is the cadence of that payback? Kevin Carlton Pascoe: What I would have you think about is once the rent reset happens, there is less cash flow overall to pay at least at the same rate. It is not something that we are just going to let go for free. We will be discussing with them what type of alternatives there are to pay that remaining balance or various other things that we can negotiate over that give NHI value. It would probably still take them a handful of years to pay that off if we just reset the rent and then revise the formula and have it pay out. We are not looking to take every last dollar from them. They still have to make sure they pay their people and invest in the company. We are going to be mindful of that, but it is not going to just go away. NHI will get value out of it. John L. Spaid: Kevin, that is April, right? The next one? Kevin Carlton Pascoe: That is correct. Rich Anderson: Lastly, DOC is drawing some attention to CCRCs these days. When you think about your entrance fee CCRC portfolio, are you seeing any more activity on the ground in terms of transactions and renewed interest in the space? Any comment there? Kevin Carlton Pascoe: The answer for us is it has been a very good portfolio, and we very much appreciate working with our operating partner there. It did wonders through COVID and continues to perform very well. It is always been something that we have had an eye on. We are mindful of our concentrations there and want to make sure we do not get upside down. We will continue to look at those opportunities. There are a few in the marketplace that we have been looking at, but we are also going to make sure we are rigorous with our underwriting criteria. So it is on the table, not necessarily a direct focus, but something that we will approach opportunistically. We have some great operating partners that do that space very well, so it is something I think we should continue to look at. Rich Anderson: Okay. Got it. Thanks very much. Kevin Carlton Pascoe: Thank you. Operator: Thank you. As a reminder, ladies and gentlemen, if you have any questions or comments. Our next question is coming from Omotayo Tejumade Okusanya with Deutsche Bank. Omotayo Tejumade Okusanya: Yes. Good morning, everyone. Quick question again on the Bickford deferred rent. When you talk about getting value for the remaining amount of deferred rent, could it be— I know in the past, you guys have done this structure where rather than getting the rent, you just lowered the value of any acquisitions you were buying from Bickford. Could it be something like that that you continue to do to make sure you get value for that remaining deferred rent? Kevin Carlton Pascoe: Sorry, Tayo. I missed part of your question there. You were asking what value we can get from Bickford in lieu of cash. That is the question? Omotayo Tejumade Okusanya: Yes. Exactly. So I know in the past, sometimes with the deferred rent, rather than get the rent, you just lowered the valuation of an acquisition that you were making from Bickford. Is that more of what we should expect to see? Kevin Carlton Pascoe: I do not want to guide you to anything specifically. We have the reset coming up April 1, so we will be finalizing where rent sits going forward this month. But yes, you are on the right track in terms of what value is out there. We have built several buildings with Bickford. There is still another one remaining that could have some value like that. There were some other developments that we had looked at in the past. There is some reimagination of the portfolio, whether we prune a little bit—I would not think those are going to be huge numbers of buildings—but there is potentially some addition by subtraction that could help us get additional rent. We have a number of options, but there is a formula in place in terms of how rent gets set. That will be the baseline. We believe that we are going to continue to get the aggregate number of rent that Bickford paid and then some going forward. And just as a reminder, they paid $5.3 million last year. They have been really moving down that repayment number at a steady clip. We are happy with where we are at with them. We have got a little more work to do, but we are in a pretty good spot. Omotayo Tejumade Okusanya: Gotcha. And then one follow-up. With the reset, at some point there was also the option of going with another operator and potentially looking at that option. Is that still on the table at this point, or are we firmly in the world of renegotiating with NHC? D. Eric Mendelsohn: I would say that we are in a quiet period. We are in the thick of it right now, Tayo. I just have to be careful what I say. Omotayo Tejumade Okusanya: Fair enough. Alright. Thank you. Kevin Carlton Pascoe: Thanks, Tayo. Operator: Thank you. As we have no further questions on the lines at this time, I would like to turn the call back over to Mr. Mendelsohn for any closing remarks. D. Eric Mendelsohn: Thanks, everyone, for joining today and for your interest, and we will see you at a conference sometime soon. Operator: Thank you. Ladies and gentlemen, this does conclude today's call, and you may disconnect your lines at this time. We thank you for your participation.
Operator: Good morning, ladies and gentlemen. Welcome to the Compañía de Minas Buenaventura S.A.A. Fourth Quarter 2025 Earnings Results Conference Call. At this time, all participants are in listen-only mode, and please note that this call is being recorded. I would now like to introduce your host for today's call, Mr. Sebastian Valencia Carrasco, Head of Investor Relations. Mr. Valencia Carrasco, you may begin. Good morning, everyone. Sebastian Valencia Carrasco: Thank you for joining us today to discuss our fourth quarter 2025 results. Today's discussion will be led by Mr. Leandro Garcia, Chief Executive Officer. Also joining our call today and available for your questions are Mr. Daniel Dominguez Vera, Chief Financial Officer; Mr. Juan Carlos Ortiz, Vice President of Operations; Mr. Aldo Massa, Vice President of Business Development and Commercial; Mr. Alejandro Hermoza, Vice President of Sustainability; Mr. Renzo Macher, Vice President of Projects; Mr. Juan Carlos Salazar, Vice President of Geology and Exploration; Mr. Aro... Guernæus, Chairman; and Mr. Raul Benavides, Director. Before I hand the call over, let me first touch on a few items. On Compañía de Minas Buenaventura S.A.A.'s website, you will find our press release that was posted yesterday after the market close. Please note that today's remarks include forward-looking statements that are based on management's current views and assumptions. While management believes that these assumptions, expectations, and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on these forward-looking statements. I encourage you to read the full disclosure concerning forward-looking statements within the earnings results that was issued on 02/26/2026. I will now turn the call over to Leandro Garcia. Leandro Garcia: Thank you, Sebastian. Good morning and thank you for joining us today to discuss the quarterly results of Compañía de Minas Buenaventura S.A.A. at the year end. On Slide 2 is our cautionary statement, important information that I encourage you to read. Today, we will talk about our 2025 performance, our main achievements, and our priorities for the year. After the presentation, we will be available for our Q&A session, where our team will be happy to answer your questions. The next slide, I will start by providing a summary of our strong results for the year. Copper production in the full year of 2025 reached 52,400 tons, down 8% year over year. This was mainly because Compañía de Minas Buenaventura S.A.A. processed stockpiles with higher precious metal content following a sharp increase in precious metals at El Brocal. Silver production reached 15,600,000 ounces, 1% higher compared to the 15,500,000 ounces produced during the same period last year, in line with our annual expectations. Gold production was 121,000 ounces, down 18% year over year, mainly due to lower output at Orcopampa and Tambomayo, consistent with the 2025 planned mining sequence. EBITDA from our direct operations in full year 2025 was $112,000,000, which represents an 88% increase compared to the $431,500,000 in 2024. Net income for the full year was $1,830,000,000 compared to $416,000,000 in 2024, which included $157,300,000 from the sale of Chaupi Loma. The year ended with a cash position of $530,000,000 and total debt of $710,000,000, resulting in a leverage ratio of 0.22x. Moving on to San Gabriel. As of now, San Gabriel has reached 99% overall progress. CapEx for the project in 2025 was $153,000,000, primarily allocated to the completion of the processing plant construction. After the quarter ended, on January 29, 2026, Compañía de Minas Buenaventura S.A.A. received $98,000,000 in dividends from its stake in Cerro Verde. Finally, the Board approved a dividend of $0.9904 per share. With this approval, total dividends declared over the past twelve months reached $1.0135 per ADS. Moving forward to our 2025 guidance. Regarding gold production, our primary focus is on San Gabriel, which is expected to become our main gold-producing asset in coming years, playing a key role in our long-term growth strategy. We anticipate stable copper and silver production at both El Brocal and Uchucchacua–Yumpa, maintaining consistent output levels. For 2025, we expect total CapEx of between $385,000,000 and $415,000,000. Around $200,000,000 to $220,000,000 will be sustaining CapEx, mainly focused on mine development, tailings, and ventilation upgrades at Uchucchacua and Yumpa, as well as readiness and ramp-up works at San Gabriel. Growth CapEx for 2026 is expected to be between $185,000,000 and $195,000,000, mainly focused on the completion of San Gabriel and advancing Trapiche and Algarróbos. Moving on to the cost applicable to sales trend. Copper cash costs increased in 2025, mainly due to higher personnel costs driven by improved profitability, increased cement consumption, and foreign exchange impacts at El Brocal. Silver cash costs increased due to higher commercial deductions at Yumpa, non-payable value, and escalators. Additionally, there was increased ore throughput, partially offsetting lower grades at Uchucchacua and Julcani. Gold cash costs have increased due to lower throughput, reducing the scale efficiency at Orcopampa and Tambomayo. On the next slide, we will present free cash flow generation. The fourth quarter cash position increased during the quarter, mainly driven by net cash inflows from operating activities. I would like to highlight a key milestone achieved last December. We produced our first doré bar at San Gabriel, and we have received the initial operating permit. The water license is expected in the coming weeks. For 2026, our production guidance is between 48,055 gold ounces. There are still some pending milestones to achieve full potential. This includes the expansion of tailings drying areas and upgrades to the ventilation system. We expect to complete these milestones to enable a stable 2,000 tons per day throughput in 2026 and continued ramp-up. San Gabriel's cumulative progress has reached 99% overall completion by April 2025, primarily driven by finishing 98% of advances. On the next slide, we are showing the processing plant's progress: the primary crusher mechanical works at 100%; the SAG and ball mechanical works are at 100% also; and finally, the sealed tanks mechanical works are at 100% completion. Moving on, we can see the progress of the main components of the plant. Moving on to Slide 9, we are showing the progress made at the filtered tailings plant, which is now complete. To conclude the presentation, I would like to share a few final thoughts. Consistent copper and silver output is supported by steady operations at El Brocal, Uchucchacua, and Yumpa, ensuring operational reliability. Solid performance from affiliate companies: Coimolache is operating at full capacity, while Cerro Verde distributed $98,000,000 in dividends attributable to Compañía de Minas Buenaventura S.A.A.’s stake. San Gabriel has entered its transition phase, moving from project execution to ramp-up during 2026, positioning the operation to achieve a stable 2,000 tons per day throughput in 2026. A supportive environment allows us to step up exploration investment to reinforce our reserves and resources base while advancing progressive closures to enhance efficiency. Strong cash flow generation, a solid balance sheet, and disciplined capital allocation enable us to return value to shareholders, reaffirming our commitment to investor returns. Thank you for your attention, and I will turn the call back to the operator to open the line for questions. Operator, please go ahead. Operator: Thank you. We will now begin the question-and-answer session. To ask a question, dial in by phone and press star then one on your telephone keypad. The first question comes from Carlos De Alba with Morgan Stanley. Sir, your line is live. Please proceed with your questions. Carlos de Alba: Yes, good morning, everyone. Thank you. So first one is maybe on CapEx. Leandro, significant increase on CapEx versus what expectations are in the sell-side consensus and also, and probably more intriguing, versus what you guys told us just a few months ago in your Investor Day. So maybe can you please provide some detail as to what happened those last months that led the company to significantly revise all the CapEx. I have a couple of other questions. Leandro Garcia: Thank you, Carlos, for your question. Mainly, primarily in San Gabriel, the pending works are related to earthworks and continuing for the ramp-up of the project. Maybe Renzo can explain the pending issues to be resolved and have the production steady. Renzo Macher: Yes, sure. Hi. Yes. Effectively, we have some remaining works on earthworks, especially after the rainy season, where all the water systems and the roads are starting to be tested with rain. So there are some minor semi-failures that we need to cover and fix, and some channels to redirect water that are going to need additional care. And we need to continue with the routing for the water dam, for the last part of the routing. So that, plus closing some contracts for some additional quantities and material in the plants. That is already finished. Carlos de Alba: And all these things, you just evaluated or discovered them as the ramp-up started? Renzo Macher: Well, when we finish the earthworks, it is still untested. We are currently in the middle of the rainy season. So you keep finding things that can be improved or that need some extra work to be finished. There are certain roads that are not working as expected, and we need to do alternative roads in some areas to be accessed with that. Carlos de Alba: But anything major? Okay. Carlos de Alba: Alright. Thank you. And then on San Gabriel, thank you for the color on the ramp-up. Just maybe what is behind the lower guidance for production this year? Similar, I guess, to CapEx, a little bit of a surprise given that just a few months ago, you guided to a higher number. Leandro Garcia: Yes, Carlos. As we anticipate, we continue working in the ramp-up and putting all the things in order to reach by phases the production of the design plant. We are going to reach the 3,000 tons per day next year. We are making all the efforts to reach this as soon as possible, but we foresee a production of 2,000 tons per day all this year. Actually, we have to improve the ventilation in order to work in the high-grade areas. We have a little flexibility in the higher-grade areas, so we are planning to work only in three galleries. Well, maybe Juan Carlos can give the exact explanation of the components of our production. Juan Carlos Ortiz: Yes, Leandro, thank you. Well, number one, as you mentioned, are all the components that are still pending for construction and permitting. We will finalize the construction and get the final operational permits by the second quarter of this year. At that time, we will have all the area for drying the tailings and for compaction of the tailings inside the reservoir all set up. We have partial permits already set up for commissioning, and we have to have the definitive permit by the second quarter of this year. In addition to that, the mine is really scaling the production plan because after the accident that we had late December last year, we need to redesign the ventilation sequence. We need to triple the amount of air pressure that we need to push into the galleries in order to dilute all the gases that we have underground. In order to do that, we are bringing more ventilators, more fans, more electrical devices in order to power this equipment. And the consequence of that, also, in order to have a higher control of the ventilation and the risk linked to gases underground, is that we are losing part of the flexibility that we expected to have in 2026. The flexibility in order to mine high-grade areas in six different levels—now we are to be restricted to mine only in three levels. So by throughput, it will be the same. By gold grade, it will be lower. We are not mining high-grade areas; we are going to be restricted to three levels in which we need to mine the high grade and the average grade to complete the throughput that we compromise with the processing plant. The main reason, therefore, is the lower grade that we are mining in this initial year 2026. Carlos de Alba: Thank you, Juan Carlos. Sorry. And then maybe one more: with a very significant increase in gold and silver prices—I mean, others as well—but is the company foreseeing any changes in the mining plan that was presented late last year, and maybe the guidance will change? Can you offer some color there? Leandro Garcia: No, we have reviewed the mining plans of all our operations. The only change we have realized is at San Gabriel. In copper, we still have the same objective, and silver also. Carlos de Alba: Thank you. I will get back in the queue. Thank you. Operator: The next question is from Tanya M. Jakusconek with Scotiabank. Please go ahead. Tanya M. Jakusconek: Great. Good morning, everybody. Thank you for taking my questions. Just if I could finish off on San Gabriel. I just want to make sure I understand. Of the growth capital of $185,000,000 to $195,000,000, how much of that is San Gabriel? And what is going to the earthworks and what is going to ventilation? Leandro Garcia: Thank you, Tanya. Thank you for your question. Maybe, Renzo, you can—you have figures there? Renzo Macher: Yes. Hi. Thanks for the question, Tanya. From that, in terms of Gabriel, it is going to be like $160,000,000. That includes the closing of all the contracts that we have—that is probably half of that—and the other half is additional work in the earthworks. I think the ventilation is more in the sustaining CapEx. Tanya M. Jakusconek: Okay. So you have put it there. Okay. Understood. And maybe if I could just get Daniel to just give me some more guidance. I found that exploration and G&A was lower than I expected in Q4. Can you give me some guidance on G&A for 2026, exploration, and dividends from Yanacocha, including the dividend payout, whether you are reviewing that with your board meeting in March? Daniel Dominguez Vera: Thank you for the question, Tanya. The G&A that we expect for the entire 2026 will be around $60,000,000 to $70,000,000, which is similar to what we reported in year 2025. This increase compared to previous years is because of the workers' participation in profits, number one, and number two, due to the stronger Peruvian currency. Then for explorations, we have the explorations in the mining sites, in the operating sites, which will be around $60,000,000 to $70,000,000. We have increased our budget in explorations because we are focusing on more labores in San Gabriel, El Brocal, and Uchucchacua–Yumpa. And also in the non-operating sites, we will be disbursing some cash for the other projects that we have—greenfield projects—and this will be around $20,000,000 to $30,000,000. Our total budget for explorations is between $90,000,000 and $100,000,000, compared to the $70,000,000 that we have been disbursing in the past. And finally, for dividends, what we expect to receive from Cerro Verde this year is around $200,000,000, a little bit higher than what we received in year 2025. And what we decided at the board meeting yesterday was that we were going to pay, for this time—as the prices are going well and our CapEx for San Gabriel has basically been completed—we will pay 40% of the net income of the previous year, from 2025. Remember that our dividend policy is not less than 20% of the net income of the year. We have increased that to 40%, and we will continue evaluating in the future depending on prices and also on our CapEx program. Tanya M. Jakusconek: Okay, thank you for that. And then just maybe my last question comes on permits and just on Cañariaco sulfides. So we are still looking for that study to come out in Q1 on the Cañariaco sulfide—no, I think it was H1—the conceptual study on the project. And then on the permitting side, just on San Gabriel, I know we are waiting for this water permit. What is taking so long? And then asset sales, if I could. Where is that going on some of your asset sales? Are we hoping to get those done this year? Leandro Garcia: Thank you, Tanya. For the first question, at Coimolache, we are just ending the study. We have to discuss internally with the sovereign and the escrow, which are the following steps. We should inform the market in the first half of this year what are the following positive news for the project. So we continue working on that, but we have to put it on the Board of Coimolache and get the approval to continue. In terms of San Gabriel, the authority has already visited us. We are just waiting for the permit to be signed. In the following couple of weeks, we hope to be granted this permit. And the last question about—The asset sale. Yes. We continue evaluating this asset. We are in the last part of making a decision, and as soon as we arrive at a conclusion, we will inform the market. Aldo Massa: Yes, Tanya, we will make a huge analysis about the asset sales. We have not taken a decision yet on whether we are going to sell or not. But you have to take into consideration that this increase in precious metals prices really makes you think a lot if you want to sell or not an asset right now. But we are still analyzing, and we will take a decision very soon. Tanya M. Jakusconek: Okay. Okay. Thank you. Operator: The next question is from Cesar Perez-Novoa with BTG Pactual. Please go ahead. Cesar Perez-Novoa: Yes. Good morning. My question relates to Yumpa and Uchucchacua. Could you comment on why cost applicable to sales rose 616% in the quarter? I believe you attribute this to larger throughput of a low-grade mineral, but also there are some commercial deductions, and you also mentioned increased non-payable value. Can you please explain what this is? And my second and final question would be regarding guidance. Thank you for G&A and exploration data, but it would be really useful if you could complement this, if possible, with revenues and EBITDA for 2026. Thank you. Leandro Garcia: Happy to count on your questions. Maybe I will explain a little bit about the deductions and the escalators. Aldo, please go ahead. Aldo Massa: Cesar, thank you very much for your question. We have two main reasons here. The first one is when you sell silver concentrates with less than 2,500 grams, usually the payable for that concentrate is between 60–70%. When you sell silver concentrate with higher than 2,500 grams, the payable is between 90–95%. In the last quarter, we produced more silver concentrate with lower grade. That is why the deduction is a lot more. And the other reason is the escalators. We have escalator clauses in our contracts, and due to a sharp increase in the price of silver, right now these escalators are applying to the contracts. What does it mean? If the upper range of the escalator is $50 per ounce and the price of silver is $100, you apply a percentage of the price. You understand? Cesar Perez-Novoa: Yes. Yes, I do. I do. Alright. Okay. So those would be the two main reasons why the cost is high. Early. Leandro Garcia: Does that answer your question, Cesar? Cesar Perez-Novoa: Yes. And if possible, could you provide some guidance for EBITDA or revenues? Daniel Dominguez Vera: Hello, Cesar. Thanks for your question. If we consider prices at levels of $4,500 for gold, $70 for silver, and $12,000 for copper, we should be in the range of revenues of $1,800,000,000 to $2,000,000,000. This includes close to $100,000,000 of sales from the concentrate that we buy from Cerro Verde from Freeport. And the EBITDA that we expect for the total year will be around $800,000,000 to $1,000,000,000. Cesar Perez-Novoa: Alright, Daniel. Thank you very much. Operator: The next question is from Fernando Gil with Ingheso Sao Paulo. Please go ahead. Fernando Gil: Hi, thank you for taking my questions. Just a quick question regarding the Investor Day targets. I remember you announced that three mines are under strategic review—Orcopampa, Tambomayo, and Julcani. Could you tell us what is the current status of these mines? And are you starting to do some action separately or together? And has there been any formal process for any kind of sale? Yeah, that would be it. Thank you very much. Leandro Garcia: Thank you, Fernando, for your question. Well, we already began the process and are analyzing the feasibility of selling these units, these mines. However, as Aldo explained minutes before, with the increasing prices of gold and silver, we are reanalyzing the possibility. We have continued advancing on this process. We are close to making a final decision, and if they will be sold each unit separately or as a whole. We are open to all the possibilities, but for now, the higher alternative—if we sell—is to sell them separately. Fernando Gil: Okay. Thank you. Operator: The next question is a follow-up from Carlos De Alba with Morgan Stanley. Please go ahead. Carlos de Alba: Yes, thank you. Just on dividends, like the $0.99 per share approved by the Board—when do you expect to pay that? And also the $200,000,000 in expected dividends from Cerro Verde—when do you expect you will get that money? Leandro Garcia: Yes. For this proposal of dividends, it has to be approved at the shareholders' meeting. But Daniel, please go ahead. Daniel Dominguez Vera: Yes, Carlos. The dividend payment should be for April. And regarding Cerro Verde’s dividend, we have already received in January $100,000,000 from Cerro Verde, and we expect $50,000,000 by July and another $50,000,000 by the fourth quarter of this year. Carlos de Alba: So that is $150,000,000, but I thought you said $200,000,000. Daniel Dominguez Vera: Yes. $100,000,000 in January, $50,000,000 in July, and in the fourth quarter another $50,000,000. Carlos de Alba: Okay, got it. Thank you. Operator: Ladies and gentlemen, with that, I would like to turn the floor back over to Sebastian Valencia Carrasco, Head of Investor Relations, for any webcast questions. Sebastian Valencia Carrasco: Thanks, operator. At this time, there are no further questions. I would like to turn the call over to Leandro Garcia. Leandro Garcia: Thank you, Sebastian. Well, before we conclude today's conference call, I would like to thank you for the time and effort dedicated to joining us today. Your participation and input are greatly appreciated. Thank you again and have a wonderful day. Operator: Ladies and gentlemen, that concludes Compañía de Minas Buenaventura S.A.A.'s Fourth Quarter 2025 Earnings Results Conference Call. We would like to thank you again for your participation. You may now disconnect.
Operator: Welcome to the RLJ Lodging Trust Fourth Quarter 2025 Earnings Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. If anyone should require operator assistance during the conference, I would now like to turn the call over to John Paul Austin, Director of Investor Relations. Please go ahead. John Paul Austin: Thank you, operator. Good morning, and welcome to RLJ Lodging Trust 2025 fourth quarter and full year earnings call. On today's call, Leslie D. Hale, our President and Chief Executive Officer, will discuss key highlights for the quarter. Nikhil Bhalla, Chief Financial Officer, will discuss the company's financial results. Thomas J. Bardenett, our Chief Operating Officer, will also be available for Q&A. Forward-looking statements made on this call are subject to numerous risks and uncertainties that may lead the company's actual results to differ materially from what has been communicated. Factors that may impact the results of the company can be found in the company's 10-K and other reports filed with the SEC. The company undertakes no obligation to update forward-looking statements. Also, as we discuss certain non-GAAP measures, it may be helpful to review the reconciliations to GAAP located in our press release. Finally, please refer to the schedule of supplemental information which includes pro forma operating results for our current hotel portfolio for 2025. I will now turn the call over to Leslie. Leslie D. Hale: Thanks, John Paul. Good morning, everyone, and thank you for joining us today. We were pleased with our solid fourth quarter results which came in ahead of our expectations. Despite a choppy operating environment that was further constrained by the protracted government shutdown, our operating results benefited from the continued outperformance of the ramp of our completed high-occupancy renovations, as well as our robust growth in non-rooms revenue. These factors combined with disciplined cost management contributed to our better-than-expected bottom line results. The fourth quarter capped a highly productive year for us during which we delivered our Nashville conversion and continued ramping our completed conversions, which on average achieved RevPAR growth that was nearly 700 basis points ahead of our broader portfolio. We advanced the next phase of our pipeline, including the selection of the brand for our Boston conversion. We completed transformative renovations of several hotels in high-demand markets. We achieved robust non-room revenues well in excess of our RevPAR performance, validating investments in our ROI initiatives. We strengthened our balance sheet by addressing all of our near-term debt. We executed on opportunistic asset sales at accretive multiples and returned significant capital to shareholders in the form of dividends and share repurchases. The execution of these initiatives has strengthened our long-term growth profile and further bolstered confidence in our ability to deliver on our value creation initiatives even in an uncertain environment. With respect to our operating performance, our fourth quarter RevPAR decline of 1.5% came in better than what we had anticipated in the midst of the government shutdown. These improved top line results were driven by the relative outperformance of our urban markets, a stronger-than-expected acceleration of the ramp at our major renovations as the shutdown ended, as well as an overall stronger December which benefited from positive leisure demand despite a difficult year-over-year comparison for the month. Our urban hotels continue to be a key driver of our performance as they captured positive trends across a broad range of demand sources this quarter. Among our urban markets, San Francisco CBD was once again the top performer, achieving 52% RevPAR growth in the quarter, supported by growth from all demand segments, as well as the calendar shift for the Dreamforce conference into the fourth quarter. We are encouraged by the ongoing momentum in San Francisco's recovery, supported by a thriving tech economy, improving perception of the overall local environment, and a strong lineup of events this year, including the recent Super Bowl, which was wildly successful, as well as the upcoming World Cup games. From a segmentation standpoint, our non-government-related business transient revenues grew by 5% during the quarter, and with our highest-rated customer demand segment continuing to grow, corporate rates were up a solid 2%. Overall, non-government business travel demand continues to benefit from the resiliency of the economy and healthy corporate profits, especially in sectors such as tech, finance, and consulting, which continue to see positive momentum in return-to-office trends. However, government business demand was further impacted during the quarter by the shutdown, primarily affecting our DC and Southern California markets. Relative to group, our revenues were down 3% as in-the-quarter-for-the-quarter demand was artificially impacted by the shutdown in October and November. However, group dynamics remain strong as evidenced by the growth in our group ADR of 4% despite the soft demand. Regarding leisure, trends remain stable, and we were encouraged to see demand increase a healthy 1% during the quarter, although we continue to observe some price sensitivity among consumers. Our urban leisure once again saw stronger relative performance, achieving revenue growth ahead of our portfolio driven by strong demand around the holidays. Our leisure segment also benefited from our recently renovated hotel in Waikiki and Deerfield Beach, which achieved RevPAR growth of 12% and 10%, respectively, in December as they resume their ramp following the end of the government shutdown. Despite softer occupancy in the quarter, we achieved strong non-room revenue growth of 7.2%, exceeding our RevPAR performance by nearly 900 basis points, allowing us to generate positive total revenue growth. These results validate our strategy to drive high-margin out-of-room spend and underscore the success of our ROI initiatives aimed at growing profitable food and beverage, reconcepting underutilized space, and growing other ancillary revenues. Overall, better-than-expected RevPAR performance aided by contributions from the ramp of our completed conversions and renovations, robust non-room revenue growth, and continued disciplined cost containment drove much of the EBITDA upside relative to our expectations. Turning to capital allocation, we made significant progress on a number of fronts during the fourth quarter. We continue to ramp our completed conversions with our four most recently completed conversions achieving 15% RevPAR growth for the full year. We completed transformative renovations at our high-occupancy hotels in Waikiki and Deerfield Beach and are already seeing positive trends with both assets generating RevPAR growth of more than 10% in December. We made further progress towards our conversion of the Renaissance Pittsburgh and expect to relaunch this asset as part of Marriott’s Autograph Collection this year, and we advanced the programming of our Wyndham Boston Beacon Hill conversion to Hilton’s Tapestry Collection with construction slated to commence later this year. We remain on pace to deliver an average of two conversions per year and look forward to announcing our next conversion later this year. Additionally, during the quarter, we executed on the opportunistic sale of two hotels at accretive multiples and used the proceeds to pay down debt. Subsequent to the quarter, we completed a series of refinancing transactions which addressed all of our debt maturities through 2028. Our strong balance sheet and liquidity continue to support the optionality that we have. With respect to capital allocation, this year, we returned $120 million to our shareholders through share repurchases and a well-covered dividend. Now looking ahead, we are cautiously optimistic overall. While we acknowledge the lingering geopolitical uncertainty, we remain constructive on the setup of the broader economy given the tailwinds expected from moderating interest rates and tax cuts, which should have positive implications for travel demand. Relative to this setup, the lodging industry is expected to achieve slightly positive RevPAR growth this year driven by the ongoing positive momentum in non-government-related business travel, increased leisure demand, especially urban leisure demand, from several unique events, particularly the World Cup games, plus the 250th anniversary of America, in addition to healthy group demand. We believe that these trends will disproportionately favor urban markets, allowing them to continue to outperform the broader industry. Against this backdrop, we believe we are well positioned given our favorable geographic exposure, urban footprint, and high-impact capital investments, which should allow us to benefit from the broad-based growth across all the segments that urban markets are capturing; a favorable footprint with a number of World Cup games across nine of our markets, including prominent games in New York, Los Angeles, and Miami; the 250th anniversary of America with large-scale related events in the Boston, New York, DC, and Philadelphia markets; the favorable rotation of more major sporting events including the NFL Draft, the Major League Baseball All-Star Game, and the NCAA March Madness; a healthy group pace and strong group pricing, particularly in the second quarter, supported by these events; continued growth of non-room revenues driven by our successful ROI initiatives; the ongoing momentum in our Northern California market supported by the rapid growth of the AI industry that is stimulating business travel, events, and corporate investment; and the tailwinds from the ramp of our completed conversions and high-occupancy renovations. In aggregate, these tangible catalysts and the resiliency of our urban-centric portfolio underpin our positioning for this year. Our strong relevant positioning is further supported by our flexible balance sheet, which will allow us to execute on our key investments. Overall, we remain confident in the long-term outlook for the lodging sector, especially against an elongated period of limited new supply, which will disproportionately benefit urban markets, allowing our urban-centric portfolio combined with our value-creating initiatives to drive shareholder returns long term. With that, I will turn the call over to Nikhil. Thanks, Leslie. Nikhil Bhalla: To start, our comparable numbers include our 92 hotels owned at the end of the fourth quarter. Our reported corporate adjusted EBITDA and AFFO include operating results from all sold hotels during RLJ Lodging Trust’s ownership period. As Leslie noted, our fourth quarter results came in ahead of our expectations. Fourth quarter occupancy was 68.7%, average daily rate was $199, and RevPAR was $137, which translated to a 1.5% RevPAR contraction versus the prior year comprised of a 0.9% decline in occupancy and a 0.7% decline in ADR. The government shutdown weighed on our results in both October and November, which are seasonally the highest contributors during the fourth quarter, and December faced a uniquely difficult comparison from the prior year. Our urban markets outperformed our portfolio by approximately half a point, benefiting from robust growth in markets such as Northern California, Denver CBD, and New York City, achieving 18.5%, 10.1%, and 4.7% RevPAR growth, respectively. We were especially pleased with our non-room revenues growing by 7.2% over the fourth quarter of last year, which led our total revenues to grow by 0.2%, driven by solid growth in F&B, parking, and other revenues. With respect to expenses, total operating costs were up only 0.8% during the quarter and up 1.6% for the full year. Our fixed expenses during the quarter benefited from a favorable insurance renewal as well as $4.7 million in real estate tax benefits as a result of our successful appeals, which were not contemplated in our outlook. Excluding these tax benefits, our total expenses increased only 2.1% for the full year, reflecting the benefits of our lean operating model as well as relentless focus on enhancing productivity and managing expenses. Our ability to manage costs in a soft RevPAR environment allowed us to achieve fourth quarter comparable hotel EBITDA of $87.8 million and hotel EBITDA margins of 27%, which was only 44 basis points behind last year. This translated to adjusted EBITDA of $80.4 million and adjusted FFO per diluted share of $0.32 for the fourth quarter. Our team continues to work diligently to execute cost containment initiatives to minimize operating cost growth in response to the current environment. We continue to actively manage our balance sheet to create additional flexibility. During 2025 we proactively addressed all of our near-term debt maturities. Subsequent to the year, we executed four financing transactions which addressed our debt maturities through 2028 and expanded our capacity. These included the recasting of our $600 million revolver to extend maturity to 2031, upsizing and extending our existing $225 million term loan, the addition of a new $150 million term loan, and refinancing of our two mortgage loans maturing in April. The term loans created approximately $500 million of new capacity we intend to use under delayed draws to pay off $500 million of senior notes at maturity in July. The successful execution of these refinancing transactions will result in minimal increase to our annual interest expense despite refinancing our lowest-cost debt in a higher interest rate environment. As a result of these transactions, we have further laddered our debt maturity profile such that we will have no maturities due before 2029. Our balance sheet is well positioned with $600 million currently available under our undrawn corporate revolver, 84 of our 92 hotels unencumbered by debt, an attractive weighted average interest rate of 4.673%, and 73% of debt either fixed or hedged. We ended the fourth quarter with over $1.0 billion of liquidity and $2.2 billion of debt, and the company's weighted average debt maturity will be approximately 4.5 years post the payoff of the senior notes. We continue to leverage the flexibility offered by our healthy balance sheet to unlock embedded value across our portfolio through high-value conversions and renovations while remaining committed to returning capital to shareholders. During 2025, we advanced our Nashville and Pittsburgh conversions and executed four transformative renovations. Additionally, we sold three properties for $73.7 million in aggregate at a highly accretive multiple of 17.7 times projected 2025 hotel EBITDA including required CapEx. We recycled substantially all of these proceeds into the repurchase of 300,000 shares for $28.6 million and our refinancing efforts inclusive of the paydown of a first mortgage. Finally, we continue to pay an attractive and well-covered quarterly dividend of $0.15 per share. We will continue to make prudent capital allocation decisions to position our portfolio to drive growth through the entire cycle while maintaining a strong and flexible balance sheet. Turning to our outlook. Based on our current view, we are providing full year guidance which, at the midpoint, assumes a continuation of the current operating environment. For 2026, we expect comparable RevPAR growth to range between 0.5%–3%, comparable hotel EBITDA between $344 million and $374 million, corporate adjusted EBITDA between $312 million and $342 million, and adjusted FFO per diluted share to be between $1.21 and $1.41, which assumes no additional repurchases. Our outlook assumes no additional acquisitions, dispositions, or balance sheet activity beyond what has been completed to date. We estimate capital expenditures will be in the range of $80 million–$90 million. Cash G&A will be in the range of $32.5 million–$33.5 million, and we expect net interest expense will be in the range of $101 million–$103 million. We also expect total revenue growth will outpace RevPAR growth due to the continuing success of our initiatives to drive out-of-room spend. With respect to the cadence for the year, we expect the first quarter to be the softest quarter as we lap difficult year-over-year comparisons in DC from the inauguration and increased demand at our Southern California hotels following the wildfires. January RevPAR was down 1.9%, reflecting these difficult comparisons. Based on our current visibility, we expect the contribution for the first quarter adjusted EBITDA to represent approximately 22% of our full year outlook. As we move beyond the first quarter, we expect the second quarter contribution to be similar to last year, with the balance of the contribution in the back half of the year. As you bridge between 2025 and 2026 adjusted EBITDA, please keep in mind the adjustments for the asset sales as well as non-recurring property tax credits of $4.7 million during the fourth quarter. Finally, please refer to our press release from last evening for additional details on our outlook and to our schedule of supplemental information which will include comparable 2025 and 2024 quarterly and annual operating results for our 92-hotel portfolio. Thank you. And this concludes our prepared remarks. We will now open the line for Q&A. Operator? Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star then 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star then 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Austin Wurschmidt with KeyBanc Capital Markets. Please proceed. Josh Friedland: Hey, good morning. It is Josh Friedland on for Austin. How much benefit are you guys assuming from the World Cup and then separately from easier comps due to the government shutdown? And how much of the RevPAR growth this year are you expecting to come from rate growth versus occupancy? Leslie D. Hale: So, hey, good morning. Let me unpack all of our building blocks for what is embedded at the midpoint of our guidance based on your question. I would say, from a balance perspective, we are balancing rate and occupancy. We see it equally weighted at the midpoint. When we think about segmentation, we are assuming that BT is going to continue to improve on the strength of national accounts that continue to come back in terms of frequency and length of stay. We are also assuming that because our highest-rated customer is coming back that we are going to see rate growth on the BT side and that BT is going to benefit from the holiday calendar shift, which is having seen a lot of holidays on the weekends. Additionally, we are assuming that leisure demand is expected to increase in 2026 on the strength of the unique events. We think urban leisure is going to continue to outperform. We think that rate is going to be a key driver of growth in 2026 for leisure, which was not in 2025, and that our leisure is going to benefit from the ramp of our high-occupancy renovations that we did last year, which were in leisure markets. And group is going to see a pace ahead of 2025 in the second, third, and fourth quarter. And all of those things are going to benefit urban, which is going to continue to outperform the industry, particularly on the strength of San Francisco. And then if I drill down on the special events, for World Cup, we have got nine markets that are benefiting from World Cup with 63 games, and we have prominent games in Miami, New York, and LA, and that is translating into about 45 basis points of pickup for us. I would say additionally, as we mentioned last year, we were impacted by our high-occupancy renovations, and so this year, we are getting the benefit of that. In Waikiki, Deerfield, and Key West, that is going to translate into an incremental 40 basis points for us. And that is on top of the benefits from the special events; the 250th anniversary in DC, Boston, New York, and Philly; as well as more regional games that we are getting from March Madness. We also have the Final Four in our footprint this year as well. That is incremental to the Super Bowl that benefited San Francisco. In aggregate, those things are reflected in the midpoint of our range. Josh Friedland: Okay. Thank you for that. It is really helpful. And my second question, how are you prioritizing capital allocation today—asset sales and possible share repurchases—given where your stock is trading and what would need to change either in valuation or transaction markets for external growth to become more attractive? Leslie D. Hale: Yes. I think clearly, we were active this year. We recycled some capital from asset sales, we bought back shares, we executed on our conversions with our most recent conversions generating 15% RevPAR growth this year. We also took some actions to strengthen our balance sheet in the back half of the year as the environment softened. Clearly, the balance sheet is what gives us optionality. We want to be thoughtful about balancing between near-term opportunities and long-term resiliency. We are constructive on asset sales. We will look to recycle more proceeds in 2026 and take advantage of the arbitrage in valuation while also maintaining our balance sheet. And we are going to look to use all the tools that are available to us. These are not mutually exclusive. They have relative benefits based on the market conditions, and we want to drive value for our shareholders and grow earnings, and we think that buybacks are an important tool in our toolkit. Josh Friedland: Great. Thanks for the color. Operator: Our next question is from Tyler Batory with Oppenheimer and Company. Please proceed. Tyler Batory: First one for me just on the EBITDA side of things and EBITDA margin. 1% growth year over year at the midpoint when you make some adjustments. Just talk a little bit more what you are seeing on the operating cost side of things and your expectations for 2026? Nikhil Bhalla: Yes. I think in aggregate, our assumption is that expenses are going to grow about 3%. We think variable expenses are going to be about 2% and the fixed expenses are going to be about 4% excluding the tax benefit that we have. And I think from a wage perspective, we are assuming kind of 3% to 4% on wage and benefits growth. Tyler Batory: Okay. Perfect. Thank you for that. And then I wanted to double click on conversions and renovations. Just remind us what plans for 2026. I know there were some renovation disruptions that impacted 2025, and so I am not sure if there is anything that is going to be happening that we should be aware about in terms of 2026. And then talk a little bit about just conversions. I think you mentioned I think it was 15% RevPAR growth at your recent conversions. Just talk a little bit more about the ramp-up and just some of the performance at the hotels that you have converted recently. Leslie D. Hale: Sure, Tyler. Catch me if I missed part of your question. But I think in terms of, on a relative basis, recall that last year we mentioned that the types of renovations we did last year were high-occupancy renovations, and so by nature of the occupancy and how they performed throughout the year, you were going to have some level of disruption. That is not the case for this year, and you see we have lower CapEx for this year. That is also a function that these are smaller assets relative to what we did last year. The largest asset that we have on this year is really going to be Boston, which is going to be in the latter part of the year after all of the special events. And so we do not expect to indicate disruption as a headwind for us this year. I think as it relates to the conversions, we have completed seven conversions to date. We have two more that are underway. Obviously, Boston, which I just mentioned, will start later this year, and then our Pittsburgh—Renaissance Pittsburgh—which is going to be converted to an Autograph Collection, we will deliver that later this year. All of our conversions were up on average about 5% last year, with our four most recent ones being up 15%. And so they continue to ramp very well. We are very pleased in terms of the returns that we are generating and the overall production from our conversions. We remain on pace to continue to deliver two conversions per year. We look forward to announcing our second one at the latter part of this year. Tyler Batory: Okay. Great. That is all for me. Thank you for the detail. Operator: Our next question is from Michael Bellisario with Baird. Please proceed. Michael Bellisario: Just a few transaction questions. Good morning. Just transaction questions for you. Just first, what was the motivation and process like to sell Dallas and Houston? And was it more market or asset driven to sell those hotels? Leslie D. Hale: Yes, Mike. Those two assets—one was a function of where we saw the demand drivers going in that particular market coupled with the capital needs of the assets, and the other one was opportunistic; an alternative-use buyer was looking at that asset. What we have found in today’s market is that inbound calls are more credible today, and so we took advantage of some opportunistic opportunities. Michael Bellisario: Got it. That is helpful. And then just looking at Northern California, and sort of how do you balance some of the expected improvement in that market that sort of you and everyone expect with potentially selling some of the kind of non-CBD hotels? Yep. Is your fundamental view of San Francisco is going to benefit San Francisco, and is the improving demand profile going to make its way out to the outer rings? Leslie D. Hale: Yes. I think we were able to balance it by the breadth of our footprint, Michael. And so I think that there is opportunity for us to continue to benefit from the relative strength that San Francisco is seeing while, at the same token, being opportunistic on asset sales and just being thoughtful about how we prioritize which submarkets we would look to prune our portfolio in. Michael Bellisario: Helpful. Thank you. Operator: Our next question is from Gregory Miller with Truist Securities. Please proceed. Gregory Miller: Thank you. Good morning. I would like to start off on the AI front. A number of your franchisor brand partners have spoken about their consumer-facing AI efforts including towards the LLMs. Do you expect any material change in how your bookings from the brands will be sourced this year? Thomas J. Bardenett: Thanks. That is a good question, Greg. We are actively working with the brands to pass through when we think about how they are interacting with the consumer, and specifically on the front end when they are shopping, researching, and looking to book a business. The great thing we are continuing to see is brand.com continues to be the source of business that is the highest return, where people are booking through the brand, which the cost is less there than, let us say, the OTA channels. And so we are very supportive of all the initiatives around centralized services in regards to how they are thinking about rolling out to the consumer to be able to make it easier to get to brand.com, number one. The other thing that I would say is, when I think about what the brands are doing, there is an opportunity also to have savings through economies of scale, and whether that is through their AI tools, they are evolving meaningfully over the next few years, and they are doing a tremendous amount of beta testing. We sit on, as you know, owner advisory councils and have a voice as well as our peers. And so we are excited about the opportunity to enhance productivity not only through the cost side and labor and scheduling initiatives—everything related to how we can make sure that we are maximizing the opportunities that are ahead of us. And I think when we go down the road of our own work and what we are doing, we are really taking a look at data insights in regards to making our decisions from an asset management standpoint with our management companies and enhancing the tools there as well. So we are supportive and excited about the future and look forward to having the brands really lead the way when it comes to our industry. Gregory Miller: Thanks, Tom. So my second question, this is similar to Tyler’s question, but maybe a bit more granularity. As we think about modeling labor costs through the year, is there any change in the step-up we should assume in terms of cost growth in the third and the fourth quarters particularly given labor dynamics in New York City? Nikhil Bhalla: That is embedded in our overall blended expense growth. If you kind of look at the fourth quarter, we were up 0.8% in growth, and if you take out the tax benefit, we were up slightly over 2%. And so I think if we assume that trend line for the first two quarters and then, you know, the back half, you blend back to 3% for the full year. Thomas J. Bardenett: And the thing too beyond what your question was around New York City, when you think about the bigger picture, Greg, contract labor continues to be reduced. Productivity continues to improve. When we think about our portfolio specifically, you dig into the synergies that we continue to make sure that we are maximizing because of our footprint—whether it is operations, sales, food and beverage, and repairs and maintenance—making sure that we are building a business model that is sustainable. And so we feel very good about our management companies and how they are interacting with us around scheduling, back to what we talked about in regards to yielding that just as important as we are yielding revenue to be able to maintain the levels that Leslie referred to. Gregory Miller: I appreciate it. Thanks, Leslie. Thanks, Tom. Operator: Our next question is from Chris Woronka with Deutsche Bank. Please proceed. Chris Woronka: Hey, good morning, everyone. Thanks for taking my question. I wanted to ask, if I could, a longer-term strategic question. You know, if we look at the portfolio today, 92 hotels, you probably skew a little bit more full service at this point, particularly from an EBITDA perspective. But is there any thought to, as we potentially get more traction in the transactional markets going forward, is there any thought to do anything more significant in terms of reshaping the portfolio to maybe continue to de-emphasize select service, which you have kind of been doing on a measured basis thus far? Thanks. Leslie D. Hale: So, Chris, thanks for the question. I think in general, when it makes sense to be active externally, you are going to continue to see us lean towards lifestyle, thoughtful F&B-oriented assets which have a mix that are built right from a room count perspective. And you have seen our portfolio shift to the urban lifestyle as we made acquisitions and as we do our conversions. And so you will see our portfolio continue to move in that direction when it makes sense to execute on external growth. We do think that the transaction market will improve this year, particularly given the debt markets. There are a lot of players out there providing debt and expectations around rate cuts. We are constructive on more asset sales, and you will see us be active on that front more so this year. Thomas J. Bardenett: The last thing I would add too, Chris, and I think you can see it in our non-room revenue spend, when you look at our ROI initiatives and you look at our conversions and our renovations, we are leaning in heavily to trying to grow food and beverage margin with beverage-centric renovations that are driving that. And we continue at our urban properties to be able to enhance the capital initiatives around parking, which is also driving profitability. And then the last thing, whether it is select service or full service, we are seeing the fact that our margins are growing because of market expansion. So when you are in our lobbies, we are really putting more minds and efforts against how do we make sure that we have the grab-and-gos, if you will, which is really a playbook from select service, but also expanding into our full service hotels where the need is that a consumer looks to buy things when they are individually in a hurry. Chris Woronka: Okay. I appreciate all that color. Thanks, Leslie. Thanks, Tom. As a follow-up, I think we have heard from some of your peers, to varying degrees, that there is a little bit more and perhaps increased flexibility with the brands on things both related to CapEx and also sometimes operational efficiencies. Are you guys seeing that same trend? Are you more encouraged or less encouraged by what you see going forward in terms of, I do not know if pushback is the right word, but working with the brand collectively kind of give yourselves a little bit more margin and free cash flow conversion? Thanks. Leslie D. Hale: Look, I think in general we have very strong relationships with our brand partners and that we have a very healthy relationship. I think the brands are being very thoughtful around their renovation requirements and trying to be market-specific as it relates to that. I think they are also looking for ways to be able to give benefits to owners who deploy capital within their portfolios, of which we are one of those. And they are also looking for ways to help some of the fee dollars. So I think in general, I think the brands are being good partners, and we have very strong relationships that we have been able to benefit from. Chris Woronka: Okay. Very good. Thanks, Leslie. Operator: Our next question is from Rich Hightower with Barclays. Please proceed. Rich Hightower: Hi, good morning, guys. Leslie, if I go back, I think it was your answer to the first question. You know, it is sort of strength upon strength upon strength in terms of the building blocks for 2026. And I think just out of curiosity, when you add all of it up, and, you know, again, assuming that the world we think we know and understand today kind of plays out as expected, I mean, what is the likelihood of coming anywhere near the low end of guidance as we just think about the plausibility of the range? Leslie D. Hale: Rich, I think that you have to remember that our portfolio is 80% transient. We have a short-term booking window. So when you think about our range, our range is really just a reflection of either the strength or weaker production and some combination of the factors that we laid out relative to our baseline. At the high end of the range, you could have stronger production in World Cup or stronger production of the special events or in-the-year-for-the-year pickup, or urban markets may outperform better, or the ramp may be stronger. We think that if those things happen, it is going to translate into rate growth primarily, but the flip side is opposite for the lower end of the range. If we have weaker production from World Cup or any of the other combination of things from urban markets or special events or in-the-year-for-the-year pickup or slower ramp on our conversions, those types of things would lead you to the bottom end of the range. That would take the form of demand. So I think it is about relative strength. What we built at the midpoint is based upon what we can see today, but we are in an 80% transient business with a short-term booking window. Rich Hightower: That makes sense. That is helpful. My second question, I would like to dive a little bit deeper on the Wyndham Boston conversion to Tapestry in particular. So, you know, I know that asset reasonably well. You know, it really kind of is a demand category killer given location, you know, kind of on the campus of MGH and obviously in the Beacon Hill neighborhood. So I would assume it does pretty well on its own as a Wyndham. And so just help us understand the economics behind the Tapestry conversion, what that brand will do for the hotel, what the all-in basis per key, etcetera, might look like at the end of all that. Thanks. Thomas J. Bardenett: I will talk about the decision to move into that arena a little bit, Rich, and some of the things that we are doing that we think are going to be transformative. But you hit the nail on the head. We love the location. And in real estate, it is all about location, location, location. So just to add to your color, with $1.8 billion going into Mass General with two buildings literally adjacent to the hotel, those are going to be future demand generators above and beyond the location, as you mentioned, Beacon Hill, which is high-end residential, great community where you have universities, health care, education, as well as the attractions and walking distance to the Garden and things that we benefit from. So what we feel is by going into the Hilton system, specifically on the lifestyle side, we can make it that community-centric feel when people are walking into the hotel. And what has happened in our other conversions, Rich, as you know because you visited some of them, the mix changes. When that happens, you get more corporate base. You also get more Hilton contribution because of the lack of supply that Hilton has in that marketplace. We feel we enter into a place where we can really compete on the lifestyle and upper-end threshold of that clientele that is looking for locations as well as accommodations. We also have some meeting space on the highest floor that really has beautiful views over Boston. And having that mix of business will help us on the group, corporate, and base of what we find in our other conversions like Mills House when we went to a Curio, or Nashville where we went to a Tapestry, where we automatically see that shift in business. So we are pretty excited about, yes, it is a great hotel today because Wyndham does a super job for us in that location with the value buy, but we are going to be playing at a different level when we move into the Tapestry Hilton collection. And then I will kick it over to Leslie for returns. Leslie D. Hale: Yes. I think, Rich, we have been pretty clear on this asset. We believe that there is 40% upside in the EBITDA from converting it to a Tapestry for all the reasons that you articulated in the market demand there. This is an asset that is going to benefit from all of the demand drivers and segmentation, and we know that the rate is in the market because there are other assets already achieving the rate that we have underwritten for this asset and feel very good about what it can produce. And the overall renovation dollars are actually not that much more than what we would do in a normal renovation. And so the returns for the asset relative to the incremental capital are well north of 50%. Rich Hightower: Okay. Great. Thanks for the color, guys. Operator: As a reminder, press star then 1 on your telephone keypad if you would like to ask a question. Our next question is from Jack Armstrong with Wells Fargo. Please proceed. Jack Armstrong: Hey, good morning. Thanks for taking the question. How do you expect total revenue growth to outperform RevPAR in 2026? And how much of that is being driven by some of the F&B improvements you made across the portfolio? Nikhil Bhalla: Hey, Jack. This is Nikhil. How are you? Just to give some frame of reference, there are a number of things that are going into our non-room revenues, and one of them is the markets that Tom described earlier. If you look at the fourth quarter, our revenues were actually up in the high single digits, and consistently we have had very strong growth in that. So we are continuing to see very, very strong growth across that and we expect that to continue. If you see our prepared remarks, we did say that our total revenues will outperform room revenues. We expect somewhere around 50 basis points. Thomas J. Bardenett: And then on F&B, Jack, just to give you a little color there. We had about a 120 basis point improvement in margin in F&B full year and this year. And we continue to see the reason that is happening is because not only is group now having more corporate group, but they spend more money on banquets and beverage, and then many of our renovations as well as ROI initiatives have really been what I talked about earlier—more beverage-centric, having more seats at the bar, having our meeting space have reception areas where that is more an opportunity to have camaraderie in an outdoor area, whether it is an atrium or locations that are highly desirable to gather. And so we are seeing outlets grow. And lastly, on the community side, as Leslie stated earlier, trying to be attractive to folks not staying in the hotel. An example of that would be Mills House where we did the Black Door Cafe. We are getting 50% from our guests and 50% from the outside—just foot traffic—taking advantage of our locations. I think Boston is going to be a perfect example of that. Now people who are going to be in those locations are going to want a place to eat, and there is a significant crowd now literally next door who is going to be going back to office in those locations. So those are examples of that, and I will kick it to Leslie for one more. Leslie D. Hale: Yes. And I would just bolt on to Tom’s comments in the sense that every time we do this, we get smarter. And so the last comment that Tom made about being able to attract not just hotel guests to our F&B outlets, we are seeing that in all of our conversions. He mentioned Mills House. We also have done it in Santa Monica. We also did it in New Orleans as well, and he mentioned that we are going to be doing it in Boston, but we are also doing that in the Renaissance Pittsburgh that we are converting to an Autograph. And then the other asset that we will announce later this year will have the same concept as well. So we are really leaning into this thoughtful F&B with the beverage-centric mindset, and that is going to help us sustain that 50 basis points that Nikhil mentioned. Jack Armstrong: Helpful color there. Thank you. And then can you remind us what portion of your business was government-related in 2025? And then maybe contrast that with a more stabilized year without the impact of Liberation Day and the shutdown and what that would look like in 2026. Leslie D. Hale: Yes. I mean, what I would say is that in a normalized year, government was 3%, and when we think about how it performed last year, it was down about 20%. And we think that we saw a step down in Liberation Day. And as I mentioned previously, our range assumes no change in government demand. Jack Armstrong: Great. Very helpful. Thank you. Operator: Our next question is from Chris Darling with Green Street. Please proceed. Chris Darling: Thanks. Good morning. Going back to the capital allocation discussion, Leslie, you mentioned inbound interest from potential buyers being more credible these days, just a more constructive transaction market in general. As you think through potential dispositions, what are some of the main factors you consider when making that decision? Is it market-driven, asset-level consideration, something else? Just sort of curious how you internally think about these things. Leslie D. Hale: Yes. I mean, I think it is a combination of our view of a market and where the puck is going from a demand perspective. It is also whether or not we think we can get any return on the capital that we have to put in to sustain the asset. And then it is our perspective on any opportunistic calls that we get in to determine whether or not we think that that value is appropriate for relative assets. But I think that we are active portfolio managers and will consider looking at all aspects of our portfolio relative to a constructive disposition environment. Chris Darling: Okay. And, you know, related to this, in your mind, do you think there is appetite for larger-scale portfolio deals today? And if not, what do you think might change that story as we move through this year? Leslie D. Hale: Yes. I mean, I think it is a great question. I think that as we look at the market today, the most active buyers are owner-operators because they are able to consistently underwrite growth. And so that leans itself to more single assets. Having said that, we do think that there has been an increase in volume for larger single assets, which could then translate into liquidity for smaller pools of assets. I think a key ingredient of that is for the interest rate cuts to actually materialize and for buyers to be able to underwrite bottom line growth with conviction. Operator: Alright. I appreciate the time. That will conclude our question and answer session. I would like to turn the conference back over to Leslie Hale for closing remarks. Leslie D. Hale: Well, thank you, everybody, for joining us today. We look forward to meeting with many of you over the next couple of months. Have a good day. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.
Operator: Greetings. Welcome to inTEST Corporation's fourth quarter 2025 financial results conference call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please note that today's conference is being recorded. At this time, I will now turn the conference over to Sanjay Hurry, Investor Relations. Please go ahead, Sanjay. Sanjay Hurry: Good morning, everyone, and thank you for joining us. With me on the call are Nick Grant, President and Chief Executive Officer, and Duncan Gilmour, Chief Financial Officer and Treasurer. The earnings press release was issued this morning as well as the slides that management will use during this call. Both can be found in the Investor Relations section of the intest.com website. Please turn to slide two for a review of the safe harbor statement. During this call, management will make some forward-looking statements about our current plans, beliefs, and expectations. These statements apply to future events that are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from what is stated here today. These risks, uncertainties, and other factors are provided in the earnings release as well as in other documents filed by the company with the Securities and Exchange Commission. These documents can be found on our website or at sec.gov. Also, as covered in slide three, management will refer to some non-GAAP financial measures. We believe these will be useful in evaluating the company's performance. However, you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. You can find reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and slides. With that, I will turn the call over to Nick. Good morning, Nick. Nick Grant: Good morning, Sanjay, and thank you. Good morning, everyone. Thanks for joining us on our fourth quarter and year-end 2025 earnings call. We will begin today's discussion on slide four of the presentation. Our fourth quarter results represent a strong finish to a challenging year. Much of this challenge stemmed from customer hesitation to spend on capital projects driven by tariff and macroeconomic uncertainties as well as ongoing soft demand in our semi business. After seeing some pockets of customers move forward, with capital projects in the third quarter, we continue to see strong demand in the fourth quarter as our orders once again exceeded $37 million. As a result, we delivered revenue of $32.8 million that was above our guidance range, and we ended the year with a healthy year-end backlog of $53.9 million, representing a 36% increase over year-end 2024. I want to personally thank the entire inTEST Corporation team for their hard work and steadfast dedication. Revenue for the fourth quarter was at the highest quarterly level for the year, which benefited from approximately $2 million related to orders that slipped out from the third quarter. Demonstrating the effectiveness of our diversification strategy, fourth quarter revenue reflected strength in industrial, defense and aerospace, and life sciences end markets. In addition, growing market acceptance of our new products introduced over the past several quarters, particularly from Alphamation and from Archaeologic, contributed meaningfully to the top line and progressed us towards our Vision 2030 target of generating 25% of revenue from new products. During the fourth quarter, we benefited from the cost actions taken across the businesses throughout the year. We continue to execute manufacturing efficiency initiatives and further scaled our Malaysia operation to support customers in the region. Our efforts were further complemented by growing customer adoption of new products that drove incremental revenue and a margin lift. Through effective execution of our diversification strategy, we delivered gross margins of 45.4%. Notably, this was achieved without a significant contribution from our semi business, historically one of our highest margin end markets. Revenue diversification and new product innovation are two key pillars of our Vision 2030 growth strategy. With nearly 80% of fourth quarter revenue derived from non-semi end markets and momentum in new product sales contributing to revenue and gross margin, we believe our strategy is working. Market diversification is creating broader order opportunities for us and fertile ground for new product adoption, while our innovative new products are resonating with customers and earning their place in their purchasing decisions. With that context in place, let's go deeper on orders and backlog for the fourth quarter on slide five. After deferring spending plans due to tariffs and macroeconomic uncertainties in the first half of the year, we continue to see customers move away from a wait-and-see mode in the fourth quarter as they recognized that the cost of delay increasingly outweighed perceived market risk. The momentum in our order book demonstrated demand engineered through deliberate end-market focus. This strategy enables us to expand our addressable market and diversification into higher growth, less semi-correlated verticals. In fact, over the past five years, our non-semi revenues have grown at approximately a 20% CAGR, which is something we are quite proud of. Equally important, the momentum in our order book also reflects customer adoption in end markets where we are still in the early stages of penetration. During the fourth quarter, we saw continued strength in our life sciences orders as they tripled sequentially, reflecting strong bookings for new alkylation products. Encouragingly, semi orders were up about 18% sequentially as some customers began to move forward with plans to provision new test facilities, a trend that builds on the modest order growth recorded between the second and third quarters. Year over year, Q4 orders were up 22%, an increase of $800,000 versus Q4 2024. This improvement was broad based with strength in auto EV, life sciences, defense and aerospace, and safety and security, partially offset by continued softness in semi. On a full-year basis, life sciences orders were up 137% year over year, auto EV orders were up 89%, and industrial was up 53%. Touching on our semi business, year-over-year orders were down from a year-ago period and represented about 25% of total orders this past Q4, compared to 40% for 2024. This is a compelling testament to our deliberate market diversification strategy succeeding in lessening our exposure to the cyclicality of the semi business. We ended the year with a healthy backlog of $53.9 million, up 9% sequentially and 36% year over year. Backlog bottomed in 2025 and has steadily improved since. Approximately 60% of our backlog is expected to ship beyond 2026, providing forward visibility into the year. With a higher and more diversified backlog exiting 2025, we are in a solid position for recovering growth in 2026. With that, I will turn it over to Duncan to walk through the financial results in detail, starting with revenue on slide six. Duncan, over to you. Duncan Gilmour: Thank you, Nick. Starting on slide six, revenue in Q4 increased $6.6 million, or 25%, from $26.2 million in Q3 to $32.8 million, reflecting a gradual improvement in the capital spending environment and momentum in new product sales as well as about $2 million of revenue that slipped out of Q3. Sales in Industrial accounted for $3.3 million of the increase, followed by Defense and Aerospace at $3.2 million, Life Sciences at $2.1 million, and Auto EV at about $1 million. Partially offsetting these increases was a $2.9 million decline in semi. Compared to Q4 2024, revenue declined by $3.8 million, reflecting lower Auto EV, Semi, and Safety and Security revenue totaling $11.7 million. It was partially offset by increases in Industrial, Life Sciences, and Defense and Aerospace totaling $7.9 million. Although demand trends in 2025 dampened volume and revenue, roughly three quarters of the nearly $17 million decline between our 2024 revenue and our 2025 revenue was directly attributable to semiconductor market weakness. The remainder reflected a slower-than-anticipated capital spending recovery in our non-semiconductor end markets. Moving to slide seven. Gross margin expanded 350 basis points sequentially from 41.9% in Q3 2025 to 45.4% in Q4 2025. This improvement was driven by volume gains and higher sales of new Alphamation products, which provided a lift to consolidated gross margin as these differentiated, innovative solutions carry higher margin profiles relative to our legacy product portfolio. Notably, as Nick previously mentioned, we achieved Q4's gross margin level without a significant contribution from Semi. On a year-over-year basis, fourth quarter gross margin expanded by 570 basis points. The expansion was driven by the lapping of a $1.6 million one-time acquisition-related inventory step-up charge that pushed the Q4 2024 margin down 430 basis points, and the remaining 140 basis point increase reflected improved operating leverage because of cost reduction and manufacturing efficiency initiatives implemented throughout 2025. It also reflects a favorable product mix shift toward higher margin Alphamation products. On a full-year basis, normalizing for the 120 basis point full-year impact of the inventory step-up, full-year 2025 gross margin of 43% reflected a modest underlying decline versus the prior year, driven primarily by lower revenue volume in our Semi end market that reduced our ability to spread fixed manufacturing costs across a larger revenue base. Moving on to slide eight. Operating expenses for the fourth quarter were $13.6 million, an increase of $1.4 million sequentially, driven primarily by higher sales commissions and marketing activity commensurate with the higher levels of revenue in the quarter. We generated $6.6 million in incremental revenue while absorbing only $1.4 million in incremental operating expenses, which resulted in a reduction in operating expenses as a percentage of revenue to 41.5%. This reduction is the operating leverage profile we expect to see as revenue scales, and it reinforces our confidence that the cost discipline we have maintained throughout this cycle positions inTEST Corporation to expand margins as market conditions continue to improve. Fourth quarter 2025 operating expenses increased $1.2 million year over year, rising from $12.5 million in Q4 2024 to $13.6 million in Q4 2025. The comparison includes a nonrecurring $800,000 amortization credit recorded in Q4 2024 tied to the finalization of Alphamation purchase accounting, while Q4 2025 absorbed $200,000 of restructuring charges. Stripping out these nonrecurring and acquisition-related items, underlying operating expenses remained effectively flat year over year. Slides nine and ten collectively illustrate our Q4 profitability. Starting with slide nine, for the fourth quarter, net income was $1.2 million. Adjusted EBITDA was $3.2 million, representing an adjusted EBITDA margin of 9.7%. You can see here the improvements in adjusted EBITDA for Q4 2025 from the Q3 2025 trough of $400,000 at a 1.5% margin. This demonstrates our operational leverage as revenue recovers. For the full year 2025, net loss was $2.5 million. Adjusted EBITDA was $4.0 million, representing an adjusted EBITDA margin of 3.5%, compared to $10.8 million and an 8.3% margin in full year 2024. On slide 10, on a per-share basis, net income was $0.10 per diluted share. Adjusted EPS, which adds back tax-affected acquired intangible amortization charges and restructuring charges, was $0.16 per diluted share. For the full year 2025, net loss was $0.21 per share. Adjusted net income, which adds back tax-affected acquired intangible amortization charges and restructuring charges, was $800,000, or $0.06 adjusted EPS. This compares to an adjusted EPS of $0.51 in the prior year. Slide 11 shows our capital structure and cash flow. We reduced debt by $1.4 million in Q4 and by $7.6 million in 2025. Total debt outstanding at the end of the year was $7.5 million. We ended the year with approximately $58 million in liquidity, including cash, cash equivalents, and restricted cash of $18.1 million. We also maintain full access to our $30 million delayed draw term loan facility and our $10 million revolver. Our ability to generate cash and maintain substantial liquidity even in a challenging macroeconomic environment positions us well to scale the business and achieve our Vision 2030 goals. With respect to the waiver on our term loan entered into last August, we expect to return to full compliance with our original covenant terms by midyear, with no anticipated impact on interest expense or reported profitability. Turning to slide 12 and our 2026 guidance. We entered the year with a healthy backlog, 60% of which we expect to ship after the first quarter. Combined with positive indications of a gradual broadening recovery in capital spending that began to take shape in 2025, we expect 2026 will be a year of returning growth. As a result, we are comfortable resuming our practice of offering guidance for the full year 2026 as well as the first quarter of the year. Against this backdrop—strong backlog, improving demand, a leaner cost structure, and growing new product contributions—we are well positioned for profitable growth throughout 2026. For Q1 2026, we project revenue of $31 million to $33 million, gross margin of approximately 44%—this is a step down from the 45.4% we delivered in Q4, primarily reflecting expected Q1 product and customer mix versus Q4's particularly favorable Alphamation contribution—operating expenses of $13.3 million to $13.7 million, Q1 operating expenses reflect the typical first-quarter annual compensation resets, and amortization of $800,000. Before walking through the specifics of our full-year guidance, I note that our guidance does not contemplate any material impact, positive or negative, from changes in tariff policy or the broader geopolitical environment. For the full year 2026, we project revenue of $125 million to $130 million. At the midpoint, this represents growth of approximately 12% over 2025, or $113.8 million. This guidance reflects the diversified demand, particularly in Industrial, Aerospace and Defense, Auto EV, and Life Sciences, supported by our growing backlog, but does not contemplate a meaningful rebound in Semi sales; gross margin of approximately 45%—this reflects the combination of higher volume, the capture of continued manufacturing efficiency, and the expanding contribution of new higher-margin products; and operating expenses of $53 million to $55 million, reflecting higher variable selling costs, amortization of $2.6 million, and interest expense of approximately $300,000, with an effective tax rate of approximately 18%. We expect amortization expenses to be higher in the first half of the year than in the second half as certain intangible assets reach the end of their amortization lives. And finally, we expect capital expenditures of 1% to 2% of revenue, consistent with our historical investment levels. With that, if you turn to slide 13, I will now turn the call back over to Nick. Nick Grant: Thanks, Duncan. In summary, the momentum we are seeing across new product and market diversification and geographic reach is the direct result of a deliberate strategy and disciplined execution. Our non-semiconductor business has grown meaningfully, improving inTEST Corporation's long-term earnings profile with less dependency on semi cyclicality. The establishment of our Malaysia manufacturing hub in 2023 and expanded European footprint due to the acquisition of Alphamation in 2024 positions us to better serve customers. They also enable us to deepen relationships in these regions that represent significant long-term opportunities. In addition, our operational excellence initiatives, which are a contributor to our margin improvement story, give us confidence that as conditions improve and we scale the business, we will realize greater operating leverage inherent in our business model. New product revenue contribution is trending in the right direction, reinforcing our confidence that we are on pace towards our Vision 2030 goal of generating 25% of revenue from new product sales. In Southeast Asia, in Europe, and in the U.S., a local presence enables the engineering collaboration that drives higher-value, long-cycle relationships. And increasingly, it is our new products themselves that are opening doors to customers who are discovering us for the first time and to others who are rediscovering inTEST Corporation. We enter 2026 well positioned for diversified growth as capital spending strengthens, with an expanding portfolio of highly valued engineered solutions, a growing in-region presence across key geographies, and a strong balance sheet. We are poised to translate the structural changes we have made to inTEST Corporation over the past two years into sustainable, profitable growth for our shareholders. With that, operator, please open the call for questions. Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question at this time, you may press star 1 from your telephone keypad, and the confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. It may be necessary to pick up your handset before pressing the star keys. Thank you. Our first question is from the line of Maxwell Michaelis with Lake Street Capital Markets. Please proceed with your question. Maxwell Michaelis: Hey, guys. Congratulations on the good quarter and the solid guide for 2026. First question is just around the semi space here. I was hoping you can elaborate a little bit. You talked about modest growth picking up in the back half of 2026. A lot of the companies that I am following have been talking about sort of a strong order rebound in the back half of 2026. Is your language in the press release sort of just a case of you guys being ultra conservative? Or, I mean, what else can you guys kind of provide us around the semi space? Nick Grant: Yeah. Hey. Hey, Max, and great to hear from you here. As we laid out, our guidance we provided there really is based on just modest recovery in semi, which, yeah, could be conservative. Semi certainly has come back strong historically and, you know, if we look at trends and what have you, I believe we are well positioned to capture that when and if it does happen again. But we just wanted to make sure we are providing the guidance we are confident we are able to achieve. Maxwell Michaelis: Okay. And then maybe we go back to last quarter, you talked about the 2027 automotive program. How is that progressing as we enter 2026 here? And then can you kind of touch on how we should expect auto orders to trend throughout the year? Nick Grant: Yeah. So auto has been a nice bright spot on our order pattern here the last couple quarters. We really did see customers start moving forward with some 2027 model year programs, making the investments in Q3, they continued to kick off more of those capacity additions in Q4 there. So we believe we are well positioned from an auto perspective with Alphamation to support these new model year programs. And, you know, across the board, I would say auto demand has not taken off or what have you. Inventories have been worked down. Mhmm. But, you know, I think we are well positioned now that as that demand comes back, these new model programs come out and create greater demand around the new tech in the cars and everything else. You know? That is only going to complement this kind of wave of buildout that we are seeing right now. Maxwell Michaelis: Great. Last one for me, guys. Life sciences has really taken off here. I mean, is there anything else you can share? I mean, pockets of strength that you are seeing in life sciences that is really driving this solid growth in orders and revenue? Nick Grant: Yeah. No. Life science is a bright spot for sure. And this really concentrated effort we have made to go after the med tech space, testing various technology in this area, and, you know, it is really broader across all the businesses, had really nice success with Alphamation diversifying them in the med tech space with some glucometer electronic testing. We did a press release on that in the second half last year and continue to see good momentum there. We have been winning applications at our Archaeologic group around med tech and, you know, even in process technology. We are gaining applications there around induction heating and imaging in the med tech area. So really pleased with the progress. It is one of the areas that we highlighted as, you know, still a low-penetration area for us, so we think it will be a good growth avenue for us. Maxwell Michaelis: Alrighty. Thanks, guys. Nick Grant: Thanks, Max. Operator: Our next question is from the line of Dick Ryan with Oak Ridge. Please proceed with your questions. Dick Ryan: Thank you. And also good job on a strong finish, guys. I have a—I want to go back to the semi side. If we can talk a little bit about the back end and your front end, and maybe it focuses more on the positioning, you know, up and down the line, semicap is talking about a strong WFE for this year. Your back end, you know, typically is kind of lagged back as back end test is a little bit out of sync with what happens in the front end. But nonetheless, you know, you brought automation into the back end. And how do you think you are positioned on your back end test with some of the new products you have rolled out, the automation? Nick Grant: Yeah. Very well positioned in that back end test space, not only from our traditional EMS business, but also on our thermal solutions supporting testing of chips and electronics back there. So, yeah, you are right. A lot of companies are out there talking about it, and we are well positioned to capture that growth as it materializes out there. And the new products we have been launching really have broadened our customer base, win back some competitive accounts. So I believe, you know, when that comes back, we are in a better position to benefit from the growth as the investments in these testing spaces take off. Dick Ryan: Okay. And probably more importantly, I am more interested maybe on the front end. You know, the comments coming out of the silicon carbide space is pretty encouraging. You know, one of the players saying that after the downfall, they are looking for a ramp in '26 with getting back to the '24 levels by '27. I mean, you guys generated, you know, a lot of revenue in that silicon carbide space in the payday '23, '24. How are you positioned there? And would you also, you know, kind of echo those comments that you are—you may be seeing some growth come back in, not necessarily '26, but '27 and beyond? Nick Grant: Yeah. We are very well positioned in that space. You know, we are really serving a number of players in the silicon carbide, gallium nitride space, not only on the crystal growth, but on the epitaxy side of things as well. And as those—we have been talking about it—as these technologies get adopted into new applications. You know, Duncan Gilmour: No. Agreed. As we said, modest increases in Semi baked in. The front end side has been slow. We think the outlook looks great, but we are really not banking on a great deal in 2026. Dick Ryan: Oh, that is encouraging. Good. Alright. Thanks, guys. Nick Grant: Thanks, Dick. Operator: The next question is from the line of Ted Jackson with Northland Securities. Please proceed with your question. Ted Jackson: Congrats on the quarter. So, Nick, Duncan, my first question, I want to jump over on gross margins and guidance and kind of just thinking it through. So, you know, you put up some—you showed improving margin as you have been putting a lot of in your business, and you are clearly scaling, and it is non-semi. And so, you know, like, if you look at your Semi—and Semi is your higher margin business—revenue, in prior periods, in some historical periods, you know, when you were hitting some of these revenue targets, your gross margin was actually, you know, not the—you know, almost close to 50%. And so my first question is, is the lack of Semi keeping you from getting to that? And then behind that is, you know, given that the margin is probably, you know, substantially better than it might have been, you know, for the non-Semi business, if Semi does tick around and turn, could we be seeing your margins through that next cycle, you know, not only, you know, retrace back to those, you know, kinda close to 50% margin levels, but maybe even exceed it? Duncan Gilmour: I think a lot of your observations are correct. We had a nice strong Q4 from a margin perspective, some favorable product mix within some of our businesses, so product lines within Alphamation in particular. The Semi contribution was low, as we have indicated, yet we still had a nice gross margin quarter. We do not have, as we said, tremendous growth baked into Semi. Our back end Semi in particular is where we command higher margins, so it is correct to assert that if that comes back in a strong fashion at some point, then we would expect margin to tick up. Whether it would tick up to the 50s, I think some of those 50s were when the business was much less diversified and much more dependent upon that business and smaller. But we would certainly expect positive margin contribution as and when back end Semi in particular bounces back up. So, I mean, summary, I would say almost yes, yes, and yes to what you have said. Albeit 50 would be probably spectacular. I am not going to say unachievable, but would require a high percentage of that back end Semi contribution. Ted Jackson: Okay. And then, going kinda into guide, and I am going to keep with this theme, is, you know, the guide you provided shows some, you know, nice solid year-over-year growth. Can you talk a bit about the cadence? Is it the kind of thing where we will see—you have given first-quarter guidance—that we will see continued sequential improvement as we roll through the year? Will there be any type of seasonality within it? And then going back into the revenue guidance, if it is going to be building over the year, and then the back half of the year is going to have more contribution from Semi, should we be thinking of, you know, a bit more of a step up in terms of margin improvement in 2026 vis-à-vis the first? Duncan Gilmour: Yeah. So we are cautiously optimistic about 2026. As we have mentioned, we have not built in a tremendous amount of Semi upside, and I think that is reflected in the guide vis-à-vis what we saw in Q4, what we are laying out for Q1. Q4 was—if we back out the $2 million of delayed shipments—we did see growth over Q3. We are projecting a similar quarter in Q1, a little bit of growth. And I would say we are expecting cautious sequential growth throughout the year with respect to our cautiously optimistic guide, if that is the best way to put it. As we mentioned a couple of times, if there was a really strong recovery in Semi in particular, we would expect to see the benefits of that. Just a reminder, our back end Semi business is squarely in the analog mixed-signal space, which is an area that I think a lot of people are cautiously optimistic about and seeing some green shoots of recovery. We have not seen the turn yet. Ted Jackson: Just—okay. Next question. You know, we are well into the first quarter. You have had two quarters in a row now of really nice bookings. Can you give us a little color in terms of what you are seeing with regards to bookings activity, you know, quarter to date and, you know, both in terms of momentum and maybe in terms of sector? Nick Grant: Yeah. So as noted, we have had really two strong quarters of bookings, and, let us say, really fueled by our automotive exposure at Alphamation on these 2027 model year programs. Our overall funnel is healthy, and, you know, but I would expect Alphamation's order rate to kind of moderate back a little bit. They have been running at, you know, $12–13 million the last two quarters. That business was, you know, in the $25 million when we bought it, kind of run rate there. So really strong quarters. I think, you know, they are going to continue to see nice booking levels, but more traditional for that kind of business. We also, in Q1, have a little bit of the Lunar New Year kind of impact on some activities out of Asia there. But slower. But for the most part, the funnels are healthy, and the opportunities are there. If customers move forward with spending as we believe they will here, you know, orders—we are well positioned to deliver on the year we have laid out. Ted Jackson: Okay. And then my last question is, you know, you come through a rough patch. It is just more because I have seen it with, you know, several companies I cover because it seems like everybody has been going through a rough patch. When you have laid out your guidance for OpEx, I mean, are you—I assume you guys have really dialed back on a lot of incentive comp over the last year. Are you factoring in your guidance into kind of a reinstatement of, you know, basically more variable comp and incentive, or is there another chance that if you, you know, kind of roll in and say you do better than this, you know, optimistic conservative guidance that we would see expense structure—excuse me—expense structure adjustment as you have to layer in and stuff? My last question. Duncan Gilmour: Yes. Yes, we have. And obviously, if we did a lot better than laid out, then there would be an operating expense impact from an incentive comp standpoint, reflective of the dynamic you are talking about. But yes, we have factored in the incentive comp side of the numbers that we have laid out with respect to the spending guidelines. Ted Jackson: Okay. Alright. Great. Thanks for the time, and, you know, congrats on the quarter and looking forward to 2026. Nick Grant: Same here, Ted. Thanks. Operator: At this time, if you would like to ask a question, you may press star 1 from your telephone keypad. Once again, if you would like to ask a question, you can press star 1 at this time. Thank you. At this time, I will turn the floor back to Nick for closing comments. Nick Grant: Thank you. We appreciate everyone joining us today. Thank you for your time and we welcome the opportunity to answer any additional questions you may have. Please reach out to our Investor Relations team to coordinate. On slide 14, please note the details regarding the replay of this call as well as our upcoming investor event schedule. We will publicize additional conference attendance as they arise via press release advisories and on our website. I want to thank everyone again for participating today, and I wish you all a great day. Thanks, everyone. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings, and welcome to the Main Street Capital Corporation Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Vaughan. Thank you. You may begin. Zach Vaughan: Thank you, operator, and good morning, everyone. Thank you for joining us for Main Street Capital Corporation's fourth quarter 2025 earnings conference call. Joining me today with prepared comments are Dwayne Hyzak, Chief Executive Officer, David Magdol, President and Chief Investment Officer, and Ryan Nelson, Chief Financial Officer. Also participating in the Q&A portion of the call is Nicholas T. Meserve, Managing Director and Head of Main Street's Private Credit Investment Group. Main Street issued a press release yesterday afternoon that details the company's fourth quarter and full-year financial and operating results. The document is available on the Investor Relations section of the company's website at mainstcapital.com. A replay of today's call will be available beginning an hour after the completion of the call and will remain available until March 6. Information on how to access the replay was included in yesterday's release. We also advise you that this conference call is being broadcast live through the Internet and can be accessed on the company's homepage. Please note that information reported on this call speaks only as of today, 02/27/2026, and therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay listening or transcript reading. Today's call will contain forward-looking statements. Any of these forward-looking statements can be identified by the use of words such as “anticipates,” “believes,” “expects,” “intends,” “will,” “should,” “may,” or similar expressions. Statements are based on management's estimates, assumptions, and projections as of the date of this call, and there are no guarantees of future performance. Actual results may differ materially from the results expressed or implied in these statements as a result of risks, uncertainties, and other factors, including but not limited to the factors set forth in the company's filings with the Securities and Exchange Commission that can be found on the company's website or at sec.gov. Main Street Capital Corporation assumes no obligation to update any of these statements unless required by law. During today's call, management will discuss non-GAAP financial measures including distributable net investment income, or DNII. DNII is net investment income, or NII, as determined in accordance with U.S. generally accepted accounting principles, or GAAP, excluding the impact of non-cash compensation expenses. Management believes that presenting DNII and the related per-share amount are useful and appropriate supplemental disclosures for analyzing Main Street Capital Corporation's financial performance, since non-cash compensation expenses do not result in a net cash impact to Main Street upon settlement. Refer to yesterday's press release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. Two additional key performance indicators that management will be discussing on this call are net asset value, or NAV, and return on equity, or ROE. NAV is defined as total assets minus total liabilities and is also reported on a per-share basis. Main Street defines ROE as the net increase in net assets resulting from operations, divided by the average quarterly NAV. Please note that certain information discussed on this call, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. I will now turn the call over to Main Street's CEO, Dwayne Hyzak. Dwayne Hyzak: Thanks, Zach. Good morning, everyone, and thank you for joining us. We appreciate your participation on this morning's call. We hope that everyone is doing well. On today's call, we will provide you with our key quarterly updates. We will also be providing a few updates on our performance for the full year. Following our comments, we will be happy to take your questions. We are extremely pleased with our continued strong performance in the fourth quarter, which closed another great year for Main Street Capital Corporation. Our strong performance resulted in a return on equity of 17.7% for the fourth quarter and 17.1% for the full year, strong levels of DNII per share, a new record NAV per share for the fourteenth consecutive quarter, and extremely strong investment activity in our unique lower middle market investment strategy, resulting in an annual record for gross lower middle market investments. We believe that these continued strong results demonstrate the sustainable strength of our overall platform, the benefits of our differentiated and diversified investment strategies, the unique contributions of our asset management business, and the continued strength and quality of our portfolio companies, particularly our existing lower middle market portfolio companies. We remain confident that our unique investment income and value creation drivers, together with our cost-efficient operations and conservative capital structure, allow us to continue to deliver superior results for our shareholders in the future. Our favorable results in the fourth quarter combined with our positive outlook for the first quarter resulted in our most recent dividend announcements, which I will discuss in more detail later. Our NAV per share increased in the quarter primarily due to the impact of significant net fair value increases in both our lower middle market and private loan investment portfolios, including the benefits of material net realized gains, which Ryan will discuss in more detail. The continued favorable performance of the majority of our lower middle market portfolio companies resulted in another quarter of strong dividend income contributions and significant net fair value appreciation in our lower middle market equity investments. Based upon our current views of these investments, and feedback from our portfolio company management teams, we expect the strong contributions to continue. Consistent with my comments over the last few quarters, and as David will discuss in more detail, we are pleased to have exited our investments in one high-performing lower middle market portfolio company, Mystic Logistics, in the fourth quarter, and our investments in another high-performing company, KBK Industries, in 2026, in both cases resulting in material realized gains in addition to significant dividends received over the life of our equity investments. We believe that these investments serve as yet another great example of our highly unique lower middle market investment strategy, which delivered significant benefits for both Main Street Capital Corporation and our management team partners, including significant dividend income, fair value appreciation, and realized gains, resulting in best-in-class returns on our equity investments, in addition to the highly attractive interest income on our debt investments. Even after these recent realizations, we continue to see significant interest from potential buyers in several of our lower middle market portfolio companies, which we expect will lead to favorable realizations over the next few quarters and which we believe further highlights the strength and quality of our portfolio companies and their exceptional leadership teams. We are also excited about the new and follow-on investments we made in our lower middle market strategy during the quarter, which included the addition of five new portfolio companies and a net increase in lower middle market investments of $253,000,000, representing our highest level of quarterly lower middle market net investment activity since 2021. Consistent with our prior guidance, private loan investment activity in the fourth quarter returned to our expected normal level of quarterly activity and generated a net increase of $109,000,000 in our private loan portfolio. In addition to the favorable investment realizations in our lower middle market portfolio, we also completed successful exits of two private loan portfolio company equity investments in the fourth quarter, both at meaningful premiums to our third quarter fair values. David will discuss our investment activity in more detail. Given our conservative capital structure and strong liquidity position, we remain very well positioned to continue the growth of our investment portfolio for the foreseeable future, and we are excited about the current opportunities we are seeing. We also continue to produce positive results in our asset management business. The funds we advise through our external investment manager continued to experience favorable performance in the fourth quarter, resulting in significant incentive fee income for our asset management business and, together with our recurring base management fees, a significant contribution to our net investment income. We remain excited about our plans for the external funds that we manage as we execute our investment strategies, and we are optimistic about the future performance of the funds and the attractive returns we are providing to the investors of each fund and about our strategy for growing our asset management business within our internally managed structure. As part of these efforts, we remain focused on growing the investment portfolio of MSC Income Fund, a publicly traded BDC advised by our external investment manager which is solely focused on the private loan investment strategy with respect to new portfolio company investments. The result of the increase to its regulatory debt capacity became effective in January 2026, and the fund maintained significant capacity to add additional debt to fund the future growth of its investment portfolio. MSC Income's fourth quarter and full-year 2025 financial results conference call will be held later this morning for those who would like additional details. Based upon our results for the fourth quarter, combined with our favorable outlook in each of our primary investment strategies and for our asset management business, earlier this week our board declared a supplemental dividend of $0.30 per share payable in March, representing our eighteenth consecutive quarterly supplemental dividend, and regular monthly dividends for 2026 of $0.26 per share. These second quarter regular monthly dividends represent a 4% increase over the regular monthly dividends paid in 2025. The supplemental dividend for March is a result of our strong performance in the fourth quarter and will result in total supplemental dividends paid during the trailing twelve-month period of $1.20 per share, representing an additional 39% paid to our shareholders in excess of our regular monthly dividends. We currently expect to recommend that our board continue to declare future supplemental dividends to the extent DNII before taxes significantly exceeds our regular monthly dividends paid or we generate net realized gains, and we maintain a stable to positive NAV in future quarters. Based upon our expectations for continued favorable performance in the first quarter, we currently anticipate proposing an additional significant supplemental dividend payable in June 2026. Now turning to our current investment pipeline. As of today, I would characterize our lower middle market investment pipeline as above average. Consistent with our experience in prior periods of broad economic uncertainty, we believe that our ability to provide unique and flexible financing solutions to lower middle market companies and their owners and management teams and our differentiated long-term to permanent holding periods represent an even more attractive solution to the needs of many lower middle market companies given the current economic environment, and we are confident in our expectations for strong lower middle market investment activity in the first quarter. In addition, we continue to have an increased number of existing portfolio companies that are actively executing acquisition growth strategies that we anticipate will provide attractive follow-on investment opportunities for us in the near-term future and significant value creation opportunities for these portfolio companies in the longer-term future, consistent with the successes we have demonstrated and experienced with other portfolio companies. To date in the first quarter of 2026, we have made follow-on investments in four high-performing lower middle market portfolio companies to support strategic acquisitions, for a total of over $45,000,000 in incremental investments in those portfolio companies. We also continue to be pleased with the performance of our private credit team and the significant growth they have provided for our private loan portfolio and our asset management business over the last few years, and as of today, I would characterize our private loan investment pipeline as above average. With that, I will turn the call over to David. David Magdol: Thanks, Dwayne, and good morning, everyone. Each year-end provides a good opportunity to look back at our history and highlight the results of our unique and diversified investment strategies and discuss how these strategies have enabled us to deliver highly attractive returns to our shareholders over the last nineteen years. Since our IPO in 2007, we have increased our monthly dividends per share by 136%, and we have declared cumulative total dividends to our shareholders of more than $49 per share, or approximately 3.3 times our IPO share price of $15. Our total return to shareholders since our IPO, calculated using our stock price as of yesterday's close and assuming reinvestment of all dividends received since our IPO, was 17 times money invested. This compares very favorably to the 5.3 times money invested for the S&P 500 over the same period of time and is significantly higher when compared to most public companies. As we have previously discussed, we believe the primary drivers of our long-term success have been and will continue to be our focus on making both debt and equity investments in the underserved, highly attractive lower middle market; our private credit investment activities for the benefit of our stakeholders and for the clients of our asset management business; our internally managed structure, which allows us to maintain a highly efficient and industry-leading operating structure; and the strong alignment of interest between our employees and our shareholders as a result of our team's meaningful stock ownership. Most notably and uniquely, our lower middle market strategy provides attractive leverage points and income yields on our first lien debt investments while also creating a true partnership with the management teams and other equity owners of our portfolio companies through our flexible and highly aligned equity ownership structures. This approach provides us significant downside protection through our first lien debt investments and preferred equity positions while still providing the benefits of significant upside potential through these equity investments. Main Street Capital Corporation's long-term historical track record of investing in the lower middle market, coupled with the fact that this continues to be a large addressable and underserved market, gives us confidence that we will be able to continue to find attractive new investment opportunities in our primary investment strategy. Our ability to provide highly customized capital solutions for the predominantly family-owned businesses that exist in the lower middle market has been and continues to be our primary differentiator. In 2025, Main Street Capital Corporation invested over $700,000,000 in our lower middle market strategy, which represents the largest year of lower middle market originations in our firm's history. $482,000,000 of this capital was deployed in 13 new lower middle market platform companies, with the remaining $219,000,000 predominantly representing follow-on investments in existing seasoned and well-performing lower middle market companies. Our follow-on investments are typically used to support multiple objectives, including growth capital and organic expansion opportunities, acquisitions, and recapitalizations. Most importantly, these follow-on investments are made in support of proven management teams that we believe represent significantly lower investment risk when compared to investments in new portfolio companies. Since we are significant equity owners in our lower middle market companies, we also benefit from participating alongside these proven operators as they strive to achieve meaningful equity value creation. As we have stated in the past, as our lower middle market companies perform over time, they naturally deleverage with free cash flow generated from operations. This allows us, along with our lower middle market portfolio management team partners, to benefit from a larger portion of the company's free cash flow after debt service, which can be available for distributions to the equity owners. Given the strength and quality of our lower middle market portfolio and the long-term to permanent holding period for many of our companies, we expect dividend income to continue to be a significant contributor to our results in 2026 and in the future. Additionally, this deleveraging, coupled with the strong underlying operating results of our lower middle market portfolio companies, allowed us to achieve $150,000,000 in net fair value appreciation in 2025 from our lower middle market portfolio. In 2025, we also achieved $77,000,000 in net realized gains in our lower middle market portfolio, including the largest realized gain in our firm's history. The benefit from realized gains in our lower middle market equity investments is unique to our strategy and provides the opportunity to offset losses, which will occur when investing in non-investment-grade asset classes. As our lower middle market equity investments perform, they also provide the opportunity for unrealized appreciation, which allows us to continue to grow our NAV per share. A great example of a lower middle market equity investment that highlights the benefits of our unique investment strategy was our investment in Mystic Logistics, which we exited in the fourth quarter. This exit resulted in a realized gain of $24,000,000. In addition to this realized gain, Mystic Logistics also distributed total dividends to us of $22,000,000 over the life of our investment. The last important area I would like to cover regarding our 2025 accomplishments are the contributions we received from our private loan investment strategy. We believe that our private loan investment strategy provides a very attractive risk-adjusted return profile for us and for the clients of our asset management business as we execute on our strategic objective to continue to grow our asset management business. Despite a challenging investment environment for most of the year due to slower-than-expected private equity industry activity, we completed gross investments of approximately $672,000,000 in our private loan strategy, and at year-end, our private loan portfolio represented 43% of our total investments at cost. As a reminder, in our private loan strategy, we are primarily a lender to private equity-backed businesses. We also occasionally make small equity investments in our private loan portfolio companies. In the fourth quarter, we recognized a significant realized gain of $34,000,000 in our investment in Purge Right. This exit provides evidence of the potential benefits of our private loan equity co-investment strategy. As of December 31, we had investments in 189 portfolio companies spanning across numerous industries and end markets. Our largest portfolio company, excluding the external investment manager, represented only 5.2% of our total investment income for the year and only 3.3% of our total investment portfolio fair value at year-end. The majority of our portfolio investments represented less than 1% of our income and our assets. Now turning to our investment activity in the fourth quarter, we made total investments in our lower middle market portfolio of $300,000,000, including investments of $241,000,000 in five new lower middle market portfolio companies, which after aggregate investment activity resulted in a net increase in our lower middle market portfolio of $253,000,000. During the quarter, we also completed $231,000,000 of total private loan investments, which after aggregate investment activity resulted in a net increase in our private loan portfolio of $109,000,000. At year-end, we had investments in 92 companies in our lower middle market portfolio, representing $3,100,000,000 of fair value, which is 26% above our cost basis, and investments in 86 companies in our private loan portfolio, representing $2,000,000,000 of fair value. The total investment portfolio at fair value at year-end was 17% above our cost basis. Additional details on our investment portfolio at year-end are included in the press release that we issued yesterday. With that, I will turn the call over to Ryan to cover our financial results, capital structure, and liquidity position. Ryan Nelson: Thank you, David. To echo Dwayne's and David's comments, we are very pleased with our strong operating results for the fourth quarter, which included several quarterly records and capped a year in which Main Street Capital Corporation achieved a record in NAV per share. Our total investment income for the fourth quarter was $145,500,000, increasing by $5,100,000, or 3.6%, over the fourth quarter of 2024 and increasing by $5,700,000, or 4.1%, from the third quarter of 2025. Our positive performance for the first three quarters continued in the fourth quarter and culminated in a year with favorable total investment income highlighted by strong levels of dividend and fee income, which again demonstrate the continued strength of our differentiated and asset management strategies. Interest income decreased by $7,200,000 from a year ago and by $500,000 from the third quarter of 2025. The decrease from the prior year was principally attributable to a larger negative impact from investments on non-accrual status and a decrease in interest rates, primarily resulting from decreases in benchmark index rates on our floating rate debt investments and other decreases in interest rates on existing debt investments, partially offset by the impact of the growth of the investment portfolio. The decrease from the prior quarter was principally attributable to a decrease in interest rates, primarily resulting from decreases in benchmark index rates on floating rate debt investments and other decreases in interest rates on existing debt investments and a larger negative impact from investments on non-accrual status, partially offset by the impact of the growth of the investment portfolio. Dividend income increased by $11,400,000 when compared to a year ago, including a $4,500,000 increase in unusual or nonrecurring dividends, and increased by $4,600,000 from the third quarter, including a $200,000 increase in unusual or nonrecurring dividends. The increases in dividend income for both comparable periods are primarily a result of the continued underlying positive performance of our lower middle market portfolio companies and their capital allocation decisions. Fee income increased by $900,000 from a year ago and by $1,600,000 from the third quarter. The increases in fee income are primarily due to higher closing fees on new and follow-on investments, partially offset by a decrease in fee income from the refinancing and prepayment of debt investments and other investment activity. Fee income considered nonrecurring decreased by $700,000 from a year ago and by $100,000 from the third quarter of 2025. The fourth quarter included increased levels of income considered less consistent or nonrecurring in nature in comparison to the comparable periods, primarily related to dividends from our equity investments. In the aggregate, these items totaled $7,600,000 and were $3,900,000, or $0.04 per share, higher than the fourth quarter of 2024 and $3,400,000, or $0.04 per share, higher than the third quarter of 2025. Our operating expenses increased by $1,400,000 over the fourth quarter of 2024 and by $1,100,000 from the third quarter. The increase in operating expenses from the prior year was largely driven by increases in cash compensation-related expenses, share-based compensation expense, and general and administrative expenses, partially offset by a decrease in interest expense and an increase in expenses allocated to the external investment manager. The decrease in interest expense from a year ago was primarily driven by a decrease in the weighted average interest rate on our unsecured debt obligations, resulting from the issuance of the August 2028 notes, the early repayment of the December 2025 notes, and a decrease in the weighted average interest rate on our credit facilities resulting from decreases in benchmark index interest rates and decreases in the applicable margin rates resulting from the amendments of our credit facilities in April 2025. The ratio of our total operating expenses, excluding interest expense, as a percentage of our average total assets, was 1.4% for the quarter on an annualized basis and 1.3% for the year, and continues to be among the lowest in our industry. Our external investment manager contributed $9,300,000 to our net investment income during the fourth quarter and $34,600,000 for the year, representing a slight increase over the prior year and the third quarter. Our investment manager earned $4,200,000 in incentive fees during the fourth quarter and $14,500,000 for the year. The investment manager ended the quarter with total assets under management of $1,700,000,000. During the quarter, we recorded net fair value appreciation, including net realized gains and net unrealized depreciation on the investment portfolio, of $42,500,000. This increase was primarily driven by net fair value appreciation in our lower middle market, private loan, and other portfolio investments, partially offset by net fair value depreciation in our middle market investments and our external investment manager. The net fair value appreciation in our lower middle market portfolio was largely driven by the continued positive performance of certain portfolio companies. The net fair value appreciation in our private loan portfolio was primarily driven by several specific portfolio companies and decreases in market spreads. The net fair value depreciation of our external investment manager was primarily driven by decreases in the valuation multiples of publicly traded peers, which we use as one of the benchmarks for valuation purposes, partially offset by increased incentive fee income and increased base management fee income. We recognized net realized gains of $50,800,000 in the quarter. Additional details on our net realized gain activity are included in the press release we issued yesterday. We ended the fourth quarter with investments on non-accrual status comprising approximately 1% of the total investment portfolio at fair value and approximately 3.3% at cost. Net asset value, or NAV, increased by $0.55 per share over the third quarter and by $1.068 per share, or 5.3%, when compared to a year ago, to a record NAV per share of $33.33 at year-end. Our regulatory debt-to-equity leverage, calculated as total debt excluding our SBIC debentures divided by NAV, was 0.71 times, and our regulatory asset coverage was 2.41 times, and these ratios continue to be more conservative than our long-term target ranges of 0.8 to 0.9 times and 2.25 to 2.1 times, respectively. Given our current liquidity position, we continued to be less active during the fourth quarter in our ATM program, raising net proceeds of $8,700,000 from equity issuances. In February, we expanded the total commitments under our corporate facility by $30,000,000 to $1,175,000,000. This increase was a result of a new lender relationship, which further expanded our lender group under the corporate facility. After giving effect to the capital activities in 2025 and this February, we enter 2026 with strong liquidity, including cash and unused capacity under our credit facilities totaling over $1,200,000,000, with a near-term debt maturity of $500,000,000 in July 2026. We continue to believe that our conservative leverage, strong liquidity, and continued access to capital are significant strengths that have proven to benefit us historically and have us well positioned for the future, allowing us to continue to execute our attractive investment strategies despite the current market uncertainty. Because of the market uncertainty, we expect to continue to operate over the next few quarters at leverage levels more conservative than our long-term targets. Coming back to our operating results, as a result of our strong performance for the quarter and year, DNII before taxes per share for the quarter of $1.11 was $0.03 higher per share than the fourth quarter of last year and $0.04 per share higher than the third quarter. Looking forward, we expect first quarter 2026 DNII before taxes of at least $1.04 per share, with the potential for upside driven by portfolio investment activities during the quarter. With that, I will now turn the call over to the operator so we can take any questions. Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key. One moment while we poll for a question. Our first question comes from the line of Robert Dodd with Raymond James. Please proceed with your question. Robert Dodd: Hi, guys, and congratulations on the quarter. I want to ask about the activity level, obviously a really high level of activity in the fourth quarter. Then the pipeline is still above average. I think you said you are seeing a very strong Q1 as well. Is this just a timing event, that things just happen to be coinciding for the back end of last year and the beginning of this year, or do you think this is a step change in activity and that could persist in terms of more of the type of retirement plan, etcetera? Do you feel this is a shift up or a bump in activity, if that makes sense? Dwayne Hyzak: Sure. Good morning, Robert, and thank you for the question. I will probably give two answers here, and I will let David and Nick then add on if they have any additional comments they want to add. If you look at the lower middle market side first, I would say we have been intentional for the last couple of years about trying to grow our activities in the lower middle market. That includes growing our team. We have been trying to grow our people. We have a number of individuals that have been at Main Street for a long period of time executing our consistent lower middle market investment strategy, and we have had a couple of individuals now be promoted to Managing Director. That has happened really over the last eight to eighteen months. I think you are seeing the benefit of having additional people focused on that consistent strategy. That is part of it. I think we have also done some things internally just to try and do a better job at executing, and I think that has also had a benefit. It is really hard to pinpoint how much benefit, but I am confident it has had a benefit from an execution standpoint. We have also always said we think our lower middle market investment strategy should be attractive at all times to individual owner-operators or families that own a business. When you look at the last couple of years, and it continues to be the case today with the uncertainty in the economy, I would think that our offering would be even more attractive, and I think we are seeing that as well. If you are an individual owner-operator that is looking to get liquidity, it is probably still not the perfect time to sell your business given the uncertainty that is out there. It is a great time to bring on an institutional partner like Main Street Capital Corporation with the best-in-class track record that has extreme flexibility from an investment standpoint to help you get some liquidity and then help you grow your business and execute your plan going forward. Those are the three things I would point to on the lower middle market side. On the private loan side, or private credit side, I would say our team continues to do a really good job there, but I do think some of that is more just the market, the overall investment activity for private equity firms. We saw it building halfway through the third quarter. Obviously, that momentum did not come to fruition until the fourth quarter, but I think we saw it in the fourth quarter, and we have continued to see good activity in the first quarter. I would say there, it is our team doing a good job, but also just the market becoming more active. I will let David add anything on lower middle market or Nick on the private credit side if they have additional comments. David Magdol: I think you covered most all of it, Dwayne. The only thing I would add is that we are really pleased with the growth of our number of teams that we have seen in the lower middle market. I will say Q4 was a particularly strong originations quarter, and in the future, we hope to be able to continue momentum at above-average rates. I would not say that Q4 is necessarily indicative of our view towards our expectations going forward on the lower middle market originations side. It was particularly strong. Nicholas T. Meserve: On the private credit side, I would echo Dwayne's comment that it is really the market volume that has driven the changes from early 2025 to the third and fourth quarters and the first quarter so far this year. Dwayne Hyzak: Robert, as I thought about comments earlier, the one other thing I would add is just the follow-ons. We talk about it all the time, both lower middle market and private credit/private loan. We have seen consistent activity there. We find those investments, those opportunities, very attractive because we already know the team. We know the company. It is likely, in both cases, lower middle market and private loan or private credit, delevered from our original entry point. If we can have opportunities to fund follow-on investments for acquisitions or other growth activities in both our existing lower middle market and private credit/private loan portfolio companies, we find those really attractive, and we have seen that occur both in Q4 and Q1, and we are hopeful it will continue to occur in 2026. Robert Dodd: Got it. Got it. In an attempt to back you into a corner a little bit more on this topic, at what point does this new level become the new average? David said you expect it to remain above average for a while. If it is above average for a while, it is the new average. It is like Lake Wobegon where everybody is around average. At what point do you think you recalibrate that this is the new normal rather than it is just that those teams and everything have reset the normal? You have set the average rather than it being above average, so to speak. Dwayne Hyzak: I would again focus this comment more on the lower middle market side, Robert, than the private loan side. If we are adding people, and we are promoting MDs, we should have a different expectation. I do think, when you look at it, I think David was just referencing that Q4 was a really, really active quarter. As we add MDs and teams, if we are not having more investments and a bigger portfolio, we should not be adding MDs and teams. When you see us completing those activities, one is the individual's ability to do it, but there is an expectation that we have growth and performance as well. I do think that from that standpoint, not a massive step change, but over time we are adding those individuals and those teams for a reason. Robert Dodd: Got it. Got it. Thank you. One more if I can. On software, since it is a topic, you do not have a lot of exposure, mid-single digits. What is the view on that? Obviously, there might be a different view of what you are willing to do on the software side in the lower middle market versus on the private loan side because those can be quite different types of businesses where there is software. What is your view of your exposure and your outlook regarding software in the different segments? Dwayne Hyzak: I will give my comments, and then maybe Nick can add on the private credit side if he has other comments. I would reiterate what you said. We do not have significant software exposure at all. As you have always heard us say, both on the lower middle market side and private credit, we are value-based investors. We love basic industries. A lot of people do not find that attractive. I think in today's environment, it is probably pretty attractive. We have always found it to be very attractive. We do not chase stuff that has high valuations. As a result, if you look at areas that we are underweight, software and healthcare would be two areas that we would be underweight. I would say we go into this situation with limited exposure. When you look at the individual names there, as you would expect us to, as any other investment manager would be, you are paying a lot of attention to what is going on there. As we sit here today, we feel good about the exposure. Obviously, you have to take AI into consideration, not just at Main Street Capital Corporation, but much more so at the portfolio company. We are confident in those management teams and their business models, and as we sit here today, we feel pretty good about the exposure. Nick, if you have anything you want to add on the private credit side? Nicholas T. Meserve: Historically, we have not done a lot. On a go-forward basis too, it is finding the right deals that we like. High-growth or high ARR deals, that is really not where we are going to focus. We have focused on cash flow software deals on the few that we do. I think going forward, we will see even more of that. It will be more focused on the infrastructure side versus, say, a growth SaaS or software model. Robert Dodd: Got it. Thank you. Operator: Thank you. Our next question comes from the line of Brian McKenna with Citizens. Please proceed with your question. Brian McKenna: Great. Thanks. Good morning, guys. What continues to stand out to me is the resiliency of your ROE. I think there are a number of things driving this, but when you look at the underlying drivers and trends across your business today that ultimately impact the trajectory of returns from here, how do all these look today relative to a year ago? I am trying to think through some of the puts and takes in the current operating environment and what this means for the intermediate-term outlook for ROEs. Dwayne Hyzak: Morning, Brian, and thanks for the question. We feel good about where we are today. If you look at 2025 versus 2024, your ROE came down some year-over-year. When you look at the current environment, two things will impact our ROE going forward on the private credit/private loan side. Both your floating index rates and spreads have some impact. That is marginal, but that does have a negative impact or a headwind. On the lower middle market side, the overall economy will be a big driver of where our ROE shakes out both in terms of dividend income and fair value appreciation. Our companies, as you have heard us say in the past, we think they are really good companies. Even more importantly, we think our management teams that we get to partner with at the lower middle market are exceptional. We are confident that no matter what happens in the overall environment, they are going to outperform what is happening in the overall economy. If the overall economy takes a step back, we are going to have some impact from that as well. Overall, we still feel really good about where we sit. The other thing I would say, and this is maybe less significant, but if you have significant growth, particularly in the lower middle market, those investments are not going to be creating the same ROE day one. It is a new investment. It has not delevered. It has not grown. As you have more growth, just naturally, the new investment is going to be contributing a lower ROE than an investment that has been in the portfolio for five or ten years. That would be another thing. Overall, though, I think we feel really good about the expectations for ROE across the platform, and then specifically in lower middle market and private credit. The other benefit we have, which you know, is that we have a very efficient operating structure, which allows us to have additional benefits as we grow our portfolio from an OpEx standpoint and what that does to ROE. Those are the comments I will give you, Brian. Brian McKenna: That is great. Thanks, Dwayne. Clearly you are operating from a position of strength here at a time when most others across the industry are playing quite a bit of defense. Your balance sheet is rock solid. You have a ton of excess capital and liquidity to keep growing and investing across the business despite what happens in the broader macro and capital markets. Periods of volatility are always driven by different things, but history often rhymes. Given your two-decade track record managing the business, what are some of the past experiences you are leaning on today to make sure you prudently manage the business through the current environment? It sounds like pipelines are strong across the board. From a deployment perspective, where are you really looking to lean in from a sector or mix perspective? Dwayne Hyzak: A couple of comments. From a sector mix, I think we feel really good about both the lower middle market and private loan/private credit businesses and opportunities. I would not say that we are leaning in to one of those more than the other. It is going to be consistent with what we have done in the past. At the individual industry level, you have probably heard us say this before, but we are less focused on an individual industry, and we are more focused on who is the individual that we have the opportunity to partner with on the lower middle market side. We take a very broad-based, industry-agnostic approach. Once an opportunity comes in, then we are going to figure out if that is an industry and a company product or service that we find attractive. First and foremost, it is about who is the individual, is he or she best in class, and is he or she trying to achieve a transaction goal that fits or aligns with our interest? If we can find that, then we are going to be interested in most industries. I think what you will see us continue to do is just lean on our history. We are value-based investors. We are going to partner with best-in-class managers. On the capital structure side, we are going to maintain a conservative capital structure and significant liquidity position. Our ability to issue equity under the ATM is huge, as you know, and that is something that we do not use just to maximize issuing equity at a high stock price. We issue equity as we grow the portfolio, particularly on the lower middle market side. We have the tools and the ability to continue to grow the platform, both lower middle market and private loan, and finance it in a way that is very conservative but also very constructive for us and our shareholders. I do not know if that answers your question, but those are the views I would give. David, if you have anything you want to add, feel free. David Magdol: I would just add one quick comment, which is that our philosophy over two decades has been to be very thoughtful about the underlying credit that we are investing in on the lower middle market side. We know that we are going to see cycles. We assume that we are going to see cycles. We underwrite to that. On the front end, we are assuming that we are going to be through good and tougher times. We talk about that a lot at our investment committee meetings so that we can get through stressful times without too much disruption. Brian McKenna: Alright. I will leave it there. Thanks so much. Dwayne Hyzak: Thanks, Brian. Operator: Thank you. Our next question comes from the line of Arren Cyganovich with Tuohy Securities. Please proceed with your question. Arren Cyganovich: Thank you. Good morning. Your comments about expanding MDs and that helping to increase the level of activity that you are seeing. I know that from meeting with you in the past, you have talked about the larger proportion of your MDs, or almost all of them, coming from internally as you grow them. You do not really get them from outside, generally. What is the pipeline of your talent pool, and how are you managing that in this environment? Is it continuing to be pretty steady? Dwayne Hyzak: Thanks for the question, Arren. We feel good about it. Our group of Managing Directors, as you said, we have had a few that have gotten promoted here in the last eighteen months or so, so we feel good about those individuals. We also feel really good about the group of Directors and VPs that we have beneath that. The comments I have given were on the lower middle market side. We have had the same thing on the private credit side. We have had two individuals that have been here for a very long time who were promoted recently to Managing Director. We are seeing the same thing from a talent and capability and experience standpoint on both the lower middle market and private credit. In the case of all those people, they are not people we hire from outside. These are people that have been at Main Street for a long period of time executing to our strategies, which we think are very unique, and executing in the way that we have executed for the last twenty years. We feel really good about the talent pipeline and pool that we have in both lower middle market and private credit. Arren Cyganovich: Thanks. In terms of the investment pipelines, are there any common threads in terms of industries or areas that seem to be a little bit more active than others? Dwayne Hyzak: Just like our portfolio and our history, I would say it is pretty diverse and broad. We are not seeing any concentration in one industry or one sector. Arren Cyganovich: Great. Thank you. Operator: As a reminder, if anyone has any questions, you may press star 1 on your telephone keypad in order to join the queue. Our next question comes from the line of Doug Harter with UBS. Please proceed with your question. Doug Harter: Thanks, and good morning. Just following up on your comment that you underwrite to cycles, can you talk about what you are seeing in the underlying performance of your companies and any areas of increased focus as you look at that performance? Dwayne Hyzak: Thanks for the question, Doug. We feel good about the portfolio as a whole. I would not say we are seeing any sector, industry, or specific area that is seeing more pressure or more underperformance. As we talked about earlier, given AI and the noise around that, anything that has software exposure, we are spending more time there. We have very limited exposure in that area, but we have been spending more time there. Low-end consumer, you have heard us talk about this probably now for three years. That is an area that has been and continues to have some challenges. Over the years, we have taken most of the pain from a fair value standpoint. We feel pretty good about where we sit today, and those companies overall are doing fine. It is just another area, given our experience for the last couple of years, that continues to get more attention. David or Nick, anything to add on that? Nicholas T. Meserve: Nothing to add. Doug Harter: Great. Appreciate that. Thank you, Dwayne. Dwayne Hyzak: Thanks, Doug. Operator: Next question comes from the line of Ryan McKenna with Citizens. Please proceed with your question. Ryan McKenna: All right. Thanks for the follow-up here. Just a couple of quick questions on the RIA. Based on the math that I have done, it looks like the RIA generated about $35,000,000 of NII in 2025, and that is roughly flat compared to 2024. I know there are a couple of near-term drivers for AUM growth. Should this earnings stream start to inflect higher in 2026? Looking at this business more broadly, are there any opportunities to create some additional strategies here? I ask this because your performance across Main Street Capital Corporation is quite differentiated, and I am wondering if you can further leverage this performance at the RIA for some newer strategies. Dwayne Hyzak: Thanks for the question, Ryan. I do think when you look at our external investment manager, we expect to have growth in the future. We have to have execution, and the market has to be cooperative, but we expect to have an increase in the base management fees there, primarily as MSC Income Fund executes its growth opportunity and strategy. We are expecting some benefit there in 2026. Outside of that, it is going to come down to our ability to grow outside of MSC Income Fund, having another private loan fund or some other strategy that we add to our asset management business. We are looking at opportunities and ways to grow there. We look forward to hopefully having some news over the next month or so about some of our efforts there. Those efforts and that news probably do not have an immediate impact, but they position us for growth over the longer term. We are working on that. We think it is a phenomenal generator of value to Main Street Capital Corporation. We also think there is a tremendous opportunity for us, given Main Street’s long-term track record and performance and what we think are very happy investors, both on the public company and the private fund side. We, like you, think it is a great business. We look forward to growing it. We just have to find the best avenue or the right avenue to grow it. Ryan McKenna: Alright. Thanks, Dwayne. Operator: Thank you. We have reached the end of the question-and-answer session. Therefore, I will turn the call back over to management for any closing remarks. Dwayne Hyzak: Thank you again to everyone for joining us this morning. We appreciate the continued support of our shareholders. We look forward to our next call in early May after the release of our results for the first quarter. Thank you. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.
Operator: Good day, and welcome to the Fidus Investment Corporation's fourth quarter 2025 earnings conference call. All participants will be in listen-only mode. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Jody Burfening. Please go ahead. Jody Burfening: Thank you, Dave, and good morning, everyone. And thank you for joining us for Fidus Investment Corporation's fourth quarter 2025 earnings conference call. With me this morning are Edward H. Ross, Fidus Investment Corporation's chairman and chief executive officer, and Shelby Elizabeth Sherard, chief financial officer. Fidus Investment Corporation issued a press release yesterday afternoon with the details of the company's quarterly financial results. A copy of the press release is available on the Investor Relations page of the company's website at fdus.com. I'd also like to call your attention to the customary safe harbor disclosure regarding forward-looking information included on today's call. The conference call today will contain forward-looking statements including statements regarding the goals, strategies, beliefs, future potential, operating results, and cash flows of Fidus Investment Corporation. Although management believes these statements are reasonable, based on estimates, assumptions, and projections as of today, 02/27/2026, these statements are not guarantees of future performance. Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as a result of risks, uncertainties, and other factors including, but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission. Fidus Investment Corporation undertakes no obligation to update or revise any of these forward-looking statements. With that, I would now like to turn the call over to Edward. Good morning, Edward. Edward H. Ross: Good morning, Jody. And good morning, everyone. Welcome to our fourth quarter 2025 earnings conference call. On today's call, I will start with a review of our fourth quarter performance and our portfolio at quarter end, and then share with you our outlook for 2026. Shelby will cover the fourth quarter financial results and our liquidity position. After we have completed our prepared remarks, we will be happy to take your questions. During the fourth quarter, deal flow was strong, driven by a healthy M&A environment compared to earlier in the year. This resulted in originations of $213,700,000, the highest amount of capital we have invested in a quarter. From our perspective, this quarter's surge in origination was primarily related to the demand that had been pent up since Liberation Day was announced last April, which essentially froze decision-making across wide swaths of the economy and activity in the M&A market for a period of time. Once rattled markets began to settle down early in the summer, deal flow picked up in the third quarter. Also contributing to the fourth quarter surge for Fidus Investment Corporation were a few deals that spilled over from the third quarter. Over the course of 2025, we invested a total of $498,200,000 in new and existing portfolio companies, a higher amount than in 2024. Net originations in 2025 amounted to $210,200,000. As a result, we grew the total portfolio to $1,300,000,000 on a fair value basis, extending our track record of steady portfolio growth since we went public in 2011. As we further build out the portfolio, we continue to apply our strict underwriting standards in selecting investments in niche market leaders in the lower middle market with proven business models that generate recurring revenue and cash flow, coupled with well-defined value creation strategies. In addition, we continued to structure our debt investments with significant loan-to-value cushions. Fidus Investment Corporation's debt portfolio continues to perform well. In the fourth quarter, adjusted NII grew 5.1% to $19,400,000, boosted by higher average income-producing assets and a 60% increase in fee income compared to the prior year Q4 2024. On a per share basis, adjusted NII was $0.52 compared to $0.54 for Q4 2024. We continue to over-earn our base dividend of $0.43 per share and continue to pay out excess earnings. Total dividends paid in the fourth quarter were $0.50 per share. We ended the year with estimated spillover income of $1.01 per share. For the quarter, the board of directors declared a total dividend of $0.52 per share, which consists of a base dividend of $0.43 per share and a supplemental dividend of $0.09 per share, equal to 100% of the surplus in adjusted NII over the base dividend from the prior quarter, which will be payable on 03/30/2026 to stockholders of record as of 03/20/2026. Net asset value grew 13.2% to $741,900,000 at quarter end compared to $655,700,000 as of 12/31/2024. On a per share basis, net asset value was $19.55 as of 12/31/2025 compared to $19.33 as of 12/31/2024. With respect to originations in the fourth quarter, $121,500,000, or a little more than half of the $213,700,000 in total originations, was invested in eight new portfolio companies, primarily in connection with M&A transactions. We invested $206,500,000, or 97%, in first lien securities. In addition, we invested $3,200,000 in equity securities, giving us opportunities to enhance returns. Proceeds from repayments and realizations totaled $84,700,000 for the fourth quarter, resulting from a mix of M&A and refinancing activity. Subsequent to the quarter end, we have invested an additional $7,000,000 in one new portfolio company, executed numerous small add-on investments, and realized a $3,400,000 gain on the exit of our equity investments in CIH Intermediate LLC. We ended the year with a portfolio totaling $1,300,000,000 on a fair value basis, or 102% of cost. First lien investments comprised 86% of our debt portfolio, reflecting the ongoing migration of our debt portfolio towards first lien securities, and our equity portfolio stood at $142,300,000, or 10.7% of the total portfolio on a fair value basis at quarter end. Our portfolio remains well diversified by industry, consisting of a mix of manufacturing, distribution, and services companies. Given the current environment, we wanted to address our software and tech-enabled services portfolio. Worth noting, we have been investing in software companies for over ten years at Fidus Investment Corporation, alongside leading private equity firms, and it has been a strong performing industry vertical for us. As with all investments we make, we underwrite with an acute focus on determining the value proposition of a business and its overall durability—meaning its ability to thrive and generate cash flows over our investment period and beyond. With regard to software-related businesses, this includes evaluating and ultimately getting comfortable not only with the company's growth prospects and market position, but importantly, each company's technology risk, including AI risk over the past three years or so. At Q4 2025, our software and tech-enabled services portfolio—so our portfolio exposed to AI opportunities and risks—was $464,000,000, which comprised 92% first lien debt, 4% junior debt, and 4% equity. This portfolio is well diversified across 28 total names, and all but one are backed by financial sponsors we know well, who have significant expertise in the space, resulting in an average exposure per name of $17,000,000. The weighted average loan-to-value for this portfolio was 37%, well below our total portfolio weighted average loan-to-value of 44%. In addition, substantially all of our first lien investments are highly structured investments with at least two maintenance covenants. In short, we feel extremely good about the health of this portfolio and its long-term outlook. In addition, the characteristics of our overall portfolio remain quite positive from a credit quality and capital preservation perspective. We ended the year with nonaccruals accounting for less than 1% of the total portfolio on a fair value basis and 2% on a cost basis. Overall, our portfolio is healthy and well-structured to deliver both high levels of recurring income and capital gains from monetizing equity. In summary, in the fourth quarter and over the course of 2025, we demonstrated that our model clearly continues to work well and that our long-standing sponsor relationships, investment strategy, and industry knowledge in the fragmented lower middle market continue to differentiate Fidus Investment Corporation. Looking ahead, we are starting the year with a decent level of deal flow. We expect activity levels will pick up during the year as some private equity owners are likely to need to bring certain portfolio companies to market. As we deploy capital, we intend to stay focused on our long-term goals of generating attractive risk-adjusted returns for our shareholders and growing net asset value over time. Now I will turn the call over to Shelby to provide some details on our financial and operating results. Shelby? Shelby Elizabeth Sherard: Thank you, Edward, and good morning, everyone. I will review our fourth quarter results in more detail and close with comments on our liquidity position. Please note, I will be providing comparative commentary versus the prior quarter, Q3 2025. Total investment income was $42,200,000 for the three months ended December 31, a $4,900,000 increase from Q3, primarily driven by a $2,000,000 increase in interest income as a result of increased average debt investments outstanding, which includes $300,000 of accelerated amortization of closing fees related to debt repayments; a $3,500,000 increase in fee income given an increase in investment activity in Q4; which was partially offset by an $800,000 decrease in dividend income from equity investments. Total expenses, including tax provision, were $22,500,000 for the fourth quarter, $2,600,000 higher than Q3, primarily driven by a $1,400,000 increase in income tax provision related to the annual excise tax accrual in Q4; a $1,800,000 increase in interest expense related to higher average debt balance outstanding, including the $100,000,000 add-on to our 6.75% notes due in March 2030; and an $800,000 increase in base management and income incentive fees given the increase in assets under management and higher investment activity in Q4; offset by a $600,000 decrease in the capital gains fee accrual and a $500,000 decrease in G&A expenses. G&A expenses in Q3 were higher due to some one-time items related to the exit of our former debt investment in U.S. Green Fiber. Net investment income, or NII, for the three months ended December 31 was $0.53 per share versus $0.49 per share in Q3. Adjusted NII, which excludes any capital gains incentive fee accruals or reversals attributable to realized and unrealized gains and losses on investments, was $0.52 per share in Q4 versus $0.50 in Q3. For the three months ended December 31, we recognized approximately $1,500,000 of net realized losses related to a realized loss on the exit of our debt investments in U.S. Green Fiber, which was partially offset by realized gains related to the sale of our equity investments in Auldinger Company and Garlach Printing and Converting. We ended the quarter with $658,300,000 of debt outstanding, comprised of $237,500,000 of SBA debentures, $325,000,000 of unsecured notes, $83,900,000 outstanding on the line of credit, and $12,000,000 of secured borrowings. Our net debt-to-equity ratio as of December 31 was 0.8x. Our statutory leverage, excluding exempt SBA debentures, was 0.6x. The weighted average interest rate on our outstanding debt was 5.2% as of December 31. Turning now to portfolio statistics. As of December 31, our total investment portfolio had a fair value of $1,300,000,000. Our average portfolio company investment on a cost basis was $13,400,000, excluding investments in six portfolio companies that sold their operations or are in the process of winding down. We have equity investments in approximately 85.4% of our portfolio companies, with an average fully diluted equity ownership of 1.9%. Weighted average effective yield on debt investments was 12.6% as of December 31, versus 13% at the end of Q3. The weighted average yield is computed using effective interest rates for debt investments at cost, including the accretion of original issue discount and loan origination fees, excluding investments on nonaccrual, if any. Now I would like to briefly discuss our available liquidity. In Q4, we used the net proceeds from the $100,000,000 debt add-on to fully redeem the remaining $100,000,000 of notes due in January 2026. In December, we exercised the accordion feature on our line of credit and increased our borrowing capacity from $175,000,000 to $225,000,000. In Q4, we issued accretive shares under our ATM program and raised $31,500,000 of net proceeds. As of December 31, our liquidity and capital resources included cash of $79,600,000, $141,200,000 of availability on our line of credit, and $84,000,000 of available SBA debentures, resulting in total liquidity of approximately $304,800,000. Now I will turn the call back to Edward for concluding comments. Edward H. Ross: Thanks, Shelby. As always, I would like to thank our team and the board of directors at Fidus Investment Corporation for their dedication and hard work, and our shareholders for their continued support. I will now turn the call over to Dave for Q&A. Dave? Operator: We will now begin the question-and-answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Robert James Dodd with Raymond James. Please go ahead. Robert James Dodd: Hi, everybody, and congratulations on another good quarter. I do want to touch on software. I really appreciate the extra disclosure you gave on that this quarter. But before I get to that, on the activity levels, I mean, a really strong back half to the year. Is there any spillover of deals, given how busy you were in Q4, into Q1? Or should we expect after that ramp and the kind of the release of the pent-up demand in the back half last year, should we expect Q1, maybe Q2—the first half of 2026—to be much more modest in terms of new portfolio company activity, maybe? I mean, maybe there will always be some add-ons. But can you give us any color on how much of that was in the back half? Edward H. Ross: Sure. It is a great question. Q4 was a quarter where most things kind of came to fruition, if you will—very different than Q3 for us. There was a pretty healthy amount of deal flow towards the end of Q3, and then I again think it was pent-up demand in Q4. I think now in Q1 2026, deal flow is a little more modest in nature. We believe it is somewhat due to seasonal patterns. Our current expectations are for an increase in both deal flow and activity throughout the year. We are, as we sit here today, working hard on new investment opportunities as well as add-on investment opportunities. Is Q1 going to be anything like Q4? I do not think so. But I do think we will have some real investment activity here in the last month. From a repayments perspective, there will be some repayments, but as I sit here today—no crystal ball—repayments will be less than originations. Our expectation would be some growth this quarter, but nothing like the growth in Q4. Hopefully that is helpful. It is picking up a little bit, and we expect it to pick up a fair bit more as the year goes on. Robert James Dodd: Perfect. Thank you. That is very helpful. On the software, you gave the incremental information that AI has been part of a key risk assessment for three years. There is obviously a big potential difference in risk between something that is a piece of application software that just sits on top of an OS somewhere versus something that might be running the operations at a specialty manufacturing plant or something like that. Obviously, those face very different risks. Can you give us some color on the type of businesses that you have? I mean, yes, you expect them to thrive, you expect them to be resistant, but why? Edward H. Ross: Sure. It is an important topic, so let me give you some more thoughts. First and foremost, we believe the recent headlines—although meaningful and serious—on the market dislocation in software have been blown out of proportion from our perspective. When we think about software companies and AI risk, it is important to remember that not all businesses are the same. There are varying degrees of quality out there, and that has to do with every type of lower middle market company or larger market company for that matter. For us, we look for characteristics that provide long-term barriers to entry—elements that help protect the viability and durability of a company's value proposition and, ultimately, its revenues and cash flows. What are we looking for? We are looking for companies that have things like data moats—think about enterprise solutions that serve as a system of record for critical operating data, which is hard to replicate. Think about vertical markets—specialized industry software that is complex and requires deep industry and process expertise. Regulated sectors—software that tracks, audits, and secures data. Deep relationships—contractual revenue streams and trusted customer relationships, which typically create high switching costs. And then, obviously, management. Management is critical. You want a management team that is leveraging their market positions and their incumbency positions to embrace change and create value for their customers. Those are the types of things we look for from a qualitative perspective. Just to touch a little bit more on the portfolio—some of this will be duplicative—but all deals are backed by high-quality sponsors with proven track records in the space. That is a critical component for us. Nearly all of our portfolio companies are currently adding AI features to products and using AI tools to reduce operating costs. Nearly all of our portfolio debt investments are structured as first lien. Our current weighted average loan-to-value for this portfolio is 30%. The current average contractual duration—so maturity date—is approximately 2.5 years for our software and tech-enabled services portfolio. Lastly, the portfolio is performing very well and currently marked—all the debt investments as a whole—at 100% of cost. We feel good about it. Hopefully that gives you some more color and context on the types of things we look for. Robert James Dodd: Got it. It does. And thank you for that, and that is it for me. Edward H. Ross: I want to make sure I heard you there, Robert. That is it? Robert James Dodd: It is for me. Yes. Thank you. Sorry. No more questions. Thank you. Good talking to you. Operator: And the next question comes from Mickey Schleien with Spear Street Capital. Please go ahead. Mickey Schleien: Yes. Good morning, everyone. Edward, thanks for the insight into your software sector. I just want to ask whether Fidus Investment Corporation has any focus on ARR loans or are these mostly cash flow loans? Edward H. Ross: ARR loans are part of our portfolio and have been a focus. The context that we give you: about 22% of our software portfolio today, or 7.5% of our total portfolio, are ARR loans. As we sit here today, a few that are not in that percentage were previous ARR loans that are now EBITDA loans. When we structure an ARR loan, we force growth through covenants. We have covenants that require growth, and we also force a transition to cash flow—meaning EBITDA positive and EBITDA support for the interest expense—as we move forward. Mickey Schleien: Thanks for that clarification. And, Edward, 3% of the portfolio's value is in Fansteel, and you have held that a long time. It has been a great investment, but it is your largest single investment, and I would like to understand how comfortable you are holding it at this level from the perspective of portfolio risk. Edward H. Ross: It is a great question. In summary, we are extremely comfortable with that position. The long-term outlook for that business—they are a leader in their space. It is a growing business, and their portfolio of products is also growing. Again, they are differentiated in the market, and we see them being able to maintain that differentiation. I feel great about the business and the outlook. I hear you on that, but we are very comfortable with the position today, and obviously there will be a day when we will look to monetize it, but we feel good about it today. Mickey Schleien: And the outlook for dividends from Fansteel—I think you had two quarters of dividends in 2025. Can we expect that to continue, or are they in growth mode and they need to reinvest their capital? Edward H. Ross: It is a great question. As you know, we are not in control of those dividends at all. I would view them as more episodic in nature, but also reoccurring annually in some way, shape, or form. That is what the history has been, and that is what our expectation would be going forward. The last point I would make is they are very well positioned to make distributions—meaning very underlevered to no leverage and plenty of liquidity to do those types of things. Mickey Schleien: My last question: can you give us an update on the average floors in your floating rate debt portfolio? In other words, how much exposure do you have to still declining forward SOFR? Edward H. Ross: Sure. Most of our floors that we have been originating over the last three to four years are in the 2% range, Mickey. Mickey Schleien: Okay. So that is— Edward H. Ross: Kind of somewhat of a market convention from our perspective, but that is a large majority of what we have today. Mickey Schleien: So if the Fed were to cut a couple more times this year, that would still flow through your portfolio? Edward H. Ross: Yes, it would. Remember, about 25% of our debt investments are fixed-rate debt investments, so not a 100% flow-through. But if SOFR is reduced this year, then yes, we would expect some decline in total yields. Mickey Schleien: Okay. I understand. Those are all my questions this morning. Thank you very much for your time. Edward H. Ross: Thank you. Good talking to you, Mickey. Operator: And the next question comes from Christopher Nolan with Ladenburg Thalmann. Please go ahead. Christopher Nolan: On your comments earlier in terms of increased deal flow from M&A and so forth, is this really driven just by private equity firms seeking to get an exit so they can get liquidity back to their LPs? Or do changes in the tax or regulatory structure start affecting some of this M&A activity? Edward H. Ross: Great question. I would say a large preponderance of the comment comes from more just pent-up demand from a PE perspective. The average hold for the PE portfolio has expanded, as you know, and there is a desire for LPs to get capital back. That is probably the biggest driver by a long shot from our perspective. Christopher Nolan: And then a follow-up on the software questions from Robert. Are you seeing that the software companies are deleveraging, or are private equity firms trying to just unload them? I am just trying to get a sense as to what they are doing financially. Edward H. Ross: Great question. From our perspective, what we are seeing in our portfolio is growth, which is what you would expect and a critical component of our underwriting. We are seeing deleveraging, whether it is an ARR loan or an EBITDA-based loan. At the same time, we are seeing sponsors continue to look at high-quality software names, and we are also looking at them. In the lower middle market and what we are experiencing at the operating level—where we are financing transactions and what have you—it is somewhat status quo. Everyone is fully aware of the concerns out there. We have been aware of the concerns, and the bar probably only gets higher for everyone, including us. But we feel very good about the portfolio and the outlook of the portfolio, and so no one is doing anything drastic or reacting in a huge way. Clearly, if you get into the liquid markets, that is different. A lot of loans have traded down. Some folks are taking advantage of them. Some folks are trying to loosen up their exposures, if you will. But that is not the market that we play in. We are one investment at a time and really working with each portfolio company. We are not seeing performance issues right now. Hopefully that gives you some context and is helpful. Christopher Nolan: Great. Helpful and nice quarter. Thank you. Edward H. Ross: Thank you, Chris. Good talking to you. Operator: Again, if you have a question, please press star then 1. Our next question comes from Paul Conrad Johnson with KBW. Please go ahead. Paul Conrad Johnson: Yeah. Good morning. Thanks. I am just curious—within the lower middle market, from your experience, either observations of other restructurings or within your own book—what has been the typical average recovery rate on just a regular first lien direct lending lower middle market loan historically, and how you think about that in terms of software going forward? Has that traditionally been in line with direct lending recoveries? With everything going on with compressed EV multiples, etc., potentially compressing margins, what are your thoughts on potential recoveries if we were to start to see some turbulence in that sector? Edward H. Ross: Great question. I think recoveries in the lower middle market are similar to the broader market. I do not have that data in front of me and do not want to misspeak, but I think in first lien loans, recoveries have been generally more in the 60% to 85% range, depending on vintage or what have you. We fully understand the risks and are paying attention more than most, I would argue, but we are not seeing the concerns that are in the marketplace. As I stated at the beginning of the discussion with Robert, we feel good. We do not see changes in recoveries or drastic changes in values of businesses. Clearly today, a lot of software companies—my guess is the equity value has been hit by what is going on in the market. But at 12/31, our loan-to-value is 37%. There is a huge cushion there between 37% and our security to weather a storm, and we do not think these companies—these are very value-added, high-quality businesses that we have invested in—we do not see the value dissipating overnight by any stretch of the imagination. If there were problems, I would expect them to react in a similar fashion as a normal restructured deal or bad deal from a recovery perspective. Hopefully that is helpful. That is trying to give you a little color. Paul Conrad Johnson: That is. Thank you very much. That is all for me. Edward H. Ross: Thank you, Paul. Good talking to you. Operator: And the next question comes from Dylan Haynes with B. Riley Securities. Please go ahead. Dylan Haynes: Great quarter. Thanks for taking the question. I was wondering about software and tech names in terms of deployments and what the private markets are looking like, given the BDC headlines and markdowns of specific tech names. How has this impacted pricing and yield? Is there anything—any new trends—we could take advantage of for deployments? Edward H. Ross: It is a great question. We are continuing to look at best-in-class software names—niche market leaders that have competitive positions and, quite frankly, product and service positions that are differentiated enough to get us comfortable to invest. We are looking for those kinds of names. We do expect there to be—and I am looking forward, it has not really happened yet—some unique opportunities that come about due to the recent dislocation in the markets. I do think it will trend down a little bit. Though we think our overall portfolio positioning is where we want it, if the right opportunities come along, at the margin, we are interested in continuing to invest in the sector and will do so at the margin. It is a focus of ours. It is something we have had a lot of success with. There are very differentiated companies and opportunities out there, and we want to continue to focus on that group. As they come up, yes, we will try to take advantage of it. The public markets are different, and the liquid software names that you see from a debt perspective—that is a different market, different underwrite, different type of situation, and it is really not the market we play in or what we are seeing right now, but we do expect some dislocation. Dylan Haynes: Got it. Thank you. Edward H. Ross: Thank you. Good speaking with you, Dylan. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Edward H. Ross, CEO, for any closing remarks. Edward H. Ross: Thank you, Dave. And thank you, everyone, for joining us this morning. We look forward to speaking with you on our first quarter call in early May. Have a great day and a great weekend. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to the Photronics' First Quarter and Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ted Moreau, Vice President of Investor Relations. Please go ahead. Ted Moreau: Thank you, operator. Good morning, everyone. Welcome to our review of Photronics' Fiscal First Quarter 2021 Financial Results. Joining me this morning are George Macricostas, Chairman and Chief Executive Officer; Eric Rivera, President and Chief Financial Officer; and Frank Lee, Head of Asia operations. The press release we issued Wednesday morning, along with the presentation materials accompanying our remarks is available on the Investor Relations section of our website and on the Form 8-K filed with the SEC. This call includes forward-looking statements that involve risks and uncertainties, which could cause Photronics results to differ materially from management's current expectations. We encourage you to review the forward-looking statements disclosure included in our earnings release and in our most recent SEC filings. In March, I will be attending the upcoming OFC trade show in Los Angeles and would welcome the opportunity to meet with investors. With that, I will now turn the call over to George. Constantine Macricostas: Thank you, Ted, and good morning, everyone. Accelerating demand during fiscal Q4 continued throughout fiscal Q1 with sales increasing 4% sequentially to $225 million, exceeding expectations. We executed on the robust high-end demand in Asia ahead of Chinese New Year, propelling our high-end IC business to a second consecutive quarterly record. Revenue and gross margin strength contributed to GAAP diluted EPS of $0.74 and non-GAAP diluted EPS above expectations at $0.61 per share. Over the past 9 months in stepping into the CEO role, I have prioritized strengthening our operating efficiency. While I'm not sharing specific metrics today, we have been making pinpoint actions to drive continuous improvement. We are executing with urgency and discipline to continue to elevate quality, improve yield, accelerate cycle times and enhance customer experience. We're optimistic that our improved operational performance will drive higher revenue and continued market share gains as the industry demand expands. In our IC business, revenue of $165 million increased 7% year-over-year with our high-end business growing 19%. We continue to recognize growth for mass that support exciting areas such as AI-driven chip packaging applications and masks for high NA EUV development projects. We believe the high-end strength will continue as order demand remains healthy to partially mitigate the upcoming seasonal impact following Chinese New Year. As we leverage our global footprint and strengthen sales leadership, we are sharpening our focus on high-end opportunities that advance our node migration strategy while broadening our geographic diversification. Our ongoing expansion projects in the U.S. and Korea will enter volume production in 2027. Customers in these regions are pursuing broader outsourcing strategies and have been sharing their technology requirements, helping to drive our technical road map. In the United States, we continue to see healthy customer qualification activity across both advanced logic and memory technologies. In logic, we are supporting high-volume manufacturing at 12 and 14-nanometer while extending qualifications to 8-nanometer and below technologies. For advanced DRAM memory, we are engaged in qualification activity, leveraging our new IP processes using our multi-beam mask rater for patterns below 20 nanometers. Our Allen facility expansion remains on track as we're starting to install tools with customer qualifications expected to be completed by the second half of this year. Our plan is to expand production capabilities in Allen to meet the increasing photomask demand for U.S. mainstream wafer fabs, including technology nodes from 90-nanometer to 40-nanometer. In China, our competitive positioning remains strong in this fast-growing market. We will continue delivering quality masks with an emphasis towards higher-end nodes playing to our competitive advantages and where competitive intensity is lower. Turning to FPD. Revenue of $60 million increased 3% year-over-year. At the high end, our technology advantages enable us to produce more complex and larger mask sizes. In Korea, we recently took delivery of and will soon be installing the most advanced mask [indiscernible] for the FPD market. This new [indiscernible] improves resolution and enhances accuracy while allowing us to maintain high throughput. As the first display mask supplier to have the capabilities this tool provides, we will be extending our technology leadership delivering the highest quality AMOLED photomask for a variety of applications including G 8.6 mask size, which improves screen quality for consumer electronics. G8.6 AMOLED is a market that remains in its infancy with adoption expected to broaden later this year. Looking ahead at fiscal Q2, we continue to see positive underlying demand. While the full seasonal effect of the Chinese New Year in mid-February will be reflected in revenue, design starts remain healthy and support our full year growth trajectory. In summary, the regionalization of global semiconductor manufacturing, combined with increased outsourcing from captive is opening up leading-edge opportunities. driving our capability and capacity expansion plans. We remain focused on operational efficiencies and executing on the implementation of these investments to fully capitalize on these opportunities. I will now turn the call over to Eric to review our first quarter results and provide second quarter guidance. Eric Rivera: Thank you, George. Good morning, everyone. First quarter revenue exceeded expectations at $225 million, increasing 4% sequentially and 6% year-over-year. IC revenue of $165 million increased 7% year-over-year. We achieved record high-end IC revenue of $71 million, an increase of 19%. Strength in Asia accelerated leading up to Chinese New Year where we have strategically emphasized high-end opportunities. Revenue in the U.S. increased slightly year-over-year and we expect the U.S. to be a contributor to revenue growth over the coming year. Mainstream IC revenue was flat year-over-year at $94 million. Turning to FPD. Fiscal Q1 revenue of $60 million increased 3% year-over-year. This quarter, we experienced a mix shift towards strong demand in the mainstream category targeted at the China IT display market. While these projects fall within mainstream, they feature larger sized screens that align well and play directly to our competitive strengths. We expect demand trends to continue in fiscal Q2 and with a modest offset from Chinese New Year. Gross margin was at the high end of expectations at 35% as we benefited from higher revenue levels and a greater mix of high-end IC revenue which combined to drive up our operating leverage. Operating margin was 24%. Diluted GAAP EPS attributable to Photronics shareholders was $0.74 per share. Excluding foreign exchange impacts, non-GAAP diluted EPS was $0.61 per share. Our earnings to shareholders in the quarter reflected the strong demand in Asia, leading up to Chinese New Year. We also achieved the second highest quarter of operating cash flow in the company's history at $97 million, equating to 43% of revenue. CapEx was $48 million, which primarily consisted of equipment to further extend our technical leadership in FPD. As we have previously discussed, we have entered a period of elevated capital investments to drive future organic growth. We are reiterating our fiscal 2026 CapEx guidance of $330 million with elevated CapEx focused on special project investments in the U.S. and Korea along with accelerated end-of-life tool upgrades. Our initiatives in the U.S. and Korea will further strengthen our ability to capitalize on growth trends, including increased captive outsourcing, high-end known migrations, geographic diversity and regionalization. We continuously review CapEx plans as we monitor market demand requirements relative to our manufacturing capacity and capabilities and additional projects we are considering. Total cash and short-term investments increased by $49 million sequentially to $637 million, including $459 million held in our joint ventures, in which we hold 50.1% ownership interest. Our capital allocation strategies include 3 priorities: Reinvesting for organic growth, pursuing strategic opportunities and returning cash to shareholders As a reminder, we opportunistically used $97 million to repurchase 5 million shares in fiscal 2025 for an average purchase price of $19.52 per share. For 2026, we will continue to emphasize internal investments to drive future revenue and earnings growth. Before providing guidance, I'd like to remind you that demand for our products is inherently variable. Visibility is limited with typical backlog of only 1 to 3 weeks. Additionally, high-end mass sets carry significantly higher ASPs, meaning even a small number of orders can materially influence revenue and earnings. Demand is also affected by IC and display design activity and secondarily by wafer and panel capacity dynamics. Given current market conditions and the seasonal impacts of Chinese New Year that George referenced, we expect fiscal Q2 revenue to be in the range of $212 million and $220 million. Based on those revenue expectations and our operating model, we estimate fiscal Q2 operating margin between 22% and 24% and non-GAAP diluted EPS between $0.49 and $0.55 per share. I'll now turn the call over to the operator for your questions. Operator: [Operator Instructions] Our first question comes from the line of Christian Schwab from Craig-Hallum. Unknown Analyst: This is Ben Taxol in for Christian Schwab. First thing, or my first question is, just with that slight sequential decrease in revenue and operating margin. Is there anything else we should be thinking about besides the Chinese New Year? And then my follow-up to that would be what are some things that need to happen to kind of hit that higher end of that guided range. KangJyh Lee: Yes. Christian, I think in this year, the Chinese New Year fell into second -- middle of February. So most customers, especially the fab [indiscernible] design house customers, they are taking the long holidays. So we do see the customer tape-out forecast will resume in the middle -- early of March. So I believe we do have a lot of active from the orders before the new year. However, because the temporary slowdown during the long holidays and the first week after the holiday. So there may be a slight impact on the output. And that's why our forecast is slightly lower than Q1. Basically, we don't see a major difference in the market environment but had they did make some impact on our output. Unknown Analyst: Okay. Good context there. Now just with the Allen facility coming online and then just thinking about the high-end [indiscernible] facility and also kind of the high-end IC revenue in these last 2 quarters. Is there -- can you kind of talk about that? And then also maybe a little bit of a proxy for the high-end IC going forward? Is it going to be kind of continued at these same rates, these last 2 quarters? Or is it going to be lower or higher. KangJyh Lee: the Eden project, actually, we kicked off the project several quarters ago in terms of planning the facility, cleanroom expansion so -- and equipment purchasing. Right now, our cleanroom has been ready and we have a tour delivered already. At this moment, we are in the process of installing new equipment, which will be complete and sequentially, we need to do certain customer qualification. So we believe once the qualification complete, Allen site will be able to contribute to our business, especially in the mid range of mainstream. At the same time, Allen can support our Boise facility take some middle or low end, [indiscernible] away from Boise. So we can spare the Boise capacity for the real high-end business. And we will see a lot of high-end opportunities, which we have to maximize our Boise capacity in terms of the product mix. Also, I think both George and Eric report, we are going to do a lot of CapEx expansion, which include voice, high-end capacity expansion to meet a strong high-end customer demand. Unknown Analyst: All right. Good. And then just my last question here. Switching over to flat panel. Discussing your leadership in AMOLED and kind of the G 8.6 exercise and the material higher ASPs with that. Can you remind me of the different applications of that technology? And then, maybe just help us understand the size and scope of that opportunity over the next few years would be really helpful. KangJyh Lee: For [indiscernible] 8.6, as George reported, it's in an infant stage of business development. We do receive a very first set of [indiscernible] photomask from our Korean customers. and we do see a lot of Chinese customers are in the process of developing 8.6 AMOLED business. So we believe with our process capability and also the most advanced new writer, we just installed in Korea. We will be [indiscernible] in G 8.6 flat panel business. Eric, do you have anything to add here? Eric Rivera: Thank you, Frank. I think you covered all areas here. So I have nothing else to add. Operator: One next question comes from the line of Gowshi Sri from Singular Research. Gowshihan Sriharan: My first question is on the margins. You've been consistently printing kind of even as mix improves, do you think there's any risk that we are temporarily overearning here or because of unusually high tight high-end supply? Or is that -- or is that we should expect some more normalization as more capacity, including your own comes online over the next year or 2? Eric Rivera: Gowshi, this is Eric here. So we don't see Q2 being much different than Q1 at the moment from a product mix perspective. Of course, the market is going to determine that, but that's what we're expecting it to be similar. In terms of our CapEx that we are projecting, as I mentioned in our prepared remarks, we're entering a stage of elevated CapEx investments as a result of the opportunities the market is affording us, and we will certainly capitalize on them. With that comes increased depreciation, of course, when the tools are in place. But also revenue will increase for many of those projects. And those CapEx that are related to end-of-life tools, a lot of our under life tools provide additional capabilities that will enable us to improve our product mix. In general, I would say that although margins could surely fluctuate primarily because of product mix, we don't expect our margins to like fall off a cliff. Then we also -- I'm sorry, go ahead, Gowshi. Gowshihan Sriharan: No, no, I go ahead. Eric Rivera: Yes. I was going to just... KangJyh Lee: Eric, sorry. Please go ahead. I can comment afterwards. Eric Rivera: I'm passing it on to you, Frank, go ahead. KangJyh Lee: All right. Gowshi, actually, we do have a lot of high-end business. And as I just mentioned, we need to maximize our most advanced side voice output. And that's 11 reason we need to have insight to take some loading away. At the same time, to increase the capacity in voice side, we are working with many customers to qualify a new writer called Martin writer. This writer has a much, much higher throughput which can improve our overall lease capacity. So right now, it's not really so-called business constraint is actually a little bit capacity constrained. So with the -- and also with the market being qualification in voice side, we will try to increase our high-end capacity. And of course, the high-end capacity will contribute greatly to the gross margin. Gowshihan Sriharan: Thanks for the color. And on the Asia side, in China, you said that it's kind of stabilized stuff mainstream. Now it's been a couple of quarters. Are you seeing any the local competitors adjust their behavior or either moving up the node themselves or becoming aggressive on pricing in the segments? Is it still your deemphasizing, and could that change the economics of your stabilized soft mainstream outlook? Eric Rivera: I'm sorry, go ahead, Frank. KangJyh Lee: So we should not talk. I think you talk first. I talk later. No problem, yes. Eric Rivera: No problem. So with respect to Asia and China specifically, I think we're focused on the high end, where there's less competition, that's where we have a competitive advantage from the new entrants and the increased competition there. They're more focused on the mainstream as they learn the business, if you will. So given our strategy, we see our margins relatively flat or slightly improving. It all depends on our product mix, but we're focused on the product mix on the high end where there's less competition. Frank, would you like to add something to that? KangJyh Lee: Sure, sure. I think in China market, even there are several, many newcomers, but because for our customers, the high-end qualification require a lot of human resource wafer resource from the wafer fab. So most of our high-end customers, they just have surprise. They are not really interested to spend a lot of resource to quantify #4, #5, and so -- we believe the entry barrier for the newcomers to the high-end business is very high. So for our sales Photronics, we do have a facility locally in Xiamen, and we are focusing on the high-end business in China. We have a business from major Chinese high-end wafer fabs. So we will continue to improve our cycle time, the delivery and so on and also to maximize our high-end product mix. So we believe the newcomers may have some negative impact on the mainstream. But on the high-end side, we do have a lot of advantages. Gowshihan Sriharan: Got you. So since Asia was the stronger demand, a key driver to the beat. Can you give us a little bit color on what that demand looks like under the herd. And does that mix look structurally different from what you are seeing a year or 2 ago? KangJyh Lee: Okay. I think the main driving force is the diversification because due to the geopolitical reasons, the onshoring regionalization and the customer, the design house they have to do they have to manufacture their products in different countries. So for example, if they need to sell their chip to China, they need to make their wafers in China, Chinese foundry companies. So with this, a lot of duplicate [indiscernible] happens because this issue. At the same time, for Chinese customers, the migration to 22-nanometer happened in this year. A lot of companies are doing technology migration as compared to a couple of years ago. So we do see a lot of new tape-outs in 22, 28-nanometer from our China customers. Operator: Thank you. At this time, I would now like to turn the conference back over to Ted Moreau for closing remarks. Ted Moreau: Thank you, Gigi, and thank you, everyone, for joining us today. We appreciate your interest in Photronics, and look forward to catching up with everyone throughout the quarter. Have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. KangJyh Lee: Thank you.
Operator: Good day, and thank you for standing by. Welcome to Gogo Inc.'s fourth quarter 2025 earnings conference call. After the speakers’ presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today’s conference is being recorded. I will now turn the call over to Will Davis, Head of Investor Relations. Please go ahead. Will Davis: Thank you, and good morning, everyone. Welcome to Gogo Inc.'s fourth quarter 2025 earnings conference call. Joining me today to discuss our results are Chris North, CEO, and Zachary Cotner, CFO. I would like to remind you that during the course of this call, we may make forward-looking statements regarding future events and the future performance of the company. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements on this call. Those risk factors are described in our earnings release filed this morning and in a more fully detailed note under risk factors filed in our annual report in October and other documents that we have filed with the SEC. In addition, please note that the date of this conference call is February 27, 2026. Any forward-looking statements that we make today are based on assumptions as of this date, and we undertake no obligation to update these statements as a result of more information or future events. During this call, we will present both GAAP and non-GAAP financial measures. We have included a reconciliation and explanation of adjustments and other considerations of our non-GAAP measures to the most comparable GAAP measures in our fourth quarter earnings release. Our call is being webcast and is available at ir.gogoair.com. The earnings release is also available on the website. After management comments, we will host a Q&A session with the financial community only. I will now turn the call over to Chris North. Chris North: Thank you, Will, and good morning. I am pleased with our product and synergy execution in 2025, as we transform Gogo Inc. from a U.S.-focused entity into a global, multi-orbit connectivity provider in the fast-growing and dynamic business and military government aviation markets. Consistent with prior earnings calls, I will focus on the continued demonstrable progress made across our compelling new product portfolio. These include Gogo Inc. 5G and Gogo Inc. Galileo, with two models, HDX and FDX, all of which are providing game-changing increases in capacity, functionality, speed, and consistency. I will also highlight our long-term growth prospects from our military and government customer base, which will further improve our revenue mix and diversification. As we look forward this year, we expect combined Galileo and 5G shipments to exceed 1,000 units. We expect that the activation of those aircraft will create a high-margin, recurring service revenue stream that sets the stage for free cash flow growth and long-term strategic value. Let us review the strong demand trends within the underpenetrated global business jet market. Industry sources indicate global business jet flights are 30% higher than pre-COVID levels, with aggregate growth from key global fractional operators even stronger at around 40%. Leading global business jet OEMs highlight strong book-to-bill ratios and backlogs necessary to support continued delivery growth. The 854 new private jets delivering in 2025 marked the highest output since the industry delivered 874 units back in 2009. These factors, along with the relatively low broadband penetration of the 41,000 global business aircraft market, create a backdrop for attractive long-term growth. Will Davis: Let us review our outlook for Gogo Inc. Galileo. Chris North: Our global LEO-based service with two offerings. Starting with HDX, which was purpose-built to fit on all 41,000 global business aircraft. It is ideal for the 12,000 midsize and smaller aircraft outside North America without broadband, and the 11,000 midsize and smaller aircraft in North America that fly outside CONUS or want faster speeds than 5G air-to-ground. By contrast, FDX is geared specifically for 10,000 large global business aircraft. Galileo operates on the Eutelsat OneWeb satellite network, and we are pleased to see the continued measures by Eutelsat to strengthen its balance sheet and access the capital needed to support its recent order for 414 new LEO satellites, ensuring full operational continuity for its constellation into the late 2030s. Given that HDX has a total addressable market over four times that of FDX, shipments and installations of HDX will naturally be much higher than FDX. The product has also been designed to fit in many mid- to large-cabin aircraft tails, which expands the opportunity from standard LEO fuselage mountings. The average monthly service revenue and profit per FDX will typically be higher than HDX. Our Galileo pipeline consists of over 1,000 aircraft, with the current weighted sales pipeline of more than 400 aircraft. We believe this aligns with our projections for growth in 2026 as we expand opportunities and close new business. We continue to see a favorable pipeline mix with a 60/40 split between U.S. and global markets. This mix is critical for our success, as we upgrade loyal customers in the U.S. market and expand to unserved markets with high-speed connectivity in the international markets for business and military and government customers. As a reminder, inclusive of all aircraft equipped with Gogo Inc. broadband connectivity, 35% to 40% are large jets, 30% are medium, 25% are light, and less than 5% are rotorcraft. Now turning to STCs. STCs are a critical part to building our global LEO business, and we continue to make solid progress: 35 HDX and FDX STCs in the U.S., Europe, Brazil, and Canada with a total addressable market of 4,000-plus aircraft covering 34 aircraft models. We continue to expect 20 more STCs to be completed in 2026. While the total number of STCs is important, not all STCs are created equal. For example, in recent weeks, we achieved FAA validation for the Bombardier Challenger models 300, 350, and 3500, and for all Global models except the 7500 and the 8000, and the EASA validation for the Dassault Falcon 2000. Given the installed base and growth potential, a Challenger STC is worth substantially more to us than a larger STC due to the operator’s budget and airframe value. However, with the versatility of our product portfolio, the Learjet has access to our 5G air-to-ground product, which is a better solution for both the aircraft mission and budget, all without compromising the need for high-speed connectivity. In 2025, Gogo Inc. shipped over 300 HDX and FDX antennas, with 84% to named customers. By 2026, we expect to have shipped nearly 900 Galileo antennas, and with an expected ship-to-install time of about three to six months, we see a potential path to 700 Galileo aircraft installed by the end of this year. If we assume a $4,000 average monthly service profit per Galileo aircraft, implying $480,000 in service profit over 10 years, if 1,000 Galileo aircraft are activated and paying, we will demonstrate the long-term growth opportunity with our LEO product portfolio and overall market position in aviation. Let us shift to our global fleet business, which we continue to expect to be a key growth driver. As highlighted on our Q3 call, we have a clear opportunity to provide Galileo service to 1,000-aircraft-and-above fleet customers, which include all major global and domestic U.S. entities. I am now even more confident about that outcome. In 2026, we estimate that one-third of our Galileo shipments and AOL will be tied to our global fleet accounts. STCs installations by VistaJet began in November and will continue to ramp through 2026. We were pleased that VistaJet recently announced a major Bombardier order for 40 Challenger 3500 business jets with options for an additional 120 more. If fully exercised, the total contract value would approach $5,000,000,000, expanding VistaJet’s fleet to around 400. VistaJet announced that Gogo Inc. Galileo was a cornerstone of its digital and in-flight innovation pillar as part of the VISTA 2030 growth strategy. Our largest fleet customer in terms of activated aircraft remains NetJets, and we expect that to remain the case for some time. NetJets is the world’s largest fleet operator with over 1,000 aircraft, including EJM, and existing orders are expected to expand its fleet by several hundreds over the next few years. As a reminder, the NSS contract renewal that Gogo Inc. announced in February 2024 is still active. Gogo Inc. has installed HDX on dozens of aircraft in the NetJets European fleet, including Challenger 350s and Phenom 300s, Latitudes, and we continue to expand installations. Within the NetJets North America fleet, we currently expect to install HDX on the Phenom 300 and the Ascend platforms. Historically, NetJets has utilized multiple connectivity sources globally, and they have confirmed that Gogo Inc. will remain a key partner to help facilitate connectivity upgrades for their global fleet in the coming years. In addition to fleets, we expect that Galileo line-fit option wins will be another critical source of long-term growth. We are aligned for option with HDX at Textron for the Ascend, Latitude, and Longitude models and will benefit once our options are available later in the year. Additionally, as announced last quarter, FDX will be a LEO line-fit option for all new Bombardier Challenger and Global business aircraft types. We expect revenue generation from this important win in early 2027. Further, I am pleased to say that we have secured another line-fit option win with a major global OEM for both HDX and FDX that will highlight the growing momentum for Galileo in the market. We would expect an official announcement before 2026. In our view, these wins validate Gogo Inc. Galileo technology and demonstrate the valuable long-term relationship we have with our global business aircraft OEM partners, along with the desire to have competition in the LEO marketplace. Let us continue with Gogo Inc. 5G. It substantially increases the speed, performance, and capacity of our ATG network. We completed the activation of our first 5G aircraft in December, and true network availability started last month. Our current focus remains shipping boxes pre-provisioned for 5G customers that already have the 5G antennas and wiring installed. We are happy to report that 5G service commenced in Q1, and we expect 5G activations to significantly ramp up through 2026. Gogo Inc. has 5G line-fit deals with five OEMs, two of which are already installing the AVANCE L5 box on the production line today. These boxes will get swapped with the LX5 5G box upon 5G service activation. We continue to believe that 5G will fill a large void in the market for customers who only fly domestically in the U.S., particularly those with light and medium-sized aircraft. Further, we suspect 5G will serve as a valuable backup service on certain aircraft seeking redundancy and enhanced capacity. We recently unveiled updated 5G pricing, highlighting its positioning as a cost-effective way to increase speed tenfold versus our current L5 solution. Monthly service pricing for unlimited data is now $5,500, and 5G equipment MSRP is now $100,000, allowing for a full installation below $150,000 and making the connectivity market competitive. To that end, we expect to ship over 500 5G boxes in 2026 and expect to reach nearly 400 5G aircraft online by the end of this year. Let us shift to the LTE upgrade of our ATG network, which will be largely subsidized with FCC funding. The LTE upgrade provides multiple benefits: one, it accelerates Classic upgrades to AVANCE; two, it increases network capacity and speeds; and three, it accelerates our U.S. government business on the ATG network given enhanced network security. We shipped a record 472 air-to-ground equipment units in Q4, up 8% from 437 in Q3, split between 175 AVANCE units and 297 C1 units. We believe that our C1 strategy is working. C1 AOL increased from 101 in Q3 to 313 in Q4, and we expect to end 2026 at around 800. The C1 box swap takes only a few hours and benefits from FCC subsidies, allowing the system to activate once the LTE network is turned on. We completed 95 Classic-to-AVANCE upgrades in Q4 as AVANCE AOL grew 8% year over year to 4,956. AVANCE now represents 77% of our air-to-ground fleet and continues to grow each quarter. The combination of C1 installs and the AVANCE upgrades drove our Classic AOL at year-end to around 1,100, or only 17% of our air-to-ground fleet. We expect our Classic AOL to reach zero sometime in Q4 2026. As of Q4, about 300 Classic AOL are part of fractional or managed accounts, a.k.a. fleets, with a defined upgrade path, leaving only 800 Classic aircraft not associated with a fleet account. All in, our Q4 ATG AOL trends were the best of any quarter in 2025. The continued upgrade of our Classic fleet to both C1s and AVANCE combined with our LTE rollout and the expected ramp of 5G in 2026 is expected to ultimately moderate the downward pressure on our ATG AOL. Sustained service revenue growth continues to depend on our new product ramp, including Galileo and 5G. Let us now turn our attention to our GEO business. We ended 2025 with 1,321 GEO AOL, up 6% versus the prior year, driven by line-fit positioning. We attribute slower GEO AOL growth to deactivations from an increase in aircraft for sale, triggered by the timing of aircraft bonus depreciation. We expect our GEO investments to continue to improve speed and performance, which we will also leverage with our military and government customers. Our recent upgrades to the Plane Simple Ku product have already shown results of higher download and upload speeds. We continue to expect large business jets with long global missions to migrate over time to multi-orbit LEO and GEO solutions for increased capacity, consistency, and redundancy. Our SVR router is now on 2,500 GEO aircraft and is synchronized with AVANCE routers on another 5,000, totaling 7,500 systems available for new product upgrades with our box swaps versus expensive interior rewiring. Lastly, I will address our military and government growth opportunities over the next several years. Global defense spending is rising, and the broadband penetration of the military and government aircraft is even lower than the business jet market. Our expanded military and government sales force is in active discussions with government agencies across the globe: the U.S. Department of Defense, NATO, Brazil, the Middle East, and Southeast Asia. A recent industry report highlights a market size of 6,200 combined transport and special mission military aircraft globally, of which 1,600 are in the U.S. We believe these represent excellent opportunities for our military and government broadband solutions. As this is a very underserved market, primarily with narrowband service, global governments require diversity among their aero bandwidth suppliers and will place a premium on multi-orbit, multi-band service for redundancy and performance. We believe that Gogo Inc. is the only player who can fulfill this requirement. The reality is we are already seeing a significant transformation in our business. Our military and government aviation revenue grew 34% year over year, and our international growth was an impressive 94%. The net effect of this growth remains muted by the winding down of legacy land mobile narrowband service, a process that is expected to largely complete in 2026. The key point is that our revenue mix quality within military and government will improve substantially over time. In addition to the traditional military and government market, we are increasingly optimistic about the market potential within the UAV and ISR markets. The U.S. Department of Defense expects to order over 1,000 Class II and Class III drones in the next two to three years. While not all details of our success can be publicized due to their confidential nature, we are excited to begin delivering on our recent contracts, including receipt of U.S. Air Force mobility approval to sell Plane Simple Ku-band hatch mounts to C-130 aircraft, with a TAM of over 1,000 airframes; multi-orbit wins to provide LEO, GEO, and 5G connectivity to a division of the U.S. government; and a five-year contract with SES Space & Defense for a blanket purchase agreement through U.S. Space Force Space Systems Command, with a $33,000,000 contract ceiling value. Thank you for the continued support, and I trust that you will all see our outstanding progress transforming Gogo Inc. into a global, multi-orbit player with robust broadband growth opportunities in both the business jet and military and government markets. I will now turn the call over to Zach for the numbers. Thanks, Chris, and good morning, everyone. Zachary Cotner: Fourth quarter results were largely in line with expectations, highlighted by strong equipment shipments and an increase in inventory spend in advance of our Galileo ramp this year. Additionally, our key 2025 financial results for revenue, adjusted EBITDA, and free cash flow were all at the high end of our guided ranges as aggressive cost controls and synergies balanced out product investments. As Chris discussed, we believe the ultimate activations of our Galileo and 5G equipment shipments will help drive service revenue growth longer term. On our Q3 call, I flagged a potential need for incremental working capital in 2026 to support new product shipments and our anticipation of continued ATG AOL volatility, tempered with further optimization of OpEx and CapEx. My discussion of our 2026 financial guidance later in the call will incorporate these elements. I will now provide an overview of our fourth quarter and 2025 results, then I will review the outlook to streamline our balance sheet, and lastly, I will discuss our 2026 financial guidance. Gogo Inc.’s total revenue in the fourth quarter was $231,000,000, up 3% year over year on a combined pro forma basis as well as sequentially. Total service revenue of $192,000,000 increased 61% versus the prior year and increased 1% sequentially. Total ATG aircraft online at the fourth quarter was 6,402, a decline of 9% versus the prior year period and down 2% sequentially. Total AVANCE AOL increased 8% versus the prior year period and now comprises 77% of the total ATG fleet, up from 65% a year ago. Since 2022, our total AVANCE AOL has grown by nearly 1,700 aircraft. Given the sequential increase in C1 AOL, from 101 to 330, our Classic AOL is now approximately 1,100, and our 2026 guidance assumes zero Classic AOL by year-end. Total ATG ARPU of $3,378 declined 3% year over year and 1% sequentially, largely due to the pricing reduction on several of our unlimited plans in advance of our new 5G pricing of $5,500 a month for our unlimited data plans. Total broadband GEO AOL, excluding end-of-life networks, totaled 1,321, up 6% from the prior year and down 2% sequentially. As Chris noted, many of the GEO deactivations in Q4 were triggered by an increase in aircraft sales, which is common at year-end for tax purposes. Most GEO broadband aircraft are under fixed-term contracts, which helps support revenue predictability. However, our revised GEO outlook reduced the present value of our earn-out liability by $7,000,000. Now turning to equipment revenue. Total equipment revenue in Q4 was $39,000,000, up 104% year over year and 15% sequentially. Total ATG equipment shipments of 472 were an all-time high and up 8% sequentially from the prior record of 437 in Q3. In 2025, ATG equipment shipments totaled 1,631, nearly matching the combined shipments from the prior two years. As expected, AVANCE shipments of 175 declined sequentially as market demand shifted to C1, which increased 30% sequentially to 297 to support the Classic conversions. Now moving to our margins. Gogo Inc. delivered combined service margins of 50%, which was in line with our expectations. I will provide further service margin context in the 2026 guidance discussion later in the call. The write-off of legacy equipment drove equipment margins negative in Q4 and was expected as normal business course. In addition, HDX equipment pricing remains close to cost. Now turning to operating expenses. Total Q4 operating expenses, excluding depreciation and amortization, were $58,200,000, up slightly sequentially due to the ongoing litigation expense, which was $8,400,000 during the quarter. Let us now turn to our major strategic initiatives: 5G, Galileo, and the LTE network upgrade and the FCC reimbursement program. Total 5G spend in Q4 was $1,700,000, almost all tied to CapEx. Total 5G spend in 2025 was $12,600,000, which we expect to decline by about 50% in 2026. Q4 Galileo spend was $2,600,000, with 70% tied to CapEx. Galileo spending of $10,000,000 in 2025 is expected to decline considerably in 2026 to $1,500,000 as we exit the investment phase and embark on product shipments and service activations. We expect total development costs for both HDX and FDX will be about $40,000,000, well below our original plan of $50,000,000. Given our expectation for strong long-term Galileo success, we believe that our ROI on the Galileo investment will be very attractive. And finally, our LTE network upgrade and FCC reimbursement program. In Q4, we received $34,000,000 in FCC grant funding, bringing our program-to-date total to $93,900,000. As of year-end 2025, we reported a $27,800,000 receivable from the FCC and incurred $35,700,000 in reimbursable spend in Q4. The receivable is included in prepaid expenses and other current assets on our balance sheet, with corresponding reductions to property and equipment, inventory, and contract assets with a pickup in the income statement. Moving to our bottom line, Gogo Inc.’s adjusted EBITDA in Q4 was $37,800,000, in line with our implied 2025 guidance. Net income for the quarter was negative $10,000,000 but was affected by a $10,000,000 litigation settlement accrual, a $4,000,000 charge related to a valuation adjustment on a prior investment in a supplier, and a write-down of legacy equipment that I previously mentioned. While we have removed a significant amount of cost from the combined company, particularly in headcount, we continue to identify new sources of cost reductions in various areas, including real estate, back office, software solutions, and CapEx rationalization. Moving to free cash flow. In 2025, we generated $89,200,000 in free cash flow, which was at the high end of our guidance range of $60,000,000 to $90,000,000. Free cash flow was slightly negative in Q4 due to previously flagged factors, including a $17,000,000 increase in inventory tied to our new products as well as lower EBITDA. Let us now turn to our balance sheet. Gogo Inc. ended the fourth quarter with $125,200,000 in cash and short-term investments and $848,000,000 in outstanding principal on our two term loans, with our $122,000,000 revolver remaining undrawn. Our Q4 net leverage ratio was 3.3x and within our target leverage ratio of 2.5x to 3.5x. Our Q4 cash interest paid, net of hedge cash flow, was $17,000,000. Our hedge agreement remains at $250,000,000 at a strike price of 2.25 bps, resulting in approximately 30% of the loans being hedged. As a reminder, the hedge amount will decrease to $200,000,000 on 07/31/2026 and expires on 07/30/2027. In 2025, cash interest paid, net of hedge cash flow, was approximately $67,000,000. Our immediate focus remains exploring ways to optimize and delever our balance sheet while reducing interest expense. Between cash on hand and our revolver, we have approximately $250,000,000 in liquidity, which we believe is significantly higher than our requirements to operate the business. We continue to believe our expected free cash flow over the next few years will drive excess cash to refinance the debt and ultimately return capital to shareholders. In our earnings release this morning, we provided the following 2026 financial guidance: total revenue in the range of $905,000,000 to $945,000,000, with 80% tied to service revenue and 20% to equipment revenue. This implies overall growth of about 2% at the midpoint. Adjusted EBITDA in the range of $198,000,000 to $218,000,000 and free cash flow in the range of $90,000,000 to $110,000,000, implying 12% year-over-year growth at the midpoint. We expect approximately $30,000,000 for strategic investments in 2026, net of any FCC reimbursement, down about 45% from our strategic spend of $56,000,000 in 2025. The majority of our strategic investments this year are tied to fleet promotions and STCs and will flow through operating expenses. Net CapEx of $20,000,000 after $45,000,000 in CapEx reimbursement from the FCC reimbursement program as we complete the LTE ground network build. In addition, here are some incremental points that could aid in your modeling to provide context. Mix heavily influences our overall service profit. ATG service margins are about 75%, and blended GEO margins are in the high 30s, with Galileo margins at scale in the middle of those. Equipment margins are expected to be in the mid-single digits, and service profit is anticipated to account for over 95% of total gross profit. Our 2026 free cash flow estimates exclude an estimated $40,000,000 earn-out payment in April, which we expect to pay from cash. In conclusion, we have made significant progress in the past fifteen months since the closing of the Saginaw deal. Our three-year end product investment cycle is nearing completion, and we expect to see strong benefits from the rollout of 5G, HDX, FDX, and our LTE network. I want to express my gratitude to the Gogo Inc. team for their hard work in driving our transformation and their commitment to outstanding customer service. Operator, this concludes our prepared remarks. We will now open for questions. Please open the queue for questions. To withdraw your question, please press star 11 again. Please rejoin the queue if you have any additional questions. Operator: Our first question comes from Scott Wallace Searle with ROTH Capital Partners. Scott Wallace Searle: Good morning. Thanks for taking the questions. Thank you for the detailed outlook. Very helpful in terms of going through the numbers and the analysis. Maybe to start just real quickly, Chris, in terms of NetJets, this has been, I guess, a lightning rod for the company in the last several months. What is your expectation in terms of your growth with NetJets? Will you ultimately be adding to the absolute number of NetJets AOL that you have online across the different types of aircraft across the different geographies? And then I had a follow-up. Chris North: Yeah. I think the big thing is that NetJets remains a customer, and we are expanding the customer base with them, especially with the European fleet. We are in a technical transformation with the services that we provide them. So if you look at most of the opportunity that we have, it is on our Galileo service, and we are continuing to roll that out. And they still remain a very important part of our future in business and a customer of ours. Scott Wallace Searle: Gotcha. Then, as it relates to the Classic transformation, we are down to about 1,000 aircraft right now. I know there is a cutover point in the middle of this year. A couple of things: It sounds like by the end of this year, that is going to be resolved at one point or another. You expect to have zero Classics online. I am wondering how you are seeing the conversion rate in terms of going to C1 and upgrade to AVANCE? So in other words, what is the number going to look like within that base as we get to the end of this year? And last one I could throw in as well. You know, Satcom growth within the MilGov space has been very, very good. It sounds like you are going to be growing this year, going to be growing that faster than the rest of the business. But I am wondering if you could give us a framework of what that could look like in terms of percentage of mix by the end of 2026 and maybe 2027? Thanks. Chris North: Yeah. I mean, I will start with the MilGov piece. The MilGov is, we are seeing a lot of opportunity in Europe. Still, as I mentioned in the call, we are also transforming that business and removing the narrowband exposure in that business to broadband. I think the exciting thing really on the product portfolio is we are positioned now with 5G, Galileo, and our GEO broadband offerings that we have broadband offerings for all of our customers no matter whether they are in business aviation or government. And they have a true broadband offering or multiple broadband offerings, which is pretty exciting because then all of a sudden, you have multiple revenue streams coming from an airframe instead of a single as well. The government part of the business, we are already seeing a lot of opportunity with UAVs. Europe is obviously doing a lot more focus on expenditure on military spending. I think we are reaping the rewards of that as well. The DOD is a very underpenetrated market, as I mentioned on the call. You look at that, you know, they had the 25 by 25 campaign a few years ago. They still have not reached that. Our technology is a lot more deployable, cost-effective, aviation-built, aviation-grade, and they also do not want interdependencies on a single supplier. So I think, you know, as we see that mix, it will take a long time for that to be the same levels as business aviation, but we just see that as continuing to grow between 2026, 2027, and beyond. Zachary Cotner: Yeah. And I think from a mix standpoint, you know, like we said, we do anticipate it is going to grow faster this year than last year. And, you know, a big driver of that is obviously equipment, but we also won a pretty sizable contract kind of late Q3. That is why you saw the nice Q4 pop in the MilGov numbers, which should continue for most of the year. And, you know, on the equipment side, you are going to see a lot more growth on that, largely because, you know, if you think of the aircraft those go on, those are obviously quite a bit different than business aviation. So it just takes a little bit longer to get those put on the aircraft, and, you know, the guys are keenly focused on it. Scott Wallace Searle: Yeah. And the mix of Classic, or what you expect to be the outcome of those remaining 1,000 Classics in terms of conversion to C1 versus upgrades to AVANCE and kind of what you have got factored into the current 2026 guidance? Thanks. Zachary Cotner: Yeah. So, you know, when we look at the AVANCE/Classic mix, you know, the guidance does assume that there is an extension granted, and so it does not go dark in Q2. It is still going to decline, and, you know, there will be some AVANCE declines. There will be some C1 decline, Classic. Right? So, but long story short, our view is between Classic, AVANCE, then also with the addition of 5G, the total ATG portfolio will be down about 1,000 units by year-end, and then the Classics basically are assumed to not convert at year-end. Scott Wallace Searle: Great. Thank you. Operator: Our next question comes from Sebastiano Petti with J.P. Morgan. Sebastiano Petti: Hi. Thank you for taking the question. I guess, Chris, just following up, I think you talked about specifically the NetJets expanding their fleet there in Europe. Overall, can you maybe give us a little bit of color on what you are seeing from an international perspective across the portfolio between the backlog on Galileo? You touched on some of the MilGov interest, you know, for DOD but also maybe internationally. Maybe kind of start there, then I will have a follow-up. Thank you. Chris North: Yeah. I think the big opportunity that we announced back on the Q3 call was the fact that we won VistaJet, and I talked about that today as well. That is a significant win, but also if you look at Luxaviation, Avcon Jet, you know, that backorder on those large fleet operators outside of NetJets, specifically within Europe as well, is significant and a thousand-plus aircraft. We know that we are still holding true to that number regardless of NetJets. We are still excited about the NetJets rollout in Europe as well, and the feedback we have had on the product, they have been extremely ecstatic. If you look at our pipeline, it is around, still maintains a 60/40 split with international. I think the sentiment is definitely from our international customers. I think the fact that Eutelsat OneWeb is also a European operator, I think that has some clout to it, but more importantly, these guys have not had a broadband solution on a number of these aircraft, especially those that cannot support the rather expensive installation costs going into the tail or the size of that. So we expect that to expand, and we are seeing very interesting markets pop up in Southeast Asia and other markets where, you know, popular airframes like the Phenom are there, but we have zero connectivity. And we are really the only solution that can get down to that size of airframe with a true aviation install. The MilGov market as well, a lot of that expansion in the MilGov market that we have talked about specifically, mostly is at this point coming out of NATO. We cannot talk about specific projects, but we are winning projects against our competitor, which is great. I think that is a really important point to make as well. So we are not the only bid when we are winning these. And I think that pivot towards our technology just shows its versatility from going into anything from a UAV to something that is a small platform aircraft. I think that is also giving us good dividends as well. So we expect that to grow. We have expanded the international team for the business as well, and, yeah, we are very hopeful and enthusiastic about where that is going. Zachary Cotner: Yeah. And I would just make one other point to reiterate Chris’s comments. You know, if you look at some of our metrics we reported, you will see we have started adding the LEO units online, and more than half of those are in Europe. So I think that is really proving the point that Chris has articulated, that that is a very strong market for us. Thank you. Operator: Our next question comes from Justin Lang with Morgan Stanley. Justin Lang: Hi, good morning. Thanks for taking the questions. Chris, appreciate the comments around Galileo and 5G aircraft online expectations this year. But curious if we could provide a little more color on what level of service revenues from the new products are factored into the guide currently? And just on the top-line range, what factors might push you to the high end versus the low end this year? What should we be watching for? Thanks. Zachary Cotner: Yeah. So I think from a, there is obviously a lot of ins and outs to this because the ATG revenue on the existing book is going down significantly. Right? That is about $40,000,000. And then the remainder of kind of the decline in service is from the GEO business. But, you know, we do expect a nice little uptick on the LEO. I would say the LEO service revenue is offsetting not quite half, but almost half of the decline in the legacy products. And then, obviously, the equipment mix, that is a big piece of the revenue bridge from last year. Justin Lang: Got it. That is helpful. And then just, sort of cadence basis, should we expect a much stronger second half this year as some of these new products dial in? Or is that a stretch? And then maybe, Zach, just on free cash flow cadence, because I think you have suggested some unique working capital demands this year. If we could hit on that, that would be great. Zachary Cotner: Yeah. So I think a couple points. One, it does take three to six months, about, on the HDXs to get installed, so you are right. It is going to take a little bit of time to see the service revenue. From a free cash flow perspective, like we said in Q4, you saw kind of an inventory build. You will probably see that in Q1 as well, and that is really for all the shipments. Right? So we have to make sure we can deliver these orders as requested, so we are ramping up. I think the ramp will be done this quarter, and then you will see more and more flows out in Q2 and Q3. So I think from a cash flow perspective, you will see better cash flow in the other three quarters. Then, was there another one? Did I get all—okay. That is helpful. I think I— Justin Lang: I will sneak one more in just on the MilGov topic. It is strictly around the C-130 opportunity you are talking about? Chris, and I think there is a mention of over 1,000 aircraft in the TAM. So how big of a discrete revenue opportunity is this for you? And, sort of secondly, I think we saw you won a seat on the MDA SHIELD IDIQ a little while ago. So how should we think about potential Gogo Inc. contribution to Golden Dome? Thanks. Chris North: Yeah. I think if you look at the TAM for the C-130, it is 1,000. So that is pretty significant, and getting that hatch mount, which is a really important product for those guys because it is very low-cost installation again. I think that has been one of the prohibiting points for the military, actually fitting communications onto the aircraft. I think, you know, the wins that we are having with the DOD around things like Golden Dome, we will see how that pans out over time, but I think our approach is really kind of pushing in the adaptable, really easy, low-cost install. We are moving away from the thousand-dollar hammer, or them having to fund our business whereby hundreds of millions of dollars—we do not need that. We are really very specifically focused towards our military customers to get them quick, expandable technology that can be upgradable very easily in the future as technology changes. I think that is really resonating with the military. And then if you look at the overseas military outside of the DOD, which is a huge opportunity—obviously, the DOD does the largest spend globally on military spending—aviation is becoming so much more important. Border patrol and also head of state. And we have had wins in the last twelve months around anything from surveillance aircraft right through to significant heads of state wins, and so it is a really versatile portfolio. We believe that it is a really underserved market, very much like the business aviation market with broadband connectivity. So we just see that being a very positive outcome for the business. And the nice thing is, as well, we really do not have to put a lot of CapEx in adapting the technology either. It is really kind of off-the-shelf commercial aviation technology that we have kind of developed for business—purpose-built for business aviation. We are actually able to take that and put that into those markets. And I think the C-130 is just one platform that is obviously utilized globally, but there are other airframes there like the A400M, which is very popular in Europe. So we are really going after that part. We have really boosted up the sales team. We put that under new leadership, and we are seeing significant kind of uptick from that. So we are really excited about it. Justin Lang: Great color. Thank you. Operator: Our next question comes from Alexander Phipps with OHA. Alexander Phipps: Guys, thanks for the call today. Overall, congrats on the quarter. Seems like it is starting to stabilize a bit. How should we think about, I guess, I understand the concept of people getting a backup with GEO to supplement their LEO. But how should we think about where ARPU should stabilize on the GEO business longer term if someone is just using it as a backup solution. Chris North: I think the big thing is if you look at total revenue by the airframe. Right? So I think that is going to change over time. So where we have had a traditional single kind of source coming from the airframe as a primary communication method, whether it is GEO or ATG within CONUS with the U.S. market, now with Galileo, and obviously the demand that we are seeing for LEO, which is brilliant, I think the big thing is for those global operators having continuity of service globally is so critically important. I think the way we are looking at it is kind of a blended offer for those larger aircraft, which is similar to what we probably get from GEO today, but we will see that more as a blended offer from connectivity forms. So that is the way we are kind of looking at it right now. Alexander Phipps: Got it. And then on the online fitting, so it is good to hear that you guys are going to be getting a bunch of new line fits for the HDX. Do you know what percentage of, I guess, what percentage of planes on the GEO side, let us say, that are line-fit with a Satcom Direct solution are also currently line-fit with a Starlink solution? And, I guess, how exactly does that work? Does the tail of the plane—and then the customer—need to keep the GEO solution and then get the Starlink solution installed at an MRO after the fact, or can they actually opt just to get Starlink and not have the SD solution put in the tail? Chris North: I will answer in a couple of different ways. So at this point in time, I think we have set ourselves up that when you buy an aircraft across any airframe over the next twelve months, we are in a position that ultimately you will either choose the competitor or us when it comes to LEO. That is a really important point to make. GEO is still line-fit across those OEMs which can actually fit it into the tail. And we are seeing the fact that customers do want an alternative. If at the moment they are not installing our solution as the LEO solution, they are still seeing the need for GEO. The reason for that is when you look at the larger airframe manufacturers, you know, these aircraft fly fourteen hours. They are flying all around the world. And there are large portions of the LEO network, from a regulatory perspective, that are still not connecting today. So you really need that assurance of that GEO backup. The other thing which we are also seeing is a lot of our customers like that assurance because we provide a lot of different things that other people do not provide as well, such as cybersecurity, continuity of service, and a number of value adds. And also, having that connectivity allows our support, which is global—you know, we have got human beings who can answer the phones, but we have also put a lot of technology into our back end so we can filter through where really the issues are with the aircraft and fix issues for customers really before they even know about them or are reporting them back to us. So I think that GEO position as a backup, but also from a continuity of service providing bandwidth, we are seeing that customers are also still utilizing the service even if they have LEO onboard because we are also pushing off a lot of information and synchronizing those with other OEMs such as engine manufacturers, operations, tracking the aircraft. So it is a lot more nuanced than just providing connectivity. So we are seeing that, but I think the really exciting thing just to reiterate is we will be in a position over this year that, you know, we are a genuine choice for a customer no matter the size of the airframe. But all of our customers now have a true broadband solution whether it is kind of 5G as an entry service and then LEO service as a, like, a primary LEO low-latency, high-bandwidth product at an enterprise-level communication method as well. So it is a really exciting time for the company. Zachary Cotner: Yeah. And I would just kind of dovetail on that. I think it is a critical point on the line fit. When you look at the GEO adds we have had this year, those are almost all exclusively line fit. Right? And that was kind of the old Satcom way that we were able to grow that business so well, because, you know, like you said, you had to pick a provider, and that is where we will be at the end of this year and the beginning of next year. Whereas this year, it is a lot of aftermarket, and you have got to slot guys into maintenance times, and it is a bigger sales lift until you get line fit. Chris North: Yeah. And I think now, at least, we have also got both ends of the market. We have got a really strong MRO base. We have got amazing MRO partners. And we have also got amazing OEM partners. And we have a direct sales team who are going out to customers when they are specifying their airframe or they are maintaining their airframe, whether it is in the aftermarket. They can actually walk customers through what connectivity solutions are needed for the size of airframe and the mission that they actually have for that aircraft as well. So, you know, I think we are going to the market in a kind of multipronged way anyway. Alexander Phipps: That is super helpful. I guess just two quick follow-ups on that. On the point where customers are going to still use—they will have the GEO as a backup, but they are going to be using a LEO high-bandwidth solution—like, where should ARPU shake out? Is it half of where it is now for the GEO solution? Is it, like, a quarter? Just any comments on that. And then I guess on the line fit, like, just to kind of say it a different way, like, I mean, if you go on a commercial airplane right now, there is still an ashtray in the bathroom, and that is not because they think someone is going to smoke in it. It is because the door to the bathroom got an STC back in 1960 with the ashtray in it. Like, do planes have to—if they have an STC with an SD solution in the tail—will it be rolled out? Like, will that plane always be delivered with that in the tail, or will customers have the option to just get Starlink and not have that in the tail of the plane. Chris North: Well, I think the big point is on communications, it is always choice. So outside of safety services, the OEMs always enable choice on what connectivity solutions that you have, and that is also then dependent on the STC. So you absolutely have choice on not specifying different connectivity. However, it is very different to commercial aviation where kind of utilizing the connectivity service onboard is a chargeable event and kind of the attrition for the airlines is quite—it is a really different model. For a business jet, it is a necessity and a need. And then also, it really depends on the utilization, who is using it, and therefore, whether it is primary or backup. We have seen that this is not a new thing for us. If we look at our narrowband service to when GX came in as a service, that did not just go away. We are still activating narrowband services with our OEMs today. So I get your point on kind of, like, the analogy with the ashtray. I think this is more kind of really—yeah, the STC has been invested in. It is also very difficult to get things on airplanes, to your point. So these things linger around for a while. But we are seeing utilization on the GEO service even if another service is on board, as we do with narrowband services that are being utilized with GEO onboard as well. So we have got a lot of experience in this, and that is the bit where we do feel that it will be a multipoint approach with a lot of customers with the larger aircraft. Obviously, on the smaller aircraft, that is a little bit different. We usually see a single source of communications as the primary communications method. However, the nice thing is with the HDX, it can really get down to those smaller airframes where actually our competition antenna is quite large. So I think that is the bit where, you know, we feel really quite strong about different sizes of the market. And then with 5G coming in as a revolutionary service for these Classic customers or people going to C1s, you know, really this is going to true broadband. So again, you know, we are seeing OEMs investing in 5G for the line as well. But I think the choice for the customer has always been there, and there is nothing new with that. I think that is the biggest takeaway from my perspective. And then on the numbers side, really on the ARPU, the ARPU will really settle—you know, that is a really tough one to navigate at this point because we are still seeing strong offers from GEO because of the necessity of having that backup. But at some point, we truly do believe that it is going to blend together, whereas where we really see the true blended rates, we see that being around what we get from GEO today on the kind of higher end because they are ultimately getting multiple services. The nice thing with Gogo Inc., we are the only company who provides all of those services, and we can send the customer an integrated bill so they are not looking at—it is almost like utilizing your mobile phone. You know, you are not looking at how much network utilization you took off AT&T versus Verizon. You will be looking at this from us as a blended bill from Gogo Inc., very simple, but ultimately knowing you have got the assurance of backup on your data as well. Hope that makes sense. Alexander Phipps: Yeah. That is super helpful. I promise one more quick one, and then I will shut up. It is, like, gun to your head, just to help conceptualize what the white space looks like because, to me, it seems like there is a lot of white space. Like, excluding MilGov, just BizAv, like, what do you think the mix will be five years down the line in terms of composition of your fleet—North America or, let us say, EMEA and APAC—on types of service? I think—well, just like AOL. Just like AOL. Like, I mean, obviously, right now, the AOLs are—like you said, half of the LEO that came online are Europe, if I recall correctly. Like, do you think that that is going to be the mix longer term? Do you think it is going to be, like, 50% of your LEO fleet is non-U.S. and 50% domestic? Or is that just right now? Chris North: I think we are seeing the demand. We have always been seeing the utilization of business aircraft outside of North America is growing at a rapid rate. So therefore, I think it would be a logical assumption that the splits that we have got at the moment—you know, North America is obviously the biggest market. We believe we will hold a good percentage in that. And I think having that kind of 60/40 split is a good way of thinking of it long term. And as the international market grows, and we will grow into that, we also have offices all around the world, so we can really kind of support those customers. But also those customers over a period of time, you know, they will be taking aircraft from the OEM. And the nice thing now is they can actually spec it at the OEM with our services. So I think that will naturally grow as well, but I think that kind of 60/40 split is the kind of way we are thinking about it for the business over the next few years. Alexander Phipps: Super, super helpful. And thanks so much, guys. Chris North: Yeah. No. It is— Operator: That concludes today’s question-and-answer session. I would like to turn the call back to Will Davis for closing remarks. Will Davis: Thank you, everyone, for your participation in our fourth quarter earnings call. Operator: You may disconnect. Will Davis: This concludes today’s conference call. Thank you for participating, and have a great day.
John Silas: Good morning. This is John Silas, a member of the Investor Relations team for Goldman Sachs BDC, Inc., and I would like to welcome everyone to the Goldman Sachs BDC, Inc. Fourth Quarter and Fiscal Year-End 2025 Earnings Conference Call. [Operator Instructions] Before we begin today's call, I would like to remind our listeners that today's remarks may include forward-looking statements. These statements represent the company's belief regarding future events that, by their nature, are uncertain and outside of the company's control. The company's actual results and financial condition may differ, possibly materially, from what is indicated in those forward-looking statements as a result of a number of factors, including those described from time to time in the company's SEC filings. This audiocast is copyrighted material of Goldman Sachs BDC, Inc. and may not be duplicated, reproduced or rebroadcasted without our consent. Yesterday, after the market closed, the company issued an earnings press release and posted a supplemental earnings presentation, both of which can be found on the homepage of our website at www.goldmansachsbdc.com, under the Investor Resources section and which includes reconciliations of non-GAAP measures to the most directly comparable GAAP measures. These documents should be reviewed in conjunction with the company's annual report on Form 10-K filed yesterday with the SEC. This conference call is being recorded today, Friday, February 27, 2026 for replay purposes. I'll now turn the call over to Vivek Bantwal, Co-CEO of Goldman Sachs BDC, Inc. Vivek Bantwal: Thank you, John. Good morning, everyone, and thank you for joining us for our fourth quarter and fiscal year-end 2025 earnings conference call. I am here today with David Miller, our Co-Chief Executive Officer; Tucker Greene, our President and Chief Operating Officer; and Stan Matuszewski, our Chief Financial Officer. I would like to start by highlighting GSBD's progress since our integration, followed by an overview of our platform's activity during 2025. I'll then spend some time sharing our perspective on current market conditions amidst most recent headlines in the software space. I'll then turn the call over to David and Tucker, who will dive into our fourth quarter results portfolio activity and performance before handing it off to Stan to take us through our financial results. And finally, we'll open the line for Q&A. Since GSBD's integration into the broader direct lending platform in 2022, we've enhanced our sourcing, underwriting and portfolio management oversight. This quarter, the proportion of our portfolio benefiting from the 2022 reorganization has grown to 57%, while 43% still reflects deals made prior to the integration, which we call the legacy portfolio. From this integration, GSBD has directly benefited through a deeper origination funnel and the ability to invest in and frequently lead larger senior secured debt transactions supported by the platform's disciplined approach. We have approximately 250 investment professionals on our broader private credit platform. The scale of our investing team, the scale of our platform and the incumbency, relationships and investment prowess. Our team has built up over nearly 30 years, stacks up well against industry peers. What makes it more powerful and unique is having a private credit business attached to the #1 global investment bank. In addition to the deal origination through our dedicated private credit team, we are able to draw on the relationships of more than 3,000 investment bankers, helping us identify potentially attractive opportunities from our #1 M&A franchise which we can select from as a fiduciary to investors subject to regulatory requirements. Before I dive into our view on the market, I'd like to highlight some broader stats that illustrate the progress GSBD has made as we continue to transition to the direct lending platform. The median EBITDA of the portfolio has increased 84% from year-end 2021 to $71.8 million at year-end 2025. Our exposure to first lien investments increased to 97% of the portfolio from 89% during that same period. Throughout 2025, GSBD demonstrated continued progress in addressing credit quality concerns and active management of the portfolio. PIK as a percentage of total investment income was 9% in Q4 2025, which is down from 15.3% in Q4 2024. Of that 9% during the fourth quarter, 5% of total investment income during the quarter was from PIK that was introduced as a loan modification or amendment after the initial agreement the vast majority of which relates to the legacy portfolio. Our investments on nonaccrual decreased slightly to 1.9% of fair value from 2% during the year. This is well below our highest nonaccrual rate since integration of 3.4% of fair value. Another topical consideration we've been keen to address is our exposure to annualized recurring revenue or ARR loans within our broader BDC complex, which includes GSBD. From its peak of 36.5% during Q3 2022, we have significantly reduced the ARR exposure within the BDC complex to approximately 5% at year-end 2025. Within GSBD specifically, ARR loans came down from nearly 39% of the portfolio on a fair value basis to 11% during that same time period. This trend is attributed to our strategic focus on EBITDA-based investments since integration and our proactive approach in mitigating ARR loans from the legacy portfolio as we seek strategic exits or EBITDA conversions for the existing loans in the space. Overall, our direct lending platform had another strong year in 2025, which directly benefited GSBD. For the year in the Americas specifically, we committed a total of approximately $14.6 billion, which was larger than the $13 billion committed during 2024 and more than double the activity in 2023, all the while remaining selective and disciplined in our underwriting approach. From a macro perspective, despite a volatile first half of 2025, total M&A volume globally throughout the year was up 44% from 2024. U.S. private equity deals reached nearly $1.2 trillion, marking the second time in history that deal volume has surpassed $1 trillion. Despite this being driven largely by mega deals exceeding $1 billion, we expect this M&A momentum in a potentially falling rate environment to continue and spur a resumption of private equity activity. A more favorable M&A environment should stimulate greater demand for credit financing. And despite the supply of credit remaining robust, we do anticipate spreads to moderately widen during the market dynamics we've seen over the past month. We believe that in today's market environment, differentiation among managers will increasingly be driven by sourcing quality, underwriting discipline, collateral oversight and creditor protections. Let's get to the topic of software. We have a very experienced software investing team. Our view informed by extensive collaboration across Goldman Sachs, including our 13,000 software engineers, our technology investment banking team and our growth equity investors who are early to companies like Anthropic is that AI's impact will be highly company-specific and nuanced. We will come back to the topic of software and go through some more detail on our framework and a case study but our broader private credit platform has operated with an incredibly high bar focusing on what we believe are high-quality situations in our very broad funnel. As it relates to the recent headlines in software, and the volatility we've seen in equity markets, we understand the concerns regarding AI's potential impact on certain software business models. However, as credit investors positioned at the top of the capital structure, our lens is fundamentally different from, say, equity investors. We don't participate in growth or equity valuation upside. We're focused on the durability of assets and their cash flows. This credit-focused perspective provides some insulation from valuation volatility. That said, we recognize that sufficiently severe disruption could impact creditworthiness, which is why we maintain ongoing vigilance and are prepared to adapt if our thesis on any portfolio company changes materially. We are focused on lending to scaled incumbent businesses that are deeply entrenched in mission-critical workflows and complex use cases, evidenced by strong retention and efficient growth. These structural features, among other things, are key characteristics that we seek in software companies that demonstrate real incumbency advantages. Our direct lending platform has a long history of investing in the software sector with investments in the sector dating back to 2008 when we launched our first senior direct lending fund. We have been proactively assessing the impacts of AI on the software space for years. We passed on our first deal due to AI concerns in October of 2023 and rolled out an internal framework to evaluate AI disruption risk in early 2025, which is incorporated into all new investments in addition to our ongoing monitoring of existing portfolio exposure. The characteristics of our framework include, but are not limited to, acting as mission-critical systems of record with proprietary data and deep domain expertise solving for complex use cases and deterministic outcomes with no tolerance for errors, leveraging the accumulation of context, deep understanding of customers' unique requirements to drive critical business processes, providing broad platforms versus single-product tools, operating on modern underlying architecture with limited technical debt, actively innovating and embedding AI into their own products, operating in regulated and risk-averse industries with long-term customer relationships and trust as well as having proven track records of managing security, compliance, regulatory and governance complexities. We look at each opportunity through this lens in the underwriting process. Across our broader Direct Lending Americas platform, we have closed or committed to '26 new software deals since January 2025 that exhibit strong KPIs including an average Rule of 40 of 55.8%, comprised of 16.6% recurring revenue growth and 39.1% cash EBITDA margins. During the third quarter 2025, revenue growth and EBITDA margins of our Direct Lending Americas software portfolio improved to 9.2% and 34.9%, respectively, up from 7.8% and 30.3% a year earlier, respectively. Let me provide a concrete example of how we leverage the Goldman Sachs ecosystem for both proprietary origination and enhanced diligence by discussing our largest committed software deal during the quarter, Clearwater Analytics. Clearwater Analytics, founded in 2004 and based in Boise, Idaho, provides cloud native investment accounting, analytics and reporting solutions for institutional investors, including insurance companies. Goldman Sachs has been around this company for a very long time. We were approached by the sponsors looking to take Clearwater Private as the only organization that we believe could have provided a 100% solution on a transaction of this size in both public and private markets in addition to offering M&A advice. We showed the sponsors indicative financing terms across both markets and ultimately, the sponsor selected the private credit alternative where we were able to structure and negotiate a mutually beneficial bilateral credit facility that included our desired long-term size allocation. The bilateral process, both simplified and streamlined the sponsor's financing process while protecting the confidentiality of the M&A process which was critically important for the M&A execution. This is an example of leveraging the broader GS ecosystem to deliver differentiated origination and outcomes for our investors. The other part of the ecosystem relates to diligence in our AI framework. The deal team benefited from a firsthand perspective on Clearwater's capabilities and value proposition with Goldman Sachs being a customer of Clearwater's across our Asset and Wealth Management and Global Banking and Markets divisions. The deal team was able to conduct multiple calls with our engineering colleagues to validate our credit thesis and build a high degree of conviction related to the mission criticality and stickiness of the solution and competitive positioning and durability in a rapidly evolving technology landscape. And so in December 2025, the GS Private Credit Complex committed to 100% of a $3.5 billion investment in a new unitranche financing to support the take private of Clearwater by Warburg Pincus and Permira. And a few weeks later, the sponsors brought 9 other lenders into the deal. The Goldman Sachs private credit complex retained our desired $1.235 billion of the facility, and the GS BDC will own $75 million of that at closing. The Clearwater investment highlights key characteristics that underscore our approach to investing in software amidst an evolving and nuanced investing environment. Clearwater's advantages are not about the cost to write code. They're about owning the customer relationship, leveraging proprietary data with network effects, navigating regulatory complexity, and providing the insurance policy that mission-critical systems will work reliably. These structural and strategic advantages enable Clearwater to continue providing value to its customers and benefit from AI advancements rather than be disrupted by them. Looking forward, our framework will continue to evolve as the landscape develops. While AI remains a dynamic and rapidly evolving area, we remain confident in our ability to thoughtfully assess and help mitigate AI-related risks across both our current portfolio and new investment opportunities. That said, and this is important, this is not a time for complacency, but rather a time to remain humble, proactive, disciplined and forward-looking. We are focused on the implications of AI, not only within software, but across the broader business landscape, and we continue to leverage the differentiated capabilities of the Goldman Sachs ecosystem in support of our portfolio. With that, let me turn it over to my co-CEO, David. David Miller: Thanks, Vivek. I'd now like to turn to our fourth quarter results. Our net investment income per share for the quarter was $0.37, and net asset value per share was $12.64 as of quarter end. This decrease of approximately 1% relative to third quarter NAV was largely due to net realized and unrealized losses in the quarter. The Board declared a fourth quarter 2025 supplemental dividend of $0.03 per share payable on or about March 20, 2026, to shareholders of record as of March 9, 2026. Adjusted for the impact of the supplemental dividend related to the fourth quarter earnings, the company's fourth quarter 2025 adjusted NAV per share is $12.61. The Board also declared a first quarter 2026 base dividend per share of $0.32 to shareholders of record as of March 31, 2026. We ended the quarter with net debt-to-equity ratio of 1.27x as of December 31, 2025, as compared to 1.17x as of September 30, 2025. GSBD committed approximately $1.2 billion in new commitments throughout the year in 35 new deals. Of the commitments made to new portfolio companies, GS played a lead role in approximately 75% of the deals. During the quarter, we made new commitments of approximately $394.9 million across 27 portfolio companies comprised of 7 new and 20 existing portfolio companies. 100% of our originations during the quarter were in first lien loans, which continues to reflect our bias in primarily maintaining exposure to investments that are at the top of the capital structure. During the quarter, in addition to Clearwater, we also acted as sole lead arranger in the acquisition of [ KUIU ], which is an e-commerce native apparel and accessory brand focused on outdoor enthusiasts. This transaction exemplified our ability to lean into high-quality company and commit 100% of the financing, which is an illustration of the platform's deep sponsor relationships. Turning to portfolio composition. As of December 31, 2025, total investments in our portfolio were $3.26 billion at fair value, comprised of 38.4% in senior secured loans, 1.3% in a combination of preferred and common stock and a negligible amount of warrants. With that, let me turn it over to Tucker to discuss repayments fundamentals and credit quality. Tucker Greene: Thanks, David. I'll first discuss the portfolio in more detail. At the end of the fourth quarter, the company held investments in 171 portfolio companies operating across 40 different industries. The weighted average yield of our total debt and income-producing investments at amortized cost at the end of the fourth quarter was 9.9% as compared to 10.3% at the end of the third quarter. Importantly, our portfolio companies continue to have both top line growth and EBITDA growth quarter-over-quarter and year-over-year on a weighted average basis. The weighted average net debt-to-EBITDA of the companies in our investment portfolio increased slightly to 5.9x during the fourth quarter compared to 5.8x during the third quarter. At the same time, the current weighted average interest coverage of the companies in our investment portfolio at the end of the fourth quarter increased to 2x compared to 1.9x during the third quarter. As Vivek and David mentioned, we had a strong quarter of originations with an increase in our net funding as we continue to enhance the portfolio. Sales and repayment activity totaled $251.6 million during the quarter, primarily driven by full repayment and exit of 13 portfolio companies. One notable exit this quarter was with a portfolio company that our platform has been invested in for approximately 8 years. This company is a software provider for the staffing, recruitment and contingent labor industry. Now despite performance remaining steady and showing no indication of deterioration in the near or long term, we decided to sell the loan at $0.99 to other lenders given anticipated headwinds and AI disruption risk within the industry. This is a strong example of our ability to be proactive and cautious towards exiting strong companies that we believe have potential AI risk. Our total repayments during 2025 amounted to $1.1 billion. Over 78% of this repayment activity was from pre-2022 vintage loans, demonstrating effective management of our assets. As of December 31, 2025, pre-2022 vintage investments constitute approximately 43% of GSBD's portfolio at fair market value. The firm maintains a proactive approach to monitoring, managing and resolving any associated credit issues. Throughout this past quarter, we utilized our 10b5-1 stock repurchase plan. We repurchased north of 1.5 million shares for $15 million, which is accretive to NAV by $0.04 per share. Since implementing the 10b5-1 plan in June 2025, we have repurchased $52.2 million or 4.7 million shares. And finally, turning to asset quality. As of December 31, 2025, we placed Pluralsight's first Lien/Senior Secured Debt position -- last out position on nonaccrual status. Investments on nonaccrual status increased slightly to 2.8% and 1.9% of the total investment portfolio at amortized cost and fair value from 2.5% and 1.5% as of September 30, 2025. I will now turn the call over to Stan to walk through our financial results. Stanley Matuszewski: Thank you, Tucker. We ended the fourth quarter of 2025 with total portfolio investments at fair value of $3.3 billion, outstanding debt of $1.9 billion and net assets of $1.4 billion. As David mentioned, our ending net debt to equity ratio as of the end of the fourth quarter was 1.27x. At quarter end, approximately 69% of our total principal amount of debt outstanding was in unsecured debt. As of December 31, 2025, the company had approximately $1.1 billion of borrowing capacity remaining under the revolving credit facility. Subsequent to quarter end, on January 15, 2026, we borrowed $505 million under the revolving credit facility and used the proceeds together with cash on hand to repay the 2026 notes plus accrued and unpaid interest in full satisfaction of our obligations under the notes. Also subsequent to quarter end, on January 28, 2026, we issued $400 million of 3-year investment-grade unsecured notes with a coupon of 5.1%. We also hedged the issuance by swapping the coupon from fixed to floating to match GSBD's floating rate investments. Over 100 investors participated in the company's day of live deal marketing which resulted in the peak order book being 7.3x oversubscribed on our $300 million starting size. Before continuing to the income statement, as a reminder, in addition to GAAP financial measures, we also reference certain non-GAAP or adjusted measures. This is intended to make our results easier to compare to results prior to our October 2020 merger with Goldman Sachs Middle Market Lending Corp., or MMLC. These non-GAAP measures remove the purchase discount amortization impact from our financial results. For the fourth quarter, GAAP and adjusted after-tax net investment income was $42.2 million and $41.8 million, respectively, as compared to $45.3 million and $44.8 million, respectively, in the prior quarter. On a per share basis, GAAP net investment income was $0.37, equating to an annualized net investment income yield on book value of 11.7%. Total investment income for the 3 months ended December 31, 2025, and September 30, 2025, was $86.1 million and $91.6 million, respectively. Our undistributed taxable net income as of 12/31/2025 is approximately $109 million or $0.97 on a per share basis. With that, I'll turn it back to Vivek for closing remarks. Vivek Bantwal: Thanks, Stan, and thanks, everyone, for joining our earnings call. We are excited to continue turning over the portfolio into new attractive opportunities using the full breadth of the Goldman Sachs platform while continuing to navigate through this market environment with humility and continued heightened discipline. With that, let's open the line for Q&A. Operator: [Operator Instructions] We will go first to Finian O'Shea with Wells Fargo. Finian O'Shea: I wanted to ask about Clearwater. It's all real interesting color maybe from the -- more from the banks platform perspective than software. So when we see -- it sounds like you were -- had an advantaged position there through Goldman. But can you give us a sense of the -- like in a plus 450 type situation where those are all -- those are the sort of big clean names we see those to me from the outside look like they're not too much of a premium to BSL or the bank solution on a true like leverage-adjusted basis. So how was that true like market competitive? Or did you lean in sort of one way or the other on say, leverage risk or like quality price on the low end? I guess if I'm worrying that right, just how distinct was your sort of angle in your underwrite? Vivek Bantwal: Thanks for the question. Look, I think it's a really good question. And I think this is a really good example, particularly the M&A kind of cycle kind of starts to pick up, which is, to your point, one of the things we do benefit from is in addition to the origination that our team provides, we do -- we are kind of connected to #1 M&A investment bank. And so we see interesting opportunities that way. These take privates are particularly interesting because generally speaking, the most important thing in a take private is to keep the deal confidential. And so our ability to provide 100% solution helps the sponsor by avoiding leak risk. And so then we can have a bilateral conversation. I would just say, and I don't think we get into this name by name in terms of the specifics from a disclosure perspective. But you should assume that when we provide a certainty like that, in an M&A context on a bilateral basis, we're providing value to the client by giving them 100% solution and very seamless execution while they're kind of focusing on their much bigger picture of the M&A that we get paid incremental economics for that. And so these M&A situations and these take privates in particular, we think are real sources for Alpha because when we can kind of bilaterally negotiate a document with sponsors that are kind of really mutually beneficial where we can really kind of solve for what's important for each other, that tends to be a better dialogue and a better outcome than when you're kind of in a competitive process, kind of needing to play the game theory of how to kind of lean in vis-a-vis competition. Finian O'Shea: I appreciate that. And I guess, name specific, that's very helpful. And sort of as a follow-up, I'll give you and the team a plug for the shareholder letter on semi-liquids. Not having studied the -- your nontraded semi-liquid as much, just curious if there is a different structure that administers the sort of safe flaws in semi-liquid and evergreen altogether or if it's just a matter of better education as other prominent voices have been saying as well? I appreciate that. Vivek Bantwal: Thank you, Finian, and thanks for the feedback on the letter. We appreciate that. Look, the first thing I'd say, and I think this is really important, is we don't have different standards for different vehicles or different types of investors. We have a single process that goes to a single investment committee, and that's a very robust process and a high bar. And so a deal needs to meet that high bar to go into our platform. And then once it's in our platform, we kind of allocate it proportionally based on the kind of criteria of the different vehicles on a formulaic basis. So there's no kind of -- this kind of good deals go here, other deals go there. Like there's none of that, like everyone kind of shares in this. The second point I'll make is from a fee standpoint, and this goes back to your question around Clearwater, any economics that we make on these deals get passed through to the LPs in the vehicles directly. So they completely benefit on a pro rata basis from kind of any value or economics that the platform is able to create. And so I think that's also important and quite valuable. Look, the other thing, and as you said, we spent time on this kind of in the letter. So we don't use the word semi-liquid. We understand what people mean when they use that phrase. But I think it's really -- I think the thing you have to think about is the actual liquidity provisions in these vehicles are more nuanced than that. And so when we sit down with clients to kind of talk about our nontraded BDC, we make sure that we kind of go through and they understand exactly how it works and understand that part of the proposition is these are illiquid assets. And part of the premium that you're getting in private credit versus public credit is for that illiquidity. Now relative to a drawdown fund, there are some liquidity mechanisms that have nuance to them in terms of redemption repurchase caps and certain types of vehicles, that the manager, also the Board has the right to actually gate. So there's like provisions to it. And so at the end of the day, we want people who understand what they're getting into, who are thinking about that holistically in the context of the portfolio construction so that they're kind of only allocating the part of their portfolio where they want this extra spread. They understand the trade-offs and the liquidity. And so they're allocating a portion of that portfolio where they don't kind of need that liquidity for an extended period of time. And then the second thing that I think is really important is we've been very intentional in the way that we've kind of sized our vehicle. So the vast majority of our capital is drawdown capital. And obviously, it's easier to modulate as a platform when your evergreen money is only a minority of your capital. You don't have deployment pressure. I think one of the risks that one runs if they allow that kind of retail component to get too big is there a risk that it starts to kind of impact credit selection. And one of the things that we want to make sure that we're always doing is as a platform that's been in this business for 30 years, we want to make sure that we're investors, not asset gatherers, not deployers. And so yes, that has an impact on growth. Obviously, it's easier to scale faster if you're kind of going all in on the retail channel. But we think with a more measured approach, we're in a really, really good position to kind of just navigate cycles. And so we saw, as it says in the letter, we saw some -- we saw inflows kind of reduce a little bit in the fourth quarter. We saw kind of redemption activity kind of pick up. Again, our metrics were quite favorable to what we saw in the industry. But we think that by having diversified sources of funding, you'll be in a position where you can kind of deploy capital kind of through the cycle and put yourself in the best position to try to generate the best risk-adjusted returns for clients. Finian O'Shea: Good stuff. I'll do one follow. Dividend, you guys have historically been front-footed about that. Incentive fee adjusted SOFR look-through adjusted, you look a little bit below. Any sort of updated views on how you're thinking about the 32 base? David Miller: We feel pretty good about -- we reset that last year with the curve and everything in mind. The other thing I would say is we're somewhat optimistic that we see some spread widening here. It's early days yet. I think a lot of people are still in price discovery, but we're seeing anywhere from 25 to 50 basis points in both coupon as well as OID. So you roll that through the model, we feel very comfortable with the dividend as it sits today. Operator: We'll go next to Heli Sheth with Raymond James. Heli Sheth: So I believe you mentioned that spillover is at $0.97 a share, and that's kind of starting to approach or it's over actually 3/4 of the base dividend. Is there any strategy there looking forward, how we should think about deployment of that spillover heading into 2026? And will it be used to cover any shortfall of earnings? Stanley Matuszewski: Yes. So in terms of the spillover, that's come down year-over-year. We had done with the restructure of our dividend structure into base and supplemental structure earlier in 2025, we utilized a certain portion of that spillover. To the extent that we would need to, we could issue a special distribution. We don't have any current plans for that right now. And as a result of our supplemental distributions, we could also issue some -- or we could also distribute some incremental NII. Heli Sheth: Got it. And as a quick follow-up, as originations and repayments remain kind of elevated in this environment, are you seeing any sort of shift in the mix of the deals that you're seeing in the pipeline, whether it be in terms of sponsor or nonsponsor incumbent versus new borrowers, LTVs? Vivek Bantwal: No, I wouldn't say the composition of the deal flow is changing. I would say that there continues to be signs that kind of M&A activity is sort of picking up. Obviously, not in software, just given what's happened kind of in public markets and around software. But I'd say in other parts of the -- kind of in other industries, we are kind of seeing more dialogue, and we'll see where that dialogue goes. Operator: We'll go next to Ethan Kaye with Lucid Capital Markets. Ethan Kaye: I appreciate the general color on software. You did mention you rolled out this AI kind of risk framework in the beginning of 2025. With that being said, it sounds like you were kind of cognizant of some of the risks, cognizant of the emerging risk prior to that, but maybe formalized it in 2025. But I guess I'm curious when you apply that framework to the current portfolio, do you find any names that maybe kind of wouldn't have passed muster had they been underwritten while that framework was in place? David Miller: Yes. No, thanks for the question, Ethan. As you said, we turned our first deal down for AI in 2023. So we've been aware of this for a long time. We did formalize our AI framework in early 2025 and put it through. And look, the majority of the portfolio stacks up pretty well. There are a few legacy assets that certainly would be -- fit some of those weaker metrics and they would be more point solutions. I think you've seen some of those be marked down in the book to date, and we're continuing to work on those to exit those. The other thing I would say is, as we pointed out in the script, we're very proactive in account management here. One of those names, for example, that was on the weaker side of that AI framework, we sold. So -- and we sold it at $0.99 to other lenders that didn't have the same viewpoint. So we're being very proactive with it watching those names carefully. But by and large, we feel pretty good about the software portfolio. The other thing I would point out is, if you take a look at our software portfolio in general in GSBD, the performance is strong. They had -- revenue growth is about 10.3% year-over-year and margins expand by about 5 points to 34.3%, which is stronger metrics than the overall portfolio. So we feel pretty good about that. Ethan Kaye: Great. I appreciate that color. I guess on repurchases, so you guys have prudently been kind of buying back shares here. You mentioned you repurchased over $50 million under the current authorization, which I believe is $75 million through June. And I know it's formulaic, but given what you know about the inputs and the underlying formula, wondering kind of whether you anticipate that full utilization of that $75 million by expiration and then whether you would explore kind of a new authorization in second half of '26? Stanley Matuszewski: Sure. Thank you for the question. So one of the inputs into -- as you mentioned, it is formulaic so that it can operate at any time. One of the inputs into that formula is our net debt-to-equity ratio. And so that ticked up period-over-period, and it's right around our target. And so that is one of the limiting factors in us buying back. I think we will continue to assess the ability to utilize that program in the future. As you mentioned, we still have approximately $23 million of room within that program. We've been taking a measured approach to issuing that. But it's also going to depend on the other opportunities we see in the market and where spreads go. Operator: This concludes the question-and-answer session. At this time, we will turn the call over to Vivek for any closing remarks. Vivek Bantwal: Thanks, everyone, for the time today. We really appreciate the continued engagement and look forward to continuing the dialogue. Let us know if you have any more questions, and have a great rest of the day.
Operator: Greetings, and welcome to the Ready Capital Corporation Fourth Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press 0 on your telephone keypad. It is now my pleasure to introduce your host, Andrew Ahlborn. Thank you. You may begin. Andrew Ahlborn: Thank you, operator, and good morning to those of you on the call. Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Such statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company’s operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available on our fourth quarter 2025 earnings release and our supplemental information, which can be found in the Investors section of the Ready Capital Corporation website. I will now turn it over to Chief Executive Officer, Thomas Capasse. Thomas Capasse: Thank you, Andrew. Good morning, everyone, and thank you for joining today’s call. To begin, we have made significant progress advancing a comprehensive balance sheet repositioning strategy outlined in the third quarter. This disciplined plan remains focused on three key priorities: one, strengthening liquidity to generate free cash flow in excess of our 2026 debt maturities; two, selling underperforming CRE assets to eliminate negative earnings drag; and three, positioning Ready Capital Corporation for sustainable future growth. The first phase of our repositioning strategy is focused on aggressive asset management, while the second will streamline the CRE origination business into a lower-cost structure with greater reliance on our external manager Waterfall’s deep CRE investment capacity and expertise. To that end, to support and lead these efforts, we have promoted Dominic Scally to Chief Credit Officer and Co-President of our CRE operating business, ReadyCap Commercial. With over 24 years of CRE lending experience, including 10 years with Ready Capital Corporation, Dominic has significantly contributed to building our lending infrastructure. In his new role, he will oversee all aspects of our CRE strategy. Dom is joining us on today’s call. Gary Taylor will transition to focus on our SBA business as President of ReadyCap Lending, from his position as Chief Operating Officer. Given Gary’s over 30 years of experience leading nonbank SBA lenders, this change aligns well with our increasing emphasis on capital-light business lines going forward. I also want to express my gratitude to Adam Zausmer for his decade-long contributions to Ready Capital Corporation and the instrumental roles he has played over the years. These organizational changes support the execution of our repositioning plan and seize new opportunities as we progress. Now turning to the business update. We are making significant progress executing our liquidity plan to both address our corporate maturities and reposition the CRE portfolio. Our plan targets generating over $850 million of free cash and reduces the legacy CRE book 60% to approximately $2 billion, thereby optimizing the balance sheet to support future earnings growth. From the start of the fourth quarter to date, we have generated approximately $380 million in free cash from two primary sources: $130 million from bulk portfolio sales and $250 million from portfolio runoff and other asset management resolutions. Overall, our liquidity projections anticipate generating an additional $500 million in free cash flow by year-end from two primary sources. First, we expect to generate $250 million from portfolio runoff consistent with our 36% trailing twelve-month repayment rate. Second, we expect to generate approximately $250 million in free cash from planned $1.5 billion of additional loan sales with a focus on NPL and sub-yielding assets. Loan sales are expected to be substantially complete by the end of the second quarter. Within this gross reduction of our legacy CRE book, our portfolio repositioning includes an aggressive asset management focus on the sale or resolution of approximately $1.4 billion of sub- and nonperforming loans and REO assets. Currently, the quarterly negative earnings drag of this subset is approximately $0.08 per share, with cash outflows of $13 million per quarter. Continued execution of the liquidity plan may result in additional book value pressure depending on the specific actions we take to increase cash and reduce debt. In the fourth quarter, the company’s book value declined 14% per share. The anticipated benefit is a more attractive portfolio with a competitive earnings profile, a 1.0x reduction in leverage to 2.5x, which would allow us to allocate more cash flow towards growth. Our immediate debt maturities include $67 million due in the third quarter, and $450 million due in the fourth quarter. While we are discussing refinancing of a portion of these maturities into a new debt offering, we are executing a liquidity plan that ensures free cash significantly exceeding these obligations. We successfully retired our 5.75% February senior unsecured note upon maturity. Our plan also includes a targeted 25% reduction in operating costs to align with the business’s more simplified CRE investment strategy and increased capital allocation to our capital-light small business lending operations from 10% to 20%. I would also like to provide an update on two additional items. First, the Ritz property remains our largest single equity allocation representing 16% of year-end stockholders’ equity. Since assuming control of the property in August, we have made meaningful progress in our stabilization plan. First, the condominiums, which represent 40% of the total project value. Along with the new sales agent, Christie’s, we have adopted a phased sales strategy to sell the smaller units first at lower prices and the larger units later at higher prices. This is designed to facilitate momentum and achieve a full sellout at target per square foot levels. We successfully launched phase one in December, placing 16 units under contract with an additional 9 units executing reservation agreements and deposits, which would result in 27% sellout of the 131 total units. The average price to date for the new sales was $737 per square foot. Second, the hotel, which represents 50% of the total project value. We have adopted a strategy led by our property manager, Lincoln, that focuses on achieving higher occupancy given the more competitive market rates in the improving Portland area. As a result, year-over-year occupancy increased by 6.5%, ADR rose by 5% to $492, and RevPAR reached $210. Third, the combined office and retail spaces, which represent 10% of the total project value. We continue to maintain 28% occupancy, but prospective tenant tours have substantially increased since our relaunch. Separately, the impact of last year’s government shutdown was estimated to have curtailed $5.3 billion of industry-wide SBA 7(a) originations, resulting in a 50% decline in our originations in the quarter to $84 million, a level significantly below 2026 volume targets. Importantly, we remain a top five lender in the SBA market. We anticipate coming to market with our fourth SBA securitization during the second quarter, highlighting the growth of this key segment in 2026. In terms of our repositioning plan, greater capital allocation to this high-ROE segment provides another foundation for future earnings growth. We continue to take deliberate steps to enhance liquidity and strengthen the platform. As of today, we generated approximately 35% of our target liquidity objective and continue to make steady progress. At the same time, we are refining our CRE business and increasing our reliance on Waterfall to expand investment capacity and reduce related operating costs. There is more work ahead, but we are encouraged by the progress made to date and remain focused on disciplined execution. With that said, I will now turn it over to Andrew for a detailed review of the quarterly results. Andrew Ahlborn: Thanks, Tom. The fourth quarter earnings and balance sheet are reflective of the repositioning strategy outlined by Tom. For the fourth quarter, we reported a GAAP loss from continuing operations of $1.46 per common share. Distributable earnings were a loss of $0.43 per common share and $0.09 per common share excluding realized losses on asset sales. As Tom discussed, book value ended the year at $8.79 per share versus $10.28 per share in the prior quarter. This change was primarily due to an increase in the combined valuation allowance and CECL reserves of $173 million. The $23 million of valuation allowances relates to $600 million of loans that were transferred to held for sale in the fourth quarter and subsequently sold in 2026. The $150 million increase in CECL reserves relates to more aggressive reserves on nonperforming loans given the shortened resolution timelines. We also anticipate incurring increased valuation allowances as additional loans are identified for sale. In the net loss from normal operations, the following items were impactful. First, recurring revenue was $41.5 million compared to $47.3 million in the prior quarter. The change was primarily due to a $7.7 million reduction in gain-on-sale revenue from lower SBA 7(a) and USDA loan sales due to the government shutdown. This reduction was partially offset by a $2.5 million increase in net interest income as we reduced the negative carry on nonperforming loans. Second, operating expenses increased $7.4 million quarter-over-quarter to $59.9 million. This change was primarily due to increased compensation expense, higher legal fees, and a reduction in the tax benefit. Other items of significance included realized losses of $29 million on asset sales, $15 million of REO charge-offs, and $9.1 million of unrealized losses. Regarding the portfolio, we significantly increased the population of loans placed on nonaccrual, which totaled 27% at year-end. Given portfolio repositioning efforts, we have limited interest accruals to both loans we anticipate holding through maturity and to the cash yield on nonperforming loans or loans that are potentially sale candidates. We currently have a little under $200 million of free cash, which positions us well to address our near-term obligations along with the items previously discussed by Tom. With that, we will open the line for questions. Thank you. Operator: We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Doug Harter with UBS. Please proceed with your question. Doug Harter: Thanks. In light of your comments around looking to kind of reposition the portfolio and accelerate dispositions, can you talk about the thoughts around keeping the Portland asset or whether that makes sense to kind of accelerate the timeframe on that? Thomas Capasse: Yeah. Good question, Gordon. So as you could see in the quarter, there has been a very dramatic change in the trajectories on both the RevPAR given the change in the occupancy strategy by lowering the ADR. Secondly, the condominiums by putting professional managers with specialization in both. So we are ahead of schedule right now in terms of our stabilization plan. So the short answer is we are making very strong progress. And would we hold to the last mile of that stabilization plan versus an accelerated sale, the answer is yes. We probably would lean in that direction. However, we are very confident of our ability to meet the stabilization plan on the two primary components that are 90% of the value, the condos and the hotel, and we also note an overall improvement in the kind of a Phoenix factor in the Portland market more broadly. So, yeah, so we would, that being said, post-stabilization and with the appropriate pricing in relation to that, we would look for an early disposition. Doug Harter: Great. Appreciate that. And then just on the increase on the nonaccruals, just to flush that out, was there a change in the underlying performance or just a change in the strategy of how long you expect to hold those assets? Thomas Capasse: Yeah. No. It is actually 100% the latter. And on that point, it is a good question. So just to be very clear, what we are undertaking is a focus on short-term resolutions through both asset sales and what we call strategic management, and that will reduce the portfolio by 60% to $2 billion. So that actually renders our previous characterization of core, noncore as less relevant as well as the typical 60-day metrics. And a good example of that in the strategic asset management is we have, for example, a large loan with a sponsor who we might have otherwise extended, and we decide not to extend, and then work with the sponsor to execute a sale of all or a portion of the portfolio. So that is very critical to understand. It is not necessarily negative credit migration. It is really related to the asset sale and asset management strategy itself. Doug Harter: Appreciate the clarifications. Thank you. Operator: As a reminder, if anyone has any questions, you may press 1 on your telephone keypad to join the queue. Our next question comes from the line of Jade Rahmani with KBW. Please proceed with your question. Jade Rahmani: Thank you very much. On the core CRE and noncore CRE loan portfolios, the percentage of nonaccruals, as you just said, increased sharply. Do you anticipate needing to reverse previously accrued interest on these loans as a result? If not, why not? And can you just comment on the underlying credit trends in both portfolios? Thomas Capasse: Yeah. Again, I will, and Andrew, you could touch on the accrual question. But, Jade, to be very clear, we are making strategic asset management decisions to not extend where we believe we are putting the borrower in a position where we are not extending the loan, and we are putting the borrower in a good place to be able to execute an alternative strategy, which is usually a portfolio sale. And so to put more granularity on, and so therefore, it is not negative credit migration. It is a conscious decision by us as the lender to not execute modification and extension strategies. So maybe what we could do is, Andrew, if you could answer the question regarding the accrual. And then, Dom, maybe just give Jade an example or two of what we are looking at with respect to what we are deeming our strategic AM strategies. Andrew Ahlborn: Yeah. Good morning, Jade. So for loans that were identified for sale in the fourth quarter and settled in the first quarter or loans that we anticipate selling, we have taken the reversals of the accrued interest in the fourth quarter numbers. So you saw roughly a $53 million reduction in accrued interest. So the accrued interest that is sitting on the balance sheet as of year-end is roughly $42 million and really just related to loans we anticipate holding through maturity with full collectibility on that interest. Jade Rahmani: But, Andrew, it does sound like you are stepping up the pace of loan resolutions, and you did say that you expect to increase valuation allowances on loan sales in the future. So would that not entail writing down that accrued interest balance as well? Andrew Ahlborn: Yeah. So the accrued interest associated with loans that may be subject to a market discount if we move them to sale, the accrued interest attached to any of those loans was written down in the fourth quarter. Jade Rahmani: Okay. Thomas Capasse: So, mostly, Jade, that was helpful in terms of the accrual question. And, Dom, maybe just give a more granular example of what our asset management strategy is with respect to some of these larger loans. Dominic Scally: Yeah. Sure. Hey. Good morning, Jade. So as Tom mentioned, and consistent with our AM strategy and liquidity strategy, we are purposely not entertaining longer-term modifications with some of our assets. A concentration in the increase in nonaccrual is in four or five larger loan exposures where sponsors, good quality asset, good performance, but we are unwilling to provide additional time. And what sponsors have pivoted to do is seek alternative financing or potentially sell assets. So a good example of that, we have a five-property portfolio in the Sunbelt region with an institutional sponsor. Obviously, they would have preferred to have additional time and maybe some spread forbearance to get to the next 12 to 18 months. In lieu of that, they have started marketing that portfolio with a national brokerage firm, and we are confident that we should be able to get repaid in the next quarter or so at or close to par. So just putting some pressure on borrowers on some of these assets where they will pivot ultimately to either seeking alternative financing or potentially selling the underlying assets. Jade Rahmani: Okay. Thank you. Just on the Portland asset, the 25 reservation agreements, what percent will convert to contracts and what is the average price? Dominic Scally: So of the 25, 16 are in contract with hard deposits. The remaining 9 should be converted to contracts with hard deposits within the next few weeks. We have closings in process this week and next. Those units sold for an average price of $737. And as Tom alluded to earlier in the call, the lower per square foot is expected just given these are the smaller units on the lower floors. Thomas Capasse: Okay. So, Jade, this is just part of, I will put some more color on it. This is part of the strategy we are working on with Christie’s, our broker, and they have experience globally with these Ritz residences and other luxury hotel concepts where the lower units sell at lower prices early on, and then the higher-floor, larger units sell at higher prices later in the process that we phased in. We have bifurcated the 132 units, of which we are sold out now at 27%, into these four phases, and we are highly confident of our ability to achieve, on an average per-square-foot basis, the numbers in our projection plans. Jade Rahmani: Okay. That is good to hear. And then on the $855 million of loans sold in February, what is the sales price relative to par and relative to carrying? Thomas Capasse: Andrew, do you want to comment on that? Andrew Ahlborn: Yeah. So they sold in the high 90s. Carrying and UPB were right on top of each other. The pricing is the same there. Jade Rahmani: Thanks very much. Operator: Thank you. Our next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Please proceed with your question. Christopher Nolan: Tom, in your comments, you indicated that through repositioning the portfolio and dispositions, the leverage ratios are going to go down. How much was that again, please? Thomas Capasse: By one turn to 2.5x. The pro forma Ready Capital Corporation, if you will, is going to involve significantly less leverage with a multisector approach with a significant percentage of investment capacity being brought to bear by the external manager, Waterfall, which is a large private funds investor in commercial real estate debt and equity. Christopher Nolan: And then, for the debt maturities that you have coming up in the second half of the year, is the plan to retire that debt with just portfolio realizations and so forth? Thomas Capasse: Yeah. I will let Andrew comment on that. But as we said before, the broader liquidity plan is in excess of $800 million, which is a significant multiple of the total maturities. And we are 35% into that plan, and we are going to raise another $500 million, half through asset sales and half through runoff, which we have been running at a 36% repayment rate. These asset management strategies that Dom just talked about will enable us to outperform there. And we completed two of the four asset sales with the other two by the end of the second quarter. So given that plan, Andrew, what is the timing on the debt maturities? Andrew Ahlborn: Yeah. I would say, certainly, to the extent we can get execution levels that are accretive to the business from both an earnings perspective and a cash flow perspective, we would like to refi portions of the 2026 maturities. With that being said, as Tom highlighted, the liquidity plan currently underway certainly provides a substantial cushion to take out all of the three remaining maturities with cash if needed. I think you will see us sort of sequentially take out these bonds in the upcoming weeks and months, given the current liquidity position. Christopher Nolan: Okay. Thank you. Operator: And our final question comes from the line of Chris Mueller with Citizens Capital Markets. Please proceed with your question. Chris Mueller: Hey, guys. Thanks for taking the question. As you are focused on liquidity here, are there other monetization strategies that you would consider, like selling or spinning off a business line? And it also looks like there are a couple of GSE licenses up for sale right now. Maybe not the best time to be a seller there, but are there other avenues of raising some capital that you are looking at? Thomas Capasse: Yeah. That is a good question, Chris, and I appreciate you taking the time. There are a number of what we will call noncore assets that are not in this liquidity plan that we are entertaining potential dispositions. I think one area, you are right, we do have, in the form of TRS, taxable REIT subsidiaries, that could be sold. However, I will underscore our commitment to the SBA business, which is a high-ROE business and low capital allocation. We are strongly committed to that. However, there are other noncore assets that we are undertaking reviews for sale that could materially provide an additional buffer to the portfolio sales. But as far as the SBA, we are really committed to that and are looking at other smaller noncore assets for additional sale. Chris Mueller: Got it. That is very helpful. Thanks for taking the question. Operator: Thank you. And we have reached the end of the question-and-answer session. Therefore, I would like to turn the call back over to CEO, Thomas Capasse, for closing remarks. Thomas Capasse: Yeah. Again, I appreciate everybody’s time, and Ready Capital Corporation and our team remain highly confident of our ability to execute this liquidity plan and emerge in the latter half of this year in a position to improve the fundamental earnings capacity of the business and look forward to future calls. Operator: Thank you. This concludes today’s conference, and you may disconnect your lines at this time. We thank you for your participation.
Operator: Greetings, and welcome to the ALX Oncology Holdings Inc. Fourth Quarter 2025 Financial Results Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Jason Lettmann, Chief Executive Officer. Thank you. You may begin. Jason Lettmann: Thank you, and welcome to our Q4 and fiscal year 2025 results call. We appreciate you all spending some time with us this morning. As usual, we will be making forward-looking statements during the call, so please refer to our FOS slide in our corporate deck. With me today, we have Harish Shantharam, our CFO, as well as our CMO, Dr. Barbara Klencke. And in terms of the first bit of news, we are delighted to announce today that Barbara will continue leading our clinical efforts as our permanent Chief Medical Officer. Welcome, Barbara. As many of you know, after joining in an interim capacity in September 2025, Barbara has been absolutely instrumental in driving our development programs forward over the last five months. Barbara, as many of you also know, is an incredibly experienced oncologist and drug developer, having served as CMO at Sierra Oncology and having senior roles at both Onyx and Genentech before that. We are beyond fortunate to add Barbara during this critical inflection for the company and thrilled to welcome her permanently. I will turn the call over to her later today to walk through some of our clinical updates. In terms of the agenda and the goals for today, we will review our key Q4 2025 and year-to-date accomplishments referencing our press release and corporate deck available on our website. Then, at the end, we plan to open it up for any questions you may have. In general, our focus at ALX Oncology Holdings Inc. remains on execution. We have made great progress on both of our programs of vorpercept and ALX 2004 in 2025 and positioned ourselves to achieve significant catalysts from these programs in the coming 12 to 18 months. Our goal and vision for each is to advance both programs to a stage where they are ready for pivotal studies by the end of next year. Execution has been strong over the last quarter, and I am very pleased to report that our clinical development progress and timelines remain on track. In terms of evorpicept, or EVO, in 2025, we are coming off a year of massive amounts of data really demonstrating the potential for evorpocept across a variety of combos and tumor types, which well informed our development strategy for EVO today. We have treated over 750 patients with EVO to date and are now highly confident where the drug works and, most importantly, where it works best. The MOA of combining EVO with antibodies and bispecifics has been well validated in the clinic and will pave the way for us going forward. Importantly, CD47’s key role as a biomarker for increasing durable response with avoricept in HER2-positive gastric cancer patients was further strengthened and validated by additional data in November at the SITC meeting. Here, we shared further data from our gastric study demonstrating a transformative benefit for patients both in terms of durability and PFS. In addition, we recently shared top-line data from the phase 1 of vorprecept and zanidatumab breast cancer trial, which is now a second dataset validating the role of CD47 and its importance as a biomarker. The follow-up analysis of this trial from the HER2-positive cohort showed that the responders to this combination treatment in a post-in-HER2 setting were largely restricted to CD47 overexpressors, which is a similar finding that we had in our gastric study. Full biomarker analysis from this trial is expected to be presented at a medical conference in Q2 of this year. These findings taken together strengthen our confidence in the ongoing phase 2 ASPEN-9 breast trial, where we will evaluate patient responses by CD47 level to further define the predictive potential of this biomarker among patients with HER2-positive disease that have progressed following in-HER2. We launched the study last year and continue with site activation globally at a strong pace. We remain on track with our clinical timelines here and expect to provide top-line data for 80 patients from this study in mid-2027. As shifts to the treatment landscape occur in breast cancer, EVO has the potential to provide both a best and first-in-class option for the 50,000 patients in the second-line-plus breast cancer setting. EVO is also poised to be the only therapy that can address CD47 expression in this large patient population. Overall, the results for EVO from these two HER2-positive cancer trials support the potential for us to pursue a targeted oncology approach to additional tumor types with EVO. And given the broad over CD47 in both solid tumors and heme malignancies, it gives us a real opportunity to pursue a focused development strategy for EVO in combination with anticancer antibodies and bispecifics. We are excited about our study in breast and also excited about the NHL data, which we recently shared in December, which furthers the findings of EVO into heme malignancies. We are also ongoing partnering with Sanofi and we are excited about what we are seeing across both of those studies, and Barbara will go into both in more detail. In terms of 2004, turning to our ADC now, we are also very pleased with the clinical progress of ALX 2004, which, as you know, is our novel and potentially best-in-class EGFR-targeted ADC. We cleared the first two dose cohorts and continued to progress development per plan with the 4 mg/kg dose now in the phase 1 trial. We are now expecting full ALX 2004 safety data from the dose-escalation cohort later this year in the second half of 2026. The potential of these two novel therapies, coupled with our substantial progress on their respective clinical programs, contributed to the successful completion of our recent financing of $150,000,000, which we closed a few weeks ago. With our newly strengthened balance sheet, we now have the opportunity to deliver more robust and meaningful data readouts in both of our ongoing clinical programs as reflected in our milestone updates here. Our mission again is to have these two programs ready for a pivotal phase study by the end of next year, and we believe we can do so with continued focus on execution. I will now turn it over to Barbara to walk through some clinical data and findings and plans in more depth. Barbara? Barbara Klencke: Thank you, Jason. Let me start with some quick highlights of the strong results that we have seen with avorpicep in two HER2-positive breast cancer indications that we have reported on within the past three months. I am referring now to slides 14 to 18 in our corporate deck. In the randomized phase 2 HER2-positive gastric cancer study, we saw impressive response rates with the vorapicep when combined with a trastuzumab-based regimen in the subset of patients with CD47 tumors. We reported this data at the SITC conference in November 2025. In this subset, the response rate was 65% in second- and third-line gastric cancer patients compared to 26% in the control arm. This is a delta of nearly 40%. The median duration of response was also quite impressive. It was more than two years, and more than three times longer than that seen in the control arm. The median PFS was 18.4 months in the avorpecep arm and seven months in the control arm, with a hazard ratio of 0.39. And finally, the median overall survival was 17 months with evorpazep versus approximately 10 months in the control arm, with a hazard ratio of 0.7 in this subset. In summary, this randomized study established the potential for CD47 to become an important predictive biomarker. In parallel, we worked with our partners at Jazz to evaluate the CD47 expression in patients enrolled in the phase 2 study of aborpicep in combination with zanidatinib. As a reminder, this study enrolled HER2-positive breast cancer patients who had progressed on prior HER2-directed therapies, all of whom had received prior in-HER2. We first reported data from the study at the San Antonio Breast Conference back in December 2024. As you can see on slide 22 in our corporate deck, at that time, we reported that in the nine late-line patients with confirmed HER2 expression by central assessment, the response rate with the vorpocept plus anadaptinib was a remarkable 56%. The duration of response at that time ranged from 5.5 to nearly 26 months, and the median PFS was 7.4 months. These data compared very favorably to benchmark data such as the data from the SOFIA trial, a predominantly second- and third-line HER2-positive breast cancer trial, which produced a response rate of 22% for margetuximab, whereas this data was obtained in patients who had a median of six prior lines of therapy. Now recently, in January, we concluded the CD47 biomarker analysis from these patients. We recently announced that the responders were predominantly restricted to the patients who overexpressed CD47. Full biomarker analyses from this trial will be presented at the ESMO Breast Cancer Conference in 2026. The data from these two independent studies show the potential of avorpicept to drive very substantial benefit for patients with high CD47 expression. These extraordinary outcomes clearly validate avoricep’s mechanism of action and provide increased confidence for our ongoing phase 2 breast cancer study. Before I provide an update on our ongoing phase 2 breast cancer study, I also want to highlight the results that we have seen so far in the hematologic malignancy setting. These data are summarized on slide 13 in our corporate deck. In three separate cohorts of indolent non-Hodgkin’s lymphoma patients, we see very high complete response rates relative to published CR rates in relevant benchmark studies. The most recent study was presented at ASH in December. These were in treatment-naive, first-line indolent lymphoma settings. These patients received evorbicep combined with Rituxan and Revlimid, known as the R-squared regimen. They achieved a complete response rate of 92%, which is almost double that seen with R-squared alone. These data are entirely consistent with the two studies of evorpocept with Rituxan or R-squared in previously treated indolent lymphoma patients where the CR rates were also extremely robust and more than double the CR rates enveloped in relevant benchmark studies, as you can see on the slide. Together, these five datasets strongly support the potential of a vorpa set to enhance macrophage-driven ADCP when combined with an Fc-active anticancer antibody. These data give us high confidence for our ongoing study in HER2-positive breast cancer. Let me now provide some quick updates on that study. The design of the study is provided on slide 23 of our corporate deck. As a reminder, in this study, we evaluate avoricep in combination with trastuzumab and single-agent chemotherapy in a single-arm design enrolling HER2-positive metastatic breast cancer patients who have progressed on in-HER2. Following the strong validation of CD47 as a predictive biomarker of benefit with avoracep plus anadaptinib, we have now decided to enlarge the current phase 2 study to up to 120 patients from 80 to increase the number of HER2-positive patients with CD47 overexpression. In addition, we are updating the primary endpoint to response rate in patients who have high CD47 expression. A key secondary endpoint will track response rate by HER2 status informed by ctDNA. This way, we will be able to track response rates both by CD47 expression on its own as well as in double-positive patients informed by high CD47 expression and HER2-positive status. As in-HER2 has now been approved as first-line therapy, the treatment landscape for the second line and subsequent therapies has entered uncharted territory. The optimal sequencing of subsequent therapies is unknown. Several real-world evidence studies suggest that response rates and PFS or time to next treatment might actually be lower than expected with available regimens in patients who have failed in-HER2 therapy. So we see a notable gap in the understanding of the optimal sequencing of available therapies and really a large unmet need for effective treatment options in this post–in-HER2 setting. Based on the activity that I have described to you for the avorpus app across a number of settings when combined with an anticancer antibody, we believe that avoricep has substantial potential for benefit in metastatic breast cancer patients in this setting. Furthermore, a CD47 biomarker-driven approach in HER2-positive patients could enable a highly targeted patient selection strategy. To be ready for a prospective selected registration study in the future, we have initiated work on developing a companion diagnostic for CD47 expression. With respect to enrollment in the ongoing phase 2 trial, we are making good progress. While we are still early in the enrollment curve, the site activations remain globally on track. We are pleased to see that investigator interest in the study remains strong. We project being able to share meaningful efficacy and safety data, including response rate, biomarker results, and early durability trends by mid-2027. Now let me turn our attention to the second clinical program, ALX 2000 and 4, our EGFR-targeted antibody-drug conjugate. While EGFR is a validated target, developing an effective ADC has remained a significant challenge due to the narrow therapeutic window. We have leveraged historic learnings to develop ALX 2000 and 4, our EGFR-targeted ADC, which was designed by our internal team of world-class protein engineer experts. The preclinical dataset is particularly exciting as it demonstrates potent, dose-dependent antitumor activity in numerous models across a broad range of EGFR expression levels and relevant mutations such as those in p53, KRAS, BRAF, and others. EGFR-related skin toxicity and interstitial lung disease were notably absent in our GLP tox studies in nonhuman primates. The antibody, metuzumab, has a unique affinity-tuned epitope whose binding to EGFR is not by mutations in the binding domain for the other approved EGFR antibodies. In creating this ADC, we combined this antibody, the metuzumab antibody, with our proprietary topoisomerase I inhibitor linker-payload, which was selected for linker stability and for its robust bystander effect. Given the attention paid to both efficacy and safety in the design of this molecule, we believe that ALX 2000 and 4 is uniquely positioned to break new ground as a potential first-in-class therapy for EGFR-expressing solid tumors. Additional preclinical highlights can be found on slides 26 to 33 in our corporate deck. I would also refer to the comprehensive preclinical data that was presented at the triple meeting conference in October 2025 and more recently at the 2026 World ADC Conference. Finally, in terms of progress in the clinic, we are currently enrolling patients in our third dose cohort, having initiated dosing initially at a robust dose of 1 mg/kg, then escalating to 2 mg/kg, and subsequently to 4 mg/kg based on seeing no DLTs at the prior dose levels. We believe that the 4 mg/kg dose, our current dose level, could potentially now be at the lower end of the therapeutic dose range. As a reminder, we are enrolling only patients who have non-small cell lung cancer, colorectal cancer, head and neck cancer, or esophageal squamous cell cancer, as these are EGFR-expressing tumor indications. In this phase 1 trial, we will perform both the dose-escalation as well as the dose-expansion component. These data will then ultimately set the program up to advance into a registration study. We plan to provide data from the dose-escalation portion of the ongoing phase 1 study in the second half of this year. With that, let me hand this over to Harish. Harish Shantharam: Thank you, Barbara, and good morning, everyone. 2025 was a year of strategic prioritization and clinical validation for ALX Oncology Holdings Inc., highlighted by the progress we made on our lead program evaporposet, and the clinical entry of our first ADC, ALX 2004. In terms of financials, we finished the fourth quarter of 2025 with cash, cash equivalents, and investments totaling $48,300,000 before strengthening the balance sheet from our equity financing we closed earlier this month in February. The net proceeds from the offering were $140,400,000 after deducting for the underwriting discount and other offering expenses. Following the cash inflow from this offering, we believe the cash and investments on hand are sufficient to fund ALX Oncology Holdings Inc. operating expenses through 2028. With our newly strengthened balance sheet, we now have the opportunity to deliver more robust and meaningful data readouts in both of our ongoing clinical programs over the next 12 to 18 months. The key milestones we currently guide to include: number one, the full biomarker analysis readout from our phase 1/2 trial evaluating evorpocept in combination with danitatumab in advanced HER2-positive breast cancer patients will be presented at the ESMO Breast Conference in May 2026; number two, the ALX 2000 and 4 safety data from the dose-escalation phase of the trial is anticipated in 2026; number three, the readout on evorposet top-line data from 80 patients from the ongoing phase 2 ASPEN breast cancer trial is anticipated in 2027. With respect to the latest quarterly financials, the GAAP net loss was $22,800,000 for the three months ended 12/31/2025, or $0.42 per basic and diluted share, as compared to a GAAP net loss of $29,200,000 for the three months ended 12/31/2024, or $0.55 per basic and diluted share. The decrease in year-over-year spend can be primarily attributed to lower stock compensation, lower personnel and related costs, as well as lower preclinical costs following pipeline prioritization. Please refer to the press release for the detailed breakdown on the R&D and G&A operating expenses for the quarter. Operationally, our team is now singularly focused on executing the ongoing phase 2 trial in breast cancer for evorpoced and the phase 1 trial for ALX 2004. Moving forward, the clinical spend will be largely driven by these two trials, partially offset by reduced spend in evaporizat legacy trials that are winding down. With that, let me hand the call back to Jason. Operator: Jason? Jason Lettmann: Thanks, Harish. As we discussed, we are coming off a very strong 2025 where we had an incredible amount of data with evorbicept really demonstrating our path forward. We are also very pleased with the progress on ALX 2004. We continue to advance through dose escalation and are looking forward to significant catalysts across both programs over the next 12 to 18 months. Our focus internally remains on execution, and that is what we will plan to do going forward. We are very happy to remain on track in terms of the execution across both studies. We will now open for questions. Operator: Thank you. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Allison Marie Bratzel with Piper Sandler. Please proceed with your question. Allison Marie Bratzel: Hi, good morning, and thanks for all the updates, and thanks for taking the questions. Just some follow-ups from me on EVO. So I think initially, we were expecting an interim look at 80-patient readout this year. So could you just confirm, is that correct? And Barbara, I know you covered this in the prepared remarks, but just hoping you could talk some more to the rationale behind the upsizing to 120 patients, the change in the primary endpoint, and just talk to how that informs on the regulatory strategy. Then maybe just secondarily, what kind of feedback are you getting from investigators on the biomarker approach, and what do you expect to see on enrollment trends in ASPEN breast? Thank you. Jason Lettmann: Great. Thanks, Allison. I appreciate the question. I will let Barbara take the second question. On the first question, that is correct. We are guiding towards 80-patient full data from those 80 patients in mid next year. From our perspective, our goal internally and externally as well is to communicate full, robust data. At that point, we should have enough patients to really understand where the study is headed. We certainly are trying to guide to ensure we have enough CD47-positive patients in this study. As you know, the enrollment is essentially all comers. So guiding to the 80, we think, makes the most sense because we are confident at that point we will have real, fulsome data across both the CD47-high population as well as the other buckets that we will be looking at as well. That is the plan. Certainly, it is an open-label study. We have an opportunity to share earlier if we think it makes sense, as well as talk to regulators earlier, but the current plan is mid-2027. On your second question, Barbara, do you want to take that? Barbara Klencke: Yes. Addressing the interim, Jason just did that. Upsizing, again, Jason hinted at that, really just wanting to ensure robust numbers of patients in various segments and various subpopulations. We will have patients who can be confirmed HER2-positive in this setting by ctDNA or not. We will have patients whose tissue has evidence of overexpression of CD47 or not. We just want to make sure that we have robust numbers. I think the most important thing for this study could really be the optimal cut point. We have to be able to have data that drives the proposed cut point. FDA will be very interested in that. We just wanted to make sure that we had enough patients who were CD47 overexpressing that we can do that. In terms of a primary endpoint, it has always been a response-rate endpoint trial. In the two studies that we talk about, the gastric and the adaptinib combination, it has been pretty remarkable just how powerful CD47 is as a predictive biomarker. So I have moved that up to the primary endpoint, and response by HER2 status will still be an important key secondary endpoint, but we feel like the CD47 is going to be the most powerful predictor of response. That is the justification for changing the primary endpoint. You asked about the investigators’ perception of the study with a biomarker selection strategy. I think they are very excited about it. To have the ability to find a population for whom the therapy is going to provide substantial benefit, and what we have seen in all of our prior studies that I talked about today—lymphoma, gastric, breast cancer—we are seeing these remarkable response rates and we are also seeing durability. The two endpoints together are really providing transformational benefit. The ability to find the selected patient population where the treatment outcome can be so robust, I think— Operator: Our next question comes from the line of Li Wang Watsek with Cantor Fitzgerald. Please proceed with your question. Jason Lettmann: Sure. Happy to do. Thanks, Daniel. As Barbara mentioned and we highlighted in our comments, both studies remain on track, and the execution has been strong. The change post financing here has been to ensure that we are communicating robust data. If you look at what we would have this quarter or next quarter versus towards the end of the year in 2004, it is really a step change in data. We should have, towards the end of the year, really fulsome data from the dose-escalation phase, and I think that will allow us to be much more clear about what we are seeing. Ideally, we will be able to communicate where we think the expected dose or two doses will shake out and allow us to communicate that externally. The goal is to make updates meaningful and full, and that is the thinking behind that guidance. Li Wang Watsek: If I may follow up on this, is it safe to expect up to four dose levels to have been tested at the point when you make the disclosure? Jason Lettmann: I think that is reasonable. As you know, we went from one to two to four, so we have doubled now twice. We do think we are at the low end of the therapeutic window and continue to progress that study very well. The fact that we have cleared one and two so rapidly without seeing DLTs is encouraging. Certainly now in the four, things continue to go well, and I do think getting to four doses as part of that cohort is definitely a reasonable expectation. Li Wang Watsek: Great. Thank you so much, and congrats on the update. Operator: Thank you. Our next question comes from the line of Samuel Evan Slutsky with LifeSci Capital. Please proceed with your question. Samuel Evan Slutsky: Good morning, everyone. I appreciate the questions. Two for me. One is that for the 80 patients in ASPEN-9, remind me what is the expected ratio of those with CD47 high versus low expression? And then on 2004, on 4 mg/kg being at the lower end of the therapeutic dose range, looking at some of the other EGFR ADCs that are using topo 1, it seems like they are at either 4.8 mg/kg Q3W or less in terms of dose. Curious on what is driving this difference in where the therapeutic range starts with your drug, or is it that you would just consider that you have a wider therapeutic window, which hopefully leads to better efficacy versus others? Jason Lettmann: Thanks, Sam. I will take the first one, and Barbara can handle the second one on the range. In terms of the percentages, what is nice about CD47 is it is really well studied in the literature, and this specific question around CD47 expression has been well documented. We know in our gastric study that about half of those patients that were confirmed HER2-positive were CD47-high, and we looked, as you recall, across four different cutoffs and showed that range to be roughly 40% up to around 57% of the population. So a really substantial percentage. We also know from the literature that percentage is relatively consistent in breast. Again, we expect the cutoff and the expression profile to be different, but the patients that have CD47 high we expect it to be around half, and the literature would support that. It is important to run the study to see how that shakes out, but we are expecting to see a significant number of this population be CD47 overexpressors. Barbara, do you want to take the question on the therapeutic range with 2004? Barbara Klencke: Exactly. The highest nonseverely toxic dose in primates was 1 b, which is potentially around 6.5 mg/kg in patients. There is definitely variability on that, but that was one way for us to think about where we might be able to get the dose to. I think it will be data driven. I would never think that we would double again. We are now in a range where smaller incremental increases will be pursued. We will have to see how things go in terms of the tolerability and toxicity that we see in patients. We think somewhere in the range of the fours, five, six mg, maybe a bit higher, because, as you know, in the nonhuman primate data, there really was not any severe toxicity, so maybe we can go just a little bit above the six to seven range, but we will see. We will provide further updates later in the year, but that is the allometric scaling in terms of where we think we might start to see some toxicity. Samuel Evan Slutsky: Okay. Thanks. Operator: Thank you. Our next question comes from the line of RK with H.C. Wainwright. Please proceed with your question. Thank you. Good morning, Jason and Barbara. RK: A couple of questions on ASPEN-09 and one on 2004. On ASPEN-09, as you are expanding the trial to 120 patients, trying to understand the logic behind it. Can you discuss what is the prevalence of CD47 high in post–in-HER2 patients, especially if you are defining CD47 high as IHC 3+ greater than 10%? Is this expansion driven more by statistical power, or are you concerned about lower-than-expected prevalence of the biomarkers? On the second one, when we start thinking about physicians’ choice of chemotherapy, should we be concerned about subsequent ADC use in this post-trastuzumab setting that it can impact the CD47 expression? And then on 2004, with the safety data expected in the second half, how are you monitoring the interstitial lung disease and the skin tox? Jason Lettmann: Those are great questions. Thanks, RK. On ASPEN-09 and CD47 expression post in-HER2, we think that the percentages should hold that I mentioned before. Roughly half of the population should be CD47 high. We did highlight in the past on our calls our recent study last year that showed that patients who are exposed to in-HER2 overexpress CD47. We think it is certainly possible that those numbers are higher in this population. We know that CD47 is a key mode of evasion post in-HER2, so we do think that is possible. Barbara, do you want to take the next one on the various chemo options and how that may impact things? Barbara Klencke: What we know in terms of CD47 expression, there is data in the literature that it rises in patients post in-HER2. We do not have a lot of other data. Most of the data on CD47 comes from survival tissue from the time of diagnosis. The literature does support higher rates of overexpression post in-HER2, which is absolutely perfect as our patient population. It is where there is an unmet need, and it is clearly the clinical setting that is the most wide open at this point in time. I am not sure that I have any concern that different chemotherapy drugs will perform differently in patients who have CD47 expression when they are combined with trastuzumab. Our main focus on mechanism of action is the combination of trastuzumab or some such antibody with an active Fc plus avorpazep. We certainly will look at the five different chemotherapy options across the different subsets if there are any major differences, but I am not expecting to see much variability there. In terms of ALX 2004, you asked about how we might be monitoring for both ILD and skin toxicity. Patients go through CT scans on a regular basis as per protocol, and a lot of times, that is where initial phases of interstitial lung disease may be detected. You do want to detect it before it gets too symptomatic, and having scans to watch for their cancer progression or response, that should be picked up. There are guidelines in the protocol. They are all very cautionary, just because this class of agents has in the past caused—you know, the payload itself has been associated with ILD—but we did not see any evidence of that in our nonhuman primate toxicology studies. We will monitor for it, but we have a low likelihood based on our NHP work. In terms of skin toxicity, certainly metuzumab was the antibody that we selected for the lower skin tox that has been shown clinically in the early investigational use of that metuzumab antibody. Every time a patient is seen in clinic, they will be examined and can report that, so that will be an early thing that we could pick up once we get into the various dose ranges. Our prediction is that we are not going to see skin toxicity at the lower doses. Certainly, cetuximab and panitumumab are known to have quite a bit more skin toxicity. If you were to do a cross-trial comparison of safety data from the approved antibodies versus metuzumab’s safety profile, that gives us a wider therapeutic window. We do not expect to be too limited by skin tox. It allows us to move up higher into the dose range, similar to the question that maybe Sam asked earlier about maybe having a wider therapeutic window for this agent based on the protein design that we have with this agent. Jason Lettmann: Thank you. Just on the sample size, there was no change in the assumptions in terms of the percentages or efficacy. There has been no change there. The driver is really to ensure that we have a very robust phase 2 and are in a position to de-risk the phase 3 as much as possible. The ability to flex up to 120 allows us to do that. Of course, as we mentioned, it is an open-label study. If we see data that is even in the ballpark of the 56% we saw and the 60% we saw in the breast and gastric studies respectively, I think we will have plenty of room to clear the hurdle. The goal of this is to inform the phase 3. Once we see a sufficient signal, that will then spur into action conversations with the regulators, moving quickly to a phase 3. RK: Fantastic. Thank you very much. Thanks to both of you for answering in detail. Operator: Thank you. Our next question comes from the line of Roger Song with Jefferies. Nabil (for Roger Song): Good morning, team. Thanks for taking our questions, and congrats on the updates. This is Nabil on for Roger. Question on the CD47 cut point. Maybe this was asked, but wanted to ask again: Is that IHC cutoff for ASPEN-9 primary endpoint already locked in, or could you talk about those prespecified decision rules you are using to select that cut point? And then on the IHC availability, how do you handle borderline cases with maybe some insufficient tissue? Is that ever a thing that comes up? Thank you. Jason Lettmann: Thanks, Nabil. On the CD47 expression, I would say what we know is that we would anticipate it to be different across different tumor types. We know gastric, as a baseline tissue type, expresses CD47 more highly than breast. With gastric, it effectively did not matter, meaning we could pick IHC 3, IHC 2/3, and continue to see a good response. The pre-Eval-plus-any study in breast informs that. We have a good estimate of how it could look, and going forward, it will be critical for us to run this study to really understand exactly where to set the cutoff. That is part of the goals of this current study that we are in the midst of, and I think that will be informative. In terms of the missing tissue or different tissue types, we do not anticipate that to be a significant issue, just because we are using tissue at time of diagnosis to base CD47. We expect CD47 to be relatively stable, and I think that should be pretty straightforward. Barbara, anything else to add on that? Barbara Klencke: No. I think everybody will be required to submit tissue. There is always an estimate in most trials that you might have some missing data. I would not expect it to be unusual. So 10% or less. We anticipate being able to have measurable CD47 in nearly all patients. It could be 100%, but I would not be surprised if we ended up with a rare patient for whom the tissue just was not sufficient, but that should not be a problem. IHC is a very standard assay methodology, so it is easy to perform, etc. So no major risks there. Operator: Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I will turn the floor back to Mr. Lettmann for any final comments. Jason Lettmann: Thanks, everybody. We appreciate the good engagement and questions this morning. It is an exciting time at ALX Oncology Holdings Inc. out in front of us, and we continue to execute well. We are looking forward to the next quarter and the next year where we have a lot of important milestones to lay out. We appreciate all the interest and support. Thank you. Operator: Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, everyone, and welcome to today's ANI Pharmaceuticals, Inc. Fourth Quarter and Full Year 2025 Earnings Results Call. Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Courtney Moverly. Please go ahead. Unknown Executive: Thank you, Erica. Welcome to ANI Pharmaceuticals' Fourth Quarter and Full Year 2025 Earnings Results Call. This is Courtney Moberly, Investor Relations for ANI. With me on today's call are Nikhil Lalwani, President and Chief Executive Officer; Stephen Carey, Senior Vice President and Chief Financial Officer; and Chris Mutz, Senior Vice President and Head of ANI's Rare Disease business. You can also access the webcast of this call through the Investors section of the ANI website at anipharmaceuticals.com. This call is accompanied by a slide deck that can be accessed by going to the Events section of the Investors page of our website. You can turn to our forward-looking statements on Slide 2. Before we begin, I would like to remind everyone that any statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation or intent regarding future events and the company's future performance may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to ANI's Pharmaceuticals management as of today and involve risks and uncertainties, and including those noted in our press release issued this morning and our filings with the SEC. Going such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. ANI specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law. During this call, we will also refer to certain non-GAAP financial measures. These non-GAAP financial measures should not be considered as an alternative to financial measures required by GAAP. The non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measures in a table available on the slide deck accompanying this call. The archived webcast will be available for 30 days on our website, anipharmaceuticals.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and reported on February 27, 2026. Since then, ANI may have made announcements related to the topics discussed, so please reference the company's most recent press releases and SEC filings. And with that, I'll turn the call over to Nikhil Lalwani. Nikhil Lalwani: Thank you, Courtney. Good morning, everyone, and thank you for joining us. 2025 was another year of outstanding execution and growth by the ANI team, highlighted by our remarkable results in the fourth quarter. At the core of everything we do is our purpose of serving patients improving lives. With our progress in the last year, we are well positioned to continue delivering on that purpose in 2026 and beyond. Starting with Slide 4. In 2025, the company delivered record revenue adjusted non-GAAP EBITDA and adjusted non-GAAP diluted EPS, driven by strong performance across our rare disease and generics business unit. For the full year, we grew total company revenues by 44% year-over-year and adjusted non-GAAP EBITDA by 47% year-over-year. In addition, we delivered exceptional growth for our lead rare disease asset, Cortrophin, with full year revenues up 76% year-over-year as we meaningfully expanded our reach in underpenetrated specialty indications and serve more patients. With our strong R&D and operational capabilities, our generics business continued to outperform, growing 28% year-over-year in 2025. Turning to Slide 5. We believe the momentum we generated in 2025 positions us for continued growth in 2026. Our priorities for this year are threefold. First and foremost, ANI's transformation into a leading rare disease company. For our lead asset, Cortrophin Gel, we plan to maximize its multiyear growth opportunity by addressing the significant unmet need across indications. We will continue to build on our momentum in the key underpenetrated specialty indications in nephrology, neurology, rheumatology, ophthalmology and pulmonology. In addition, for building and deploying a 90-person organization dedicated to acute gardioarthritis fares. For this expansion, we plan to capture sizable and unique additional opportunity in gout to expanding awareness and adoption of Cortrophin for appropriate patients by newly identified physicians in polity and primary care. For ILUVIEN we are focused on returning the product to growth by leveraging the commercial and patient access initiatives established in 2025. Importantly, we continue to believe in the long-term potential of ILUVIEN as we believe the addressable patient populations across DME and NI UPS are at least 10x the current number of patients treated with ILUVIEN today. Our second priority is continued execution in our generics business by leveraging our superior R&D capabilities, operational execution, U.S.-based manufacturing and business development expertise as well as maintaining our current cadence of 10 to 15 launches annually. We continue to make progress on this priority and anticipate another year of strong performance and cash generation from our generics business that will enable us to further invest in our rare disease business. Our third priority is executing a disciplined capital allocation strategy. We are focused on driving organic growth by investing in our dedicated organization for Cortrophin in acute gartiarthritis flares and investing a high single-digit percentage of generics revenue into generics R&D and to drive inorganic growth by exploring opportunities to expand the scope and scale of our rare disease business. . Turning to Slide 6. We believe the 3 2026 strategic priorities will drive long-term growth and value creation for the company. In 2026, we expect to deliver over $1 billion in revenue, representing 23% growth over 2025 at the midpoint of our guidance range. Rare disease is expected to account for approximately 60% of our total revenues in 2026 with Cortrophin growing 60% year-over-year. We also expect to expand the bottom line with adjusted EBITDA forecasted to grow 23% year-over-year at the midpoint of our guidance range. Later in the call, Steve will provide more detail on our 2026 guidance. In summary, 2025 was a pivotal year for ANI as we delivered record performance and drove significant growth across the business lines. We are entering the year from a position of strength and are focused on executing on our 3 strategic priorities. We anticipate that our virtuous cycle of growth in which our generics and brands businesses generate meaningful cash flows to support our rare disease business will drive our transformation into a leading rare disease company. I'll now turn the call to Chris to discuss our rare disease business in more detail. Chris? Christopher Mutz: Thank you, Nikhil, and good morning, everyone. Starting with Slide 7. Looking at 2025, I'm proud of our team as we closed out the year strong, delivering another excellent quarter, marked by significant growth for Cortrophin Gel as we expanded our reach in underpenetrated specialty indication. During the fourth quarter, the number of cases initiated and new patient starts reached another record high, and we saw broad growth across all of our targeted specialties, rheumatology, nephrology, neurology, pulmonology and ophthalmology. Prescribing for Cortrophin gel and acute gouty arthritis flares remained a key growth driver this quarter. This indication is unique to Cortrophin gel among ACTH therapies and represented approximately 15% of total utilization. Notably, gardiaarthritis has also been a strong catalyst for new prescriber additions, including many providers who are previously unfamiliar with ACTH. We also continue to realize meaningful revenue synergies and ophthalmology with fourth quarter Cortrophin gel volumes in ophthalmology over 2x that of the same period a year ago. Ophthalmology remains a fast-growing targeted specialty for Cortrophin gel and we believe there is further upside as we expand awareness of Cortrophin gel for patients with severe allergic and inflammatory eye conditions. Turning to Slide 8. Looking at the market more broadly, the ACTH space has returned to growth following the launch of Cortrophin Gel in 2022 and approached $1 billion in sales in 2025. We expect it to increase significantly in 2026 with Cortrophin gel growing by 55% to 65%. Turning to Slide 9. We continue to believe that the addressable patient populations across our key indications remain significantly underpenetrated. For example, there are roughly 10 million patients in the U.S. with [indiscernible] about 36% received treatment annually, and they have 1.5 to 2 flares on average per year and about 8% of those patients with severe gadiarthritis and injectable treatment for their flares. This group of 285,000 patients represent our addressable patient population. Importantly, prescribers who were previously naive to ACTH represent approximately half of our total Cortrophin gel prescriber base, and this cohort continues to expand. We believe the most significant opportunity for growth is through overall expansion of the ACTH market by addressing unmet needs of appropriate patients. To capture the multiyear growth potential of Cortrophin gel, we continue to focus on 3 key strategic priorities outlined on Slide 10. We are investing in high ROI commercial initiatives. Building on the commercial expansion we executed in 2025, we are now taking the next step to capture the unique opportunity for Cortrophin Gel and acute [indiscernible] flares with our new 90-person dedicated organization. There are several reasons why we are confident about the opportunity in acute gadiarthritis flares. As I highlighted earlier, there is a large addressable patient population of 285,000 patients. Second, Cortrophin gel is the only approved ACTH therapy for acute cardio arthritis flares. And third, we have a proven track record in this indication. Prescribing for acute gadioarthritis laris represented approximately 15% of Cortrophin gel use in 2025. In addition, we ran successful pilots across 10 territories in primary care and podiatry. This gave us further confidence to expand our organization to capture the opportunity in acute [indiscernible] The hiring process is underway, and we expect to deploy this team by midyear. While we anticipate the expansion to the impact in Cortrophin gel volumes in the second half was 2026, we expect a greater impact in 2027 as the team reaches full productivity. Additionally, we continue to focus on enhancing patient convenience. Our Cortrophin gel prefilled syringe offering, which we launched in April of last year, simplifies administration and provides a more convenient option for patients. The launch of the prefilled syringe has been well received by both patients and prescribers and continue to support broader adoption and serve as an important growth driver for Cortrophin Gel. Finally, we continue to invest in generating robust clinical evidence to support physician decision-making and confidence in Cortrophin Gel. As part of this effort, we are advancing a 150-patient Phase IV study in acute [indiscernible] flares. This trial, along with ongoing collection of preclinical and real-world data across core indications is designed to reinforce Cortrophin Gel differentiated nonsteroidal mechanism of action and provide insights that may support adoption and treatment guidelines. We also continue to generate robust preclinical data for our key stakeholders on Cortrophin Gel differentiated mechanism of action across multiple disease states. This remains a critical growth initiative. As expanding the body of evidence supporting Cortrophin gel use across indications help physicians make more informed treatment decisions. On Slide 11, turning to our retina franchise. We are continuing to advance several initiatives to support ILUVIEN sales. Our fully onboarded commercial team is focused on educating and engaging the retina community, and we are ramping up peer-to-peer educational programs and field activities with updated marketing materials to enhance physician understanding of ILUVIEN and its 2 indications. In June of last year, we began promoting ILUVIEN under the combined label for chronic NI UPS and DME. Our sales teams have been educating customers nationwide, while our market access team worked with payers to establish coverage for the new chronic NIPS indication, all 7 Medicare Administrative Contractors or MAX have now updated their policies to cover ILUVIEN for NI UPS. Among the top 20 commercial payers, all those with ILUVIEN specific policies have updated them to reflect both DME and NI UPS indications. We also implemented initiatives to help physician practices navigate ongoing Medicare market access challenges that have persisted since January 2025. As a reminder, patient support foundations, such as good days had limited funding in 2025, affecting their ability to assist Medicare patients with co-pay support across retina products. Our team has gained traction with leading retina practices, helping them explore pathways secure ILUVIEN for eligible patients under the Medicare Part D benefit using a specialty pharmacy, the same approach used for Cortrophin gel access. In addition, we continue to share results from our NewDay study of ILUVIEN in patients with DME and which were presented at prominent medical meetings, including most recently at the Flow Retina International Congress in December and the Hawaiian and Retina Conference in January. With that, I'll turn the call over to Steve for the financial update. Steve? Stephen Carey: Thanks, Chris, and good morning to everyone on the call. I'll review our fourth quarter and full year 2025 results and 2026 guidance in more detail. In 2025, we delivered on our financial commitments, generating robust top and bottom line growth and significant cash flows. Starting on Slide 12. The ANI recorded revenues of $247.1 million in the fourth quarter, up 30% over the prior year period. For the full year 2025 ANI generated record revenues of $883.4 million, up 44% versus 2024. Revenues from Cortrophin Gel in the fourth quarter were a record $111.4 million, up 88% from the prior year period. In 2025, Cortrophin gel delivered $347.8 million of net revenue, up 76% year-over-year driven by strong adoption across neurology, nephrology, rheumatology, pulmonology and ophthalmology. ILUVIEN net revenues were $19.8 million in the fourth quarter and $74.9 million for the full year 2025. Revenues for generics in the fourth quarter were $100.8 million, an increase of 28% over the prior year. The outperformance for the quarter was driven by continued strength in the partner generic launch that occurred in the third quarter of 2025. Full year revenues in 2025 for generics were $384.1 million, an increase of 28% over the prior year, reflecting our strong R&D capabilities, execution and steady cadence of new product launches. Now moving down the P&L on Slide 13. As a reminder, when I speak to our operating expenses, I will be referring to our non-GAAP expenses which are detailed in Table 3 in our press release. Generally, our non-GAAP operating expenses exclude depreciation and amortization, stock-based compensation and certain costs related to litigation and M&A activity. Please refer to Table 3 for a full reconciliation to our GAAP expenditures. Non-GAAP cost of sales increased 43% to $99.8 million in the fourth quarter of 2025 compared to the prior year period primarily due to net growth in sales volumes and significant growth of royalty-bearing products. Non-GAAP gross margin in the fourth quarter was 59.6% and a decrease of approximately 400 basis points from the prior year period, principally due to product mix, including significant growth of royalty-bearing products, including Cortrophin and a partner generic product that was launched in the third quarter as well as lower brand revenues. For the full year of 2025, non-GAAP cost of sales increased 44% to $339.5 million compared to the year before and non-GAAP gross margin was 61.6%, down approximately 10 basis points from the prior year. Non-GAAP research and development expenses were $11.7 million in the fourth quarter, a decrease of 27% from the prior year period, driven by timing of rare disease and generic programs. For the full year of 2025, non-GAAP research and development expenses increased 18% to $49.5 million compared to the year before due to higher investment to support future growth of our rare disease and generics businesses. Non-GAAP selling, general and administrative expenses increased 28% and to $70.2 million in the fourth quarter, driven by spend for our new larger ophthalmology sales team, promoting Cortrophin Gel and ILUVIEN and continued investment in rare disease sales and marketing activities including the expansion of the rare disease team in the first quarter of 2025. For the full year of 2025, non-GAAP selling, general and administrative expenses increased 46% to $264.6 million. Adjusted non-GAAP diluted earnings per share was $2.33 for the fourth quarter compared to $1.63 per share in the prior year period. For the full year of 2025, non-GAAP diluted earnings per share was $7.89 compared to $5.20 the year before. Adjusted non-GAAP EBITDA for the fourth quarter was $65.4 million, up 31% compared to the prior year period and was $229.8 million for the full year, up 47% compared to the prior year. We ended the fourth quarter with $285.6 million in unrestricted cash up $140.7 million as compared to the $144.9 million as of December 31 of the prior year. Cash flow from operations was $30.4 million in the fourth quarter of this year and $185.2 million on a full year basis. As of December 31, 2025, we had $629.1 million in principal value of outstanding debt, inclusive of our senior convertible notes and term loan. At the end of the fourth quarter, our gross leverage was 2.7x and our net leverage was 1.5x our full year adjusted non-GAAP EBITDA of $229.8 million. This morning, we are pleased to reaffirm our 2026 financial guidance, which reflects significant top and bottom line growth. Our guidance outlined on Slide 14 is as follows: 2 sorry, 2026 net revenue of $1.055 billion to $1.115 billion representing year-over-year growth of approximately 19% to 26%. Cortrophin Gel net revenue of $540 million to $575 million representing year-over-year growth of 55% to 65%, driven by continued volume gains. Consistent with prior years and typical industry dynamics, we expect first quarter Cortrophin general revenues to be down sequentially from the fourth quarter and to represent approximately 13% to 14% of total 2026 revenues slightly lower than in 2025, when the first quarter accounted for approximately 15% of full year revenues. This effect is driven by 2 factors: first, we are experiencing typical seasonality related to the impact of insurance reverifications, which appear to be taking slightly longer as compared to the prior year. Due to increased Cortrophin patient volume in the physician's offices and in some parts of the country due to weather-related physician office closures that temporarily delayed the reverification process. While these factors impacted January, we have since seen a 25% jump in volumes dispensed and acceleration in new patient starts in February, and are confident that the momentum will persist in March as physician offices complete work through the reverifications backlog. Second, our full year Cortrophin guidance is inclusive of initial script volume expected to result from our 90% organizational expansion to support our gaudy authorities flares indication. Revenues associated with this expansion will first occur in the third quarter and are expected to build momentum throughout the fourth quarter. As we look further out into the year, we remain confident in our full year guidance and the significant multiyear growth opportunity for Cortrophin Gel. We expect very significant sequential growth in the second quarter as typical first quarter dynamic subside. We then expect further sequential gains in the third and fourth quarters, driven by continued performance of our portfolio, pulmonology and ophthalmology teams, in addition to the full deployment by the end of the second quarter, of our new 90-person organization focused on acute cadiarthritis flares. We expect ILUVIEN net revenue of $78 million to $83 million, representing year-over-year growth of approximately 4% to 11%. We expect adjusted non-GAAP EBITDA and of $275 million to $290 million, representing year-over-year growth of approximately 20% to 26%. And from a quarterly cadence perspective, we expect adjusted non-GAAP EBITDA to be down sequentially in the first quarter and modestly down as compared to the first quarter of prior year driven by quarterly revenue dynamics. We then expect sequential growth in the remaining quarters of the year, with the fourth quarter representing the highest quarter by a significant amount driven by incremental contribution from our gout focused team expansion. We expect adjusted non-GAAP earnings per share between $8.83 and $9.34, representing year-over-year growth of approximately 12% to 18%. We expect adjusted gross margin to be 59.3% to 60.3% in 2026, which is down from 2025, driven by significantly higher forecast sales of royalty-bearing products the non recurrence of revenues from our first half 2025, 180-day exclusive launch of [indiscernible] and the expectation of lower brand sales. We currently anticipate a full year U.S. GAAP effective tax rate of approximately 26% to 28%. And consistent with prior quarters, we will tax affect our non-GAAP adjustments for computation of adjusted non-GAAP diluted earnings per share, utilizing our estimated statutory rate of 26%. We anticipate between $21.5 million and 21.8 million shares outstanding for the purpose of calculating full year non-GAAP diluted EPS and finally, please note that we will continue to exclude from our adjusted non-GAAP diluted EPS calculation, the dilutive shares included in GAAP diluted EPS, which are expected to be offset in full by the cap call transaction. With that, I'll turn the call back to Nikhil. Nikhil Lalwani: Thank you, Steve. Turning to Slide 15. In closing, we delivered a remarkable 2025 characterized by significant growth across Cortrophin Gel and outperformance in our generics business. We've entered 2026 in a position of strength and remain focused on achieving our strategic priorities, including accelerating our transformation into rare disease, continuing to execute in generics and deploying capital in a disciplined manner. . Overall, we expect to deliver over $1 billion in revenue in 2026 with rare disease representing approximately 60% of total revenues. With that, operator, please open the line for questions. Operator: [Operator Instructions] And we'll take our first question from the line of Glen Santangelo from Barclays. Glen Santangelo: Nikhil, obviously, Cortrophin continues to surprise on the upside, and you sort of make the case that you believe there's a multiyear opportunity here as you expand into these under-penetrated indications. And you're obviously investing in the sales force to try to take advantage of that. Without giving us guidance beyond 2026, I don't know if there's any high-level commentary you can sort of give us -- can you help us think about how meaningful this multiyear opportunity could be. And I am guessing you're starting to think about a peak sales number, maybe it's a little bit premature, but how do you think about that? And then my follow-up to Stephen's going to be -- the royalty steps up this year. Can you help us think about how that royalty is going to step up so we can sort of better model gross margins going forward? Nikhil Lalwani: Yes. Thank you for your question, Glen. Look, I think we believe in the significant multiyear growth opportunity for Cortrophin but I think the key really is Slide 9 in our deck from this morning, where we highlight the addressable patient populations across indications. . And these are significantly underpenetrated, not just by us but across the ACTH category. So we believe that there is a much larger number of patients that are yet to -- that are appropriate for ACT therapy that are yet to benefit from this therapy. So we see a significant multiyear growth run rate for the category and also for Cortrophin. And we're investing to build momentum in 2016 and beyond, right? So high ROI commercial initiatives like the 90% organizational expansion for gout, but we did an expansion last year. We're enhancing convenience, we launched a prefilled syringe last year. We're continuing to evaluate opportunities to further enhance patient convenience. And importantly, we're generating both scientific and clinical evidence we advanced Phase I clinical trial. We're advancing a Phase I clinical trial for Cortrophin in gout as well as a robust pipeline of investigator-initiated trials across disease trades. So we believe in the strong multiyear growth opportunity and are investing to ensure that we can capture that opportunity? And again, we believe in the opportunity for the category as a whole to keep growing for several years. And then your second question on the Merck royalty in 2025, annual revenues of Cortrophin Gel reached a level by which we surpassed the highest royalty tier for incremental net sales, the way in 2025 itself, we were in the highest royalty tier for the royalty. And then we currently anticipate the blended royalty rate to be in the high 20s in 2026. Operator: And we'll take our next question from David Amsellem with Piper Sandler. Glen Santangelo: So I had 2 on Cortrophin. So one, I'm trying to get a better sense of how you're thinking about operating leverage going forward. So you're adding the 90 reps, you're calling on primary care, you're calling on podiatrist. I'm just wondering how promotion intensive you perceive the gout indication to be and what that means for potentially further expansion. So just help us understand that and how you're thinking about operating leverage. That's number one. And then number two, are you thinking about indications like sarcoidosis and ophthalmic indications -- can you talk about the number of vials used or duration of treatment in those kind of indications versus gout? And what I'm trying to get at is the value of a given patient across the different opportunities within the Cortrophin franchise. So if you could help us provide color there, that would also be helpful. Nikhil Lalwani: Great. Thank you for your question, Dave. So the first question on operating leverage. Look, we're still in high-growth mode, and we continue to balance growth and profitability as we drive that growth, right? So when you look at 2025, our guidance implies EBITDA growth of 20% to 26%, and the EBITDA margin as a percentage of growth -- sorry, as a percentage has stayed in the same in our 2026 versus 2025 despite a our very significant investment in this 90% organization for a graft and then also related OpEx, right? So the total implied OpEx increase at the midpoint of our guidance is about $50 million, majority of which is for the gal expansion. And despite that, we're keeping the EBITDA margin percentage the same in '26 versus '25. We strongly believe that as we had seen even with the expansion last year of the sales force that we will see partial impact from the organization expansion for gout in 2026, and we'll see full impact in 2027, right? So the full year impact and -- because it takes the sales force, we'll have them in place by mid-year they'll have impact in Q3 and Q4. And then you'll see full impact in 2027, obviously driving operating leverage. So that's the question on operating leverage. And look, I think the key is in terms of further expansions, the key is the addressable patient population, right? As you know, we currently have a combined team that details into nephrology, neurology and rheumatology. That's called our portfolio team. We expanded that team in 2025, right? We still have a much larger addressable patient population that we can address, not just in these 3 beauty areas but across areas. So with an ability to reach physicians and reach patients there would be benefit from further expansions. Obviously, but that's down the field as we capture this multiple multiyear growth opportunity. I mean the key in terms of the current year investment we're seeing impact on this year retaining the EBITDA margin percentage and then going in 2027, we'll see a much bigger impact with the same level of SG&A this year. Your second question was on the duration of treatment across indications. The duration of treatment does indeed vary sarcoidosis has a much longer in use and more miles per patient, whereas acute [indiscernible] flares has a lower number of vials per patient that is appropriate, right, at the time of the exacerbation or flare. So there is a variance across the nation that we serve with Cortrophin Gel. Thank you, David. Operator: And we'll go next to Vamil Divan from Guggenheim Securities. Vamil Divan: Great. Maybe one more on Cortrophin. I could sort of building on the earlier question. So this additional 90% organization using is dedicated to the county opportunity in targeting primary campaign. I'm just trying to get a sense of again sort of the leverage of the opportunity for them to do other things beyond just gouty arthritis will they be going to any other specialties? Or are there other indications they'll be focusing on? Or is it strictly just for a arthritis. Just trying to get something in the ability to leverage that additional investment. And then second question, I guess, more for Steve on the business development side. And you've talked about investing and kind of expanding the rarer disease opportunity here. I'm just trying to get a sense of given where your leverage is now. So what you're willing to do in terms of leverage versus using equity or as you think about the size of potential deals what you beat in terms of options for financing those sorts of opportunities. Nikhil Lalwani: Thank you, Vamil. So on the 90% organization, that's for gout. And as a clarification, not all 90 are in sales. So majority of that any person grew its sales expansion, but there are obviously patient support operations and marketing and other support areas, too. . But yes, that organization and the sales organization and the rest of the organization can be leveraged both for other indications that they treat or primary care and purity do treat other indications that Cortrophin is indicated for, our focus is primarily on gout, but there are other indications potentially that they can treat, which [indiscernible] for the appropriate patients. but can be leveraged for that. But in addition, that sales force can also be leveraged by adding another product in the basket just like we did for ophthalmology. So that option is available. Obviously, our -- the opportunity in acute garden arthritis flares is very significant. We've identified 7,000 HCPs, that treat the most severe acute cardio arthritis flares patients, and that is our -- that is the primary focus of this expansion, and that is what we will be -- we focused on as we put this team in place by midyear. And look, we've made very good progress on the recruitment. We have our sales leadership and the area business directors in place and we're now moving to recruitment of the sales team members, and we will launch by midyear. So on the acute a few [indiscernible] players expansion. And then I'll turn it to Steve to answer your question on BD. Steve? Stephen Carey: Yes, thanks for the question. We're incredibly pleased with the cash flow dynamics of the company in 2025. We're ending the year with $285 million on the balance sheet and the business generated $185 million from operations in 2025. And as you see in our full year guidance, right, we're projecting continued both revenue and profitability measures growth and so we expect very healthy cash flows in 2026 as well. . And so at this point in time, right, given the strategic imperatives of the company to expand rare disease we anticipate accruing that cash to the balance sheet to build that war chest for future business development and M&A activities. I think what you've seen us do consistently, you can look back to when we purchase Novidium in 2021, when we purchased Alimera in 2024, right? We take a balanced approach to how we finance these types of activities. And in terms of leverage ratio, right, we like to take a reasonably conservative approach there. I think what we've done in the past is we'll take leverage up to the 3-ish range, maybe a touch above 3% on net leverage but always with a clear line of sight in terms of organic delevering. And if you look back, right, to the close of Alimera, we were just right around 3x net levered and here, just 5 quarters downstream, we've cut that leverage in half really driving with organic growth in the business. So I think you should expect similar moves in the future. Okay. Operator: And we'll take our next question from Dennis Ding with Jefferies. Yuchen Ding: We have 2. So on Cortrophin, thanks for the color on Q1, it seems like the winter storms were an unexpected impact, but bad things are recovering. So I'm wondering when you take a step back and think about the first versus second half split, it seems like it will be meaningfully second half weighted, and that does put pressure on the gout expansion going as planned. So how do you give investors confidence that will go as planned and the PCPs will be okay with prescribing a very expensive product. And then question number 2 is specifically on gross margins. So the royalty to work, I believe, is capped around 30% so we shouldn't really get any more incremental headwinds moving forward. But how are you thinking about buying that royalty down given how much cash flows you guys are generating? And is that a priority for you? And how do you also convince Merck to come to the table? Nikhil Lalwani: On thank you for your questions. Dennis, look are new dedicated field force for acute [indiscernible] arthritis flares will be deployed by midyear. And are reasons to believe are, number one, the large underpenetrated market opportunity and Cortrophin is the only approved ACTH product with this indication? Second is we have a successful track record in got plus of our volumes in 2025, coming from gout in rheumatology and nephrology. . And number three, our successful pilot programs across 10-plus territories in primary care and parity offices, which we ran in 2025, right? Would see the most severe acute [indiscernible] arthritis flares patients. And so we saw success with those pilot programs, and that gave us the confidence to deploy this larger sales force and the large organization in an indication where we have the indication, and we are the only ACTH product available, right? So with the field force deploying the midyear, we expect to see in Q3 and Q4, like we saw in 2025 when we did the expansion for our portfolio sales force. And we'll see the full realization in 2027, right? As we're expanding our field force, we're also investing in clinical evidence generation through a Phase IV trial to expand usage over time. That's on the gout expansion. And then your second question on the Merck royalty, look, I think we've -- in we are always evaluating potential opportunities, but we do not comment on active or nonactive business development initiatives, especially with our partners. And thank you for your question, Dennis. Operator: And we'll move next to Ekaterina Knyazkova. Ekaterina Knyazkova: Just 1 from me. So just on Cortrophin gel, have you seen any recent changes on the patient access front, just are you seeing any payers or plans getting more triple or coverage or reimbursement? Or are you seeing kind of trends that are similar as you were seeing last year? Nikhil Lalwani: And thank you for your question, Ekaterina. Look, we try to find a balance between sharing information that is helpful to investors and that is competitively sensitive. . Having said that, at an overall level, we have not seen material changes from an access perspective. again, we're targeting or we're reaching -- trying to reach the appropriate patients as a late-line therapy with Cortrophin gel but thank you for your question. Operator: And we'll go next to Thomas Smith with Leerink Partners. Thomas Smith: Two on Cortrophin, if I could. You mentioned about 15% of utilization came from acute gave arthritis in 25. Could you just give us a sense of what your expectations are for where that number goes in '26 and '27 given the sales force expansion efforts? . And then could you give a little bit more color on the Cortrophin pilot programs executed in primary care and pathology. Any details I guess, on specific feedback from those prescribers versus your other specialty types and any specific learnings you're implementing to help better target those offices. Nikhil Lalwani: Yes. Good morning, and welcome to your first ANI conference call. Tom, great to have you. So the first question is on our current business. in gout, about 15% of our volume comes from gout. As we deploy this targeted sales force and broader organization, we do expect it to increase significantly. We're not putting a number to it at this time, but we'll keep you updated, obviously, on our progress. I think the important thing to highlight here is that if you look at the ANI Cortrophin story, a big part of that success has been being able to reach new physicians. Almost half of our physicians that have prescribed Cortrophin were naive to the category, [indiscernible] prior to the entry of Cortrophin gel. And if you think about -- and this dovetails into your second question around the pilot programs. If you think about the HCPs that we're reaching through this expansion, we're targeting -- we're trying to reach about 7,000 ETPs that we've identified across territories, right? Majority of these right? Obviously, some were part of the pilot programs that we had across 10 territories, but most of these have not been. And so that will further expand, right? And the success we've had in being able to reach new physicians right will continue. It has given us that for them, and we'll continue as we reach these new primary care and podiatry care physicians, right? So what will also expand is not just the gout volumes as a percentage of Cortrophin volumes, but also the number of physicians and a number of new physicians that were naive to ACTH. And then going back to your second question regarding -- or I guess, second part of your second question on the pilot programs. I think that we've had a lot of learnings in terms of the discussion to be had with the primary care and proprietary physicians in terms of identifying the appropriate patients, how to work with their offices right to work through the enrollment of fulfillment process? And then also, learnings on primary care and podiatrist are very large sort of number of HCPs that are there in the country but really figuring out the 7,000 that treat the most severe acute guard arthritis flares, how do you identify them with the claims and other data that is available so that you're reaching the appropriate patients? That's been part of our learnings through the pilot programs through 2025. And thank you for your question, Tom. . Operator: And we'll take our next question from Les Sulewski from Truist Securities. Leszek Sulewski: Congrats on the progress. Three for me, Cortrophin first, you noted that 15% of utilization is coming from gout. How would you expect that trend to uptick once the new team is in place? And is this a good representation of the percentage of the total consultant revenues? And then will you have some of the results from Phase IV trial in time for the sales force expansion? And the second, on ILUVIEN, can you provide an update on the specialty pharmacy progress and perhaps just kind of your thoughts on the patient access? And then lastly, on generics, how are you thinking about product cadence and erosion as we move through the year. Nikhil Lalwani: For questions. I'll take them one by one. So the first question on the gout -- we do believe that the 15% of volume of current volumes will expand, right, as a percentage of total volumes with this investment. So we will see a significant uptake we will update you as we move along. On the trial, we are -- the trial -- the Phase I trial is progressing, and we will provide meaningful updates as that trial progresses. If the organization expansion, right? We've already hired, as I said, the sales leadership and the ABD, they're your business directors. The organization will launch in full by midyear. The results of the trial will not be in place by then. So that's on the come later on, and we'll obviously provide updates on the trial. The second question was on ILUVIEN. So on ILUVIEN, we continue to make progress in the growing use of the alternative access channels to navigate the market access challenges for Medicare patients. We are seeing prominent practices adopting this alternate workflow and use of alternate channels. And it's basically patients that have access to the drug benefit. And that's the same procedure that or process that we use and workflow that we use for Cortrophin. And so we've seen prominent retina practices use it. Now what we -- what has happened with the foundation funding is we had seen some early contributions to the funding earlier this year. And though this hasn't had a meaningful impact on patient access to ILUVIEN it was open for a few days and then it was closed back. So our guidance for 2026 does not assume that the funding will return in any meaningful way. and we will continue to closely monitor the situation and of course, stay focused on growing the use of the alternative access channels to navigate the market access challenges in addition to the strategic investments in marketing and medical affairs to support the increased awareness of the new day clinical data for DME, establishing the coverage for both DME and NI UPS and then obviously the strength in the commercial team and further enhanced promotional efforts. So that's on ILUVIEN. And then finally, your question on the genetics cadence. We are continuing to have a strong cadence from our -- driven by our R&D capabilities of 10 to 15 launches. That will help support growth of the generics business and cash flow generation that we are reinvesting into rare disease to accelerate the transformation of ANI into a leading rare disease company. And thank you for your questions, Les. Operator: And we'll take our next question from Brandon Folkes with H.C. Wainright. Brandon Folkes: Congrats on the progress. Maybe just sort of following on from the line of question on Cortrophin. Outside of gout, is it any way you can just give us some color in terms of how you're seeing the ACTH market shape up? Are prescribers choosing one product over the other or prescribers using both where they can. You talked about adding new prescribers. Can you just help us think through when you convert these new prescribers, are you generally converting them to sort of be a Cortrophin prescriber or a ACTH believer in prescriber? And what I'm trying to get to is how competitive is the next script for a potential patient right now versus a continued market expansion. How long do you see sort of the market expansion playing out versus market expansion as well as share capture between the 2 and within the category driving growth. Nikhil Lalwani: Yes, thank you for your question, Brandon. So I think your first question was on the ACTH market beyond and I think that we'll just point to a couple of points. Number one is that we see growth across indications across the core indications that we launched with, which is in rheumatology, nephrology and neurology in addition to in the pub and ophthalmology. . If you think about the ANI's growth in Cortrophin in 2025 in Cortrophin, a significant portion of that came from just growth across all these specialties outside of gout. Now gout also was a driver but there was significant growth across these other specialties too. And then really, the thing that's underpinning and that really goes to your second question around the competitive situation. And this is, to us, not about share capture at all. This is about market expansion, reaching the appropriate patients and the addressable patient population is very significant. And highly underpenetrated, right? So it's significantly underpenetrated across indications. And so the fact that 2 players are out there trying to address the appropriate patients ultimately supports the overall market growth and ensures that the appropriate patients get the benefit of ACTH treatment for their indications. And then maybe the last part of your question, which was -- we are -- our team is out there trying to convince and this is a little bit on a lighter note. But our team is out there trying to convince patients -- I'm sorry, current confused physicians of the appropriate patients for Cortrophin, right, and not the broader ACTH category. So thank you for your questions, Brandon. Operator: And I would like to now turn the call back over to Nikhil Lalwani for closing remarks. Nikhil Lalwani: Thank you, everybody, for taking time to join the ANI discussion. We look forward to updating you on our progress and are looking forward to a strong 2026. Thank you so much, and we will remain focused on our purpose of serving patients, improving lives. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Nexa Resources S.A. fourth quarter and full year 2025 earnings conference call. Please note that today's event is being recorded and broadcast live via Zoom, with access also through Nexa Resources S.A.’s Investor Relations website. A slide presentation accompanying the webcast is available for download, as well as a replay of the conference call following its conclusions. As a reminder, all participants are currently in listen-only mode. Following today's presentation, we will open the floor for questions. To ask a question, if you are joining via Zoom, please click Raise Hand. If your question is answered, you can lower your hand by clicking Put Hand Down. You may also submit your questions via the Q&A icon at the bottom of your screen. Please include your name and company when submitting your question. For participants joined by phone, press star followed by 9 to raise or lower your hand. Once announced, press star followed by 6 to mute or unmute your microphone. Written questions that are not addressed during the call will be answered afterward by the Investor Relations team. Questions from media outlets will be handled separately by our Corporate Affairs team. Now, I would like to turn the conference over to Mr. Rodrigo Cammarosano, Head of Investor Relations and Treasury, for his opening remarks. Please go ahead. Rodrigo Cammarosano: Good day, everyone, and welcome to Nexa Resources S.A. fourth quarter and full year 2025 earnings conference call. We appreciate your time and participation today. During the call, we will discuss Nexa Resources S.A.’s performance as detailed in the earnings release issued yesterday. We encourage you to follow along with the presentation available through the webcast. Before we begin, please turn to slide number 2, which contains our forward-looking statements disclaimer. We ask that you review the information regarding these statements and the associated risk factors. Joining us today are our CEO, Ignacio Rosado, our CFO, José Carlos del Valle, and our Senior Vice President of Mining Operations, Leonardo Nunes Coelho. With that, I will now turn the call over to Ignacio for his remarks. Ignacio, please go ahead. Ignacio Rosado: Thank you, Rodrigo. Good day, everyone, thank you for joining us today. Starting on slide number 3, Nexa Resources S.A. delivered a strong finish to the year with our fourth quarter results demonstrating consistent operational execution and the benefits of our disciplined focus on safety, efficiency, and cost management, all within a supportive pricing environment. On the mining side, zinc production reached 91,000 tons, a solid increase both quarter-over-quarter and year-over-year. This performance was driven by stronger results across all our operations, with Aripuanã standing out as it achieved its highest quarterly production to date, a clear reflection of its growing operational stability. In our smelting division, total zinc sales were 142,000 tons. While Cajamarquilla continued to deliver a stable output, the sequential volume was constrained by lower production at our Brazilian smelters and softer demand for zinc oxide. Financially, the operational performance translated into our strongest quarter of the year. We reported net revenues of $903 million and adjusted EBITDA of $300 million, with both metrics showing relevant improvement across all comparable periods. This was underpinned by higher realized prices for zinc and our key by-products, combined with our increased mining volumes. We recorded a net income of $81 million or $0.38 per share and generated $51 million in free cash flow. As a result, our net leverage improved to 1.7 times, further strengthening our balance sheet. Looking now at the full year 2025, zinc production totaled 316,000 tons, successfully achieving our consolidated mining production guidance, with all individual metals also landing within their respective target ranges. In smelting, total metal sales reached 567,000 tons, which is in line with the midpoint of our guidance. From a financial perspective, full year net revenues were $3 billion, while adjusted EBITDA reached $772 million, one of the strongest levels in the company's history. This performance reflects solid operational execution, combined with a favorable pricing environment for zinc and key by-products. Net income for the year was $223 million, or $1 per share. Free cash flow was negative $105 million, which included debt reductions and dividends. A combination of a supportive pricing environment and disciplined cost management allowed us to reduce gross debt and reinforce our financial flexibility. With that, let's move to slide number four to take a closer look at our mining performance. Our quarterly zinc production of 91,000 tons represents a 9% increase from the third quarter, driven by enhanced operational performance at Vazante, Aripuanã, Cerro Lindo, and Atacocha. For the full year, our production of 316,000 tons of zinc met guidance. As we have previously discussed, volumes were impacted in the first half due to temporary operational constraints and lower grades. On costs, our consolidated mining cash cost, net of by-products, improved sequentially to negative $0.58 per pound, benefiting from stronger by-product grades and lower treatment charges. For the full year, cash cost came in at negative $0.30 per pound below our guidance, reflecting our disciplined cost management and favorable price dynamics. The cost per ton of run-of-mine was $56 in the quarter, a sequential increase primarily due to higher operational costs at Aripuanã as we continue to ramp up and stabilize the asset. On a full year basis, this cost was in line with our guidance. Financially, the mining segment delivered a robust performance, with net revenues of $532 million and adjusted EBITDA of $266 million in the quarter, translating to a strong 50% EBITDA margin. This was fueled by higher metal prices and improved operational execution. For the full year 2025, the segment generated approximately $1.6 billion in net revenues and $658 million in adjusted EBITDA, a 42% margin that clearly demonstrates the earnings resilience of our mining portfolio. With that, let's move to slide number five for a closer look at Aripuanã's operational progress. In the fourth quarter, Aripuanã achieved its highest production level to date, a direct result of enhanced operational reliability, reduced plant downtime, and lower workforce turnover. The fourth tailings filter arrived on site in early November, and its installation is progressing as planned. We achieved key structural and mechanical milestones during the quarter, keeping the project firmly on schedule. Commissioning remains on track for the first half of 2026, positioning us to reach full operational capacity in the second half of the year. This is a critical step towards unlocking the plant's full potential and securing long-term cash flow generation. On exploration, recent drilling has confirmed new mineralized extensions, reinforcing our confidence in the asset's geological upside and its potential for further life-of-mine extensions. Now, please turn to slide number 6 for an update on the Cerro Pasco Integration Project. In parallel with our operational progress, we have advanced preparatory studies for Phase 2, including technical assessments of the Picasso shaft and several underground integration alternatives. Our goal is to define the most efficient long-term configuration to maximize value from this highly prospective mineral district. Looking ahead to 2026, we will intensify Phase 1 construction and commissioning activities with a strong focus on discipline and consistent execution. The Cerro Pasco Integration Project remains a key strategic driver, supporting a potential life-of-mine extension of over 15 years, enhancing profitability, and solidifying Nexa Resources S.A.’s long-term presence in one of Peru's most important mining districts. Next, on slide number 7, I would like to highlight the continued progress of our exploration program. Our 2025 exploration plan delivered solid results across our key assets, reaffirming their geological potential. In slide number 7, you can see deep intersections with high metal grades across all mines. At Cerro Lindo, activities focus on expanding known ore bodies in the southeast region. Drilling confirmed the continuity of mineralized zones, particularly in ore body 8C, which supports the mine's long-term production profile. At Aripuanã, exploration concentrated on the Massaranduba target, where drilling confirmed new mineralized areas, including thick, high-grade intersections in a recently identified structure. At Vazante, brownfield exploration advanced near existing infrastructure, confirming extensions of known zones and enhancing operational flexibility within the current mine plan. Finally, at Pasco, exploration continued delivering positive results around the integration target, which remains a strategic upside for the Cerro Pasco Integration Project. Together, these results reinforce our resource and research inventory, paving the way for further life-of-mine extensions. Now, let's turn to slide number 8 to review our smelting performance in more detail. Turning to the smelting segment. Sales were 142,000 tons for the quarter and 567,000 tons for the full year, in line with our 2025 guidance. The sequential decline was primarily driven by lower production at our Brazilian smelters and softer demand for zinc oxide. From a cost perspective, the quarterly cash cost was $1.41 per pound. This reflects the impact of higher zinc prices and lower treatment charges, which impact margins in an environment of tight concentrate supply. For the full year, cash cost was $1.28 per pound, in line with our guidance. Conversion cost was $0.34 per pound in the quarter, slightly lower sequentially. On a year-over-year basis, the increase is attributable to higher operational costs and unfavorable foreign exchange variations at our Brazilian units. For the full year, conversion costs remain below our annual guidance, demonstrating disciplined cost control despite a challenging environment. From a financial standpoint, the segment generated net revenues of $573 million, and adjusted EBITDA of $34 million in the quarter, reflecting the challenging market environment and operational constraints. For the full year 2025, net revenues totaled approximately $2 billion, with adjusted EBITDA of $113 million, corresponding to an EBITDA margin of 6%. Looking forward, increasing global mine supply is expected to lift treatment charges, supporting a gradual rebound in margins. With that, I will now hand the call over to our CFO, José Carlos del Valle, for a detailed review of our financial results. Jose, please go ahead. José Carlos del Valle: Thank you, Ignacio, and good morning, everyone. Let's turn to slide number 9 for an overview of our financial performance. We closed the year with strong momentum in the fourth quarter, driven by improved operational execution and supportive pricing environment. Starting with the upper left chart, in the fourth quarter of 2025, net revenues reached $903 million, up 18% sequentially and 22% year-over-year. This growth was fueled by higher average metal prices, stronger contribution from by-products, and improved mining performance. For the full year, net revenues totaled $3 billion, a 9% increase compared to 2024. Moving to adjusted EBITDA, we reported $300 million in the quarter, a significant improvement, both quarter-over-quarter and year-over-year, translating to a 33% EBITDA margin. This reflects stronger price realization, combined with improved operating leverage from increased volumes. For the full year, adjusted EBITDA reached $772 million, up 8% versus 2024, with a margin of 26%. This demonstrates the resilience of our integrated mining and smelting portfolio across varying market conditions. Overall, the year reflects disciplined execution, pricing support, and effective cost management across our segments. Now, let's turn to slide number 10 for a closer look at our investments. For the full year 2025, total CapEx reached $352 million. The majority was directed towards sustaining activities, including mine development, maintenance, and tailing storage facilities, all fully aligned with our operational priorities and commitment to asset integrity. CapEx execution came in slightly above our $347 million guidance, primarily due to the appreciation of the Brazilian real against the US dollar, which had an approximate impact of $7 million during the year. In the fourth quarter, CapEx totaled $125 million, in line with our plan. Regarding the Cerro Pasco Integration Project, phase one investments reached $12 million in the quarter and $42 million for the full year. This was slightly below the initial plan of $44 million, reflecting disciplined project execution and cost control. Moving to the lower section of the slide, exploration and project evaluation investments totaled $78 million for the year, below the initial plan of $88 million. This performance is consistent with our capital allocation framework, which aims to maintain our focus on mine life extension and portfolio optimization. With that, let's turn to slide number 11 to review our cash flow generation. Starting from the $772 million of adjusted EBITDA, after adjusting non-operational items, we can see that during 2025, we generated $846 million in operating cash flow before working capital on other variations. From this amount, we invested $354 million in CapEx across our operations and paid $254 million in interest and taxes, reflecting both our investment cycle and our capital structure. Working capital and other cash flow variations had a negative impact of $212 million. Operational working capital remained essentially flat, with the movement largely explained by other cash items, including some one-offs. We continue to advance initiatives to enhance our cash conversion cycle and further strengthen liquidity. Foreign exchange variations contributed positively by $13 million, mainly due to the appreciation of the Brazilian real. As a result, cash flow before loans, debt payments, and dividends totaled $39 million. On the financing side, we can see a net debt reduction of $96 million, reflecting our liability management efforts and consistency in our debt reduction strategy. Additionally, during the year, we successfully issued a 12-year bond in April and completed the full redemption and partial tender offer of two earlier maturity bonds. Towards the end of the year, we also executed early repayments of some debt facilities, along with our regular lease liability payments. These actions were essential to further strengthen our maturity profile and advance our overall debt reduction strategy. Furthermore, we also distributed $48 million in dividends, including share premium reimbursements and payments to non-controlling interests. After these movements, free cash flow for the full year was -$105 million. Importantly, this outcome reflects deliberate capital allocation decisions, including debt reduction and shareholder distributions, while maintaining strong operating cash generation. With that, let's move to slide number 12. As you can see, our liquidity position remains robust, supporting a solid balance sheet and an extended debt maturity profile. We close the quarter with total liquidity of $842 million, including our undrawn $320 million sustainability-linked revolving credit facility. Our average debt maturity increased to 7.6 years, compared to 5.6 years at the end of 2024, with an average cost of debt of 6.49%. This improvement reflects our proactive liability management actions during the year. Importantly, our available liquidity, excluding the RCF, covers all financial commitments over the next 5 years. Finally, net leverage improved to 1.7x, down from 2.2x in the previous quarter, supported by higher last 12-month EBITDA and a reduction in net debt. We continue to optimize our capital structure through funding diversification and disciplined liquidity management. Maintaining a maturity profile that is aligned with the life mine prospects of our assets remains a priority, while preserving our investment-grade rating and a competitive cost of capital. Looking ahead, we remain committed to further deleveraging and reducing gross debt over time, with a target of lowering interest expenses and enhancing financial flexibility. With that, I will now hand the call back to Rodrigo to discuss market fundamentals. Rodrigo Cammarosano: Thank you, José Carlos. Turn now to the zinc and copper markets on slide number 13. As you can see, zinc prices remained well-supported throughout 2025. This strength was largely driven by persistent concentrate tightness and substantially low LME inventories. Treatment charges, particularly in China, averaged negative levels during the year, a clear reflection of raw material scarcity. Imported TCs ended the year around $60 per ton, is still well below mid-cycle conditions. Structurally, the zinc market continues to reflect limited near-term mining supply growth relative to smelting capacity. This imbalance has supported prices, even against a backdrop of macro and trade-related volatility. Looking ahead to 2026, we expect a gradual improvement of mining supply, which should support a modest recovery in treatment charges from the historically low levels seen in 2025. However, this recovery is likely to be regionally distinguished. In China, smelters are expected to calibrate capacity utilization based on domestic concentrate availability and TCs for imported concentrate. Outside China, high energy costs and sub-historical TCs may continue to constrain margin expansion in the near term. Zinc prices should remain supported, at least in the first half of 2026, by tight inventories, resilient demand, and a softer US dollar environment. Against this backdrop, Nexa Resources S.A. integrated mine-to-smelter platform remains a key differentiator. It allows us to partially mitigate concentrate market volatility and preserve margin resilience across cycles. Turn now to copper. Prices appreciated in 2025 on the back of supply discipline and sustained demand driven mainly by electrification. Trade policy volatility added uncertainty during the year, the underlying structural fundamentals remain constructive. Incremental supply additions are unlikely to fully rebalance the market in the near term, meaning medium-term supply constraints remain a key theme supporting copper price. Let's turn to slide 14 for a look at precious metals. Moving now to silver and gold. Silver was one of the best-performing metals in the fourth quarter of 2025. The rally was supported by strong investment flows, monetary policy expectations, and sustained industrial demand, especially from solar energy, electrification, and AI-related infrastructure. Silver's dual role as both a monetary asset and an industrial input continues to support its demand profile. Importantly for Nexa Resources S.A., we produce around 11 million ounces of silver annually, which provides meaningful precious metals exposure within our base metals portfolio. Beginning in the second quarter of 2026, this is a key point, our silver streaming agreement steps down from 65% to 25%. This materially increases our realized exposure to silver prices and enhances EBITDA leverage going forward. It is a relevant structural catalyst for our earnings profile. Turning to gold, prices traded near record levels in the fourth quarter, supported by central bank buying, ETF inflows, a softer US dollar environment, and elevated geopolitical uncertainty. Gold continues to provide portfolio diversification and countercyclical support. Looking ahead, US monetary policy and geopolitical developments remain key drivers for precious metals price. Now, on Slide 15, I will comment on the developments of our ESG agenda. Let me briefly turn to ESG. In 2025, we continued to advance our ESG strategy as an integral component of our business management. On climate and decarbonization, we consolidated renewable energy supply across our operations and continued implementing operational efficiency initiatives aimed at managing emissions intensity. We also advanced circular economy initiatives, reinforcing our focus on waste reduction and resource efficiency across our units. From a governance standpoint, we maintained our CDP rating at B for both climate change and water security, and further reinforced the integration of our ESG criteria into our enterprise risk management framework. Community engagement also remained a focus, with continued investments in local infrastructure and structured development programs both in Brazil and Peru. Our participation at COP30 reinforced our long-term commitment to climate action and responsible mining. Now, I would like to address an important governance development. Over recent months, we conducted a structured review of our public ESG targets. The objective was to enhance methodological consistency, improve transparency, and ensure alignment with operational realities and updated baselines. As a result of this process, we are proposing recalibrated targets grounded in three pillars. First, technical robustness and including refined baselines and third-party verification. Second, strategic transparency with recognition of operational constraints and industry dynamics. Third, sustainability of commitments, ensuring that targets remain realistic, measurable, and aligned with long-term business performance. We will disclose the full methodology and detailed targets in our sustainability report in 2026 materials. Now, moving to our final slide, our focus and priorities. I will now hand it back to Ignacio for his comments. Ignacio, the floor is yours. Ignacio Rosado: Thank you, Rodrigo. Turning to slide number 16. Before we open the floor for Q&A, let me close by reinforcing our strategic drivers and priorities. Aripuanã continues to be a key near-term catalyst. The fourth filter is progressing on schedule and will unlock full production capacity in 2026, positioning the asset to further strengthen cash generation. Supported by a long reserve life and resource base, Aripuanã is a core contributor to our long-term value creation. At Cerro Pasco, the integration project targets a relevant life of mine extension within a well-established mineral region. The project enhances asset integration, improves operational flexibility, and enhances the profitability profile of the entire complex. Exploration continues to deliver across our assets, paving the way to further life of mine extensions and reinforcing the quality of our asset portfolio. At the same time, we remain disciplined in our approach to growth. We continue to evaluate value accretive opportunities selectively. Operational and financial discipline remain central to our strategy. We are focused on generating sustainable cash flow to continue strengthening our balance sheet and to support a balanced capital allocation approach that includes deleveraging and shareholders' return. Finally, ESG continues to evolve as a core pillar of how we manage the business at Nexa Resources S.A. In 2025, we enhanced our governance framework, improved methodological consistency in our public targets, and reinforced the alignment between sustainability commitments and operational realities. Our goal is clear: increase transparency and ensure ESG execution strengthens the long-term sustainability of the business. As we look ahead, we enter 2026 with improved operational stability, disciplined capital allocation, and a well-defined set of priorities focused on business resilience and consistent shareholder returns. With that, let's open the floor for your questions. Operator: Thank you. We will now begin the question and answer session. To ask a question, if you are joining via Zoom, please click the Raise Hand button. You may also submit your question using the Q&A icon at the bottom of your screen. Please include your name and company when typing your question. For participants joined by phone, press star followed by 9 to raise or lower your hand. Once announced, press star followed by 6 to mute or unmute your microphone. Our first question comes from Pedro Melo, from Citi. Pedro Melo: Hi, can you hear me? Ignacio Rosado: Hi, we can hear you. Pedro Melo: Okay, thank you. Thanks for taking my questions. My question relates to the seasonal rainy period at the Aripuanã assets this quarter. Could you provide some color on the evolution of the asset production throughout this year, given the seasonal context of the first quarter and the inauguration of the fourth filter affecting the second half of the year, please? Ignacio Rosado: Yes, it's a very good question. In January, we have To give you an idea and based on some numbers, the bottleneck that we have with these 3 filters, tailings filters, takes the plant at around 140,000-145,000 tons per month, okay? We have been delivering production at this rate during the last 6 months. In the last 3 years, the rainy season, that was very heavy, caused a lot of pressure on the filters, and that's why we needed to slower this throughput, because the filters were not performing at this capacity, okay? In the case of January, we had a rate of 140 again, and given that we are mining a high-grade zone, we produce a very high zinc equivalent production. We are in the same rate as the previous 6 months that were wet season. In February, it went also very well. We needed to reduce the throughput a little bit because we want to make sure that we pass the rainy season in a very smooth way, but we maintain the silver equivalent production, and actually we increase it because also we were accessing zones of higher grades. This is going to be the case for March, which is important. Compared to previous years, this plan shows that with this rainy season that we are facing, this plant is starting to stabilize at these levels, okay? In April, we're gonna implement the fourth filter that is gonna be in ramping up between April, May, and June. With that and the capacity of these filters, we should be able to reach full capacity in the second half of this year. We see that the rainy season is no longer a bottleneck, and we are confident that Aripuanã finally is gonna be at full capacity. Pedro Melo: Thank you. It's so clear. Operator: The next question came in by phone. Please state your name and company before asking your question. Orest Wowkodaw: Oh, hi, this is Orest Wowkodaw with Scotiabank. Can you hear me? Ignacio Rosado: Hi, Orest, we can hear you clearly. Orest Wowkodaw: Thank you. My question is around your silver. Obviously, there's been a ton of interest in the market, with silver pricing really having moved up. We've seen some really extraordinary valuations out there for silver streams. I'm just curious, I know you have an existing stream, but I'm curious if you're at all contemplating doing additional silver streaming that could potentially bring you significant cash to just fully delever the balance sheet fairly quickly. José Carlos del Valle: Hi, Orest, thank you for the question. You're right. We are an important producer of silver, produce around 11 million ounces, this is certainly has a strong contribution in our results and in our valuation as well. As you mentioned, we do have a prevailing silver streaming agreement in Cerro Lindo that actually has a step down in probably in May of this year, when we reach a milestone of 19 million ounces. That in itself is going to bring some additional benefit to our annual results. To your specific question, whether we are considering this, I mean, no. You know, we're always looking for the best options to have a strong balance sheet and to maximize the balance of having a, you know, strong financials, the investment-grade rating, and the needed cash. We are confident with the structure that we have today. We view positively the recent trend in prices, not just of silver. We're confident that with that, we will be able to generate a strong cash flow and continue with our commitment of reducing debt in the coming years. Orest Wowkodaw: Okay. It's not something that's a high priority right now? José Carlos del Valle: No, it's not. Orest Wowkodaw: Okay. Thank you. Operator: Once again, if you would like to ask a question, please click on Raise Hand at the bottom of your screen. The next question comes from Camilo Pardo from Kallpa Securities. Camilo Pardo: Hello, Rodrigo. Good morning. Thanks for taking my question. My name is Camilo Pardo. I'm at Kallpa Securities, Peru, and my question is related to the one before, and it is: how should we think about the cash flow impact of the Cerro Lindo silver stream in 2026 and 2027, if applicable, considering that deliveries are priced at a fixed percentage of a spot? Ignacio Rosado: Yes. Hi, Camilo. Thank you for the question. Yeah, as I mentioned, you know, we've had this silver streaming agreement for a while, and there's a step down that is reached when we deliver 90 million ounces. This is going to happen in the next few months. We and these percentages that are committed to the silver streaming agreement will go down from 65% of the Cerro Lindo silver production to 25% of the Cerro Lindo silver production. There's 40% that in the past had to be delivered to the streamer, and now will stay within Nexa Resources S.A. You can do the math, you know, at the current prices, what the impact of that will be. Operator: Thank you very much. Operator: I would like to turn the call over to Mr. Rodrigo for the writing question. Please go ahead. Rodrigo Cammarosano: Thank you, operator. We have one first question here from the audience. The question is, recently, there has been some news related to strong rains in Peru. Can you comment if there has been any incident or any an incident in any of our operations or logistics? Ignacio Rosado: Yes, yes, there were. Yeah, Peru is facing again the El Niño phenomenon, and we are not facing any impact on production and on logistics now. We have been working through the years in this. We had some event in Cerro Lindo of summer heavy rain, nothing happened, and we are managing that, and production hasn't been impacted, and in the case of Pasco as well. We are well prepared today for those events. We don't know what will happen in the future, of course, but so far we haven't been impacted by that. Orlando Barriga: Thank you, Ignacio. The first question was from Orlando Barriga from Credicorp Capital. We have a second question here, is: Can you provide color on Phase 2 of the Cerro de Pasco integration project, and, especially in regards to the start-up date and when we expect to have access to high-grade reserves at Atacocha? Ignacio Rosado: This is a very good question, and this is a very good problem to have, I would say. We don't have any specific date because we are already starting on planning this second phase, because we have been drilling heavily in the intersection of the 2 mines, and because of that, we have been finding a lot of resources with very high grade. Because of that, we decided to postpone this phase 2. Having said that, we will still drill this intersection, and in, I would say in 1 or 2 years, we will have an inventory of reserves that is more important for us, and with that, we will build a mine plan. We don't have any specific date to access high grades at Atacocha. They are good grades, probably the intersection have a higher grades, the NSR is higher. We will know eventually when we will have the mine plan, we will keep the market informed, for the time being, it's a very good problem to have, specifically, we don't have a date, we will have some color in the next one or two years. Rodrigo Cammarosano: Well, thank you, Ignacio. We have another question from the audience. Is there, and there is this ambition of the management to use the instrument, I believe it is the one that José Carlos mentioned, to lock in the benefits of currently high silver prices? José Carlos del Valle: Yes, hi. As I mentioned, we're not considering silver streaming as an option today. It's not a priority. We always listen to proposals. Obviously, there's a lot of interest in silver. It's currently not a priority. Rodrigo Cammarosano: Thank you, Jose Carlos. We have another question that comes from Omar Avellaneda, from Compass Group. Can you provide an update on Ayawilca project and Tinka Resources investment? Omar Avellaneda: Yes. Well, in Ayawilca, we said before, it's a very good project, and we are always assessing what we are gonna do with this project. The environmental impact study was disapproved, and we are now at the stage that we have to sit with the government to see how we perceive this as a this important project going forward. For the time being, we don't have any specific action for that, especially only sitting with them and see how can we envision this in the coming years. In the case of Tinka, there was a follow-up, the, on equity that we didn't. Ignacio Rosado: We decided not to go through, because, we believe that is a very important asset, but we have other priorities, so we got diluted. Okay? I guess there is another question around, in that, in also, in all that around the elections. Rodrigo Cammarosano: Yeah. Let me read the question again. There's a sequential question from Omar, which is: "Can you comment on current electoral environment in Peru, and the company thoughts on the, on this matter? Omar Avellaneda: Yeah. Well, it's a, it's a shame that we have another president that is gonna stay for the next 3 months in Peru. The last one lasted only 4 months, and there is a lot of political noise around this, and it's very, very difficult to digest, especially for people outside Peru. Having said that, I would say that the economic context of the country is very strong, and the economic development of the country, in a sense, does not follow this political problems that we face. Okay? Regarding the new president that will come, it's very difficult to say. We have to wait until the first round that is happening in April. In any case, in all of these years, Peru has been a stable country from an economic point of view, with a stable exchange rate, growing, and the political environment does not impact most of the economic development of the country. In the mining sector specifically, we, our surroundings, our stakeholders, especially communities, we have very good relationships with them in most cases, and they also don't follow these political problems that we are facing. Actually, the relationship that we have with them and the way we treat that relationship from an economic point of view is the thing that matters, okay? That's why this new president won't influence in the next three to four months in the way we, our relationship with communities. We'll see what happens in April, and we will, we can, we come back to that question later on, okay? Rodrigo Cammarosano: Thank you, Ignacio. we got another question. from Orlando from Credicorp Capital: "You amortize around $120 million in debt, gross debt, during the 4Q. How much are you planning on paying down in 2026 and 2027? Orlando Barriga: Thanks for the question, Orlando. Yes, as we have been mentioning in our last calls, debt repayment is a priority. In the absence of any major changes, the idea is that any excess cash that we generate, you know, we will use to pay dividends according to our dividend policy, and the rest will go to pay down debt. That's, that's the plan. Rodrigo Cammarosano: Thank you, Jose. We got another question. This is more specific in regards to the hedge of silver and gold. "Could you provide details on the floor and upper limit of the hedging program for silver and gold? José Carlos del Valle: Yes, thank you for the question. That's true. We did a small portion. We hedged a small portion of our silver production. Also taking into consideration that we have a silver streaming agreement, so it was a small portion of our silver production, mainly in Peru. The floor is around $52, and the cap is around $84. Rodrigo Cammarosano: Thank you, José. We have another question here from the audience, comes from Pedro Melo, from Citi. The question is more related to the medium-term strategy for the company. "If the company managed to implement the fourth filter for Aripuanã, execute a turnaround by reducing leverage and gross debt, with extension of mine life being constant, I mean, the replenish of the mine life, such as, let's say, with the Pasco Complex project, what should be the company's next step for long-term investments? Pedro Melo: Yeah, very good question. As José Carlo mentioned, the idea is that with these price levels and the stability on operation that we are showing now, especially with Aripuanã, we generate a significant cash flow this year, and we try to start reducing, in a significant way, our debt. This debt was accumulated because of the Aripuanã project. Based on that and the other fronts going forward, Aripuanã is stabilizing and growing, Cerro Pasco is stabilizing and growing, and Cerro Lindo being stable, and Vazante as well, and the smelters recovering part of the profitability with a market that is changing. Nexa Resources S.A., with the current assets is in a solid position, exposed to very good prices and bringing down debt. With that, I would say that the next step is that we are very active looking for opportunities in the market, especially in copper. We have a list of alternatives that we have assessed and we are very close to. I would say that if that happens through this year, we will be more active looking for these opportunities, because the balance sheet that we will have is gonna be more flexible to try to achieve those. It's very simple: a solid company exposed to prices and trying to look for the opportunity in copper. Rodrigo Cammarosano: Thank you, Ignacio. I will hand it back to the operator. I believe we have some, a couple of questions from through the phone. Operator: Thank you. The next question comes from Henrique Braga, from Morgan Stanley. Henrique Braga: Hello, team. Thanks for taking my question. I just wanted to follow up on Cerro Pasco. If you could give additional details on your CapEx disbursement that you have envisioned for the project this year and the next. Thank you. Rodrigo Cammarosano: Hi, Henrique, this is Rodrigo. I can take this question. We are on track with execution of the phase one. The CapEx that we spent last year was pretty much in line with the expectation for the year, around $42 million. We believe that the CapEx for this year should be the same amount, because the idea is to complete the phase one this year. This will pave the way for phase two, just like Ignacio mentioned. Execution's on track, and CapEx so far is on budget. Operator: This concludes our question and answer session. I would now like to hand the call over to Mr. Ignacio Rosado for his closing remarks. Mr. Rosado, please go ahead. Ignacio Rosado: Thank you very much. Before we conclude, I would like to briefly address the recent intense rainfall in Juiz de Fora here in Brazil. We recognize the impact these weather conditions have had on the municipality, express our solidarity with the local community. We reaffirm that our dam structures continue to be closely monitored and remain safe, with no change in their stability levels. Safety remains at our top priority, we reaffirm our ongoing commitment to the integrity of our operations, our employees, and the communities that we operate. In this case specifically, we are providing full support to employees who have been affected by the situation and the community in general. Regarding our first quarter, we are looking forward to have a strong quarter from an operational point of view. Hopefully, we close the quarter with exposed again with these prices. We look forward to speaking with you again during next quarter. Have a great day, and thank you very much again. Operator: Thank you. This concludes today's conference call. We appreciate your participation and interest in Nexa Resources S.A. You may now disconnect.
Operator: Good morning or good afternoon. Welcome to Swiss Re's Annual Results 2025 Conference Call. Please note that today's conference call is being recorded. At this time, I would like to turn the conference over to Andreas Berger, Group CEO. Please go ahead. Alexander Andreas Berger: Thank you very much, and good morning or good afternoon to all of you. I appreciate you taking the time to join us today. Before our Group CFO, Anders Malmstrom, will walk you through the detailed numbers, I'd like to start with some brief remarks as usual. It was a good day. 2025 has been a successful year for Swiss Re, but also for all key stakeholders, our clients and partners, our investors, but also our employees. We have two priorities: first, delivering on our group net income; and second, increasing the resilience of Swiss Re to improve the consistency of earnings delivery over time. In 2025, we delivered against both priorities, also allowing us to increase our capital repatriation to shareholders. We achieved a record group net income of USD 4.8 billion against our target of more than USD 4.4 billion and an ROE of 20%. This result reflects disciplined underwriting, strong recurring investment income and low burden of large losses outside of the first quarter last year. At the same time, and this is equally important, we further strengthened the resilience of the group. We completed the Life & Health Re portfolio review, added to the current and prior year reserves in P&C Re, continued to increase initial loss assumptions well in excess of economic inflation and applied the uncertainty load on new business across the Swiss Re Group. In addition, we achieved more than USD 100 million of cost savings in 2025. Therefore, we're well on track to deliver our targeted USD 300 million reduction in the operating cost run rate by 2027. P&C Re and Corporate Solutions achieved an excellent result, supported by strong underwriting performance and lower-than-expected large claims. P&C Re achieved a combined ratio of 79.4%, well within its target of below 85%, while Corporate Solutions delivered a combined ratio of 86.5% comfortably meeting its target of below 91%. Just as a reminder, the 86.5% combined ratio for Corporate Solutions is calculated on a different basis than that of P&C Re, reflecting a gross revenue view and including all expenses. On a like-for-like basis, Corporate Solutions combined ratio would have been 80%. These outcomes reflect the actions we have taken in recent years to build the highest quality portfolio we've ever had in both P&C businesses. And against this backdrop, we entered the renewal for January 2026. The outcome was in line with expectations with no real surprises. We executed on our priorities: first, to lead with confidence in segments where we have differentiating value propositions; secondly, to actively manage our sub-portfolios to respond to the more competitive market, including prioritizing sustainable structures; and third, to grow together with our clients by offering solutions that address challenging concentration risks. Overall, while demand increased competition intensified, especially in nat cat. Although clients selectively increased retentions, Swiss Re selectively or successfully, I should say, preserved our share of wallet. Casualty prices were up, but we remain cautious even as our repositioning actions are complete. We expect similar conditions in the upcoming renewals, always obviously subject to loss activity. What does that mean in terms of numbers? On volume, we renewed treaty contracts representing USD 12.4 billion of gross premium in line with the business up for renewal. Overall, nominal pricing was broadly flat, with mid-single-digit improvements in casualty, offset by similar declines in property, particularly for nat cat covers. The gross premium volume developments mirror this divergence. At the same time, based on a prudent view on inflation and updated loss models, we increased loss assumptions by 4.6%, resulting in a net price decrease of 4.3%. Importantly, and I repeat importantly, terms and conditions remain stable. In addition, we reduced our external retro for nat cat at the 1/1 renewals, as flagged already at the management dialogue in December, thereby increasing our nat cat exposures. Now turning to Life & Health Re. In 2025, we completed the review of underperforming portfolios and took targeted actions to address related sources of volatility. The assumptions updates booked in the fourth quarter that impacted the insurance service results and CSM balance are in line with our guidance provided at the management dialogue. Despite all these actions, Life & Health Re delivered a net income of USD 1.3 billion for the full year. As a consequence, Life & Health Re is on a much stronger footing with clearer visibility on earnings delivery. This gives us confidence in achieving the increased net income target of USD 1.7 billion for 2026. And in Life Health Re's ability to be the stable earnings provider to the group, covering the majority of our ordinary dividend. Our earnings were underpinned by a strong investments contribution, with a return on investments of 4% and the recurring income yield of 4.2%, providing an important and stable contribution to our earnings. We've also made substantial progress on our decision to withdraw from iptiQ with all remaining parts now being either sold or to be placed into runoff in due course. Looking ahead, we confirm the financial targets we communicated at our management dialogue in December. For 2026, we are targeting a group net income of USD 4.5 billion, reflecting our confidence in the resilience of our business units, disciplined underwriting and active cycle management. In closing, I would really like to thank our employees for their strong commitment and hard work throughout the year 2025. I'd like to thank our clients and partners for their continued trust. And you, I'd like to thank you, our investors and analysts for your engagement and support. Now with that, I'll hand over to Anders to you for a closer look at the financial details of the 2025 results. Anders Malmstrom: Thank you, Andreas, and good morning or good afternoon to everyone on the call. I will make a few remarks on the results we released this morning before we move to the Q&A. Let me start with the insurance service results of our businesses. P&C Re reported an insurance service result of USD 3.6 billion for 2025, significantly above the prior year level. The increase was driven by favorable experience variance, partly offset by lower CSM release, reflecting the earn-through of prudent initial loss picks, including the impact of the uncertainty allowance on new business as well as slightly lower margins. Experience, variance and other which captures deviations from initial reserving assumptions contributed a positive $698 million in 2025. This was primarily driven by large nat cat losses that came in USD 1.2 billion below expectations. Against this highly favorable backdrop, we further strengthened P&C Re's resilience by selectively adding to both current and prior year reserves. For the full year, we added about USD 200 million to current year reserves and around USD 100 million to prior year reserves in nominal terms. These prior year reserve additions are net of releases. We have substantial reserve redundancies on short tail lines close to USD 1 billion, which we recycled into longer tail lines in the form of IBNR reserves. This obviously benefits overall resilience. On the back of these actions, P&C Re reported a very strong combined ratio of 79.4% for the year, comfortably achieving its full year target of below 85%. Turning to Corporate Solutions. The business unit delivered another strong year, achieving a full year combined ratio of 86.5%, comfortably meeting its target of less than 91%. The insurance service result increased to $1.2 billion in 2025, up approximately $200 million year-on-year, primarily driven by higher CSM release, reflecting stronger in-force margins. Experience, variance and other was positive at USD 217 million, reflecting favorable large loss experience and a positive prior year reserving result, partially offset by reserve additions for the current year. Large nat cat claims of USD 148 million were below full year expectations, while large man-made claims of $351 million, were slightly above, partially offsetting the favorable nat cat experience. Finally, in Life & Health Reinsurance, the insurance service result was USD 1.2 billion in 2025 compared with $1.5 billion for 2024, reflecting the impact of detailed reviews of underperforming portfolios concluding in 2025. For the full year, the negative assumption updates related to these reviews impacted the P&L by around USD 650 million, of which approximately USD 250 million in the fourth quarter. This is in line with the guidance provided at the management dialogue. Both the full year and fourth quarter assumption update, we're focused on three markets: Australia, Israel and South Korea. In addition, adverse experience impacted the insurance service result by approximately USD 300 million for the full year with close to $200 million of the impact attributable to the market mentioned before. Despite these actions, Life & Health Re delivered a net income of USD 1.3 billion for 2025. While the assumption reviews also impacted the CSM balance, in addition to the P&L, the CSM remains robust at USD 17 billion, supported by prudently priced new business and favorable FX movements. On revenues, the group's insurance revenue amounted to USD 43.1 billion compared with $45.6 billion in the prior year, reflecting several key drivers that were already flagged throughout the year. As we have said repeatedly, we do not manage for top line. Earnings are what matter and the quality and resilience of earnings continue to improve in 2025. Moving on to investments. Asset Management delivered another year of strong returns with an ROI of 4.0%, in line with last year, reflecting a recurring investment income of USD 4 billion. In 2025, we benefited from the sale of Definity, offset by targeted losses within the fixed income portfolio. So let me conclude with capital. Swiss Re's Board of Directors will propose a dividend of USD 8 per share, representing a 9% increase, thereby delivering against our stated objective of growing the ordinary dividend paid between 2025 and 2027 by at least 7% per year. On the announced buyback, last December we added important changes to our regular long-term capital distribution policy, which focuses on growing the ordinary dividend and complementing this with a sustainable buyback that is linked to the achievement of our annual group net income target. Beyond this, we have been clear that we do not rule out the possibility of additional excess capital repatriation in the form of extraordinary buybacks. Today's announcement of USD 1 billion extraordinary buyback on top of the dividend and the $500 million sustainable buyback should be seen in that context. The $500 million sustainable buyback is here because we have achieved our group net income target. The additional USD 1 billion extraordinary buyback reflects all the key drivers. Firstly, we generated USD 4.7 billion of SST capital in 2025 despite the various actions we took to increase the resilience of the group, in particular on the Life & Health Re side. Secondly, the extraordinary buyback is consistent with our focus on managing this important phase of the P&C Re pricing cycle. And thirdly, the extraordinary buyback reflects our confidence in the overall resilience of the group, having successfully completed a host of actions across our businesses in the last 2 years. We expect to launch the buyback in early March with completion targeted by the end of 2026. Our announced capital actions today imply total payout of USD 3.9 billion or approximately 80% of our full year 2025 earnings. The group's SST ratio, including all of the announced capital actions remains at a strong 250%. That's where I will leave it for now, and I'm happy to hand over to Thomas to kick off the Q&A. Thomas Bohun: Thank you, Andreas. Thank you, Anders. As usual, before we start the questions, if I could just remind you to limit yourself to two questions. Should you have additional questions, please rejoin the line. With that, could we have the first question, please? Operator: Sure. The first question comes from Will Hardcastle from UBS. William Hardcastle: Will Hardcastle from UBS. First one is just trying to really triangulate and work out where the starting point to think of the '26 combined ratio is. I wonder if you can try and help with some of that working out to the underlying, so we can compare it to that better than 85% bridging with the 3 points worse combined ratio from January renewal, that would be helpful. And then secondly, can you talk me through the rationale of buying less retro year-on-year and therefore, adding greater volatility? I guess it comes slightly in conflict to your added resiliency. So just trying to understand why that happened. I'm trying to think that presumably return on capital, I guess, the belly of the risk as well or is it just on the tail? Anders Malmstrom: Okay. Maybe I'll start here. And I think your first question is the starting point of the combined ratio. And basically, I think what we've tried to figure out is what's the normalized combined ratio after the renewals, in a way and then where do you get that. And look, I think if we do that, I think we obviously have to normalize for seasonality, we have to normalize for the smaller FX and then incorporate the new information we have with the renewals, which I think we stated as being around 3% nominal. So in our view, this would bring us somewhere between 84% and 84.5%, somewhere there for the year. But I think this already incorporates all the prudent assumptions that we took. When you look at the -- our assumption that we increased the loss picks by 4.6%. That's significantly higher than inflation. So I think there's some, call it, prudency in. I think we have the uncertainty load. And then at the same time, we bring the -- we have all the expense actions. So I think this brings us well in line with the target also for 2026 to be below the 85% target that we have. I hope that helps. Alexander Andreas Berger: On the retro? Anders Malmstrom: On retro, yes. Alexander Andreas Berger: Yes. I mean, I can maybe start there. I think we're not known to depend on retro. We have a strong balance sheet, and we believe and trust our underwriting. We were using retro historically, yes. But when we believe that the margins remain with us and that we can deploy the capacity that we have allocated to nat cat in particular, that situation occurred. And then we said, why not benefiting from it in-house. And I think this is something -- that is a strong statement actually for the underwriting that we have in the underlying quality of the book supports it. So we'll take decisions in future and weigh up whether or not it makes sense. On the other hand, it's also important from a capacity deployment perspective, not to add to the fire, fuel -- oil into the fire, because if you add more capacity in a rate declining an environment, you will actually obviously intensify the competition. And this would be counterintuitive for the stability of rate adequacy that we would like to achieve. So that's the context for this decision, and then we'll revisit it. But at the moment, we feel very comfortable with this decision. Thomas Bohun: Could we have the next question, please? Operator: Next question comes from Kamran Hossain from JPMorgan. Kamran Hossain: I've got two questions. The first one is on the buyback. If I think back to December in the IR Day, I think, Andreas, you made quite a few references to the term, kind of the lemon tree, and I think you talked about sustainability, consistency and not wanting to squeeze the lemon tree too hard. How should we -- how should I interpret those messages that you were trying to give in December and the extraordinary buyback today? Was it just 2025 was extraordinary and therefore, don't think about it that don't plug that in or an additional buyback into later years because it simply is just an extraordinary set of circumstances? Or are you planning to squeeze things a little bit more? The second question is on Life & Health. So in the fourth quarter, obviously, you had the assumption changes, which were in line with your expectations. You then have some other kind of negative experience, variance in the fourth quarter. How comfortable are you that the kind of negative experience rate from kind of Q1 '26 just goes away completely? Should we -- is that what you assume and that's what we should assume? Alexander Andreas Berger: Yes. Okay. Let me take the first one and second one. I can pass on to Anders on the Life & Health side. 2025 should not be seen as a new normal in the nat cat activities. We had a Q1 where we exceeded our budget, nat cat budget, but then we had a very benign rest of the year in nat cat. That's not the new normal. Exposures exposure can happen any time. And that is reflected also in the budget that we set up. We've got a budget of $2.1 billion for nat cat. And let's see. So this can happen any time. So what we wanted to do is really bring in that professional underwriting view from a technical perspective that we are managing cycles. Cycle management is what we do. And then we look at our portfolio and see what lines of business are correlating with each other, in particular, when we assume certain cycle developments. We see a decline in property in particular in cat. And as I said before, we don't want to fuel the fire by adding more capacity to a declining market. So the quality of the rates and the rate adequacy is really important. So in that context, you should see the comments that we did in December at our management dialogue. And if you now look forward into '26 and maybe even beyond, we will see maybe similar behavior in the '26 renewals. So let's see. But it just requires one big event, loss event and then the whole dynamics will change. And that's the message I wanted to get across. And that's why we said don't take this as a new normal. We don't want to squeeze the lemon now. We're managing expectations in the sense of what does the market say and what do the cycles tell us. So we want to create a lemon tree here, and that's what we did and starting and continuing to do, because we need to manage the cycles and the volatility. We've got a diversification benefit through Life & Health, which is helping. But I think within the P&C businesses, that cycle management is key, in particular, at the moment, applying disciplined underwriting. Anders Malmstrom: Yes. Maybe just to reiterate back on Life & Health, what I already just said on the call. I think we really finished now all the reviews. I think we strengthened the reserves significantly during that review. And then we actually look where the volatility that we had, the negative experience where it's really coming from out of the USD 300 million that we had, USD 200 million came from these underperforming markets that we just strengthened. So I feel very comfortable now that after all that work that you will not see this adverse experience in the future years. And look, I think now we're going to continue to just do -- every year, we do the updates and go through the portfolios, and you will not see large movements because you do it on a regular basis. And of course, we can always have some volatility, but we feel very comfortable now that all the assumptions are set to what we have experienced and what we expect in the future years. Thomas Bohun: Can we have the next question, please? Operator: The next question comes from Shanti Kang from Bank of America. Shanti Kang: So just on the prudence that you've added today, you mentioned the skew between shorter and long-tail lines. And I was just wondering if you could give us some color on what particular lines you address more heavily or if that was more evenly spread across risk lines? And then just on the renewals, I noticed that you offset some of the volume decline in property and nat cat with some gains in specialty and casualty. Can you just characterize the specialty lines that you felt were most attractive to grow? And also on casualty, which areas feature interest there? Anders Malmstrom: Okay. So maybe I'll start with the first one and Andreas will take the prudence. And I think very clear that we had on the short-term business, we had releases of basically close to USD 1 billion, and we moved them over to the long term. And I think we evenly spread that. It's not that one particular line had a problem because we are not talking about problems here. We're talking about strengthening resilience. So this is not one particular line that got that. And I think it's important, this is all IBNR. This is all IBNR that we use to strengthen the resilience. Alexander Andreas Berger: Maybe on the renewals, in particular, you said we were offsetting casualty by property by growth in casualty and some specialty lines. On the casualty, I can specifically say it was rate developments, positive rate developments. We are not -- we're still very conservative because we think it's still a market or a line of business where you have to apply prudence, not only in U.S. liability, but also in EMEA and Europe, where you don't want to pick up through the back door the U.S. casualty or U.S. liability exposures through European treaties. In Europe, particularly, the growth came from motor portfolios in particular on the casualty side. On the specialty side, I think overall, I think we were very happy with the lines of businesses. We're a bit cautious in the marine and energy space. We see very healthy situations in engineering, although competition is increasing in this line of business as well, so something to watch. And then the aviation market, we've seen positive price changes on a nominal basis on the adjusted risk-adjusted basis, it was almost flat. So that's the picture we can see at the moment. On the cyber side, I can say risk-adjusted, we don't see a very positive picture. So we've got slight decline. So we're very prudent there in the underwriting. And you see it in the market also that some of the players were also pulling back some capacity because we need to watch the rate adequacy. Thomas Bohun: Could we have the next question, please? Operator: The next question comes from Andrew Baker from Goldman Sachs. Andrew Baker: The first one, probably a little bit of a follow-up on Will's question. But can you help me try and reconcile the 5% year-on-year increase in cat budget with your P&L losses to weather events have sort of increased 20% to 30% or so. Does this just mean that you're writing a lot of the incremental cat exposure in the higher layers? Or is there something else going on here? And then secondly, on insurance revenue. So I appreciate what you're saying on the focus on the bottom line, but it has been a pretty volatile top line in '25 and been quite difficult for us to forecast. I think you made the comment in December and correct me if I'm wrong, that you expect the group number in '26 to be broadly flat versus '25. Is this still the case? And I guess, is there any variation divisionally we should take into account? Anders Malmstrom: I think the first question was more about the cat budget. So I think the nat cat budget increased, as you say, by 5% from USD 2 billion to USD 2.1 billion. I think the reduction in retro doesn't really impact the expected nat cat. So this is much more in the tail. So this is a capacity that we increased, but that's in the tail. So the expected nat cat should not really be impacted by that decision. So that's why I think it's, say, a natural increase of 5% of the nat cat budget to USD 2.1 billion. And second question? Alexander Andreas Berger: The insurance revenue. I mean, look, there's a mixed items here. So we've got the earn-through of the casualty, U.S. casualty pruning. We had some individual items, smaller items, also on CorSo, for instance, the medex book, the medical expense book on the A&H side that went to AXA from the Irish MGA that we were underwriting. So those were smaller items, and they added up, obviously, to that number. And in terms of guidance... Anders Malmstrom: Yes. I mean, we don't really give guidance in terms of revenues. But I think we mentioned many times that we don't manage to revenues, but you could probably see that the market generally grows with GDP or slightly above that. Thomas Bohun: Could we have the next question, please? Operator: The next question comes from Ivan Bokhmat from Barclays. Ivan Bokhmat: My first question will be fully also going back to one of the earlier questions on the combined ratio development. I'm just trying to understand, as we look into 2026 and perhaps in outer years, so if 84.5% at the starting point, we can assume delivery on cost savings, but -- which is 1.5 to 2 percentage points, this still leaves a little bit of a balance that would push combined ratio higher unless we assume some sustainable reserve releases. And of course, given the buffers you create, this is not unreasonable. But maybe you could talk a little bit about that progression and how the balance sheet could be deployed at what time frame? And the second question, I wanted to ask you about renewals and the new business CSM and P&C Re. So we've had this year in '25, the growth was negative 5%. I'm just wondering maybe you could try to separate the FX impact within that and also perhaps suggest some view into 2026 of how should that be affected by the renewals? Alexander Andreas Berger: Yes. Maybe let me just do here the intro, and then I'll hand over to Anders. Just on the cycle management piece. So you've got two elements, the cost obviously and then the loss ratios to look at. And cycle management, as far as the exposure is concerned, that's our day-to-day business. And we set the strong foundation now, the underlying portfolios are strong. And that's why we think we can manage those cycles very effectively. So with the bottom line view. Now expense management is becoming part of day-to-day business. We have introduced a philosophy here that we actively obviously optimize the setup of the group. That's what we did with the organizational effectiveness measures and also faster decision-making that translated automatically into expense savings, and we're going to continue there. I'm not going to talk about the productivity gains that we're going to get through AI because that is a new area, and we haven't factored that into our plans yet. So that's a general view. And then again, we are in an extremely volatile market. That's our business. So one big event can change the dynamics completely, and that would then lead automatically to a hardening of the market again. So I wouldn't rule out dynamics like that. Because the alternative capital that's coming into the industry also has to then experience the losses that are coming through. And we are a long-term player with strong balance sheets, and that's what we need to manage. Anders Malmstrom: Yes. So maybe just back to your question a bit on the numerical side, on the quantitative side. So I think as we mentioned before, I think you're going to get a normalized combined ratio of below 85%. This reflects the prudence. So I think you can expect if everything else as expected that we're going to see reserve releases. And then on top of that, the expense actions, that will continue. This is not over in 2025. We took the first 100 this year, we're going to have another 100 -- and another 200 over the next 2 years. So that will help. And then, yes, I mean, prices will not always go down. So I think we feel very confident and comfortable that I think we will stay below the 85% obviously, upset any huge nat cat events that clear when we budget. But I think it's really the combination of prudent reserving, expense actions and then disciplined underwriting. And then on the new business CSM, I mean, the new business CSM will come out in Q1. I think that's when we come with the exact number. I mean you've got now all in for how much the renewals impact the combined ratio. So that's a good proxy. But the exact number we're going to provide in Q1. Thomas Bohun: Could we have the next question, please. Operator: The next question comes from James Shuck from Citi. James Shuck: I just have to begin with just a couple of questions on some of the moving pieces in the combined ratio. So I appreciate the new business loss component is seasonal. However, the full year number is still a very large number. I think from memory, you were kind of guiding to around 1.5 to 2 percentage points as being the loss component and it's been 2.5% in '24 and around 3% in '25. So what's driving that? $500 million negative loss component is quite a large number in the context of the overall insurance service results. So just keen to get some insight into the outlook for that number. And also if you're able to just comment a little bit on the expense ratio, which went up from 4.8% to 5.4%. I presume that's just your ending front-loaded costs ahead of the reduction and efficiency program. And then finally, just on the group items, iptiQ now largely disposed or fully in runoff. I know you guided to sort of a $50 million reduction in the loss at iptiQ on an annual basis. But has that been accelerated in the period? The Q4 loss in group items was bigger than anticipated. So what was the iptiQ loss booked in Q4 and the outlook there, please? Anders Malmstrom: Okay. Maybe I'll start on the first one. Again, I think your question about the new business loss component. And I mean, look, I think the way I think about this is, this is really driven by the prudent loss picks and you should then see that coming through positive variance going forward. That's really how I look at because we write profitable business. It's not that we don't write profitability. It's just the way you reserve for, it becomes onerous day 1, and then it releases over the -- to positive experience. Alexander Andreas Berger: Maybe just on iptiQ, no, there's no acceleration. Just to remind us, we have first sold the P&C iptiQ Europe business to Allianz. And then we sold the U.S. Solutions -- the Health Solutions business that was, call it, a lead management company that we had. And then we were busy looking at the individual portfolios. So we had a remaining EMEA Life & Health book, but also the U.S. book, and we could successfully then conclude on the U.S. book. So that's also sold. And we have the remaining piece, the EMEA Life book. And here, we decided to send this EMEA Life & Health book into runoff. So that's going now into the normal runoff activities and manage runoff as we always do and see what opportunities occur in the runoff process. Thomas Bohun: And so there's no change on iptiQ guidance, which we said should be at around minus $50 million in 2027. And to the question, in Q4, there is an amount of around minus $100 million related to the sales of iptiQ. Operator: Next question comes from Chris Hartwell from Autonomous. Chris Hartwell: A couple of questions, please. First of all, just going back to the Life side, and I think it builds an extension from Kamran's question earlier. If I look at the start point of 2025 and add back the experience variance, that gets me to a much higher number than what you are implying in your 2026 target. So I was wondering if you could just help me understand maybe some of the moving parts between, I guess, what we saw last year and that 2026 target? And the second question just really reflecting back on the renewals. Obviously, we've seen quite a significant reduction in price. You and I think many of your peers have confirmed that terms and conditions have remained stable. I'm just wondering what your feelings are about how much room there is or willingness there is for T&Cs to soften as we go through this year. And obviously, notwithstanding the fact that you have mentioned that the market is fairly balanced. But I just wondering really on your sort of the outlook for terms as we go through the year. Anders Malmstrom: Yes. So maybe I'll start on the Life & Health side. And I think you're absolutely right. If I just take the experience out and add it back in, I think I get higher. Now I think when we discussed about that before, I think the CSM release was higher than what we expected, and that's what we were guiding for. And I think that's something we discussed. I think we clearly understand this is really driven by the assumption changes themselves, but also just management actions, BAU management actions like recaptures and so basically drove the CSM release up. And so if I normalize for that, I get back to a CSM release of in the range of 8% to 9%. And if I then back that -- to take that together with the non-repeat of the experience variance, I get back to the targets that we basically put out for Life & Health. That's really how to triangulate. Alexander Andreas Berger: Just quickly on the renewals. Again, I can repeat myself. By the way, there's some good news. The broker reports all predicted a steeper decline of rates, and I think that didn't materialize. So that's the good news. So the market was still broadly constructive or professional actually because there's still demand, but in the negotiations, the reinsurers stayed pretty disciplined. And the rest will be seen for this year. I expect a very competitive market still, nevertheless. The next renewals are the 1st of April renewals and mainly Japan renewals. And again, Japan is a different market and different dynamics in the market. We had a good renewal last year, and we'll see what the renewal brings this year. And then we will have obviously the 1st of June, 1st of July renewals in the U.S. Those are the important data points to look at. First, I see still a constructive market. We'll have to see how the buyers' behavior is. The fact is that the buyers all need strong lead reinsurers. And you could see that the market share didn't reduce. So we didn't reduce our market share even though the absolute -- I mean, the pie was shrinking that people were taking more risk on their own balance sheet. That created another opportunity for us to go into software solutions, et cetera. But overall, we were not signed down. So they need still strong lead capacity, lead underwriters with the expertise that gives me comfort for the next renewals. Thomas Bohun: Could we have the next question, please? Operator: The next question comes from Iain Pearce from BNP Paribas. Iain Pearce: So just on net operating capital generation. So the 21 points net capital generation this year, do you view that as a relatively clean number or a good starting point to use going forward? Obviously, there's a lot going on this year in terms of Clean Care, Life & Health review. But is that a good number going forward? And also, does that new business strain, the 0.5 in the increase in total capital include the changes in the retro very long, because it's the 1st of January '26, I think. If you could just clarify those two points, that would be great. Anders Malmstrom: Yes. So look, I think this is a good proxy for the capital generation. So I think in general, that was, I think, the year think really showed more or less in certain areas, we obviously have the assumption changes. But other than that, I think it's -- you can expect -- I always guide to around 25 percentage points of net capital generation -- gross capital generation before repatriation. So that's a good proxy. Thomas Bohun: And then the target capital that already includes the reduction in retro, capital requirement. Anders Malmstrom: I missed that. Yes, that's already -- that's all reflected. Correct, yes. Thomas Bohun: Could we have the next question, please? Operator: The next question comes from Vinit Malhotra from Mediobanca. Vinit Malhotra: I hope you can hear me. So my first question is just -- and apologies, a bit repetitive, but I want to be clearer from my side. The extraordinary buyback, if you could just please elaborate what conditions we should look at as triggers or a possible trigger for another such extraordinary buyback in the future? So that's my first question on extraordinary buyback. Second question is actually on the nat cat increased exposure. So just to be very clear, the fact that you have increased your net nat cat exposure probably had a favorable impact on the 3 percentage points of the nominal combined ratio. Is that a correct understanding? Are you able to give some idea of how much benefit that was from this strategy? Anders Malmstrom: Okay. I maybe start again with the extraordinary buyback and maybe I just kind of emphasize what I said before. I mean you have the main part of the -- call it, on our capital return policy is dividend and sustainable buyback. That's the -- I would say that's the core. And then if we're in a situation where we have excess capital, and we don't believe that we want to and have the opportunity to deploy it with the right return, that's when we consider ordinary -- an extraordinary buyback. So you can't bake that in. So you should -- it's quantitative and qualitative, but that's really the way we think about it. And this was this year very clear, that is qualified. Alexander Andreas Berger: Just quickly on nat cats question. Just to clarify, the renewals are growth. That's before retro. Thomas Bohun: So the information on the slide is our growth, and we show you the impact just based on that. So any changes in retro are not accounted for in that estimate of... Operator: The next question comes from Ben Cohen from RBC. Benjamin Cohen: I had two questions, please. Firstly, just on M&A. Could you just sort of reiterate kind of what your priorities are there? And with regards to the deal that you announced last week, should we assume that, that will achieve the targets that you have for CorSo as a whole? Or is there anything that you want to call out there? And the second question was just on the return on investments going forward. Do you expect that, that yield will rise going into 2026? I just asked because I think there have been periods in the past, say, at the end of 2024 when you had a very high reinvestment yield and actually the sort of the ROI hasn't or didn't go up last year. Alexander Andreas Berger: Let me take the M&A question. So our M&A priorities didn't change. We always were very clear to say we don't see at this stage any transformational M&A opportunities. But what we would look at is additions to the portfolios, and particularly in Corporate Solutions, we said that we are happy to add in the areas, we call them focused growth areas that are decorrelated to the property and cat cycles. And that, in particular, was credit and surety, and we were very open about this. Now we only do these bolt-on acquisitions when they really make sense. Here, we have the opportunity to add the portfolio that QBE wanted to discontinue or divest. And that, in particular, is a trade credit and surety portfolio, their global portfolio with a strong presence in Australia. Why is it so interesting? Within the trade credit -- within the credit and surety book that we have in Swiss Re, it added another nice diversification. So all-in-all, very positive. And we will continue to look into those bolt-on acquisitions if they make sense and if they are in the areas that help us to further strengthen the resilience of our liability portfolio, target liability portfolio. Anders Malmstrom: And just on the investments, so just to reiterate what we have said. So the ROI itself was 4%. The recurring investment yield is 4.2% right now. And the reinvestment yield was 4.4%. So all pretty close to each other. And obviously, when you then calculate how -- over time, how this develops, yes, you bring 4.4% in, but the question is always how much actually goes out. And you can expect that this has very little impact. It should have a slight positive impact, but it depends what actually matures over time. So I would expect that to remain pretty stable. Thomas Bohun: Could we have the next question, please? Operator: We now have a follow-up from James Shuck from Citi. James Shuck: I just had a couple more things, please. CorSo's revenues in the fourth quarter were very weak, with down 10% year-on-year. Just keen to understand that development, please. I also wanted to ask a question on the expense ratio again, which I think was answered last time. I just keen to know it went from 4.8% to 5.4%. Is that just a temporary jump? Does it go back to 4.8% in '26? And then just on your new CTO, I thought it was interesting what are the first priorities for this Chief Technology Officer? Alexander Andreas Berger: Yes. Maybe I'll take the CorSo one and the CTO and then maybe you can elaborate on the expense ratio. Just on CorSo revenues, it's very simple. This is the portfolio of the Irish medex book, that was taken over by AXA. And this is -- to be concrete, it's $200 million. So that is sort of the decline. Otherwise, CorSo had some healthy new business opportunities, in particular in the differentiating propositions in international programs and alternative risk transfer. Those were the most attractive ones. On the CTO, it's not the Chief Technology Officer, because we already have a Chief Data and Technology Officer. It is a Chief Transformation Officer. What is this? We are in a transformation process. The company went not only on a cultural transformation, but also we were streamlining processes, increasing proximity to markets by delayering the organization. And we do have ambitions and concrete use cases also around Agentic AI. This needs to be embedded into the organization, cascade through the organizations from top to bottom. And I think here, we need specific focus, in particular, on execution rigor and delivery here so that we don't increase again, the complexity of the organization, which will end up in increased costs again. So this is the idea of this new role that we created. AI, but not only AI is really changing the way we organize our business and the way we process our business. Anders Malmstrom: Okay. And then on the expense ratio in CorSo, I think we saw that increase in P&C Re. Thomas Bohun: The question was on P&C Re. Anders Malmstrom: I thought it was on CorSo. Thomas Bohun: So in P&C Re, we have some one-off effects from year-end accruals, and it's always better to look at the full year number. Also last year, we had an impact under the first year of IFRS or some out-of-period adjustment. So we would suggest just to look at the full year '25 number as the basis. Alexander Andreas Berger: Yes. We have seasonality in the cost, project costs, et cetera, that are then coming in late in the year. So that's the effect. Thomas Bohun: Could we have the next question, please. We have time for one more. Operator: The next question comes from Roland Pfaender from ODDO BHF. Roland Pfänder: Two questions, please. First one on Life & Health. Could you speak about your CSM new business growth ambitions, let's say, if you strip out large deals, what would be the underlying growth target you have for '26, '27? Just to understand it a little bit better. I think it was flat year-over-year for the year. Second question on CorSo. Rates are coming down. Do you need to execute cycle management here? Or do you still see some growth pockets like specialty or other things, which might keep growing? That would be also interesting. Anders Malmstrom: So on the growth ambition, for Life & Health, maybe before I talk about the ambition itself, I think we have a very strong in-force business here. And the in-force itself brings us sustainable kind of new business. And I think you saw that kind of without any large transactions, we were actually able to sustain the new CSM just through new business CSM. And that's really the core here. That's important. And that's what we want to maintain that make sure that the in-force produces the new business itself. And then on top of that, we're always looking at transactions. If they make sense, they have to make financially sense. Otherwise, we pull back, but that's in a way, the upside, but the in-force itself allows us to keep the CSM flat. Alexander Andreas Berger: Yes. So on the CorSo side, in addition to rigorous and disciplined underwriting and cycle management, there are obviously business opportunities, in particular, when you look at geographical opportunities. And we try to optimize -- continue to optimize the setup. We partner where partnerships make sense. We have a very well-run joint venture in Brazil and in those kind of emerging markets, you could expect maybe also some partnership models that we would do rather than planting the flag and have from scratch organic growth opportunities. So this is something that the team is looking at. But in particular, we're looking for expansions in the differentiation that we have in international programs and alternative risk transfer. Alternative risk transfer, why? Because like we discussed it for the large cedents, the primary insurance companies who take our premium from the market, that same phenomenon happens with large corporates. They take on more risk on their balance sheets and they create their captives. And with the captives, we have a leading position in managing helping captives at the fronting before the captive and within the captive and behind the captive with capacity, reinsurance capacity. So it's a unique one-stop shop proposition, which is very successful. Thomas Bohun: Thank you, Roland. With that, I would like to thank you all for your interest, for your questions. Should you have any follow-up questions, please do not hesitate to contact any member of the IR team. Thank you again. We wish you a nice weekend. Operator: Thank you all for your participation. You may now disconnect.
Andreas Meier: [Interpreted] Ladies and gentlemen, good morning, and a warm welcome to BASF in Ludwigshafen. We are very pleased that you have accepted the invitation to our annual press conference. Some of you could not be present here in Ludwigshafen and will be connected with us live on the Internet. So warm welcome to you, too. You will be talking today to Markus Kamieth, Chairman of the Board of Executive Directors; and Dirk Elvermann, the CFO of BASF. The conference, as mentioned, will be broadcast live on the Internet on our homepage and also on LinkedIn. The conference language is German with a simultaneous interpretation into English. During the discussion later, English questions will be answered in English. So if you're using a headset for the simultaneous interpretation or want to use them, you find the English channel on channel 1 and the German channel on channel 2. For the photographers here in the room, during the first 5 minutes, you can take photos during the presentation. But afterwards or during these [ photos ], please switch off the flashlight and afterwards, please take your seats. All accredited guests should have received an electronic press folder with all the important documents via e-mail. And that's all on housekeeping, and I give the floor to you, Markus. Markus Kamieth: [Interpreted] Thank you, Andreas. Good morning, and welcome to Ludwigshafen, and also to those in front of the monitors. First of all, thank you, Andreas, for you, for having taken over this job. You are doing this for the first time or have been doing this for the first time for a long time because Nina Schwab-Hautzinger left to join Roche, but you probably heard yesterday that we will welcome Thomas Biegi as successor of Nina Schwab-Hautzinger soon. And I think in future, he will take this job, but well, you will have to agree with him. Dirk Elvermann and I will present and explain the most important figures and developments of the 2025 business year. 2025 marked by many geopolitical and headwinds in the world that unfortunately had a negative impact. Consequently, we, in the chemical industry, faced an uncertain and very volatile global market environment and with considerable headwinds. As previously stated, we, therefore, focus primarily on the things we can control within the framework of our Winning Ways strategy. We successfully started up the major assets at our new Verbund site in Zhanjiang, and we also accelerated our cost savings programs and significantly streamlined BASF's organization. Moreover, we progressed swiftly and successfully with the announced portfolio measures. But let me also mention that the year 2025 and particularly the fourth quarter did not develop as we had anticipated. Our prerelease on January 22 already gave you an indication of this. Let's now turn to the details of BASF's financial performance in the fourth quarter of 2025, always compared with the prior year quarter. Overall, sales declined considerably because of strong currency headwinds and slightly lower prices. At the same time, we achieved slightly higher volumes. All segments reported volume growth, except for the Chemicals segment. Volumes rose particularly in Surface Technologies, Agricultural Solutions and Nutrition & Care segments. From a regional perspective, we achieved a remarkable volume increase of 13% in China and posted solid growth in North America. In Europe, we recorded slightly lower sales volumes. Compared with the fourth quarter of 2024, prices declined in 5 of our 6 segments, most notably in Chemicals and Materials due to ongoing competitive pressure. We could only increase prices in the Surface Technologies segment, primarily owing to higher precious metal prices. Currency effects burdened sales in all divisions and were mainly caused by the strong depreciation of the U.S. dollar, the Chinese renminbi and Indian rupee. Portfolio effects slightly dampened sales growth, and this was mostly related to the sale of our Decorative Paints business. Based on this underlying sales development, EBITDA before special items came in at EUR 1 billion compared with EUR 1.4 billion in the prior year quarter. Currency headwinds lowered EBITDA before special items in the fourth quarter of 2025 by around EUR 110 million. Ladies and gentlemen, overall, BASF Group's EBITDA before special items reached EUR 6.6 billion in the full year of 2025. The decline compared with 2024 was mainly due to lower margins and negative currency effects, and the latter amounted to EUR 235 million in the full year 2025. Due to continued low market demand and pressure on margins, earnings in BASF's core businesses, especially in the Chemicals segment, declined considerably. Higher contributions from BASF's stand-alone businesses could only partially compensate for this decrease. Let's now turn to our portfolio measures. Our agreement with Carlyle marks an important milestone in realizing the full value of our Coatings business. Prior to that, we had divested our Decorative Paints business to Sherwin-Williams. Under Carlyle's operational leadership, we want to continue to strengthen the leading position of the Coatings business. This will create further upside potential for the 40% equity share we will continue to hold after closing. We are on track to close the transaction in the second quarter, as previously announced. On the basis of the 2 transactions, BASF's Coatings business is valued at an enterprise value of EUR 8.7 billion. Let's move on to Agricultural Solutions. Our team here once again delivered a very strong performance in 2025 and achieved an EBITDA margin before special items of 22%. We are on track to reach IPO readiness in 2027. Last year, excellent progress was made on the legal entity and ERP separation. By early 2027, the separation will be completed in all regions. In November, we announced the future management Board for the Ag business. Its members combine extensive industry expertise with the required capital market experience. The management team headed by Livio Tedeschi will drive the transformation of Ag Solutions into an independently steered company focusing solely on the agricultural sector. The planned listing of our Agricultural Solutions business will mark the next decisive step to unlock additional value for our shareholders. The planned IPO is targeted to take place on the Frankfurt Stock Exchange. And what is also good news is another piece of news. In January, we announced that BASF Agricultural Solutions is acquiring AgBiTech, a supplier of biological solutions to control insect pests. It has pioneered the use of nucleopolyhedrovirus technology to develop insect control solutions based on naturally occurring viruses. With operations in Brazil, the United States and Australia, AgBiTech serves farmers growing soybean, corn, and cotton as well as specialty crops. This acquisition is an important step in the value creation journey of Agricultural Solutions. The new technology will complement BASF's existing biosolutions portfolio and underscores the commitment to a more sustainable, holistic approach in agriculture, in line with the business strategy of Ag Solutions. The transaction is expected to close in the first half of 2026. From the stand-alone Ag business, let's return to the beginnings of our value chain. We successfully started up all 32 key production lines at our Zhanjiang-Verbund site on time and below budget, a remarkable achievement and a testament to the capabilities of our teams. We also started up the steam cracker, the heart of the Verbund, without any lost time. This steam cracker is flexible, so we can use both naphtha and butane as feedstocks. I was very pleased to hear Linde's CEO, Sanjiv Lamba, describe this as one of the fastest cracker starts up ever. Linde supports us with their cracker technology and engineering expertise and contributed to this major achievement of our teams in Zhanjiang. The team executed this complex task with outstanding dedication and success. We are confident that we will operate the site at high utilization rates even in the current market environment. Nevertheless, I want to note that we expect a slightly negative earnings contribution from the Zhanjiang-Verbund site in the first year of operations, mainly due to start-up related costs. From 2027, we expect the site to contribute positive earnings. Ladies and gentlemen, MDI is an important product for BASF and a key component of our polyurethane value chain. It is indispensable in the construction, automotive, coatings, adhesives and furniture sectors. Classic applications include rigid and flexible foams. It can be found as insulation and upholstery material in your car. For example, I think you're not sitting on such a chair at the moment. In the United States, we are currently expanding our MDI plant in Geismar, Louisiana. The final phase is on track, and we are planning to start up production in the third quarter of 2026. At USD 1 billion in total, the project marks BASF's largest investment ever in the United States. Through this expansion, we are doubling our MDI capacity in Geismar to around 600,000 metric tons per year to serve the growing U.S. market. With that, I will hand over to Dirk Elvermann. Dirk Elvermann: [Interpreted] Well, thank you very much, Markus, and good morning. I would like to start by looking at the financial figures of BASF Group for the full year 2025 compared with 2024 as usual. EBITDA before special items came in at EUR 6.6 billion, representing a decline compared with the prior year. However, the EBITDA margin before special items, excluding metals, remained almost stable at 12.3%. Net income improved by 25% to EUR 1.6 billion. Net income from shareholdings in 2025 amounted to EUR 1.3 billion compared with EUR 602 million in the prior year. This increase mainly resulted from higher earnings contributions from the at equity consolidated participation in Wintershall Dea. Free cash flow increased by around EUR 600 million compared with 2024, and more information is provided on the next slide. Cash flow from operating activities amounted to EUR 5.6 billion as compared to EUR 6.9 billion in 2024. The decline was primarily driven by changes in other operating assets caused by an increase in precious metal trading positions. Furthermore, net income included higher noncash items and reclassifications than in the prior year. Ladies and gentlemen, in 2025, cash flows from operating activities included a dividend from Wintershall Dea. Reimbursements that Wintershall Dea received under the federal investment guarantees were distributed to its shareholders as dividends. BASF, which holds 72.7% in Wintershall Dea, received around EUR 900 million after tax in 2025. In the first half of 2026, we expect to receive almost EUR 800 million after tax through the same mechanism of which around EUR 500 million was already paid out in January. I think it is important to further explain this. Federal investment guarantees are insurance against political risks such as expropriation or the consequences of war. As with any insurance policy, coverage does not come for free. The guarantee beneficiary, in this case Wintershall Dea, paid insurance premiums for many years, a triple-digit million euro amount in total. Now Wintershall Dea is entitled to and has asserted its claim to insurance coverage. Let's now turn to payments made from property, plant and equipment and intangible assets. In 2025, these decreased by almost EUR 2 billion to EUR 4.3 billion, which demonstrates that we have passed the peak investment phase for the Zhanjiang-Verbund site. Overall, free cash flow improved strongly and amounted to EUR 1.3 billion. In terms of our balance sheet, total assets amounted to EUR 76.2 billion as of December 31, 2025, down by EUR 4.2 billion compared with year-end 2024. But this decline was caused by lower noncurrent assets, mainly on account of currency effects. At 45.1%, BASF's equity ratio remained stable and very solid. By year-end 2025, we have reduced our net debt to EUR 18.3 billion. In 2026, we will use a substantial part of the cash proceeds from our portfolio measures to further strengthen our balance sheet. The maturity profile of outstanding bonds will allow us to further reduce net debt considerably this year, hereby underpinning our current single A rating. Let's look ahead to BASF's capital expenditures between 2026 and 2029. We aim to grow with high capital efficiency by reducing capital expenditures, increasing the utilization of existing assets and optimizing our net working capital. After the successful start-up of our Zhanjiang-Verbund site, we are now bringing down CapEx below the level of depreciation. For BASF Group, we plan capital expenditures of EUR 13 billion between 2026 and 2029. This is 20% lower than the 4-year forecast we gave you last year and more than 30% lower than our planning for 2024 to 2027. In 2026, we planned total capital expenditures of EUR 3.3 billion compared with EUR 4 billion in 2025. The reduction reflects lower CapEx for the Zhanjiang investment. We now expect only a further EUR 600 million in 2026 after EUR 1.6 billion in 2025. With our good current site and planned setup, we have sufficient own capacities in key markets to support our volume growth without requiring major new investments. And we say we are well invested by now. Ladies and gentlemen, where do we stand with BASF's cost-saving programs? In a nutshell, we have accelerated the implementation. By the end of 2025, we already achieved a total annual cost reduction run rate of around EUR 1.7 billion, and this represents an increase of EUR 100 million compared with our original savings target for this date. In 2025, the associated onetime costs amounted to EUR 700 million, and this increase in onetime costs of around EUR 300 million was caused by higher provisions for severance payments. In contrast, the planned onetime costs for 2026 will be reduced from EUR 500 million to EUR 300 million. By the end of 2026, we now expect annual cost savings of EUR 2.3 billion instead of EUR 2.1 billion as planned. The cumulative onetime costs are now expected to amount to EUR 1.9 billion in total. And this shows our positive momentum in bringing down our cost base and our ongoing focus on this crucial topic that we are dedicated to. On the right-hand side of this slide, you can see that between December 2023 and December 2025, we reduced the number of BASF senior executives by 11%. The number of employees decreased by 4,800 if we exclude the around 1,000 employees who were recruited at the Verbund site in China in the same period. This demonstrates that we are actively streamlining our global organization at all levels. In 2026, we will further advance in this direction. We recently communicated our next steps to create more value, which will happen in BASF's service organizations. And these are Global Digital Services and Global Business Services. Why are we doing this? Against the backdrop of our successful portfolio measures and the differentiation between core and stand-alone businesses, we now also want to streamline IT, finance and HR services to meet the needs of BASF's core businesses. In Global Digital Services, we are rationalizing and harmonizing BASF's IT application landscape and sharpening the Digital Service portfolio through consolidation and standardization. In this context, we plan to open a cost-efficient digital hub in Hyderabad, India. We will adjust our existing location footprint and take out significant costs. Building on competitive service levels and focused digitalization, these measures allow us to capture efficiency gains and achieve a significant reduction in the Digital Services workforce. Similarly, in Global Business Services, we intend to streamline the service portfolio, drive automation and establish cost-efficient global hubs. We, therefore, aim to bundle a significant portion of our business services in 2 global hubs in Asia. At the new global hub in India, we intend to bundle services with a focus on finance and HR. And the established hub in Kuala Lumpur in Malaysia is foreseen to focus on global supply chain services in the future. Existing regional hubs will complement this setup. With these decisive steps, we aim to harvest synergies and secure structural cost advantages. Markus? Markus Kamieth: [Interpreted] Thank you, Dirk. A key objective of our Winning Ways strategy is attractive shareholder distributions via dividends and share buybacks. That is why we will propose a dividend of EUR 2.25 per share for the 2025 business year to the Annual Shareholders' Meeting. Based on the year-end share price, this represents an attractive dividend yield of 5.1%. The second pillar of our attractive shareholder distribution policy is our buyback program. In view of cash proceeds already received and further proceeds expected, particularly from portfolio measures, we started buying back shares in November 2025. By year-end 2025, we had repurchased shares of around EUR 355 million. Moving on to our outlook for 2026. From today's perspective, we do not expect a meaningful market upswing or a significant easing of geopolitical tensions in the near term. Our forecast for the BASF Group assumes that GDP growth will be slightly lower and that global industrial production growth will be significantly lower than the 2025 level. We expect a further decline in chemical production in the mature economies and weaker growth in the emerging markets. Our planning is based on an average oil price of USD 65 per barrel of Brent crude and an exchange rate of $1.20 per euro. Based on these assumptions, we expect EBITDA before special items to be between EUR 6.2 billion and EUR 7 billion in 2026. BASF Group's free cash flow is expected to be between EUR 1.5 billion and EUR 2.3 billion. Payments made for property, plant and equipment and intangible assets are estimated to be reduced to EUR 3.4 billion. I'd like to add that from a market perspective, the start to the first quarter has been as challenging as expected. In January, volumes in China continued to develop very positively, which is partly related to the timing of the Chinese New Year. But in the remaining regions, volume development has been weak. Given the considerably stronger U.S. dollar in the prior year quarter, currency headwinds on EBITDA before special items could amount to up to EUR 200 million in the first quarter of 2026 alone. So 2026 is likely to be another transitional year with significant headwinds for our industry. Most of the improvements we aim to achieve will need to be driven by our own efforts. We expect a gradual recovery of market conditions in the later part of this year and in 2027 and see promising early indications. However, we are also mindful of short-term demand constraints due to geopolitical and trade-related effects. Let me highlight 3 topics that we will continue to prioritize in 2026. We will continue to actively drive measures to structurally reduce costs by rigorously implementing our cost savings programs, and we will bring down CapEx significantly below the level of depreciation. In parallel, we will hunt for volumes to increase the utilization rates of our plants. And after the successful start-up of our new Verbund site in China, it's now all about filling the asset's increasing utilization rates. Based on our highly competitive cost position, we are confident that we will achieve this goal fairly quickly. Furthermore, we will focus on the completion of the final phase of the MDI capacity expansion in Geismar to capture further profitable growth in North America. And we will build on our successful portfolio measures to crystallize and unlock the value of our stand-alone businesses. We will stay on course to further strengthen our core businesses by implementing the necessary measures. In summary, delivering on our Winning Ways strategy means combining active portfolio steering with capital discipline and strong operational execution when it comes to CapEx and costs. And this way, we will create value for our company. Thank you very much, Dirk and I are looking forward to your questions now. Andreas Meier: [Interpreted] Thank you very much for your presentations. Now the Q&A session. And well, just raise a hand if you would like to take the floor, and I will call your name. [Operator Instructions] We will try to finish the conference by 11:30. [ Mr. Lisman ], Rheinpfalz, you are the first. Unknown Attendee: [Interpreted] Yes. [ Lisman ], Rheinpfalz. You just mentioned that you had to really ask for getting the insurance payment based on the federal guarantee. So were there court proceedings? And secondly, you announced that 4,400 flats in Ludwigshafen will be sold. What about the earnings you expect there? How do you want to use these funds? Does this mean strengthening the balance sheet in order to reduce indebtedness? Markus Kamieth: [Interpreted] Okay. Let me start with the federal guarantee. No, no litigation, no court proceedings, [ Mr. Lisman ]. That we really had to request it actively means you have to request this. The money doesn't come automatically, but you have to report that damage occurred. This is what we did. And then the whole process was handled very constructively and within the time line. So no litigation, but just handing in a justified request. Well, in case of sums like this, nobody just says, yes. So it has been looked into. The flats. Well, I think as of now, we cannot give you a figure here that we expect. The process is starting now. We announced that this is a step we want to take. We asked a company to take care of selling the lion's share of these flats, and we will then wait and see what is being offered. But of course, on the basis of the flats, you can calculate for yourselves what the sum will look like. And what we will use the funds for? Well, we cannot give you exactly what we will do, but strengthening the balance sheet means we free the capital tied up in the flats and make it available for the company. And you are familiar with our general strategy when it comes to investing in our future at Ludwigshafen, including new capacities, and it's about payouts to our shareholders. And we have of course, other opportunities to use our capital. So no clear definition how these funds will be used. Andreas Meier: [Interpreted] Then Ms. Weiss, Thomson Reuters, please. Patricia Weiss: [Interpreted] Well, thank you very much. The worth or value increasing, portfolio increases were on your own set of priorities for 2026. And now there were some clear points that you already started. What's open on your list, what you have planned for when you took your term of office, and what can be still expected? And tariffs, the last verdict from the Supreme Court in the United States. So there are repayments of your U.S. company to -- well, into proceedings to gain back the monies from the tariff policy. Markus Kamieth: [Interpreted] Well, tariff policies can be done by Dirk Elvermann. And I take the other question. So let me remind you that the transaction of Carlyle with Coatings still has to be concluded this year. We expect that for Q2, and it looks very well. But as I said, this still has to succeed. And then there is the big ambition when there is the IPO for Agricultural Solutions for 2027. This is what we aspire. We take all the preparations and that is, well, a lot of work still for 2026. So let me say we are in the middle of everything still, and with our stand-alone businesses, we stick with ECMS too. So that is the quasi-automotive catalyst business that we have. So we want to proceed with our stand-alone business journey completed and then lifted to a new level of ambition, but under the ownership of BASF. So we said we do not want to sell this business. And with batteries, the situation is as is. We focus on ourselves, but we are open for partnerships. And here, too, we have to check whether there are opportunities and possibilities to increase the value of our battery and battery materials business. So we are in the middle of everything, and there's still a lot of work to be done. Tariffs? Dirk Elvermann: [Interpreted] Well, for the tariffs, the most recent developments, of course, have increased uncertainties. And we still don't have a final evaluation of the situation and how high the effects would be and what to do. I think last year, we already made it very clear that it is still valid that the direct effects of tariffs to us and our subsidiaries are relatively low, because we have a very strong local-for-local business, 80% to 90%, and that is still valid. And what concerns us most is the general uncertainty caused by these short-term tariff changes taking place, and that also affects our customer industries or mainly them, and that's still the state of the situation. But still proceedings, litigations, well, this is mainly discussed very often. It is quite obvious. So if the entire regulatory situation changes, then there is a legal claim for BASF Corp to really follow up on this. But the question is, will this really happen, and to which extent? This is not quite clear. And many people are already dealing with it, and you can see it with other companies, too, that at the moment, the situation is very dynamic. And yes, we follow it closely. Andreas Meier: [Interpreted] Okay. Let's continue with Mr. [indiscernible], please. Unknown Attendee: [Interpreted] Yes, you mentioned, well, investing -- going through with your investing, so that the world markets are productively tapped, so to speak. And BASF is still generating money. So this money is used for a restructuring or transforming of assets towards a green chemistry situation? Or is your track that you take rather that you check what you could acquire, that you could buy? Markus Kamieth: [Interpreted] Thank you. So first of all, well, do we invest in Germany? So to invest through to take our money and go through with it, that's not very obvious to explain. It is something that we use to explain that we use this wave of new investments. So we invested a lot of money in new capacities at the Ludwigshafen site, but also in Antwerp. We invested also in the United States and, of course, in Asia, particularly in China. So we come out of this wave now where we wanted to invest in new CapEx. So now we are through with our investment for the moment. So we used everything which was available for us on the market. Of course, we will continue investing in maintenance and optimization of our asset portfolio. Also in Ludwigshafen, we significantly invest into maintenance at the site, and this is large amounts of money. So it shouldn't just sound like we turn off the tap and we don't invest any longer. But you're quite right, of course, that there are also other possibilities to change the portfolio. And in our strategy, we said that acquisitions in order to further strengthen the core of BASF and to prepare it for the next decade, make it stronger for our growth, and this is still the target of our strategy. But in today's market environment, this is not our highest priority. It still, however, remains an opportunity for BASF to establish in the consolidating European market, but also in the strong Asian market. Andreas Meier: [Interpreted] Matthias Kros from Rhein-Neckar-Zeitung, please. Matthias Kros: [Interpreted] So first of all, on the cost savings, you said that the program was accelerated. You might say that you expanded it too because the sum that you want to save is even higher. So what's the reason for it? Was it necessary to save more? Or did it just come along because you wanted to go through with it faster or deeper going? What is the background here? Then headcount reduction, 4,800 was the number that you gave. Could you tell me how much of this number goes to the Ludwigshafen side? And this process is not concluded, obviously. Do we have to expect that the headcount here in Ludwigshafen goes below 30,000, would you say? And we also talked about shutting down assets last year. So to which extent will further shutdowns come for Ludwigshafen. Markus Kamieth: [Interpreted] Well, that's many, many questions all at once. On the cost-saving programs, Dirk, you can certainly add to what I now say. So accelerating and adding, you mentioned both. Well, this program, it always seems as if this program ends at a certain point, and then we don't continue it. But productivity increased and, of course, also cost saving never ends at the end of a program. So an acceleration always looks as if the last bar is higher, as if anything is added. But we always continuously continue that. So the market for chemistry worldwide shows a certain picture, particularly in Europe, particularly with chemistry growth, which in Europe was negative. In Germany, very negative. So here, the cost pressure will stay. And so in the next years, from my point of view, we will have to look to increasing productivity and stabilizing costs and saving costs. So we will not get out of this phase. And our message to our employees is, and we really want to be very transparent here. There's never the moment when we are finished with saving costs. So the market and our competition will put pressure on us. And you saw it in the subject of services. We want to see the perspectives. We want to develop in a way that we can be better in competition. Dirk Elvermann: [Interpreted] So let me complement on that. You asked whether it's necessary. Yes, in a way, it is. BASF was in a difficult environment in 2025, but everybody did a very good job. But at the same time, for Germany, with our earnings, we are in a negative situation. And this is why there is no alternative to continuing our cost saving, but also to take it one step further to see where we can increase productivity. The earnings situation of the company is at a low level right now. And I told you before, looking at our EBITDA margin, you can see very clearly that we have to make further efforts, and we do that continuously and very consistently. Markus Kamieth: [Interpreted] And back to your other question, a split of the number, 4,800 that Dirk mentioned before, I don't know the exact split. We do publish sometimes. Maybe [ Mr. Lisman ] has checked it up already, but I don't know what the exact split is for this number. A significant part of these 4,800 are in Europe. And a significant share of that, again, is in Ludwigshafen. But of course, we can do a fact check here because I don't have the exact figures now. With a perspective, looking into the future for Ludwigshafen, what we want to do is we want to make Ludwigshafen leaner and stronger. Leaner and stronger means that we want to invest in our assets where we see the opportunity to be successful. Just now at the site, we see a lot of expansion investments that we mentioned before. We also have some small adjustments, but we are not planning for any major shutdowns at the core of the Verbund site at Ludwigshafen. But I cannot exclude it for all times. This is the dynamics that we're in. We have to adjust to the market. We did that for tens of years, and we will do so in the future. But what is continuing to happen in Ludwigshafen, and you will have learned about that, too, we have a very strong program when it comes to cost savings, when it comes to personnel cost savings. And in 2025, we took a significant step forward here. You can see it in the one-off costs that Dirk mentioned before, and we will continue to do so in 2026 and 2027, and even accelerate this. So the reduction of headcount here at Ludwigshafen in production, but also in nonproduction areas will continue. And where we will land, what figure it will be? Well, I can't give you any figure here. I've always said this. And I think with the benefit of hindsight, it was a good idea not to give any figures, because the situation has strongly changed already. So let's not forget, it always feels as if time flies since the day when Trump stood in the, yes, Rose Garden with his sign. And the world has changed. And we have to really keep adjusting and keep being flexible. So it was a good idea not to give you one exact factor. We work together with the employee and representatives. We work through the individual projects as best as possible. So today, again, you don't get a target figure. Andreas Meier: [Interpreted] Okay. Mr. Freytag, FAZ, please. Bernd Freytag: [Interpreted] Regarding Ludwigshafen, one follow-up question. So what range is the loss? And what do you expect this year? Second question, Mr. Elvermann, when you ask tariffs to be back, how much have you paid here, to give us an idea? Mr. Kamieth, regarding the European chemicals policy in general. The EU with the critical chemical alliance would like to pick value chains which may be protected or are seen as worth to continue, may probably be subsidized. What are you hoping for here? Markus Kamieth: [Interpreted] Very complex questions. Let me start with chemicals, legislation, EU. Maybe you can take over then. Complicated issue, Mr. Freytag. Let me limit myself to Critical Chemicals Alliance. Otherwise, so many other topics will be added that are decided for us in Brussels. Critical Chemicals Alliance, developed from 2 different types of motivation. It's an initiative by the EU Commission. On the one hand, the shock after corona, because we realized in many value chains, Europe is not in a robust situation. And if we don't watch out, we will lose more value chains in Europe, and we will become even more dependent on other regions or even individual countries. Buzzword, rare earths. Buzzword, antibiotics. During COVID, it turned out, oh, it's not a good thing to be in that weak situation in Europe. Secondly, a short-term aspect, and that's the import pressure that we experienced from the U.S. and from China regarding the chemical industry in Europe, because they put capacities in Europe under pressure. I say we caused this problem, of course, to a large extent, because competitiveness situation is very difficult here. So I welcome this approach. The industry, the EU Commission and many advisers want to sit down and discuss how can we come up with a regulatory framework to make sure that on the one hand, we maintain the European chemical industry. And on the other hand, we do away with the critical dependencies. But I think we must not switch it in a way to come up with an island solution for Europe. We must not have a protectionist development in the chemical industry in Europe. That would be the wrong development. This is why we say we need a balanced approach where protection is necessary for reasons of resilience or, maybe in some cases, in a targeted way for competitive reasons. We are in favor. If it means that it will help, it's okay. But if it continues with noncompetitive situations in Europe, we are against. As a chemical industry in Europe, we don't want to live in a zoo. We want to still live out in the wild. So my appeal to the EU Commission often is do not come up with too many specific aid packages, just make sure you take away the load from our shoulders, so that we can continue breathing. So that's my approach here. But of course, I could spend hours discussing this. Dirk Elvermann: [Interpreted] Mr. Freytag, the other questions. Well, tariffs, I think it's too early to give you exact figures here. Let me tell you, we don't have such a high direct tariff burden, not even in the U.S. I mean, we're not talking about very, very high sums of money. But as Markus said, we look at this specifically. And once we have an opinion, we will announce it. But there is still a lot of momentum in this. BASF SE, well, maybe I can give you one figure. EBIT of BASF SE this year, more than EUR 1 billion negative, of course, for different reasons. Let me start by saying, here on site, people are doing a great job and earnings figures increased on site compared to the prior year. We have a slightly higher capacity utilization, and a lot of things are developing in the right direction with a lot of helping hands. However, the structural weakness in Germany and Europe is continuing. It continues to be a burden. And due to restructuring, of course, we have one-off costs now. We cannot avoid that. And this is reflected also in the figures of our operating activities, but more than EUR 1 billion negative at SE level. This is more than compensated by the positive contributions from the group as a whole. But let me add, that's really important. I understand that this is an interesting figure for you. And well, the earnings of BASF SE, but please bear in mind, BASF SE includes a lot of things. It's the company for our biggest production site, the competitiveness of which is dear to our heart, because people are doing a great job here to make sure that this site becomes fitter. On the other hand, BASF SE is the group company, the parent company here of the group. So it includes a lot of things that are not directly related to the production of this site. So it's a charged figure, so to say. We need to interpret it cautiously. And I always warn against to overinterpret fluctuations in this figure and then thinking you know about the competitiveness of the site. I take a close look. It's important to us to make the site of future fit for the future, fit for a green future, and we are right on track here. Andreas Meier: [Interpreted] Okay. Did this answer all your questions? Thank you. Mr. Leo, Xinhua. Unknown Attendee: [Interpreted] Mr. Kamieth, in today's press release, we read that last year, the Zhanjiang-Verbund site was started up successfully. It's the third biggest production site of BASF globally. Why is BASF continuing to invest so much money in China? Looking at today's uncertain times, how important is the Chinese market in the global strategic approach of BASF? Markus Kamieth: [Interpreted] Thank you for the question. Yes, you are right. In the fourth quarter, so with the highlight of the steam cracker very early in January, we, from our point of view, successfully started up the site. As I said, 32 production assets were started up within only 4 weeks. And I would say, looking at the complexity and the success, I'm only talking about the technical start-up, not the construction, which was also great. But to achieving this with such a quality, I think this is the first ever in the chemical industry. So great performance by the team. And this goes to show that this is what our workforce really, really is able to do. We are very proud of this. Of course, this does not protect us against a very difficult market in China. I said, well, the market is growing. There is volume growth in China. However, prices are under enormous pressure because of high overcapacities in China. This does not only go for the chemical industry. In China, for 40 months in a row, we have producer price inflation. So this producer price inflation is not what the consumer sees, but what the producing industry sees, and there is a strong margin pressure because of this in all Chinese industry. But we think in the mid to long term, this will be a successful site for BASF because the strategic location is fine in South China, in the Guangdong Province, where the heart of Chinese growth is to be found, and we are very competitive. China represents almost 54% of the global chemical market. We are at the right location, with the right assets, with a site which, especially within China, but also at global level is producing with a very, very low CO2 footprint. So strategically speaking, very good. Operationally, in the short term, more difficult than expected. But still, we are convinced that this was the right decision. Even though in '26, 2027, the financial performance will be a little more difficult. In China, we generate around 13% of group sales of the BASF Group. This will increase slightly with the new site to between 15% and 20% probably, but China will become more important for us. And you have to put it in perspective. I tend to compare this with the U.S. The U.S. will still be a much bigger, much more important market than China in future. Sometimes the press says, well, we are somewhat biased here, but we are not. Andreas Meier: [Interpreted] I have 8 further questions. So let us please be brief, and also with the answers, brief answers, please. Ms. [indiscernible] next. Unknown Attendee: [Interpreted] Yes, I would like to come back to China for a minute. So you said Zhanjiang will be profitable starting 2027. I think that's what you said. Could you please go a little more in depth what about the development of the margins and why you assume that things are going to be better? Will overcapacities go down? Or is BASF so cost efficient? Or are the Chinese customers prepared to pay more for carbon or low-carbon products? And maybe one question on India on top of that. So with the trade agreement with India, is the market more attractive now for BASF? Or, yes, the service centers that you established there, is that to do with the trade agreements? Or is it just a matter of time? Markus Kamieth: [Interpreted] Well, the elements that you just mentioned for the potential increase of profitabilities are all correct, but they will not happen in 2026 or 2027. So not on short time. The reason for increase in profitability, 2025, '26 and '27. '25, of course, we had high costs in investing. Now in '26, the direction will be better, but it is still below the 0 line. In 2027, it's getting better. So we are in a ramp-up situation just now, a gradient. And then in 2027, we will have a site which is full up and running with no ramp-up costs. So the ramp-up costs, required additional employees, people who help, additional costs occur. And now we expect a gradual recovery of margins in China, nothing dramatic, but a steady development, I'd say, of the margins. And that's a scenario for the site. So in 2027, we will enter the positive region. But then medium term, some things will come in that you also mentioned. For example, the high attractiveness for low-carbon products that will come at the end of the decade in China. Then there's going to be a recalibration taking place of capacities in China, not very speedily, but over time. So all these things will then come, and this is why we stick to our profitability statements for 2030. No, India -- sorry, India, maybe you? Dirk Elvermann: [Interpreted] Well, it happens at the same time. So your second option. So in India, of course, we look at the growing market in India, and it is an interesting market for us. We said so in the strategy too. And it is also the location for competitive services, particularly in the transactional regions. So it happens at the same time. So we went there, and we also announced the hubs, but it is not as if a lot more has to be interpreted into that situation. And the free trade agreement with India and also the free trade agreement with Mercosur, once it happens, both have no major impact on the chemical industry, because the chemical volumes in India are relatively low compared to the overall trade volume. So it's smaller portions. But there is a potential positive effect to the overall industry in Europe and particularly in Germany. So we really support free trade agreements. So we don't want to erect walls. We want to have free trade agreements. That's what we want to invest in. And that's what we like India, we like Mercosur, but the direct impact on BASF is small. Andreas Meier: [Interpreted] Bettina Eschbach. Bettina Eschbach: [Interpreted] I have 2 questions on India. The 2 new hubs, can you give us a figure, how many jobs will be created and maybe also how many come from Berlin, how many people will be maybe transferred from Ludwigshafen to the hubs? Markus Kamieth: [Interpreted] Well, first of all, Ms. Eschbach, it's going to be global hubs. They will be very important, and that goes both for the digital services, but also for the business services, and particularly for the transactional services. For business services, that is finance and personnel, so HR. So those are going to be global hubs. And let me be very clear about this, for the further hubs that we have, particularly in Berlin, we do not plan to shut down Berlin. We want to continue our hub in Berlin, and the hub is going to be smaller when it comes to the jobs there, but it will play a major role for us and for the services rendered there. A concrete figure, how much less Berlin will have and how much more India? Well, I can't give you that now. We have our direction of travel. We communicated that. We will further work on that. And of course, we, first of all, have to speak with the employee representatives. We have a very good exchange with them going on, and then there's going to be figures afterwards. Now it's early times. Andreas Meier: [Interpreted] Okay. Ms. Martin, please, from Bloomberg. Marilen Martin: [Interpreted] Well, one question on China, please. So what is the capacity utilization that you expect in 2026 and '27 and further? And another question on Wintershall. What about the situation there? Is it the payments that you set for 2026? Are those the last ones? Or will you receive further ones? Markus Kamieth: [Interpreted] Well, let me take the China question. We are very fast when it comes to high capacity utilization. And last year, we already communicated and discussed that with you. And in February, I saw that the steam cracker in Zhanjiang has full capacity utilization, and all downstream plants that you can ramp up quickly, because it's products that you can bring into the market without qualifications, they have high capacity utilization. And in 2026, they will already have a target capacity utilization of very high percentages. And that goes for many products. There are a few exceptions where we are quite aware of being slower because the market situation looks difficult. That's the exception. But there are a few assets where only with the new products, we have to go through the specification and qualification process. We have our surfactants, for example, that's the detergents that go into consumer products. And here, typically, when you produce that from a new plant, a new asset, you have to go through a test period with the customer, and that's about 6 months' time. So here, the ramp-up is a little slower. So this time of the year, half capacity utilization, next year then 100%. But we do use the capacity utilization because it has a very cost-efficient position in China, so we can be quick here. And on Wintershall, for 2025, we had EUR 900 million that we received. And in January, we got another EUR 500 million, and there's going to be EUR 300 additional millions to come. and that then fulfills our claim that we have into this capital coverage of Wintershall. So that's our share, the full share. And then there's going to be another EUR 100 million payment in 2027 and '28, but that will not come from guarantee payments, but it will come from a tax refund, because part of this amount is capital income tax. And then in end of 2027, the rest will come depending on how quickly the tax authorities will work. Andreas Meier: [Interpreted] On my list, I still have Mr. Reitz, Ms. Dostert, Mr. Schreiber, Ms. Nehren-Essing, and Tom Brown. I hope that everything will be covered. And we do have a few minutes left. So let's continue with Mr. Reitz. Hartmut Reitz: [Interpreted] Thank you. I have a question regarding the capacity utilization at the Ludwigshafen site. You mentioned that you are making progress. Maybe you can comment on the situation and the challenges ahead of you. And when it comes to selling the BASF-owned flats. To keep such a number of flats owned by the company is regarded as a commitment to society on part of the company. So are there financial reasons for selling this? Is the pressure too much? Markus Kamieth: [Interpreted] Okay. It's important, regarding your second question, to stress the following. We do understand that the news really made a lot of people uncertain in and around Ludwigshafen. That's understandable. And we do understand the irritation we triggered given those who are in charge at political level and of course, also the tenants in these flats. That's obvious. I experienced this personally. I grew up in a flat owned by [indiscernible] AG and my parents understood they sold the flat and my parents were very concerned what will happen to us now. But well, everything was fine in the end. But I do understand these concerns. Of course, you can say social responsibility, yes, that is one aspect, definitely. But on the other hand, just as an experiment in theory, if we didn't have these flats today, and we stand here today and say, we have income, we have money, we'd like to buy 4,500 flats. There would be a lot of question marks. Why is BASF buying flats? So from a point of view of the company, it is capital tied up, which is a significant amount. And it shows where we have other challenges and where this capital could be used in a better way. I think you need a balanced approach. And of course, we care about the responsibility we have for the Ludwigshafen site and the region. And this is why we will approach the process of this sale, as we announced, in a very responsible manner. And of course, we expect guarantees on part of the buyers that comply with our responsibility. We do not just want to neglect any kind of responsibility, but this is capital that can be used very well in different areas of the company. And from my point of view, for the tenants in Ludwigshafen, it can all be really, really fine. But we have to be successful, and we do everything we can to make it successful. Now capacity utilization in Ludwigshafen, I don't have the figure. I don't know it. You indicated the capacity utilization in Ludwigshafen is going in the right direction. I cannot confirm this. Let me tell you, we are still at a low level. I cannot give you a clear figure. And I just mentioned, and that's correct. Capacity utilization compared to the prior year, which was at a low level, is going in the same direction. So this is the trend I can give you, but there are no significant changes that would be worth a headline. This is just saying a first step in the right direction. But these are just nuances in Europe. In the region of Europe, the figure went down. But in all regions, we grew above market level. Maybe I should have made this part of my speech. So volume-wise, we grew ahead of the market. In Europe, we say our shrinkage was lower compared to the market. Ludwigshafen and Antwerp remain under pressure. If we have a slightly higher capacity utilization compared to prior year, it's minor figures. Capacity utilization-wise, we are still very much under pressure in Europe. This is why we have such a cost pressure, because we need to adjust to this situation. Andreas Meier: [Interpreted] Ms. Dostert, SZ. Elisabeth Dostert: [Interpreted] Last year, you said you had a capacity utilization of 80%. Is that the bad type of capacity utilization? First question. Second question, in Ludwigshafen, when does BASF SE want to make a profit again? Or will you remain at the level where you are at the moment figure-wise? And number three, is there any segment which your new Verbund site in China covers where there are no overcapacities at the moment? Markus Kamieth: [Interpreted] The last question is a difficult one. Yes, yes, there are products we produce in Zhanjiang where there are no overcapacities. That's a matter of fact. But the majority of products we produce there, it's maybe 30 or 40. This operates in a well-supplied market of the chemical industry, well-supplied market that includes different degrees of available capacities ranging from balance to slight overcapacity, up to products which are under enormous pressure at the moment. So we have everything at the Zhanjiang site. But if you take the average with this site today, we enter an oversupplied market in China. I don't want to tell you anything about individual products, maybe I would make a mistake, so I do not want to do this. The 80% last year for Ludwigshafen capacity utilization. The capacity utilization of Ludwigshafen site or of the BASF Group is not a figure I often take a look at, because it's such a huge KPI that doesn't help you when you control the company. It's easy to communicate. It's easy to remember, but I don't look at it so often. So I don't know what the 80% were. The capacity utilization at Ludwigshafen is at a historically low level. There was some tailwind because we took out some capacities over the last 5 years, TDI, adipic acid, caprolactam closures. Of course, this helps. But capacity utilization has not changed considerably, and this is because the European market is shrinking rather than growing. And so I cannot give you more details on the 80%. Well, when will BASF have black figures? Well, as soon as possible. We don't have a specific BASF planning in our strategy, but we are working on whatever we have as part of the [ Lucid ] program as part of the strategy to make it a profit-generating pillar of the group. Otherwise, we will not reach the ambitious targets we have. Ludwigshafen should not be a drain on the group. So this is why there are a lot of expectations when it comes to Ludwigshafen. But we don't have a year I can give you now when we want to be in the area where we have positive figures again, but this is also how we communicate it to our team. Andreas Meier: [Interpreted] Mr. Schreiber, please, brief question. Unknown Attendee: [Interpreted] Well, we heard about overcapacities in China. This means that a lot of chemicals are entering Germany and Europe. Prices are going down. Do you think prices will recover? Do you have a forecast here? And you said emission certificates were in the 3-digit million range. Can you give us a figure for 2025 here? Markus Kamieth: [Interpreted] 2025, it was a little more compared to 2024. Just look at the ETS price and then you will know. But the statement is true, in '25, it was slightly higher than 2024. We think prices will not go down dramatically. In case of many products, we still reached a level where many companies in the chemical industry are not really making a profit. You see how many companies are going bust in Europe. In China as well, a lot of companies are no longer operating profitably. So we have reached the bottom, so to say. Recovering -- well, I think in many products, we will not go down any further. But let me also tell you, we see so many products from China in Europe now. It's important to state Europe is still a net exporter of chemical products. We, value-wise, export more products from Europe than importing them to Europe. But there is an imbalance, because we have a lot of import pressure from the U.S. and China when it comes to energy-intensive, high-volume products. And in public, this then rules the discussion about the chemical industry. But we are by far the biggest producer of specialty chemicals in Europe. Very often, we talk about ETS, about imports from China. These are the base products, what we call upstream products. But the BASF is not a pure upstream company. Pressure is enormous, but when it comes to specialty chemicals, Europe is very strong and a net exporter. That's important. I mean, import pressure from China is an issue, but not that much. Andreas Meier: [Interpreted] Ms. Nehren-Essing. Michaela Nehren-Essing: [Interpreted] Well, many questions were already answered and were also already questioned, but I have one more. At the beginning of your presentation, you said that there are also signs heading into the direction of improvement of the situation. Maybe you can go into that a little more in detail. Where do you see this? And I have a question on the selling of the 4,400 flats of BASF. How high are the costs, the annual costs, because that will also play an important role once you sell flats, because they have to be maintained and all that. Markus Kamieth: Well, second question, I don't have an answer. Maybe you, Dirk. Dirk Elvermann: Well, I do not have an answer on the running costs, but maybe I can put it into perspective. So the flats, what we do not want to do is that we want to save costs here. What we're talking about is how can we use the money reasonably for the company. And I said we have to focus, and we want to use our funds for good chemical production also here in Germany and at the site. And this is why we said, well, real estate administration is not what we want to do really. If we find a buyer that also takes over the social charter that we arranged for our rentees, then we can, of course, find a good solution and with our tenants. And I do not see any, well, proper costs or expenditures in our budget. We just want to use the funds where they best fit. Let me just put it very simply. So the flats are operated today by BASF Bauen and Wohnen, that is a real estate administrator for us, and they actually have a business model that they do it as good as possible as a real estate administrator can do. So for us, it is not something where we say we can save costs here, because these costs remain in this real estate cycle with the tenants, and it's a different cycle. Markus Kamieth: [Interpreted] Positive signals. That's another subject that you alluded to. Looking at what is happening in the world just now, there's many things that can go wrong, a very high volatility, nervousness, well the tariff verdict in the United States, the war planes went into the Gulf War, U.S. war planes. So these are things that are difficult to rate. So it is sometimes also difficult to see positive signals. But let me start in Germany. The infrastructural package was announced with a lot of attention. And last year, we had to say, particularly for our Anglo-Saxon investors, we said it's not going to start in 3 months. But in 2026, we see the first signs and it really gets started. I talk to people who, for example, work in the construction building business. They get this incentive from the government to invest in new buildings, in new barracks for the Army. Maybe you saw recently the purchasing index was mentioned with a figure of over 50. I don't remember the last time when it was over 50, that has to be many, many years ago. But there is a certain optimism, obviously, that in Germany, positive activity is to be expected. But it's too early to celebrate because there are other indicators that point in the different or in the other direction. All in all, we see increased confidence with our consumer and customer partners that goes into the right direction. So well, we reached the trough, so to speak. And that's all I can say at this point. There are some signs for positive growth signals. But if that is going to be sufficient impulses to push us over the 0 line, so to speak, let's see. But if you look into the media, you can find a lot of connecting points to be a little more optimistic for the second half of 2026 and then in 2027 compared to looking back. Michaela Nehren-Essing: [Interpreted] Can I have an additional question, please? Coming back to the flats that you want to sell. You said you manage the flats from yourself, for your own company, as an own unit, you say. But once you sell the flats, that means that you need less people to administer these flats and maintain them, which again means, well, headcount reduction. Markus Kamieth: [Interpreted] Well, it can and might happen, but it doesn't have to. It's early times in this process. So we communicate things very early. We make a decision, and then we don't have all the answers right at the beginning. At BASF Bauen and Wohnen, as far as I remember, they have 80 to 90 staff. And then you have to see, in a potential new construction that has to take over Bauen and Wohnen. And of course, we will keep 1,400 flats because they are near the site, and we want to keep it. But you can see that it is not a subject which will have a big effect on our portfolio and our budget. But we have to accept that there are people who are concerned now, and we shouldn't speculate. But it might be that if the buyer doesn't have any capacities to do the administration of these flats and to maintain them, that these people will be again employed by this buyer. But it's early times, as I said. Andreas Meier: [Interpreted] Tom Brown. Tom Brown: Just a quick one to close off. In light of the bearish environment this year and the insolvencies we've seen in Germany, especially, like do you have a projection on how much capacity you expect to leave the European market? And just kind of building from that, looking at Ursula von der Leyen's comments in Antwerp and the delays in EU Mercosur as well as the delays to funding for Ukraine, do you think there's an argument for centralizing greater power in Europe at the Brussels level? Markus Kamieth: The second question, it's a very fundamental question. I think if you would ask anybody in Europe, [indiscernible] form of the European Union and its constituents or processes, so to say, you would find a high vote. And I would say even people in the European Commission would say, yes, it would be needed because we are struggling with the 27 votes, 27 Unity votes on a lot of big decisions. But there's also no easy answer. And I think, for me, it is not appropriate to now use the word like you used, centralization. It's an oversimplification of what is needed. Everybody wants to make Europe successful. We want to make Europe successful. We have to make Europe successful. I can only warn that especially parties that are making public noise around criticizing that the EU is maybe not good for Germany, that they don't get, let's say, too much airtime with their oversimplistic arguments, because Europe is good for us, Europe is good for European industry, Europe is good for most citizens in Europe, but we could use a more future-ready European Union, so to say, I would say. And I think there probably even Mrs. von der Leyen would subscribe to this. Your first question was on insolvencies... Tom Brown: Yes, insolvencies... Markus Kamieth: I don't know. We have published this -- the Cefic has published this in January. You have maybe seen this if you were in Antwerp, that over the last 3, 4 years, already 9% of the European chemical capacity has been closed with a consequence that 90,000 jobs have already been -- direct and indirect jobs have been affected. And if you look at the dynamics, we are not at the end. So there is more capacity that will be closed. There are insolvencies, there's restructuring. And I would say there's also delayed restructuring now with some asset sales that are happening in Europe. So I would say the time of restructuring in the European chemical industry is not yet over from a BASF perspective. This is also something we feel is necessary. So that's why I said earlier, a protectionism in Europe is not good for the industry, and it's also not good for BASF, because to some extent, the overcapacity also in Europe has to be addressed. The overcapacity is not only in China, it's also in Europe. And noncompetitive assets have to also be restructured. And we believe that this actually is a source of relative competitive advantage for BASF, because we have, in Europe, very competitive assets. In sites like Ludwigshafen and Antwerp, with a high degree of integration, a low cost base in terms of asset cost and good energy integration will actually play out their relative advantage compared to many other chemical sites in Europe, smaller nonintegrated that will get into difficulties. Andreas Meier: [Interpreted] Thanks. We have to come to an end because we have some other calls coming on. And if you have any further questions, we will have to do that later. So thank you very much for the presentation. Thank you very much for your questions and your interest. And before we close the conference, I would like to give you a few points of housekeeping. Today's AGM is going to take place on the 30th of April in the Congress Center Rosengarten in-person attendance, and we will inform you also on the results of the first quarter 2026. We will have a media office area installed for you, and we would love to welcome you there. For the TV and radio teams registered for short interviews with Mr. Kamieth and Mr. Elvermann, please don't approach us here. We have reserved some quiet rooms. Please just contact my colleagues at the door to the lobby. So that's the end of our annual press conference. Thank you very much for your interest. We are looking forward to further exchanges with you and invite you for a little refreshment in the lobby. Thank you very much.
Operator: Good morning or good afternoon. Welcome to Swiss Re's Annual Results 2025 Conference Call. Please note that today's conference call is being recorded. At this time, I would like to turn the conference over to Andreas Berger, Group CEO. Please go ahead. Alexander Andreas Berger: Thank you very much, and good morning or good afternoon to all of you. I appreciate you taking the time to join us today. Before our Group CFO, Anders Malmstrom, will walk you through the detailed numbers, I'd like to start with some brief remarks as usual. It was a good day. 2025 has been a successful year for Swiss Re, but also for all key stakeholders, our clients and partners, our investors, but also our employees. We have two priorities: first, delivering on our group net income; and second, increasing the resilience of Swiss Re to improve the consistency of earnings delivery over time. In 2025, we delivered against both priorities, also allowing us to increase our capital repatriation to shareholders. We achieved a record group net income of USD 4.8 billion against our target of more than USD 4.4 billion and an ROE of 20%. This result reflects disciplined underwriting, strong recurring investment income and low burden of large losses outside of the first quarter last year. At the same time, and this is equally important, we further strengthened the resilience of the group. We completed the Life & Health Re portfolio review, added to the current and prior year reserves in P&C Re, continued to increase initial loss assumptions well in excess of economic inflation and applied the uncertainty load on new business across the Swiss Re Group. In addition, we achieved more than USD 100 million of cost savings in 2025. Therefore, we're well on track to deliver our targeted USD 300 million reduction in the operating cost run rate by 2027. P&C Re and Corporate Solutions achieved an excellent result, supported by strong underwriting performance and lower-than-expected large claims. P&C Re achieved a combined ratio of 79.4%, well within its target of below 85%, while Corporate Solutions delivered a combined ratio of 86.5% comfortably meeting its target of below 91%. Just as a reminder, the 86.5% combined ratio for Corporate Solutions is calculated on a different basis than that of P&C Re, reflecting a gross revenue view and including all expenses. On a like-for-like basis, Corporate Solutions combined ratio would have been 80%. These outcomes reflect the actions we have taken in recent years to build the highest quality portfolio we've ever had in both P&C businesses. And against this backdrop, we entered the renewal for January 2026. The outcome was in line with expectations with no real surprises. We executed on our priorities: first, to lead with confidence in segments where we have differentiating value propositions; secondly, to actively manage our sub-portfolios to respond to the more competitive market, including prioritizing sustainable structures; and third, to grow together with our clients by offering solutions that address challenging concentration risks. Overall, while demand increased competition intensified, especially in nat cat. Although clients selectively increased retentions, Swiss Re selectively or successfully, I should say, preserved our share of wallet. Casualty prices were up, but we remain cautious even as our repositioning actions are complete. We expect similar conditions in the upcoming renewals, always obviously subject to loss activity. What does that mean in terms of numbers? On volume, we renewed treaty contracts representing USD 12.4 billion of gross premium in line with the business up for renewal. Overall, nominal pricing was broadly flat, with mid-single-digit improvements in casualty, offset by similar declines in property, particularly for nat cat covers. The gross premium volume developments mirror this divergence. At the same time, based on a prudent view on inflation and updated loss models, we increased loss assumptions by 4.6%, resulting in a net price decrease of 4.3%. Importantly, and I repeat importantly, terms and conditions remain stable. In addition, we reduced our external retro for nat cat at the 1/1 renewals, as flagged already at the management dialogue in December, thereby increasing our nat cat exposures. Now turning to Life & Health Re. In 2025, we completed the review of underperforming portfolios and took targeted actions to address related sources of volatility. The assumptions updates booked in the fourth quarter that impacted the insurance service results and CSM balance are in line with our guidance provided at the management dialogue. Despite all these actions, Life & Health Re delivered a net income of USD 1.3 billion for the full year. As a consequence, Life & Health Re is on a much stronger footing with clearer visibility on earnings delivery. This gives us confidence in achieving the increased net income target of USD 1.7 billion for 2026. And in Life Health Re's ability to be the stable earnings provider to the group, covering the majority of our ordinary dividend. Our earnings were underpinned by a strong investments contribution, with a return on investments of 4% and the recurring income yield of 4.2%, providing an important and stable contribution to our earnings. We've also made substantial progress on our decision to withdraw from iptiQ with all remaining parts now being either sold or to be placed into runoff in due course. Looking ahead, we confirm the financial targets we communicated at our management dialogue in December. For 2026, we are targeting a group net income of USD 4.5 billion, reflecting our confidence in the resilience of our business units, disciplined underwriting and active cycle management. In closing, I would really like to thank our employees for their strong commitment and hard work throughout the year 2025. I'd like to thank our clients and partners for their continued trust. And you, I'd like to thank you, our investors and analysts for your engagement and support. Now with that, I'll hand over to Anders to you for a closer look at the financial details of the 2025 results. Anders Malmstrom: Thank you, Andreas, and good morning or good afternoon to everyone on the call. I will make a few remarks on the results we released this morning before we move to the Q&A. Let me start with the insurance service results of our businesses. P&C Re reported an insurance service result of USD 3.6 billion for 2025, significantly above the prior year level. The increase was driven by favorable experience variance, partly offset by lower CSM release, reflecting the earn-through of prudent initial loss picks, including the impact of the uncertainty allowance on new business as well as slightly lower margins. Experience, variance and other which captures deviations from initial reserving assumptions contributed a positive $698 million in 2025. This was primarily driven by large nat cat losses that came in USD 1.2 billion below expectations. Against this highly favorable backdrop, we further strengthened P&C Re's resilience by selectively adding to both current and prior year reserves. For the full year, we added about USD 200 million to current year reserves and around USD 100 million to prior year reserves in nominal terms. These prior year reserve additions are net of releases. We have substantial reserve redundancies on short tail lines close to USD 1 billion, which we recycled into longer tail lines in the form of IBNR reserves. This obviously benefits overall resilience. On the back of these actions, P&C Re reported a very strong combined ratio of 79.4% for the year, comfortably achieving its full year target of below 85%. Turning to Corporate Solutions. The business unit delivered another strong year, achieving a full year combined ratio of 86.5%, comfortably meeting its target of less than 91%. The insurance service result increased to $1.2 billion in 2025, up approximately $200 million year-on-year, primarily driven by higher CSM release, reflecting stronger in-force margins. Experience, variance and other was positive at USD 217 million, reflecting favorable large loss experience and a positive prior year reserving result, partially offset by reserve additions for the current year. Large nat cat claims of USD 148 million were below full year expectations, while large man-made claims of $351 million, were slightly above, partially offsetting the favorable nat cat experience. Finally, in Life & Health Reinsurance, the insurance service result was USD 1.2 billion in 2025 compared with $1.5 billion for 2024, reflecting the impact of detailed reviews of underperforming portfolios concluding in 2025. For the full year, the negative assumption updates related to these reviews impacted the P&L by around USD 650 million, of which approximately USD 250 million in the fourth quarter. This is in line with the guidance provided at the management dialogue. Both the full year and fourth quarter assumption update, we're focused on three markets: Australia, Israel and South Korea. In addition, adverse experience impacted the insurance service result by approximately USD 300 million for the full year with close to $200 million of the impact attributable to the market mentioned before. Despite these actions, Life & Health Re delivered a net income of USD 1.3 billion for 2025. While the assumption reviews also impacted the CSM balance, in addition to the P&L, the CSM remains robust at USD 17 billion, supported by prudently priced new business and favorable FX movements. On revenues, the group's insurance revenue amounted to USD 43.1 billion compared with $45.6 billion in the prior year, reflecting several key drivers that were already flagged throughout the year. As we have said repeatedly, we do not manage for top line. Earnings are what matter and the quality and resilience of earnings continue to improve in 2025. Moving on to investments. Asset Management delivered another year of strong returns with an ROI of 4.0%, in line with last year, reflecting a recurring investment income of USD 4 billion. In 2025, we benefited from the sale of Definity, offset by targeted losses within the fixed income portfolio. So let me conclude with capital. Swiss Re's Board of Directors will propose a dividend of USD 8 per share, representing a 9% increase, thereby delivering against our stated objective of growing the ordinary dividend paid between 2025 and 2027 by at least 7% per year. On the announced buyback, last December we added important changes to our regular long-term capital distribution policy, which focuses on growing the ordinary dividend and complementing this with a sustainable buyback that is linked to the achievement of our annual group net income target. Beyond this, we have been clear that we do not rule out the possibility of additional excess capital repatriation in the form of extraordinary buybacks. Today's announcement of USD 1 billion extraordinary buyback on top of the dividend and the $500 million sustainable buyback should be seen in that context. The $500 million sustainable buyback is here because we have achieved our group net income target. The additional USD 1 billion extraordinary buyback reflects all the key drivers. Firstly, we generated USD 4.7 billion of SST capital in 2025 despite the various actions we took to increase the resilience of the group, in particular on the Life & Health Re side. Secondly, the extraordinary buyback is consistent with our focus on managing this important phase of the P&C Re pricing cycle. And thirdly, the extraordinary buyback reflects our confidence in the overall resilience of the group, having successfully completed a host of actions across our businesses in the last 2 years. We expect to launch the buyback in early March with completion targeted by the end of 2026. Our announced capital actions today imply total payout of USD 3.9 billion or approximately 80% of our full year 2025 earnings. The group's SST ratio, including all of the announced capital actions remains at a strong 250%. That's where I will leave it for now, and I'm happy to hand over to Thomas to kick off the Q&A. Thomas Bohun: Thank you, Andreas. Thank you, Anders. As usual, before we start the questions, if I could just remind you to limit yourself to two questions. Should you have additional questions, please rejoin the line. With that, could we have the first question, please? Operator: Sure. The first question comes from Will Hardcastle from UBS. William Hardcastle: Will Hardcastle from UBS. First one is just trying to really triangulate and work out where the starting point to think of the '26 combined ratio is. I wonder if you can try and help with some of that working out to the underlying, so we can compare it to that better than 85% bridging with the 3 points worse combined ratio from January renewal, that would be helpful. And then secondly, can you talk me through the rationale of buying less retro year-on-year and therefore, adding greater volatility? I guess it comes slightly in conflict to your added resiliency. So just trying to understand why that happened. I'm trying to think that presumably return on capital, I guess, the belly of the risk as well or is it just on the tail? Anders Malmstrom: Okay. Maybe I'll start here. And I think your first question is the starting point of the combined ratio. And basically, I think what we've tried to figure out is what's the normalized combined ratio after the renewals, in a way and then where do you get that. And look, I think if we do that, I think we obviously have to normalize for seasonality, we have to normalize for the smaller FX and then incorporate the new information we have with the renewals, which I think we stated as being around 3% nominal. So in our view, this would bring us somewhere between 84% and 84.5%, somewhere there for the year. But I think this already incorporates all the prudent assumptions that we took. When you look at the -- our assumption that we increased the loss picks by 4.6%. That's significantly higher than inflation. So I think there's some, call it, prudency in. I think we have the uncertainty load. And then at the same time, we bring the -- we have all the expense actions. So I think this brings us well in line with the target also for 2026 to be below the 85% target that we have. I hope that helps. Alexander Andreas Berger: On the retro? Anders Malmstrom: On retro, yes. Alexander Andreas Berger: Yes. I mean, I can maybe start there. I think we're not known to depend on retro. We have a strong balance sheet, and we believe and trust our underwriting. We were using retro historically, yes. But when we believe that the margins remain with us and that we can deploy the capacity that we have allocated to nat cat in particular, that situation occurred. And then we said, why not benefiting from it in-house. And I think this is something -- that is a strong statement actually for the underwriting that we have in the underlying quality of the book supports it. So we'll take decisions in future and weigh up whether or not it makes sense. On the other hand, it's also important from a capacity deployment perspective, not to add to the fire, fuel -- oil into the fire, because if you add more capacity in a rate declining an environment, you will actually obviously intensify the competition. And this would be counterintuitive for the stability of rate adequacy that we would like to achieve. So that's the context for this decision, and then we'll revisit it. But at the moment, we feel very comfortable with this decision. Thomas Bohun: Could we have the next question, please? Operator: Next question comes from Kamran Hossain from JPMorgan. Kamran Hossain: I've got two questions. The first one is on the buyback. If I think back to December in the IR Day, I think, Andreas, you made quite a few references to the term, kind of the lemon tree, and I think you talked about sustainability, consistency and not wanting to squeeze the lemon tree too hard. How should we -- how should I interpret those messages that you were trying to give in December and the extraordinary buyback today? Was it just 2025 was extraordinary and therefore, don't think about it that don't plug that in or an additional buyback into later years because it simply is just an extraordinary set of circumstances? Or are you planning to squeeze things a little bit more? The second question is on Life & Health. So in the fourth quarter, obviously, you had the assumption changes, which were in line with your expectations. You then have some other kind of negative experience, variance in the fourth quarter. How comfortable are you that the kind of negative experience rate from kind of Q1 '26 just goes away completely? Should we -- is that what you assume and that's what we should assume? Alexander Andreas Berger: Yes. Okay. Let me take the first one and second one. I can pass on to Anders on the Life & Health side. 2025 should not be seen as a new normal in the nat cat activities. We had a Q1 where we exceeded our budget, nat cat budget, but then we had a very benign rest of the year in nat cat. That's not the new normal. Exposures exposure can happen any time. And that is reflected also in the budget that we set up. We've got a budget of $2.1 billion for nat cat. And let's see. So this can happen any time. So what we wanted to do is really bring in that professional underwriting view from a technical perspective that we are managing cycles. Cycle management is what we do. And then we look at our portfolio and see what lines of business are correlating with each other, in particular, when we assume certain cycle developments. We see a decline in property in particular in cat. And as I said before, we don't want to fuel the fire by adding more capacity to a declining market. So the quality of the rates and the rate adequacy is really important. So in that context, you should see the comments that we did in December at our management dialogue. And if you now look forward into '26 and maybe even beyond, we will see maybe similar behavior in the '26 renewals. So let's see. But it just requires one big event, loss event and then the whole dynamics will change. And that's the message I wanted to get across. And that's why we said don't take this as a new normal. We don't want to squeeze the lemon now. We're managing expectations in the sense of what does the market say and what do the cycles tell us. So we want to create a lemon tree here, and that's what we did and starting and continuing to do, because we need to manage the cycles and the volatility. We've got a diversification benefit through Life & Health, which is helping. But I think within the P&C businesses, that cycle management is key, in particular, at the moment, applying disciplined underwriting. Anders Malmstrom: Yes. Maybe just to reiterate back on Life & Health, what I already just said on the call. I think we really finished now all the reviews. I think we strengthened the reserves significantly during that review. And then we actually look where the volatility that we had, the negative experience where it's really coming from out of the USD 300 million that we had, USD 200 million came from these underperforming markets that we just strengthened. So I feel very comfortable now that after all that work that you will not see this adverse experience in the future years. And look, I think now we're going to continue to just do -- every year, we do the updates and go through the portfolios, and you will not see large movements because you do it on a regular basis. And of course, we can always have some volatility, but we feel very comfortable now that all the assumptions are set to what we have experienced and what we expect in the future years. Thomas Bohun: Can we have the next question, please? Operator: The next question comes from Shanti Kang from Bank of America. Shanti Kang: So just on the prudence that you've added today, you mentioned the skew between shorter and long-tail lines. And I was just wondering if you could give us some color on what particular lines you address more heavily or if that was more evenly spread across risk lines? And then just on the renewals, I noticed that you offset some of the volume decline in property and nat cat with some gains in specialty and casualty. Can you just characterize the specialty lines that you felt were most attractive to grow? And also on casualty, which areas feature interest there? Anders Malmstrom: Okay. So maybe I'll start with the first one and Andreas will take the prudence. And I think very clear that we had on the short-term business, we had releases of basically close to USD 1 billion, and we moved them over to the long term. And I think we evenly spread that. It's not that one particular line had a problem because we are not talking about problems here. We're talking about strengthening resilience. So this is not one particular line that got that. And I think it's important, this is all IBNR. This is all IBNR that we use to strengthen the resilience. Alexander Andreas Berger: Maybe on the renewals, in particular, you said we were offsetting casualty by property by growth in casualty and some specialty lines. On the casualty, I can specifically say it was rate developments, positive rate developments. We are not -- we're still very conservative because we think it's still a market or a line of business where you have to apply prudence, not only in U.S. liability, but also in EMEA and Europe, where you don't want to pick up through the back door the U.S. casualty or U.S. liability exposures through European treaties. In Europe, particularly, the growth came from motor portfolios in particular on the casualty side. On the specialty side, I think overall, I think we were very happy with the lines of businesses. We're a bit cautious in the marine and energy space. We see very healthy situations in engineering, although competition is increasing in this line of business as well, so something to watch. And then the aviation market, we've seen positive price changes on a nominal basis on the adjusted risk-adjusted basis, it was almost flat. So that's the picture we can see at the moment. On the cyber side, I can say risk-adjusted, we don't see a very positive picture. So we've got slight decline. So we're very prudent there in the underwriting. And you see it in the market also that some of the players were also pulling back some capacity because we need to watch the rate adequacy. Thomas Bohun: Could we have the next question, please? Operator: The next question comes from Andrew Baker from Goldman Sachs. Andrew Baker: The first one, probably a little bit of a follow-up on Will's question. But can you help me try and reconcile the 5% year-on-year increase in cat budget with your P&L losses to weather events have sort of increased 20% to 30% or so. Does this just mean that you're writing a lot of the incremental cat exposure in the higher layers? Or is there something else going on here? And then secondly, on insurance revenue. So I appreciate what you're saying on the focus on the bottom line, but it has been a pretty volatile top line in '25 and been quite difficult for us to forecast. I think you made the comment in December and correct me if I'm wrong, that you expect the group number in '26 to be broadly flat versus '25. Is this still the case? And I guess, is there any variation divisionally we should take into account? Anders Malmstrom: I think the first question was more about the cat budget. So I think the nat cat budget increased, as you say, by 5% from USD 2 billion to USD 2.1 billion. I think the reduction in retro doesn't really impact the expected nat cat. So this is much more in the tail. So this is a capacity that we increased, but that's in the tail. So the expected nat cat should not really be impacted by that decision. So that's why I think it's, say, a natural increase of 5% of the nat cat budget to USD 2.1 billion. And second question? Alexander Andreas Berger: The insurance revenue. I mean, look, there's a mixed items here. So we've got the earn-through of the casualty, U.S. casualty pruning. We had some individual items, smaller items, also on CorSo, for instance, the medex book, the medical expense book on the A&H side that went to AXA from the Irish MGA that we were underwriting. So those were smaller items, and they added up, obviously, to that number. And in terms of guidance... Anders Malmstrom: Yes. I mean, we don't really give guidance in terms of revenues. But I think we mentioned many times that we don't manage to revenues, but you could probably see that the market generally grows with GDP or slightly above that. Thomas Bohun: Could we have the next question, please? Operator: The next question comes from Ivan Bokhmat from Barclays. Ivan Bokhmat: My first question will be fully also going back to one of the earlier questions on the combined ratio development. I'm just trying to understand, as we look into 2026 and perhaps in outer years, so if 84.5% at the starting point, we can assume delivery on cost savings, but -- which is 1.5 to 2 percentage points, this still leaves a little bit of a balance that would push combined ratio higher unless we assume some sustainable reserve releases. And of course, given the buffers you create, this is not unreasonable. But maybe you could talk a little bit about that progression and how the balance sheet could be deployed at what time frame? And the second question, I wanted to ask you about renewals and the new business CSM and P&C Re. So we've had this year in '25, the growth was negative 5%. I'm just wondering maybe you could try to separate the FX impact within that and also perhaps suggest some view into 2026 of how should that be affected by the renewals? Alexander Andreas Berger: Yes. Maybe let me just do here the intro, and then I'll hand over to Anders. Just on the cycle management piece. So you've got two elements, the cost obviously and then the loss ratios to look at. And cycle management, as far as the exposure is concerned, that's our day-to-day business. And we set the strong foundation now, the underlying portfolios are strong. And that's why we think we can manage those cycles very effectively. So with the bottom line view. Now expense management is becoming part of day-to-day business. We have introduced a philosophy here that we actively obviously optimize the setup of the group. That's what we did with the organizational effectiveness measures and also faster decision-making that translated automatically into expense savings, and we're going to continue there. I'm not going to talk about the productivity gains that we're going to get through AI because that is a new area, and we haven't factored that into our plans yet. So that's a general view. And then again, we are in an extremely volatile market. That's our business. So one big event can change the dynamics completely, and that would then lead automatically to a hardening of the market again. So I wouldn't rule out dynamics like that. Because the alternative capital that's coming into the industry also has to then experience the losses that are coming through. And we are a long-term player with strong balance sheets, and that's what we need to manage. Anders Malmstrom: Yes. So maybe just back to your question a bit on the numerical side, on the quantitative side. So I think as we mentioned before, I think you're going to get a normalized combined ratio of below 85%. This reflects the prudence. So I think you can expect if everything else as expected that we're going to see reserve releases. And then on top of that, the expense actions, that will continue. This is not over in 2025. We took the first 100 this year, we're going to have another 100 -- and another 200 over the next 2 years. So that will help. And then, yes, I mean, prices will not always go down. So I think we feel very confident and comfortable that I think we will stay below the 85% obviously, upset any huge nat cat events that clear when we budget. But I think it's really the combination of prudent reserving, expense actions and then disciplined underwriting. And then on the new business CSM, I mean, the new business CSM will come out in Q1. I think that's when we come with the exact number. I mean you've got now all in for how much the renewals impact the combined ratio. So that's a good proxy. But the exact number we're going to provide in Q1. Thomas Bohun: Could we have the next question, please. Operator: The next question comes from James Shuck from Citi. James Shuck: I just have to begin with just a couple of questions on some of the moving pieces in the combined ratio. So I appreciate the new business loss component is seasonal. However, the full year number is still a very large number. I think from memory, you were kind of guiding to around 1.5 to 2 percentage points as being the loss component and it's been 2.5% in '24 and around 3% in '25. So what's driving that? $500 million negative loss component is quite a large number in the context of the overall insurance service results. So just keen to get some insight into the outlook for that number. And also if you're able to just comment a little bit on the expense ratio, which went up from 4.8% to 5.4%. I presume that's just your ending front-loaded costs ahead of the reduction and efficiency program. And then finally, just on the group items, iptiQ now largely disposed or fully in runoff. I know you guided to sort of a $50 million reduction in the loss at iptiQ on an annual basis. But has that been accelerated in the period? The Q4 loss in group items was bigger than anticipated. So what was the iptiQ loss booked in Q4 and the outlook there, please? Anders Malmstrom: Okay. Maybe I'll start on the first one. Again, I think your question about the new business loss component. And I mean, look, I think the way I think about this is, this is really driven by the prudent loss picks and you should then see that coming through positive variance going forward. That's really how I look at because we write profitable business. It's not that we don't write profitability. It's just the way you reserve for, it becomes onerous day 1, and then it releases over the -- to positive experience. Alexander Andreas Berger: Maybe just on iptiQ, no, there's no acceleration. Just to remind us, we have first sold the P&C iptiQ Europe business to Allianz. And then we sold the U.S. Solutions -- the Health Solutions business that was, call it, a lead management company that we had. And then we were busy looking at the individual portfolios. So we had a remaining EMEA Life & Health book, but also the U.S. book, and we could successfully then conclude on the U.S. book. So that's also sold. And we have the remaining piece, the EMEA Life book. And here, we decided to send this EMEA Life & Health book into runoff. So that's going now into the normal runoff activities and manage runoff as we always do and see what opportunities occur in the runoff process. Thomas Bohun: And so there's no change on iptiQ guidance, which we said should be at around minus $50 million in 2027. And to the question, in Q4, there is an amount of around minus $100 million related to the sales of iptiQ. Operator: Next question comes from Chris Hartwell from Autonomous. Chris Hartwell: A couple of questions, please. First of all, just going back to the Life side, and I think it builds an extension from Kamran's question earlier. If I look at the start point of 2025 and add back the experience variance, that gets me to a much higher number than what you are implying in your 2026 target. So I was wondering if you could just help me understand maybe some of the moving parts between, I guess, what we saw last year and that 2026 target? And the second question just really reflecting back on the renewals. Obviously, we've seen quite a significant reduction in price. You and I think many of your peers have confirmed that terms and conditions have remained stable. I'm just wondering what your feelings are about how much room there is or willingness there is for T&Cs to soften as we go through this year. And obviously, notwithstanding the fact that you have mentioned that the market is fairly balanced. But I just wondering really on your sort of the outlook for terms as we go through the year. Anders Malmstrom: Yes. So maybe I'll start on the Life & Health side. And I think you're absolutely right. If I just take the experience out and add it back in, I think I get higher. Now I think when we discussed about that before, I think the CSM release was higher than what we expected, and that's what we were guiding for. And I think that's something we discussed. I think we clearly understand this is really driven by the assumption changes themselves, but also just management actions, BAU management actions like recaptures and so basically drove the CSM release up. And so if I normalize for that, I get back to a CSM release of in the range of 8% to 9%. And if I then back that -- to take that together with the non-repeat of the experience variance, I get back to the targets that we basically put out for Life & Health. That's really how to triangulate. Alexander Andreas Berger: Just quickly on the renewals. Again, I can repeat myself. By the way, there's some good news. The broker reports all predicted a steeper decline of rates, and I think that didn't materialize. So that's the good news. So the market was still broadly constructive or professional actually because there's still demand, but in the negotiations, the reinsurers stayed pretty disciplined. And the rest will be seen for this year. I expect a very competitive market still, nevertheless. The next renewals are the 1st of April renewals and mainly Japan renewals. And again, Japan is a different market and different dynamics in the market. We had a good renewal last year, and we'll see what the renewal brings this year. And then we will have obviously the 1st of June, 1st of July renewals in the U.S. Those are the important data points to look at. First, I see still a constructive market. We'll have to see how the buyers' behavior is. The fact is that the buyers all need strong lead reinsurers. And you could see that the market share didn't reduce. So we didn't reduce our market share even though the absolute -- I mean, the pie was shrinking that people were taking more risk on their own balance sheet. That created another opportunity for us to go into software solutions, et cetera. But overall, we were not signed down. So they need still strong lead capacity, lead underwriters with the expertise that gives me comfort for the next renewals. Thomas Bohun: Could we have the next question, please? Operator: The next question comes from Iain Pearce from BNP Paribas. Iain Pearce: So just on net operating capital generation. So the 21 points net capital generation this year, do you view that as a relatively clean number or a good starting point to use going forward? Obviously, there's a lot going on this year in terms of Clean Care, Life & Health review. But is that a good number going forward? And also, does that new business strain, the 0.5 in the increase in total capital include the changes in the retro very long, because it's the 1st of January '26, I think. If you could just clarify those two points, that would be great. Anders Malmstrom: Yes. So look, I think this is a good proxy for the capital generation. So I think in general, that was, I think, the year think really showed more or less in certain areas, we obviously have the assumption changes. But other than that, I think it's -- you can expect -- I always guide to around 25 percentage points of net capital generation -- gross capital generation before repatriation. So that's a good proxy. Thomas Bohun: And then the target capital that already includes the reduction in retro, capital requirement. Anders Malmstrom: I missed that. Yes, that's already -- that's all reflected. Correct, yes. Thomas Bohun: Could we have the next question, please? Operator: The next question comes from Vinit Malhotra from Mediobanca. Vinit Malhotra: I hope you can hear me. So my first question is just -- and apologies, a bit repetitive, but I want to be clearer from my side. The extraordinary buyback, if you could just please elaborate what conditions we should look at as triggers or a possible trigger for another such extraordinary buyback in the future? So that's my first question on extraordinary buyback. Second question is actually on the nat cat increased exposure. So just to be very clear, the fact that you have increased your net nat cat exposure probably had a favorable impact on the 3 percentage points of the nominal combined ratio. Is that a correct understanding? Are you able to give some idea of how much benefit that was from this strategy? Anders Malmstrom: Okay. I maybe start again with the extraordinary buyback and maybe I just kind of emphasize what I said before. I mean you have the main part of the -- call it, on our capital return policy is dividend and sustainable buyback. That's the -- I would say that's the core. And then if we're in a situation where we have excess capital, and we don't believe that we want to and have the opportunity to deploy it with the right return, that's when we consider ordinary -- an extraordinary buyback. So you can't bake that in. So you should -- it's quantitative and qualitative, but that's really the way we think about it. And this was this year very clear, that is qualified. Alexander Andreas Berger: Just quickly on nat cats question. Just to clarify, the renewals are growth. That's before retro. Thomas Bohun: So the information on the slide is our growth, and we show you the impact just based on that. So any changes in retro are not accounted for in that estimate of... Operator: The next question comes from Ben Cohen from RBC. Benjamin Cohen: I had two questions, please. Firstly, just on M&A. Could you just sort of reiterate kind of what your priorities are there? And with regards to the deal that you announced last week, should we assume that, that will achieve the targets that you have for CorSo as a whole? Or is there anything that you want to call out there? And the second question was just on the return on investments going forward. Do you expect that, that yield will rise going into 2026? I just asked because I think there have been periods in the past, say, at the end of 2024 when you had a very high reinvestment yield and actually the sort of the ROI hasn't or didn't go up last year. Alexander Andreas Berger: Let me take the M&A question. So our M&A priorities didn't change. We always were very clear to say we don't see at this stage any transformational M&A opportunities. But what we would look at is additions to the portfolios, and particularly in Corporate Solutions, we said that we are happy to add in the areas, we call them focused growth areas that are decorrelated to the property and cat cycles. And that, in particular, was credit and surety, and we were very open about this. Now we only do these bolt-on acquisitions when they really make sense. Here, we have the opportunity to add the portfolio that QBE wanted to discontinue or divest. And that, in particular, is a trade credit and surety portfolio, their global portfolio with a strong presence in Australia. Why is it so interesting? Within the trade credit -- within the credit and surety book that we have in Swiss Re, it added another nice diversification. So all-in-all, very positive. And we will continue to look into those bolt-on acquisitions if they make sense and if they are in the areas that help us to further strengthen the resilience of our liability portfolio, target liability portfolio. Anders Malmstrom: And just on the investments, so just to reiterate what we have said. So the ROI itself was 4%. The recurring investment yield is 4.2% right now. And the reinvestment yield was 4.4%. So all pretty close to each other. And obviously, when you then calculate how -- over time, how this develops, yes, you bring 4.4% in, but the question is always how much actually goes out. And you can expect that this has very little impact. It should have a slight positive impact, but it depends what actually matures over time. So I would expect that to remain pretty stable. Thomas Bohun: Could we have the next question, please? Operator: We now have a follow-up from James Shuck from Citi. James Shuck: I just had a couple more things, please. CorSo's revenues in the fourth quarter were very weak, with down 10% year-on-year. Just keen to understand that development, please. I also wanted to ask a question on the expense ratio again, which I think was answered last time. I just keen to know it went from 4.8% to 5.4%. Is that just a temporary jump? Does it go back to 4.8% in '26? And then just on your new CTO, I thought it was interesting what are the first priorities for this Chief Technology Officer? Alexander Andreas Berger: Yes. Maybe I'll take the CorSo one and the CTO and then maybe you can elaborate on the expense ratio. Just on CorSo revenues, it's very simple. This is the portfolio of the Irish medex book, that was taken over by AXA. And this is -- to be concrete, it's $200 million. So that is sort of the decline. Otherwise, CorSo had some healthy new business opportunities, in particular in the differentiating propositions in international programs and alternative risk transfer. Those were the most attractive ones. On the CTO, it's not the Chief Technology Officer, because we already have a Chief Data and Technology Officer. It is a Chief Transformation Officer. What is this? We are in a transformation process. The company went not only on a cultural transformation, but also we were streamlining processes, increasing proximity to markets by delayering the organization. And we do have ambitions and concrete use cases also around Agentic AI. This needs to be embedded into the organization, cascade through the organizations from top to bottom. And I think here, we need specific focus, in particular, on execution rigor and delivery here so that we don't increase again, the complexity of the organization, which will end up in increased costs again. So this is the idea of this new role that we created. AI, but not only AI is really changing the way we organize our business and the way we process our business. Anders Malmstrom: Okay. And then on the expense ratio in CorSo, I think we saw that increase in P&C Re. Thomas Bohun: The question was on P&C Re. Anders Malmstrom: I thought it was on CorSo. Thomas Bohun: So in P&C Re, we have some one-off effects from year-end accruals, and it's always better to look at the full year number. Also last year, we had an impact under the first year of IFRS or some out-of-period adjustment. So we would suggest just to look at the full year '25 number as the basis. Alexander Andreas Berger: Yes. We have seasonality in the cost, project costs, et cetera, that are then coming in late in the year. So that's the effect. Thomas Bohun: Could we have the next question, please. We have time for one more. Operator: The next question comes from Roland Pfaender from ODDO BHF. Roland Pfänder: Two questions, please. First one on Life & Health. Could you speak about your CSM new business growth ambitions, let's say, if you strip out large deals, what would be the underlying growth target you have for '26, '27? Just to understand it a little bit better. I think it was flat year-over-year for the year. Second question on CorSo. Rates are coming down. Do you need to execute cycle management here? Or do you still see some growth pockets like specialty or other things, which might keep growing? That would be also interesting. Anders Malmstrom: So on the growth ambition, for Life & Health, maybe before I talk about the ambition itself, I think we have a very strong in-force business here. And the in-force itself brings us sustainable kind of new business. And I think you saw that kind of without any large transactions, we were actually able to sustain the new CSM just through new business CSM. And that's really the core here. That's important. And that's what we want to maintain that make sure that the in-force produces the new business itself. And then on top of that, we're always looking at transactions. If they make sense, they have to make financially sense. Otherwise, we pull back, but that's in a way, the upside, but the in-force itself allows us to keep the CSM flat. Alexander Andreas Berger: Yes. So on the CorSo side, in addition to rigorous and disciplined underwriting and cycle management, there are obviously business opportunities, in particular, when you look at geographical opportunities. And we try to optimize -- continue to optimize the setup. We partner where partnerships make sense. We have a very well-run joint venture in Brazil and in those kind of emerging markets, you could expect maybe also some partnership models that we would do rather than planting the flag and have from scratch organic growth opportunities. So this is something that the team is looking at. But in particular, we're looking for expansions in the differentiation that we have in international programs and alternative risk transfer. Alternative risk transfer, why? Because like we discussed it for the large cedents, the primary insurance companies who take our premium from the market, that same phenomenon happens with large corporates. They take on more risk on their balance sheets and they create their captives. And with the captives, we have a leading position in managing helping captives at the fronting before the captive and within the captive and behind the captive with capacity, reinsurance capacity. So it's a unique one-stop shop proposition, which is very successful. Thomas Bohun: Thank you, Roland. With that, I would like to thank you all for your interest, for your questions. Should you have any follow-up questions, please do not hesitate to contact any member of the IR team. Thank you again. We wish you a nice weekend. Operator: Thank you all for your participation. You may now disconnect.
Operator: Good morning, everyone. Welcome to the earnings conference call for the period ended December 31, 2025 for MidCap Financial Investment Corporation. At this time, all participants have been placed in a listen-only mode. The call will be open for a question-and-answer session following the speaker's prepared remarks. If you would like to ask a question at that time, please press star one on your telephone. If you would like to withdraw your question, press star two. I will now turn the call over to Ms. Elizabeth Besen, Investor Relations Manager for MidCap Financial Investment Corporation. Please go ahead, ma'am. Elizabeth Besen: Thank you, operator, and thank you everyone for joining us today. We appreciate your interest in MidCap Financial Investment Corporation. Speaking on today's call are Tanner Powell, Chief Executive Officer, Ted McNulty, President, and Kenneth Seifert, Chief Financial Officer. Howard Widra, Executive Chairman, and Gregory Hunt, our former CFO, who currently serves as a Senior Advisor, are on the call and available for the Q&A portion of today's call. I would like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of MidCap Financial Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our press release. I would also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast, which may include forward-looking statements. You should refer to our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit either the SEC's website at www.sec.gov or our website at www.midcapfinancialic.com. I would also like to remind everyone that we posted a supplemental financial information package on our website, which contains information about the portfolio as well as the company's financial performance. Throughout today's call, we will refer to MidCap Financial Investment Corporation as MidCap Financial Investment Corporation, and we will use MidCap Financial to refer to the lender headquartered in Bethesda, Maryland. At this time, I would like to turn the call over to Tanner Powell, MidCap Financial Investment Corporation's Chief Executive Officer. Tanner Powell: Thank you, Elizabeth. Good morning, everyone, and thank you for joining us for MidCap Financial Investment Corporation's fourth quarter and year-end earnings conference call. Yesterday, after market close, we issued our press release and filed our annual Form 10-K for the period ended December 31, 2025. I will begin today's call with an overview of MidCap Financial Investment Corporation's fourth quarter results, followed by a discussion of our share repurchase activity, including the board's increased authorization, as well as our dividend announcement. Following that, I will hand the call over to Ted, who will walk through our investment activity for the quarter and provide a portfolio update, including a review of our software exposure. Kenny will review our financial results in detail. Net investment income, or NII, per share for the quarter was $0.39. GAAP net loss per share for the quarter was $0.14. This figure includes approximately $0.04 of one-time financing-related expenses. When excluding these one-time costs, GAAP net loss per share was $0.10 for the quarter. NAV per share was $14.18 at the end of December, down 3.3% compared to the prior quarter. The decline in NAV is primarily driven by a handful of investments, predominantly from 2022 and earlier vintages. Despite the loss for this quarter, we believe our focus on first lien positions, our cautious usage of PIK, and low software exposure keep us well-positioned. Additionally, recent paydowns from Merx and the full repayment of a position on non-accrual demonstrate our ability to maximize recoveries on challenged credits. During the December quarter, MidCap Financial Investment Corporation made $141 million of new commitments across 26 transactions. Net funded activity for the quarter was positive $25 million, which included a $7.5 million repayment from Merx. At the end of December, MidCap Financial Investment Corporation's investment in Merx totaled approximately $103 million at fair value, representing 3% of the portfolio fair value. Close going to quarter end in February, Merx repaid an additional $22 million to MidCap Financial Investment Corporation for a total amount of $29.5 million. Let me remind you about what remains in Merx. MidCap Financial Investment Corporation's remaining investment in Merx consists of four aircraft, plus the value associated with Merx's servicing platform. Merx earns income through its servicing activities from Navigator, Apollo's dedicated aircraft leasing fund, which currently owns 38 aircraft. Having deployed its equity commitments, Navigator is in the harvest period; as such, the fund is opportunistically monetizing assets to optimize fund level returns. Merx receives a remarketing fee on each aircraft sale. At the end of December, the servicing business represented approximately 29% of the total value of Merx. The servicing component of Merx will naturally decline as servicing income is received. Apollo's long-standing commitment has been to deliver positive outcomes in all instances where we manage investor capital. With respect to the public vehicles we manage across different asset classes, we have been active in evaluating potential strategies and options with the objective of maximizing realizable value for stockholders. During the fourth quarter, the market presented us with what we viewed as an attractive opportunity to repurchase our stock at a significant discount to NAV. We repurchased approximately 1.1 million shares at an average discount of 18% for an aggregate cost of $12.9 million, generating approximately $0.03 per share of NAV accretion. At these trading levels, we continue to believe allocating capital towards stock repurchases is more accretive than deploying capital into new investments. Accordingly, the board has authorized a new $100 million stock repurchase plan, which we expect to utilize aggressively in combination with a 10b5-1 trading plan to capitalize on what we believe is a compelling opportunity for our stockholders. This is in addition to our existing share repurchase authorization, of which approximately $7.9 million of repurchase capacity remains. Accordingly, MidCap Financial Investment Corporation now has $107.9 million available for stock repurchase. If the current discount continues and the trading volumes remain in their current range, we anticipate fully utilizing our current authorization by late May. Importantly, we believe MidCap Financial Investment Corporation's investment portfolio is extremely well-positioned, consisting of primarily true first lien loans with granular position sizes and limited tech and software expenditures. We remain convinced that the current market price does not appropriately reflect the intrinsic value of MidCap Financial Investment Corporation's high quality investment portfolio. We do not anticipate these stock repurchases will result in any material increase in our net leverage, given our visibility into expected repayments. Moving to the dividend. In light of the changes to base rates and other factors, we have reassessed the long-term earning power of the company, and the board has concluded that it was prudent to adjust the dividend. Accordingly, on February 25, 2026, our board of directors declared a quarterly dividend of $0.31 per share for stockholders of record as of March 10, 2026, payable on March 26, 2026. With that, I will now turn this call over to Ted. Ted McNulty: Thank you, Tanner. Good morning, everyone. I am going to spend a few moments reviewing our fourth quarter investment activity and then provide some details on our investment portfolio. MidCap Financial Investment Corporation's new commitments in the December quarter totaled $141 million, with a weighted average spread of 497 basis points across 26 different companies. The weighted average net leverage on new commitments was 4.0x in the December quarter. Gross fundings, excluding revolvers and Merx, totaled $156 million. Sales and repayments, excluding revolvers and Merx, totaled $119 million. Net revolver fundings were approximately $12 million. As previously mentioned, we received a $7.5 million paydown from Merx. In aggregate, net fundings for the December quarter were positive $25 million. Shifting to our investment portfolio. At the end of December, our portfolio had a fair value of $3.17 billion and was invested in 247 companies across 46 different industries. Direct origination and other represented 96% of the total portfolio. Merx represented 3% of the total portfolio. Liquid positions acquired from our mergers with two funds in 2024 totaled 1%. All of these figures are on a fair value basis. Specific to the direct origination portfolio, at the end of December, 99% was first lien and 92% was backed by financial sponsors, both on a fair value basis. The average funded position was $12.8 million. The median EBITDA was approximately $50 million. Approximately 94% had one or more financial covenants on a cost basis. Covenant quality is a key point of differentiation for the core middle market, as substantially all of our deals have at least one covenant. The weighted average yield at cost of our direct origination portfolio was 10% on average for the December quarter, down from 10.3% for the September quarter. The sequential decrease in the portfolio yield was driven by lower base rates, the placement of higher-yielding assets on non-accrual status, as well as the decline in the average spread across the portfolio. At the end of December, the weighted average spread on the directly originated corporate lending portfolio was 546 basis points, down 13 basis points compared to the end of September. Next, I will make a few comments about our software exposure, given concerns about potential AI disruption to software borrowers. You can find details on our software exposure on page 5 of the earnings supplement. As of December 31, 2025, software represented just 11.4% of MidCap Financial Investment Corporation's portfolio at fair value, which is well below the BDC industry average. These positions are primarily cash pay, 100% first lien, and highly diversified across 29 borrowers, with an average position size of $12 million. Our software book is diversified across a wide range of end markets and carries a low average LTV of 32%. The median EBITDA of our software portfolio companies is $52 million. Only two borrowers are PIK; income from our software portfolio is de minimis. The weighted average interest coverage of our software portfolio is 2.3x, in line with the overall portfolio. The weighted average net leverage is 4.6x, modestly below the overall portfolio, and the weighted average spread of the portfolio is 548 basis points, roughly in line with the total overall portfolio. MidCap's approach to lending to software companies has remained consistent, though we have become more selective in the current environment. Our strategy is always centered on borrowers with mission-critical products, high switching costs, and strong revenue visibility supported by long-term contracts. Moving to credit quality on the overall portfolio. Investments on non-accrual status declined to 2.6% of the portfolio at fair value, down from 3.1% at the end of the prior quarter. During the quarter, we restored two companies to accrual status, including our investment in LendingPoint following its restructuring, as well as our investment in Compass Health, which was fully repaid after the company's sale in February. We recognized a net gain of approximately $1 million on Compass Health in the December quarter, reflecting an increase in its valuation from 84 at the end of September to 94.5 at the end of December. We were repaid at par in February, and an additional gain of approximately $0.5 million will be recorded in the March quarter. This is an example of our ability to maximize value from challenged names. During the quarter, we placed three investments on non-accrual status, including our investments in Bird Rides, Banner Solutions, and Renovo. These three names accounted for about 36% of the total net loss for the quarter. Underlying portfolio company credit metrics were relatively stable quarter-over-quarter. Borrower net leverage or debt to EBITDA was 5.29x at the end of December, unchanged from the end of September. The weighted average interest coverage ratio improved to 2.3x, up from 2.2x last quarter, driven primarily by lower base rates and to a lesser extent, by earnings growth. We believe the steady revolver utilization rate we see from our borrowers is an indicator of greater financial stability and provides us with incremental and more frequent financial information. Revolving facilities provide insight into a company's liquidity position through draw behavior. At the end of December, the percentage of our leveraged lending revolver commitments that were drawn was essentially flat compared to the prior quarter. PIK income represented 4.8% of total investment income for the December quarter, roughly stable quarter-over-quarter. With that, I will now turn the call over to Kenny to discuss our financial results in detail. Kenneth Seifert: Thank you, Ted. Good morning, everyone. Total investment income for the December quarter was approximately $78.4 million, a decline of $4.2 million, or 5.1% from the prior quarter. This reduction was largely driven by lower interest income resulting from decreased base rates, new non-accrual positions, and continued asset spread compression. Weighted average yield at cost of our directly originated lending portfolio averaged 10% for the December quarter, compared to 10.3% in the previous quarter. Prepayment income was approximately $2.4 million, down from $3.2 million last quarter. Fee income was approximately $1.0 million, up from about $0.5 million last quarter. Dividend income was $231,000, relatively flat quarter-over-quarter. Our net expenses for the quarter were $42.4 million, a decline of $4.9 million, or 10.4% from the prior quarter. This decline was driven primarily by the absence of incentive fees, reflecting the impact of the total return hurdle feature, which eliminated the incentive fee, as well as lower interest expense, partially offset by higher administrative services. Portfolio had a net loss of $45.3 million, or $0.49 per share. Negative contributors for the quarter included our investments in LendingPoint, Renovo, Amperity, Bird Rides, New Era, and Banner Solutions, among others. Positive contributors to performance for the quarter included our investment in Merx and Compass Health, among others. As discussed on last quarter's call, in October, we extended and repriced our revolving credit facility, and we upsized and repriced our first CLO. In connection with these financing activities, we recorded a realized loss of approximately $3.4 million, or $0.04 per share, in the December quarter. Cost of debt for the quarter declined to 5.95%, down from 6.37% in the prior quarter, largely driven by these refinancing activities as well as lower base rates. For the December quarter, net investment income per share was $0.39. GAAP net loss per share was $0.14, or $0.10 excluding the aforesaid impact related to the one-time financing costs. Turning to the balance sheet, at the end of December, the portfolio had a fair value of $3.17 billion. Total principal debt outstanding was $2.0 billion. Total net assets stood at $1.31 billion, or $14.18 per share. The company ended the quarter at 1.45x net leverage. Gross fundings for the quarter, excluding revolvers, totaled $156 million, and net fundings for the quarter were +$25 million. This concludes our prepared remarks. Operator, please open the call to questions. Operator: Certainly. Thank you. Ladies and gentlemen, we will now open for questions. At this time, if you would like to ask a question, please press star one. You can remove yourself from the queue by pressing star two. Again, star one for questions. We will go first this morning to Richard Shane with J.P. Morgan. Richard Shane: Hey, guys. Thanks for taking my questions this morning. You know, look, our pattern on all these calls recently has been to ask about buying back stock, and you guys have leaned into that a little bit. You know, look, we follow Apollo Commercial ARI. They recently made a very interesting strategic decision, sort of looking at the landscape for different types of closed-end funds and these types of vehicles. I am curious, as you guys sort of look forward, what you think the future is. You know, for now, it looks like some of these discounts are going to be pretty persistent. Makes it hard to grow these vehicles. Does it make sense to continue to run MidCap Financial Investment Corporation in this way, or would you consider some more aggressive strategies to sort of unlock that value? Howard Widra: Yeah, this is Howard. I mean, I think we will consider everything. If we continue to perceive that the discount is unconnected to the value, I think it is sort of the point we are trying to make, it is like our obligation. It was true with ARI, too. Our obligation is to get the shareholders what their true return should be. I think you are pointing out the right issues. I mean, I think we still have to see how it plays out. The persistence of these discounts certainly, I agree, feels likely given everything that is going on across the whole market right now, but things can change. The answer is, we will continue to consider everything with an eye towards just making sure that the shareholders get the full value that we feel like they are entitled to in whatever form we can get it to them. Richard Shane: Got it. I appreciate that. I was almost hoping I was going to get a Gregory Hunt answer to my question, just so I could feel like an episode of This Is Your Life. Howard Widra: Yeah. Richard Shane: Thanks for taking my questions this morning, everybody. Operator: Thank you. We will go next now to Kenneth Lee with RBC. Kenneth Lee: Hey, good morning, and thanks for taking my question. Just to follow up on the repurchases there. To clarify, the new $100 million, is it discretionary? I assume that the normal restrictions of open trading windows apply there if that is the case, but just wanted to check on that. Thanks. Tanner Powell: Yeah, that is exactly right, Ken. Thanks for the question. As we noted in the prepared remarks, and as you alluded to, you do enter quiet periods, and for those periods, we would expect to implement a 10b5-1 that would enable us to be in market during those periods, such that we can maximize our share purchase activity. I would also call your attention to the comment we made in the prepared remarks, whereby if the current level of activity continues, we would expect to be able to exhaust our current authorization by late May. Kenneth Lee: Gotcha. Very helpful there. Just one follow-up, if I may, just around dividends. In terms of the new level here, I wonder if you could just talk a little bit more about some of the macro assumptions that went to that, and what gives you confidence that the new level is going to be sustainable over a certain period of time? Thanks. Tanner Powell: Yeah, sure. Certainly, as we undertake these models and try to sensitize to the myriad factors that can influence, our assessment was that when we looked at the earnings power and we looked at the models, $0.31 was appropriate and achievable. We have taken the action this quarter, and certainly, as I think we telegraphed in previous quarters, the move from rates from 5.4 to the 3.8 level, compounded by spreads in our primary market coming down, have certainly influenced the earnings power. We have made a lot of progress, as we have called out, with Merx. The Merx exposure is yielding roughly 2% on our books today. As that comes back, and we would expect the balance of our exposure to be, or lion's share of our exposure to be, repaid in the next 12 months. That presents some opportunity to cushion the dividend as well as also the capital structure initiatives that we have undertaken to reduce our cost of capital on our CLO, our first Bethesda CLO, as well as our revolver, which we were able to price down, as ways to mitigate the effects of lower base rates and the current spread environment. Kenneth Lee: Gotcha. Very helpful there. Thanks again. Operator: Thank you. Just a quick reminder, ladies and gentlemen, star one for questions today. We will go next now to Robert James Dodd with Raymond James. Robert James Dodd: Morning, everybody. First, yeah, to applaud the expansion of the buyback, but not just that, but the aggressive plan to use it. I think that is kind of the confidence boost that shareholders need. Not particularly, not just the annual accretion, but that you have got the liquidity to actually do that. On the main other question is, to flip to software, you have below average exposure, right? 11.5%. Not only that, I appreciate the other metrics that you gave, but the net leverage in your software book is 4.5. There is a lot of fear out there, some of it probably well-placed, that the software leverage might not apply, right? There might not even be EBITDA, but if it does exist, the leverage is much higher. That sticks for me. Can you tell us the type of businesses that enable you to get software exposure with portfolio average spreads and net leverage that is likely at least a turn, if not more below, kind of what the market expectation is for the amount of leverage that is on a software business? Howard Widra: Yeah. This is Howard. Let me try to take a crack at that because some of this is derivative of what MidCap originates. MidCap has financed itself historically through bank lines and CLOs. Availability of credit on both of those was limited to effectively 6 times EBITDA and not really ARR availability. What we originated into as the market sort of elevated to doing 7, 8 times deals or even just doing ARR-only deals, it was not where we focused. We focused on companies that inherently were already cash long and had more embedded consistency in their performance. In other words, did not need to spend huge amounts of money to continue to drive growth to get to some outside valuation, which obviously can be a great equity thesis, but sometimes it is a debt. What ended up being the MidCap Financial Investment Corporation share of that was that portion of the portfolio, if that makes sense. It was sort of an offset of the strategy that MidCap had, which was driven some. It was not like we had an unbelievably special sauce where we found different deals than other people found. It is that those deals that we tried to win met those criteria. Tanner Powell: I would emphasize, Robert, as we have talked with you in the past, as a derivative of MidCap and our focus on the middle market, the average level core size of $52 million, and importantly, in those software names in our software book, 90% has financial covenants. There is also an element of it which is related to the part of the market that we are focusing on, and also anchored to the dynamics that Howard mentioned with respect to our financing and how we have approached our entire business and software. Robert James Dodd: Got it. Got it. Thank you. I appreciate that incremental color, and again, congrats on the buyback. Operator: Thank you. We will go next now to Casey Alexander with Compass Point. Casey Alexander: Yeah, good morning, and thank you for taking my questions. My first, really only question is pretty simple. Your statement that the handful of credits all share a similar vintage suggests that there is a common thread that runs through the issue there. I was wondering if you could speak to what the common thread is that ties them together that emanates from that particular vintage? Howard Widra: I do not think there is a new common thread other than these are not new issues that have come up. These are credits that we have been working through over time. Although the markdowns were a little bit higher than we wanted this quarter, it was not like there was some precipitous change of what is going on. These are longer-dated credits, many of which have been on the watch list for a while. Tanner Powell: I would emphasize also, to some extent, the seasoning of a portfolio—it is natural that the vintage would be several years prior. Obviously, in that intervening time, we had the increase of rates, with some level of support or moderation with the recent decline. Then, to your point about common themes, we have talked with you, Casey, and the market about pockets of stress in the market, notwithstanding a fairly sanguine economic environment. We have talked about the lower end of the K. When we look at these credits, they often have idiosyncratic issues that are sometimes compounded by some of those pockets of stress and, in particular, some self-induced, such as acquisition strategies that either were not properly integrated and/or were very aggressive, which has compounded some of those thematic elements. It is a balance of idiosyncratic issues within those credits. The vintage happened to be one where you would naturally start to see some deterioration in terms of where you do have problems, and in the intervening four years, there has been a steep increase to borrowing rates, base rates, that has affected the companies as well. Casey Alexander: All right. Thank you for taking my question. Operator: Thank you. Just a final reminder, ladies and gentlemen, any further questions today, please press star one, and we will pause for just one moment. Ladies and gentlemen, it appears we have no further questions today. I would like to turn the conference back to management for any closing comments. Howard Widra: Thank you, operator. Thank you everyone for listening to today's call. On behalf of the entire team, we thank you for your time today. Please feel free to reach out to us if you have any other questions. Have a good day. Operator: Thank you. Again, ladies and gentlemen, that will conclude the MidCap Financial Investment Corporation's earnings call. Thanks so much for joining us, everyone. We wish you all a great day.
Operator: Good afternoon, everyone, and welcome to the Caris Life Sciences Q4 2025 Earnings Call. My name is Dana, and I will be your coordinator today. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Russ Denton. Please go ahead. J. Denton: Thank you. Earlier today, Caris Life Sciences released financial results for the quarter and year ended December 31, 2025. Joining the call from Caris today are David Dean Halbert, our Founder, Chairman and CEO; David Spetzler, our President; Brian Brille, our Vice Chairman and EVP; Bobby Hill, our Chief Commercial Officer; and Luke Power, our CFO. Before we begin, I'd like to remind you that during this call, management will make forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. These risks are discussed in our SEC filings, including our quarterly reports on Form 10-Q and our annual report on Form 10-K to be filed with the SEC. Assessed as required by law, Caris disclaims any intention or obligation to update or revise financial projections and forward-looking statements whether because of new information, future events or otherwise. The information discussed in this conference call is accurate only as of the live broadcast. This call will also include a discussion of non-GAAP financial measures, which are adjusted to exclude certain specified items. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures are available in the press release Caris issued today. A copy of today's presentation materials along with an interim readout of our Q1 study can be found on our website. I will now turn the call over to Brian. Brian Brille: Thanks, Russ, and thank you all for joining our Fourth Quarter 2025 Earnings Call. This is our first year-end call as a public company, following our June IPO last year, and we're pleased to report another record-breaking quarter, finishing the year with excellent performance across the company in terms of growth and underlying financial strength. I want to start with what has always mattered most at Caris, our mission. Caris was founded to make precision medicine a reality. We aim to fundamentally change the way disease is characterized and treated. We believe more information is more power and every patient deserves more power in the battle against disease. That mission is being powered by a molecular platform, which benefits from scale and highly differentiated capabilities as illustrated on Slide 3. Our platform continues to scale. And in 2025, we completed just under 200,000 individual cases. With this clinical activity, we have recently reached a platform milestone as our molecular data set now exceeds over 1 million profiled cases and has grown into one of the most important clinical genomic resources in the industry. As the industry evolves, the intersection of molecular science and AI is accelerating technological innovation. Our philosophy is a long-term strategic orientation to develop the best offerings on the market and to pursue this innovation, while generating profitable growth and maintaining financial strength. We've had an outstanding fourth quarter with total revenues increasing 125% year-over-year to $293 million. As demonstrated on Slide 4, this result was driven primarily by strong performance from clinical profiling. Molecular profiling services revenues increased to $282 million in the fourth quarter representing an increase of 199% year-over-year. Pharma R&D Services revenues were $10.8 million in the fourth quarter, and we're making important progress in CDx data discovery, including the December announcement of the Genentech Discovery deal as well as a CDx collaboration. In summary, across the board, we had a very productive fourth quarter illustrated by the quarter highlights on Slide 5. The strong revenue performance, combined with the operating leverage inherent in our business model has produced excellent financial results, including the following: revenue growth of 125% which was driven by volume growth of 20% and a 150% increase in clinical ASP. This revenue growth has led to significantly improved gross margins of 75% on a GAAP basis, up from 54% in the fourth quarter of 2024. It also represents a significant sequential increase from the 68% in the third quarter. With this gross margin improvement, this quarter, we generated positive GAAP net income of $82 million and adjusted EBITDA of $106 million as well as positive free cash flow of $39.7 million. This is our third straight quarter of positive adjusted EBITDA and positive free cash flow. This strong profitability profile is unique in our industry and provides valuable strategic flexibility for ongoing investment in our tech platform for new products as well as the ability to develop new channels such as MCED. In addition, our balance sheet continues to strengthen with cash on hand growing to slightly above $800 million, an increase of $43 million in the quarter. The Caris data set has continued to grow with our clinical profiling activity and now exceeds 1 million genomic profiles and 740,000 match profiles. Since every profile has been generated with our WES, WTS technology for many years, our data set now features 627,000 exomes and 678,000 transcriptomes. This gives our data set tremendous power for internal product development as well as attractiveness as a research partner for academic medical centers through the POA as well as for biopharma. As the results demonstrate, our financial performance gives us unique strategic flexibility, and we intend to use that edge in 2026 to make significant investments in both the Early Detection business and our Therapy Selection channel. In Early Detection, we expect to realize the long-standing vision of our CEO, David Halbert, of launching a revolutionary Cancer Early Detection Test. Caris Detect has the potential to bend the cancer mortality curve and ultimately make cancer a curable disease. We believe that the implications for this test are truly profound, both for Caris and for our society. In our core Therapy Selection business, we plan to invest in our commercial channel to broaden our reach and deepen our relationships to accelerate growth. We have a new Chief Commercial Officer Bobby Hill, who took on this responsibility in the fourth quarter. We're extremely excited about the opportunities we face and the new initiatives that Bobby is driving, ranging from the expansion of the sales force and territories to enhance programming and education. Finally, we will make these investments while maintaining positive adjusted EBITDA and free cash flow. Our strategy is to maintain financial discipline through a strong balance sheet and profitability, and these financial pillars of strength will allow us to realize our mission of making precision medicine a reality to benefit patients and physicians. I will now turn the presentation over to Bobby Hill to provide an update on our commercial business and related strategic initiatives. Bobby? Bobby Hill: Thanks, Brian. I will provide a brief update on our molecular profiling business along with our initiatives for the commercial teams in 2026. Starting on Slide 6, this shows our strong molecular profiling revenues performance for the full year, with revenues increasing 120% to $766.7 million. This excellent revenue growth was driven by a 22% year-over-year growth in clinical case volumes to approximately 199,300 profiles and a 79% increase in average sales price, reflecting our market access and billing team's strong execution throughout 2025. This ASP growth was driven by our successful launch of MI Cancer Seek on January 1 of last year, and these benefits are reflected on the slide, where tissue ASP increased by 83% to over $4,000 and our blood ASP increased by 69% to just under $2,800, driven by billing our new PLA code and improvement payment for Caris Assure. Luke will discuss the breakdown of this further during the financial update, along with the trends we saw play out during 2025. This illustrates the growth that our sales team has generated in clinical profiling this year, which I am encouraged about as we see progress into 2026 already. Our Q4 growth was 20%, which was sequential improvement from 18% in Q3 '25, with Caris Assure delivering 59% year-over-year growth in Q4 '25 and continuing to gain traction. Entering 2026, in order to broaden our reach and deepen our relationships to accelerate growth, we are making a continued investment in our commercial channel, by expanding the sales force, including expanding our Liquid Specialist Team to ensure we are maximizing the impact of our excellent teams. Next, strengthening our product and value proposition messaging by focusing on key differentiation of our technology and the clinical impact, the advanced technology has on patient care, as evidenced by data publication, scientific literature and enhancing our -- and elevating medical education and training across, not just the customers we serve, but also our internal teams. Since we are now also consistently reaching over 6,000 oncologists across the country and have EHR integrations of approximately 3,100 clinical sites where approximately 75% of our orders come in electronically. This will be another area that we continue to invest from a customer and team standpoint to make ordering process more streamlined. I joined Caris because of our science and technology differentiation and forward-thinking development of solutions, and I'm excited about continuing to expand the Caris commercial reach to help more patients as we go through 2026. I will now turn the presentation over to Dr. Spetzler to discuss our progress on our product pipeline, in particular, around Caris Detect. Spetz? David Spetzler: Thanks, Bobby. So getting to our ACHIEVE-1 interim results that we wanted to share today and are reflected on Slide 8. As you are aware, this study is for supporting the upcoming launch of Caris Detect, our whole genome sequencing based MCED blood test in Q2 of 2026. ACHIEVE-1 matters not just because it's following our philosophy to always put the patient first, which includes not limiting our development decisions based on cost, but to strive to pursue to the full extent possible the very best performing test. This has been successful for us with our therapy selection assays, which are the most comprehensive on the market, where we run whole exome and whole transcriptome sequencing on every eligible patient sample and we are again pursuing the same path in early detection. The interim readout reflects the benefits of that approach where we are sequencing at incredible depth across the whole genome. Our hypothesis is that cancer is fundamentally driven by molecular abnormalities and these abnormalities show up in multiple waves, driver mutations, epigenomic changes, transcriptomic changes and aneuploidy. Many approaches in blood-based early detection have leaned heavily on epigenomics alone. We took a broader biological view by using ultra deep whole genome sequencing to capture as many genomic alterations as possible. That richer signal set is what we believe is driving our performance and it reinforces our view that relying on a limited slice of biology is not sufficient to reflect the diversity of cancer. What's also different about Caris Detect is the foundation it's built on. The test leverages Caris' molecular profiling data sets, which, as Brian mentioned, has now surpassed 1 million cases and includes more than 50 billion molecular markers. That scale and depth allowed our AI models to identify subtle biological signals associated with early-stage cancers with a very high resolution utilizing the whole genome. As shown on the slide, the interim readout includes 2,122 total samples, 617 cancers, spanning stages 1 through 4 and 1,505 patients with no known cancer at the time of the blood draw. A key point on the normal cohort. These control samples come from individuals who had screening or symptomatic screening, which is a higher likelihood population than the general population. We have at least one year of follow-up data on 22.5% of the normals, of which 35% we identified as our asymptomatic screening population, 121 individuals with no significant risk factors for cancer and at least 1 year of follow-up after the blood draw. Of note, in the total cohort, 7% of patients had a subsequent diagnosis of cancer, reflecting that the control population is truly high risk. Now to the results. From the interim readout, we observed strong sensitivity that increases with stage and high specificity. Sensitivity by stage was 56.8% on Stage I with 266 patients, 70.1% in Stage II with 137 patients, 77% in Stage III with 105 patients and 99.1% in Stage IV with 109 patients. For Stage I and II combined, ACHIEVE-1 reported 63.1% sensitivity. We also evaluated Stage I and II sensitivity by lineage across a number of cancers. Selected examples include -- and are included on Slide 9, with breast cancer being 53% sensitive across 253 patients, valves having 62.2% sensitivity with 45 patients, prostate, 78.9% with 38 patients, uterus, 73.7% with 19 patients, lung 86.7% with 15 patients, pancreas, 71.4% with 7 patients and head and neck cancer at 100% with 7 patients. On specificity in which we followed 22.5% of patients for approximately 3 years following their blood draw, we've demonstrated the following, 99.1% specificity in the screening population with an equal 121, which we have follow-up data on these subjects that had no symptoms of cancer, no history of cancer and no family history of cancer and were not subsequently diagnosed with cancer within 2 years following the blood draw. 95.3% specificity in the higher-risk normal population with 1,505 patients, of which 600 undiagnosed subjects with at least 2 years of follow-up, roughly 7% of patients were subsequently diagnosed with cancer, indicating our enrollment criteria enrich for high-risk subjects. Overall, our model performance measured by AUC was 0.90. These are interim results, which we are extremely excited about. ACHIEVE-1 also includes a blinded holdout validation cohort of approximately 865 samples that were held out for independent testing. That blinded validation is currently in process, and we expect to support these results in Q1. In parallel, we have also begun processing samples from ACHIEVE-2, which is the next step in the program. So to summarize, ACHIEVE-1 interim results show strong performance, including Stage I, II sensitivity of 63.1%, high specificity and an AUC of 0.9 across a large data set spanning 35 cancer types and with no cancer types with help from the results. We view this as a meaningful milestone as we move forward with the blinded holdout readout as the next key catalyst. Moving to Slide 10. This also reflects the status of our robust pipeline, and I'll touch on these before letting Luke wrap things up with the financials. First, Caris MI Cancer Seek is our whole genome plus full transcriptome offering focused on therapy selection in hematological malignancies, particularly AML, MDS and MPN and select cases of suspected myeloid malignancies where cytopenias persist and other causes have been ruled out. Similar to what I've discussed with detection, what matters here is depth and breadth. We're running greater than 200x coverage across the whole genome sequencing and the assay is designed to detect the full range of clinically relevant genomic alterations, mutations, fusions, copy number changes, expression, aneuploidy with roughly 1.6 billion reads per patient. From a status standpoint, we have responded to MoIDX comments on our TA submission and will launch once coverage and pricing is determined. Next is Caris MI Clarity, which is tailored for breast cancer patients who are ER-positive, HER2-negative generally Stage I or II and no negative or in certain cases, 1 to 3 positive nodes, particularly in post-menopausal patients. This solution has 2 alternative offerings, one combining MI Profound Platform with digital AI and the other that is digital AI only. Both are intended to support both early and late recurrence risk score. The goal is straightforward, improve treatment decision-making and reduce unnecessary treatment, while identifying patients who truly need to be receiving therapy. Operationally, we are in launch planning and pursuing reimbursement through the 2 paths. The NGS plus digital AI and digital only. We expect that the digital AI only path will be faster, and it is likely that we launch that version of the products first. Importantly, both versions of MI Clarity offer superior performance to currently available offerings. Third is Caris MRD Tumor-Naive where the intended initial use case is colorectal cancer. The clinical intent here is minimal residual disease assessment in patients with Stage II and III solid tumors post-curative intent treatment, helping to inform adjuvant therapy decision window. Importantly, this is designed to work from the whole blood sample without requiring an individualized tumor-informed assay build. As previously discussed, MolDX requested additional data, and we are working on creating and compiling that data, and we'll provide updates as we progress on that front. And then Caris MRD Tumor-Informed, which is our whole genome approach intended for pan tumor applications in Stage I, II and III disease. This is based on tumor-normal whole genome sequencing to identify patient-specific trackers with a proprietary approach designed to minimize false negatives. The strategy is to maximize tracker counts and to reach ultra-low PPM detection capability because in MRD, sensitivity at very low levels is required. We've initiated development and launch planning, and we will continue to provide updates as we progress throughout the year. We have also launched 5 new AI signatures on our molecular tumor board reports that is available to physicians as part of our MI Cancer Seek in breast, pancreatic, brain, lung and ovarian cancer. These signatures offer insights into which patients will benefit from available, approved therapies and show how our whole exome, whole transcriptome strategy provides the best therapeutic guidance and demonstrates how profiling is becoming more proprietary and not commoditized. Small panels of hundreds of genes are not sufficient to offer these types of insights. As Brian referenced in the investment strategy, our goal this year will be to continue to push on all pipeline activities as quickly as possible in order to make these comprehensive solutions available to improve the lives of patients. I will stop here, and I'll pass it over to Luke for the financial updates. Luke? Luke Power: Thanks, David. As Brian stated earlier, we had another outstanding quarter in terms of financial performance. So I'll run through some selected highlights prior to getting to the 2026 guidance. Turning to the financial overview slide. You can see we delivered another great quarter and finished our first year-end as a public company very strong, with total revenue increasing 97% for the full year, reflecting exceptional organic performance across the business. As part of this, you will notice that our final revenue numbers for Q4 and the year is about $12 million higher than our preliminary January numbers. And this is the result of seeing continued positive collections from payers. So we adjusted our crude ASP rates in Q4 of '25 to account for these additional collections. The main driver of our 2025 growth, as expected, was our Molecular Profiling business, which grew 120% compared to 2024, due to this ASP upset along with the volume growth. Our therapy selection volumes were up 20% for the quarter and 22% year-over-year, slightly above our expectations and an improvement from the Q3 growth rate of 18% that Bobby mentioned. As discussed publicly, in January, while our pharma revenue was down year-over-year, we were happy with how it finished with our target discovery announcement with Genentech and fully expect to continue to build on that momentum into 2026. As we start to recognize revenue from that deal along with continuing to build on the contracting pipeline. Overall, our revenue growth and financial performance continues to show up on the bottom line, with positive adjusted EBITDA and positive free cash flow, not just for the quarter, but with positive adjusted EBITDA of $138 million and positive free cash flow of $67 million for the full year of 2025 and as Brian mentioned, we ended the year with over $800 million of cash on hand. 2025 was a superb year in terms of Molecular Profiling services. As you will see on Slide 12. We took a measured approach as we entered the year in terms of stepping up our ASPs from the FDA approval of the -- MI Cancer Seek solution, and I'm delighted to say that after the maturity after 12 months, it has demonstrated real sustainable uptick with payers' appreciation -- appreciating the comprehensive approach of our solutions and the signatures that are also included as part of the offering, one of which we press released on Tuesday. As reflected on the slide, the favorable payer response led to additional revenue exceeding prior accruals with the majority of the additional revenue related to cases performed in 2025 and only $33.6 million being related to benefit from 2024 and prior year cases. This has resulted in us being able to reach an ASP for our 2025 cases of $3,876 per tissue and just above $2,500 for our blood assay. These improvements are due to various tailwinds we have seen occurred throughout 2025 and for which we expect to continue to benefit from in 2026, and we have listed some of these on the next slide along with the positive trend in Molecular Profiling gross margin. The key driver for tissue was obviously the impact from our FDA approval and the subsequent increase in pricing and the benefits we saw through contract, where we have now surpassed over 225 million covered lives from MI Cancer Seek. MI Cancer Seek represented greater than 70% of our tissue volume for the full year of 2025, almost over 75% of our tissue volume for Q4 and we're able to increase our tissue growth rate for the full year to over 16%, which was up from the 2024 growth rate. For Caris Assure our PLA accrual was effective for the full year in 2025 and payers responded when we discussed both solutions together, and this played out in the reimbursement uptake over the past year. We've also seen a steady improvement each quarter as we continue to gain traction in volume, with Q4 reflecting a 13% sequential growth from Q3 of 2025. With regards to our Medicare ASP, as you know, our solutions went through clinical lab fee schedule pricing of CDLT and not ADLT. Accordingly, they are subject to the PAMA CDLT reporting process, which is on a 3-year cycle. As part of the recent Consolidated Corporations Act PAMA was amended so that the next reporting period is from January 1 to June 30 of 2025. And based on the initial view of our data, we do not expect any downward adjustments to MI Cancer Seek and Caris Assure through 2029. Staying on the same slide, the improved reimbursement had a very positive impact on the Molecular Profiling gross margin for the year as demonstrated by the progression seen on the graph. We finished at 66% GAAP gross margin for the full year. And even excluding the additional revenue from exceeding accruals for prior year cases, this was only slightly below that at 64%. This improved gross margin allows us to continue to invest and develop comprehensive offerings, validating the long-term approach we take with our solutions. All in all, it was a fantastic year from a financial performance standpoint, demonstrating the excellent work by everyone at Caris as we wrapped up our first year-end as a public company. Now turning to the outlook for 2026, which is reflected on Slide 14. Consistent with our prior approach, we're initiating full year guidance based only on our current portfolio, and will only add the pipeline solution to our guidance once they have started to generate revenue. This allows us to take a deliberate approach with gated investment strategies to ensure that these will flow through as milestones are met throughout the year. With the 2025 results, we delivered on our goal to demonstrate that our model can be self-sufficient and generate free cash flow. And now going into 2026, our plan is to reinvest from this position of strength by continuing to progress on our differentiated pipeline along with our commercial infrastructure. Therefore, for the full year of 2026, we expect total revenue for existing solutions to be in the range of $1.0 billion to $1.02 billion, which represents growth of approximately 23% to 26% compared to 2025. On the clinical side, therapy selection volume is expected to grow approximately 20% year-over-year in 2026, reflecting continued demand expansion and broader adoption across our ordering base. And as Bobby discussed previously, we've begun making those additional investments in the commercial organization. Within the total revenue range, we expect molecular profiling to grow approximately 21% to 22% in 2026. But excluding prior year additional revenue from exceeding previous accruals, this implies a Molecular Profiling growth rate of approximately 26% to 28%. From an ASP standpoint, our focus remains on continuing to improve on commercial payer contracting as we progress into 2026. And for tissue, we're tracking towards approximately $4,000 a case which we now expect to reach in Q1, followed by continued progress throughout the year with this initial guidance reaching approximately $4,200 for the full year 2026. For blood, we expect ASP to be in the range of $2,400 to $2,500 for 2026 and will seek to further expand contracting, but any potential upside is not reflected in the guidance. With regards to Pharma and Research Revenue, we expect $75 million to $85 million for the full year of 2026. This reflects contribution from our previously announced Genentech deal, a recent companion diagnostic collaboration along with the development of contracting pipeline and our investment in additional dedicated team members for our pharma customers. As in prior years, we expect the cadence as more weighted to the second and fourth quarters, with Q1 and Q3 being lower than Q2 and Q4. On the expense side, we expect GAAP operating expenses to be in the range of $590 million to $595 million, representing an increase of approximately 19% to 20%. This increase is primarily driven by the commercial expansion of pipeline trial activities, as demonstrated by the excellent results from ACHIEVE-1 and also then including the ACHIEVE-2 study of advancement of our Assure assay development models, including our planned New York State submission. Finally, with regard to free cash flow and adjusted EBITDA, we expect to remain positive for the year while funding these investments. One additional incremental item in 2026 will be CapEx as we prepare for the early detection launch. After spending approximately $16 million in 2025, we expect CapEx in the range of approximately $60 million for 2026. This spend is tied to increased capacity and will be staged and milestone driven, so will not be applied all at once and spread throughout the year. As we have stated previously, we're not optimizing for peak margin in 2026 at the expense of long-term value, but we're committed to operating within our guardrails remaining positive free cash flow and adjusted EBITDA, while we execute on the milestone by continuing to drive our top line growth. I will wrap up there. And with that, we'll now turn the call back over to the operator. Operator: [Operator Instructions] Our first question comes from the line of Dan Brennan of TD Cowen. Daniel Brennan: Maybe just first one, just on the volume outlook, the 20% volume growth. I don't think I've heard you, did you guys break down how that's going to break down between tissue and blood. So you can give us that color? And then did you give us any color on pacing for revenues as well? So where should the first quarter land? Luke Power: Yes. So Dan, so on a total volume basis, we guided to the 20%. The 20% is broken up very similar to Q4. So lower teens for tissue and then high 50s, lower 60s for blood from a growth standpoint. And then on the revenue outlook for Q1, right now, we're in that 70% to 74% growth range for total revenue. Daniel Brennan: Okay. And then maybe as a follow-up, so Bobby is now running the sales force. You've added some headcount. So can you elaborate a little bit on like how big the sales force was previously? What was the decision to bring Bobby in? How many people are you adding? Anything on the strategy? And then have you baked in any impact from these additional salespeople, will they drive revenues and volumes this year? Or is it going to hit in the fourth quarter? How do we think about the contribution from this added head count? Luke Power: Yes, yes. So I can definitely take that, and then I'll let Bobby chime in on. So effectively, Bobby joined us, obviously, to lead our reimbursement efforts, knowing that Bobby also has additional expertise that would transition into the commercial operating role in the future. So from that standpoint, Bobby, obviously, has been here kind of 1 year, 1.5 years right now and done excellent work, as you can see in our results with the reimbursement. So as we go forward and what we're planning for 2026, we announced at JPMorgan that we were about 250 salespeople, and we wanted to increase it about 20% to 25%. So get that back up to about 300 people. Again, Bobby has done great work with kind of going through the territories and see where we can get the most benefit from that. To answer your last question before I pass it to Bobby, we incorporated the expense, but we're taking a measured approach with our volume. We obviously think this is going to pay off for us in the second half of the year, but that's not incorporated in the 20% number. The 20% we were able to achieve in Q4, which was what we were expecting to go into 2026. So I definitely think once we have further experience with the uptick in salespeople and obviously, all the initiatives Bobby is implementing that you could see benefits, but we're not guiding to that right now. Operator: Our next question comes from the line of Subbu Nambi of Guggenheim. Subhalaxmi Nambi: Spetz, thank you for sharing the MCED interim data you provided specificity data, which delineates between asymptomatic screening and undiagnosed population. Can you further define these populations? How do they differ? And why did you do this? What is the significance from the perspective of clinical regulatory reimbursement and commercial? David Spetzler: Yes. So in the higher-risk population, what we saw was that there was a 7% undiagnosed cancer rate. And so -- now if 7% of your control samples are actually positive for cancer, then it's going to lead to a lower estimate of specificity than what you would see in a general population where the incidence rate is much, much lower. And so the kind of clean cohorts where we have the longitudinal outcome data showing that they are actually healthy patients is going to be reflective of the specificity in that general healthy screening population, whereas the symptomatic screening population, that high-risk group is what we would expect in high-risk clinics. And so the clinical context of the patient matters a lot in how we think about the results, and we want to make sure that we're clear and careful about characterizing test performance across the various populations that we'll be marketing. Subhalaxmi Nambi: Very helpful. And Luke, you did mention how pharma -- how AI is going to be a tailwind and how the database is flowing. Do you have an early outlook to share on the pharma R&D spending environment at all as pharma is increasingly looking to spend on AI and could Caris be a beneficially? Luke Power: I definitely think we could be a beneficiary, especially from our molecular data set that now has over 1 million profiles. But from our guidance standpoint, Subbu, like the $75 million to $85 million, it's based on looking at what we've been able to do historically from a base run rate, knowing that we signed the additional Genentech deal that we publicly announced. We have a couple of CDx collaborations, one that was completed that we're not announcing publicly at the request of our pharma partner, that allows us and gives us great confidence as we go into the year in order to achieve that. But you're right, there's definitely a lot of trends, and we've had continued outreach, particularly around our data and the use of that in AI. Operator: Our next question comes from the line of Michael Ryskin of Bank of America. Michael Ryskin: Congrats on the quarter. Dan asked on volumes, so I guess, I'll pick the ASP one. For tissue, I think, if I heard correctly, you talked about $4000 in the first quarter and then reaching approximately $4,200 for the full year. I recognize obviously there's a lot of ASP true-up in 3Q and 4Q, but that still seems like relatively conservative relative to what we talked about in the past and the ability to reach somewhere closer to that high $4,000 range. So just wondering if you could talk about how much conservative you have built into that, what your line of sight is on the commercial side of things and just sort of talk about the -- what true-ups could contribute on top of that. Luke Power: Yes. So the answer to true-up questions. Like we purposely launch MI Cancer Seek at the start of 2025, knowing that we'd get the full 12 months of the activity. So we could get all the kind of true-ups incorporated as much as possible in 2025. Because, again, I always take a measured approach when it comes to ASP, I'd like to see the history play out. And now that we have that, it's a good starting point as we go in and knowing that we'll get to the $4,000 based on the contracts we signed that kick in at the start of the year. I definitely think there's headroom there. But I do want to be measured again going into this year. We've done excellence on ASP. Obviously, it's the best in the industry, and it's due to the decision David Halbert made to go the whole [ exome ] and whole transcriptome like 5 years ago, and that has paid off for us. So going into it, the $4,200 is kind of where I want to guide to right now. And then we'll progress throughout the year. We'll get additional contracts, as Bobby said, and then we'll just see, Mike, where it shoots up. But from a guidance standpoint, I feel really good right now with the $4,200 for the full year David Halbert: 8 years ago. Luke Power: 8 years ago. Yes. Michael Ryskin: Good point..And then for my follow-up, for the guide for this year, you kind of left it relatively open ended in terms of adjusted EBITDA positive. There's a big range to what positive means. And I think just to combine this with a commercial reinvestment point. Could you maybe talk about the puts and takes of that? How much of a lever you think that could be? And sort of how you think about that balance, right, of investing, getting maybe a little bit more on the margin side of things versus the other way around? Luke Power: Yes, it's going to be pure like utilizing the leverage, Mike. So for us, obviously, we're able to generate like over $136 million of adjusted EBITDA for the full year of 2025. We're going to utilize that going in. So you obviously see the increase of $100 million in OpEx. What we're planning on doing, especially in the first half of the year is utilizing that. And I've stated on multiple calls, obviously, since we became public like the ideal goal go for me going into 2026 would be to kind of run neutral in the first half of the year just by getting these investments done. Now we'll continue to generate. We're generating, obviously, the $60-plus million of free cash flow because of the position we're in, we're going to utilize this. And again, that's why we're just guiding to being positive right now. I'm not going to throw out that it's going to be $150 million or $200 million. But if we execute, obviously, we continue to drive margin from a profitability standpoint past 2026 and into 2027. And obviously, we're very excited with the early detection launch, and that's kind of the primary focus for the first half of this year. Operator: Our next question comes from the line of Vijay Kumar of Evercore ISI. Vijay Kumar: Maybe, Luke, my first one is on ASP assumptions here for fiscal '26. Did I hear you correct when you said blood is $2,400 to $2,500, I thought the fiscal '25 extra blood ASP was north of $2,500. So maybe just walk me through on why blood steps down and that $4,200 on the tissue side. does it contemplate the full normalization of PLA uplift on the CMS side? Or is there some more room left when you think about '27. Luke Power: Yes. So answer to the blood first. I'd like to guide from a blood standpoint in the $100 range, like you're right, like the $2,500 is kind of at the top of that range is where we ended up. I definitely think there's some upside to that, as I mentioned in the pre-prepared remarks. So right now, what I would guide to is in that $2400 to $2,500 just based on the mix of cases is where we came up with that guideline because obviously, Medicare has paid better, commercials paid a little less and there's sometimes fluctuation amongst that in the quarter, especially as we ramp up our blood volume. Obviously, it's been growing quite nicely from a sequential standpoint. So that's the reason for the $2,400 to $2,500. But I'm not guiding to us like a massive step down or anything. I just want to be cautious with the guide from the blood ASP. And then on tissue, we put out the metrics that obviously, over 75% of our tissue volume is going to be under the PLA code, and we're making great progress there. But you do have the remaining 25%, that's not. So we've hit our goal that we came into the year in order to get above that kind of $3,600 for Q4 and obviously announcing that we're going to get to $4,000 for Q1. I feel good with the progress that our excellent market access team is making, along with our billing team to continue to push on that and get that to a higher rate. But now from a guidance standpoint, like the $4,200 feels really, really good right now, and that's what I want to stick with from the guidance standpoint. Vijay Kumar: Understand. Just to be clear, Luke, that $4,200 assumes 75% volumes under PLA in 2026? Luke Power: Correct. Vijay Kumar: Understood. Then maybe my follow-up on this step-up in OpEx spend for '26. I'm curious, when I look at the market, the market seems to be rewarding companies in the space for volume growth rate versus you guys being focused on profitable growth and that's a distinction that you made. Does this OpEx step-up signal that, hey, if the market is not rewarding Caris on profitable growth, let's put volumes. So just walk us through the rationale of this OpEx step-up where is the spend going? Is this for existing test or new test? And when you think about productivity per rep, how long did it pay for these reps, these new reps to get productive? Luke Power: Yes. So I'll go first and then I can let team obviously chime in as well. So yes, it's definitely including the OpEx standup -- step up like 30% growth in sales and marketing. So that's kind of the number one key area. The other -- the second key area, too, is in R&D and having that other 30% step up in R&D again, as Spetz walked through with the ACHIEVE-2, like we're extremely excited about that, and we want to keep pressing ahead with the ACHIEVE-2 data. So that's going to be a priority from the R&D spend standpoint. And then with the sales and marketing, normally, it takes about 6 months for that to play out. But again, what we did with our guide and because we did a great job last year of coming out and being measured on what we're guiding to. We didn't want to assume any uptick, big uptick in the second half of the year. Again, all companies go through this, Q1 obviously ramps up to Q2, Q3 and Q4, and that's what's in these numbers. But we're not assuming any big uptick from a volume standpoint until probably obviously get these initiatives implemented. And then we'll come back to the Street and obviously update the Street how we progressed. And then I don't know, Brian, if you want to take the first one. Brian Brille: Listen, I would answer it a little more generally, which is, Vijay, I think we see a tremendous amount of opportunity in the market. it's not penetrated. Rather, we see with sites all of the time, more physicians that need the best technology. So we're extremely optimistic about the opportunities in front of us, not just with the new modalities like MCED, but just with our existing core business and therapy selection. So with our technology solutions, and we think the best technology solutions on the market, and we're super excited with Bobby's leadership to put more resources, human capital programs, et cetera, behind this to support our cancer center clients as well as individual oncologists through educational programs, the MSL teams, et cetera, et cetera, as we go through this continued evolution in molecular information. So we're just super excited. And with Bobby's leadership now, we can invest even more aggressively. So I think that's where this is coming from. Operator: Our next question comes from the line of Doug Schenkel of Wolfe Research. Colleen Babington: This is Colleen on for Doug. One on CapEx. We think we heard Luke mentioned $60 million in CapEx dedicated to the MCED launch this year. Can you just share any more color on how you plan to allocate that spend? Luke Power: Yes, pretty evenly, throughout the year, Colleen, maybe a little bit more weighted, so like $35 million, $25 million first half, second half of the year. It will all depend on how quickly we can get the early detection ramped up. we're working very, very quickly on that right now. One of the key items from the CapEx standpoint is, obviously, our new Assure assay is going to be switched over to the Nova X. And Nova X is also what we're using for early detection. So there's going to be additional Nova X machines that we'll purchase as well throughout the first half of this year and that we've already ordered. So that's kind of how it's broken up. It's a lot related to testing equipment and then additional spend related to capacity and buildings. Colleen Babington: All right. And then more broadly on capital deployment. Now that the business has demonstrated profitability and you have about $800 million on the balance sheet, how are you prioritizing incremental sales and marketing and R&D investment versus opportunistic M&A? And are there any portfolio gaps you would look to fill strategically versus prioritizing smaller tuck-ins? Luke Power: No. I think, look, we're always being very strategic in what we do. We have a great assay in-house. And obviously, we always focus on the technology first at Caris. So that's going to be a primary thing. But we remain strategic and obviously, the flexibility that we have based on our financial performance and the cash on hand, gives us an opportunity to just continue to assess. But we're going to push on all fronts, and then we'll see what actually shakes out. Operator: Our next question comes from the line of Casey Woodring of JPMorgan. Unknown Analyst: Great. This is Sebastian on for Casey. Can you talk a little more about expectations for volume pacing? It sounds like you're not making any impact from new reps. I think you talked about mid-teens growth-ish for tissue and then something in the mid-30s for blood. Would you expect to grow above that in the first half and then below in the back half, pending your ramp from new reps? And then just what's your expectation there for 1Q? And I have a quick follow-up. Luke Power: Yes, Sebastian. Probably you flipped that. So obviously, like we're continuing to ramp that up. What I said was when, I think Dan asked the question, was the tissue being like low teens, consistent with where Q4 was -- and then blood being in that high 50s. So like 59% is where we came in for Q4. So that's what's assumed in the guide. Now for Q1, obviously, you can see based on our historical performance, like you do have a little bit of push between Q1 and Q3 and then Q2 and Q4 pop. And you see that historically play out in our financials, just based on schedules, holidays, et cetera. So -- but I would think that as we ramp into the second half of the year, I feel very good about that 20% from an overall year standpoint. Unknown Analyst: Got it. And then just one on the MCED data you reported. So the interim data looks strong. I noticed apart from the top 3 or so indications, it looks like the sample size is pretty small. I guess, first off, do you think smaller sample size for some of these indications would impact how physicians and patients feel about, are comfortable using the test? And then it looks like the breast sensitivity is well above peers and the sample size there is sufficiently large. So like is there any scenario where you would consider offering a stand-alone breast test in addition to MCED? Bobby Hill: So yes, as you noted, the performance in breast is really, really good. And compared to like methylation-based tests that have single-digit sensitivities in early stage that shows a lot. But for us to go breast-only kind of creates an ethical quandary because we wouldn't want to not report out when we find other cancers there. So the performance is really strong. And one of the reasons why the numbers are lower in some of those other categories is because not a lot of patients are found at early stage because there are no existing screening modalities that are very effective. And so we'll see that continue to play out over time where with our technology and our test, we will be the ones finding those early-stage cancers. And so those numbers will go up simply because we're now able to find them at the early stage. Operator: Our next question comes from the line of Patrick Donnelly of Citi. Patrick Donnelly: Probably one for Luke. I think a little bit of a follow-up there. I just wanted to talk through what's baked into the guide for the new hires. How are you thinking about the pacing of hiring, how quickly they become productive and then is there anything for MCED in the numbers? Just wanted to talk through that. Luke Power: Yes. So on the new hires, Patrick, effectively, we're trying to get everything done in the first half of the year, getting them hard as quickly as possible. So that's baked into kind of those... David Halbert: Yes. So we have already posted all of the positions that we ramp up in the first phase. We've already started hiring 4 positions that have been posted already in 2026. We made this decision and announcement internally on January 6. And when we've been ramping up those new hires. We are also going to be ramping up hiring for MCED as a field-based sales force, along with the announcement that we had with the partnership with Everlywell that we announced back in January. And so we're ramping up a multichannel approach in order to address both of those markets. And then we've also updated our training. Both -- how we internally get people up to speed in order to help physicians and patients with comprehensive genomic profiling with their current offering, and set us up for our new launches. Patrick Donnelly: That's helpful. I appreciate that. And then obviously, a lot of talk on MCED. Just quickly, I wanted to check on the MRD part of the portfolio. Any catalyst we can be looking out for time lines would be helpful. Bobby Hill: We have to collect more data and part of that process is the maturing of clinical outcome data. So we don't -- we're not guiding to any timeline on that front. Just have to keep accruing samples and outcome data. Operator: Our next question comes from the line of Mark Massaro of BTIG. Mark Massaro: Congrats on strong 2025. I did want to follow up on the MCED commentary. It's interesting you guys indicated that you do plan to to have a sales force for the MCED opportunity. Can you just give us a sense for -- by the end of '26 or the end of '27, can you give us a sense for sizing I think Guardant is out there now with about 300 with plans to go to 600. I was just curious if you could give us maybe some type of a sense of what type of size you would want direct relative to some of your partners like Everlywell? Brian Brille: Yes, I think a good question. I think as Luke mentioned, when we take a measured approach -- we'll take a measured approach when we build out our MCED salesforce will start small, we know where to target. We've already had some collaboration discussions, and we'll take a measured approach as we get through the year and look at capacity and go through the launch. Patrick Donnelly: Makes sense. And then one for David Spetzler. Can you give us a sense for timing on ACHIEVE-2 and maybe just the -- I don't know if it's 10,000 or 15,000 subjects, but just give us a sense of the size. And are there any particular bogeys that you're looking at either for Stage I or Stage II sensitivity. David Spetzler: So ACHIEVE-2 will be 25,000 total. A big part of that are precancerous components. So we'd really like to be able to characterize the performance of our test in patients that have polyps, for example. And that will be a big part of that cohort. We still need to enroll probably 8,000 or so patients in order to hit that final number. But the flip side of that means that we have about 18,000 samples in-house now that we can start running. So just like we did with ACHIEVE-1, we'll issue interim results as we get them and characterize that performance in these populations of patients where there's an opportunity to act before it turns into cancer. That's going to help bend that mortality curve massively. Patrick Donnelly: And maybe just to clarify, are you able to launch Caris Detect even absent the full readout of ACHIEVE-2? Or how are you thinking about the timing of that? David Spetzler: Yes. We're going to launch when we have the final readout on ACHIEVE-1. So ACHIEVE-1 is our final accuracy study that will enable launch. Operator: Our next question comes from the line of Kyle Mikson of Cannacord Genuity. Kyle Mikson: Congrats on great year. On Caris Detect. I didn't -- I was trying to calculate PPV and some other metrics here, it doesn't seem possible. Data is pretty good. So I just wanted to ask if you could provide a little bit more color? I know it's interim, but still. And then just given data is solid, how does this validate the $3,500 price point? And what have folks like Everlywell commented and things like that. And honestly, how do you think about COGS getting lower, overtime to, I don't know if you spoken to that in the past. David Spetzler: Yes. So -- you can't really calculate PPV because it's still a case control study, where it's about 1/3 cancer patients to 2/3 controls. And PPV is dependent upon the patient population and the incidence rate. I mean in that high-risk setting, right, having a 7% undiagnosed cancer rate is pretty high, and that's indicative of that enrichment that we did. And so we can certainly -- I mean you can kind of use that 7% to address the PPV calculation if you want to. In terms of the price point, we don't think the $3,500 is that high at all, given the fact that this test actually works and nothing else out there is able to detect early-stage cancers. I mean we have introduced and are introducing a new technology that has a high cost to it because it works really, really well. And so from our perspective, this is really more about the death of inferior technologies like methylation and being replaced by superior technologies like full genome sequencing. Kyle Mikson: All right. It makes sense on the PPV and the case control, everything. Final one, maybe for Luke, on the EBITDA and lack of EBITDA guidance, which I guess makes sense. But if you take out the true-ups for -- in '25, yes, maybe a few million in adjusted EBITDA. What's the reasoning to not provide a more refined range for this year? Is that going to be MCED kind of investment or other pipeline spending anything else? Luke Power: Yes. It's going to be all of the above effectively because we have a huge opportunity, not just with obviously ACHIEVE-1, we're so excited about an early detection, which is going to be massive, but also just because we're able to prove the profitability thesis, we want to utilize that going in. So like you brought up the point of like 2025, like we had $136 million adjusted EBITDA. Even if you exclude the prior year stuff, it's still above $100 million adjusted EBITDA. So I want to utilize that as we go into 2026, and that's kind of our focus. Now we are going to be diligent with that. We're not going to start burning like $250 million a year because we're in the position that we're in. But we're in a great position, and we're just going to use that. So I don't want to get tied down with guiding each quarter to a profitability metric. Operator: I'm showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Source Energy Services Fourth Quarter 2025 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Scott Melbourn, CEO. Mr. Melbourn, please proceed. Scott Melbourn: Thank you, operator. Good morning, and welcome to Source Energy Services Fourth Quarter 2025 Conference Call. My name is Scott Melbourn, I'm the CEO of Source. I'm joined today by Derren Newell, our CFO. This morning, we will provide a brief overview of the quarter and the year, which will immediately be followed by a question-and-answer period. Before I get started, I would like to refer everyone to the financial statements and the MD&A that were posted to SEDAR and the company's website last night and remind you of the advisory on forward-looking information found in our MD&A and press release. On this call, Source's numbers are in Canadian dollars and metric tons, and we will refer to adjusted gross margin, adjusted EBITDA and free cash flow, which are non-IFRS measures as described in our MD&A. Except for the items just mentioned, our financial information is prepared in accordance with IFRS. As we expected, fourth quarter activity levels rebounded and we recorded sales volume of 907,000 tons for the quarter, an 18% increase over the fourth quarter of 2024. With this strong finish to the year and despite the commodity price challenges earlier in the year, 2025 was another good year for Source. We delivered record volumes and record revenue. We enhanced our logistics capability with the Taylor terminal, strengthened our last mile logistics with additional trucking assets and expanded our domestic sand capability to 1 million tons per year. We enhanced our shareholder return by initiating a share repurchase program, which repurchased and canceled 465,000 shares, and we reduced our term loan by $23.7 million. Noteworthy items for the year included sand sales volume of 3.7 million tons, a 5% increase over last year. Source also set a record for sand volumes delivered to customers' well sites through our last mile logistics team. Source generated total revenue of $700.3 million, a $26.4 million increase over 2024. We realized gross margin of $116.6 million and adjusted gross margin of $159.3 million, decreases of 8% and 2%, respectively, when compared to last year. Gross margins were impacted by a shift in terminal and product mix as well as incremental Peace River commissioning costs. Net income for 2025 was $33.1 million, an increase of $23.6 million over 2024 as Source benefited from lower share-based compensation expense and a recovery from the settlement of the Fox Creek lawsuit. Adjusted EBITDA was $112.3 million, an $11.6 million decrease from 2024. With that, I will now turn it over to Derren. Derren Newell: Thanks, Scott. In the fourth quarter, Source sold 907,000 metric tons of sand, generated $135.3 million in sand revenue. Sand volumes were 18% higher and sand revenue increased by $17.7 million as most of the delayed work from the third quarter of '25 was completed in the fourth. The average realized sand price per metric ton decreased by $4.02 compared to the prior year, primarily due to the sales mix of higher sales of lower-priced finer mesh sand. Well site solution revenue was $28.3 million for the fourth quarter, an increase of $1.6 million or 6% compared to the fourth quarter of '24. This increase was driven by higher volumes delivered by the last mile logistics, reflecting higher customer activity levels and longer trips to well sites compared to last year. Sahara units in Canada were 50% utilized during the fourth quarter and Sahara units deployed in the U.S. remain fully contracted and 100% utilized. Terminal services revenue was $0.9 million, an increase of $0.3 million compared to the fourth quarter of '24 due to higher chemical elevation volumes as well as an increase in sand elevation storage rates. As Scott said, total revenue for the year was $700.3 million, driven by increased sales volumes. Cost of sales, excluding depreciation, increased by $19.4 million for the fourth quarter compared to last year due to higher sand volumes and the incremental costs incurred at Peace River, as Scott previously mentioned. The increase in cost of sales also reflects higher people costs, higher repairs and maintenance expenses, mainly on the sand trucking assets we purchased last year and incremental royalties for the Peace River facility due to increased production. Lower third-party trucking costs partially offset these increases. On a per ton basis, cost of sales was impacted by a shift in terminal mix, which was partly offset by lower rail transportation costs in the quarter. The impact of foreign exchange on the U.S. dollar components, cost of sales drove a decrease of $0.25 to cost of sales compared to the fourth quarter of last year. Cost of sales, excluding depreciation, increased for the full year compared to '24 due to record sand sales volumes, higher transportation costs to move the volumes to the terminals and the customer well sites and the incremental cost of Peace River as well as a full year of Source's trucking operation from the Taylor terminal beginning its operations. Cost of sales did benefit from lower production costs achieved at the Wisconsin mining facilities. A weaker dollar increased cost of sales denominated in U.S. dollars by $2.54 per metric ton compared to 2024, which was largely offset by movement in exchange rates on revenues denominated in U.S. dollars. Excluding gross margin from mine gate, adjusted gross margins for Q4 were $39.07 per metric ton compared to $44.88 last year. Q4 was impacted by the incremental cost of Peace River as well as extremely cold temperatures and heavy snowfall in certain source customer operating areas, resulting in additional performance-related charges, which impacted gross margin by $0.52 per metric ton. For the quarter, the strengthening of the Canadian dollar led to a decrease in adjusted gross margin of $0.02 per metric ton. For the year, gross margin decreased by $10.8 million compared to '24. Excluding gross margin from mine gate, adjusted gross margin was $43.71 per metric ton compared to $46.99 per metric ton in '24. A shift in terminal mix due to the location of customer well sites, a shift in product mix to lower priced finer mesh sand sales, the incremental Peace River costs and incremental costs from commencing operations at Taylor, all contributed to the decrease. These impacts were partly offset by $3.6 million of incremental margin generated from Source's trucking operations and lower rail transportation costs realized in late '25. The weakening of the Canadian dollar negatively impacted adjusted gross margin by $0.24 per metric ton compared to last year. For Q4 '25, total operating and G&A decreased by $0.1 million. Operating expenses increased by $0.2 million, mainly due to higher royalties included in selling and administrative costs. This was partly offset by lower incentive compensation expense. G&A decreased by $0.3 million due to lower incentive compensation expenses and a reduction in related IT expenses in Q4 '24, Source implemented a new cloud computing software system, which resulted in incremental expenses in that period. For the fourth quarter -- sorry, for the year, totaling operating and G&A expenses increased by $2.8 million. Operating expenses increased by $4.8 million due to increased royalty-related costs, higher people costs because of increased activity levels and incremental terminal and trucking operations as well as higher workers' compensation insurance premiums. There were also additional repairs and maintenance costs on railcars and facilities in 2025. G&A costs were down $2 million due to lower incentive compensation costs, partly offset by the amortization of costs to implement the new cloud computing arrangement in 2024 and higher professional fees. Finance expense for Q4 2025 increased by $0.7 million compared to Q4 '24. In the quarter, the decision was made to allow the delayed draw facility to expire, which resulted in previously deferred capitalized costs being recognized. Source also incurred higher interest expense on lease obligations. These impacts were partially offset by lower accretion expense and higher interest income compared to the fourth quarter of '24. For the year, finance expense decreased by $4.2 million compared to 2024. The decrease was attributable to lower interest expense incurred for Source's credit facilities and incremental interest income earned on cash balances as well as lower accretion expense. These reductions were partly offset by higher interest expense for lease obligations. At year-end, Source had available liquidity of $59.9 million. Capital expenditures, net of proceeds on disposals and reimbursements and excluding expenditures on the Taylor facility were $7.1 million for the quarter, an increase of $1.6 million compared to last year. Growth capital increased by $2.1 million, mainly attributed to the expansion of the Peace River facility. Q4 '24, customer reimbursement related to the Peace River facility expansion lowered our total expenditures in that quarter. Maintenance capital expenditures decreased by $0.5 million for the fourth quarter of '25 due to lower expenditures on the facilities. For the year, capital expenditures net of proceeds on disposal and reimbursements and excluding Taylor, increased by $21.3 million. Growth capital increased by $15.7 million, primarily due to assets acquired in the third quarter for the future expansion of the Peace River facility as well as expenditures made on the current expansion to expand into its 1 million tonne capability. Maintenance expenditures increased by $5.5 million, driven by higher amounts for overburden removal and increased expenditures for Sahara improvements and upgrades as well as some equipment rebuilds for Source's trucking operations. Lease obligations increased from the prior year quarter, largely due to the timing of the addition of heavy equipment for Peace River and higher renewal rates on yellow iron leases for the Wisconsin mining operations. Source is now cash taxable in the U.S. and expect that it will be cash taxable in Canada in the next year or so. With that, I'll turn it back to you, Scott. Scott Melbourn: Thanks, Derren. As we look at industry activity in 2026 and beyond, we believe the continued development in the Montney will be a key growth driver for the industry. In response to this, Source has focused its capital expenditures over the past few years on the development of its capabilities in the Montney with the expansion of the Chetwynd terminal, the completion of the Taylor terminal and the expansion of the Peace River mine to 1 million tonnes of production. These improvements have positioned Source to provide an unparalleled mine to well site services for both Northern White sand and domestic sand. And in addition to our offerings in frac sand and related logistics, we have expanded our chemical transloading capability, which we believe will be a growth area for Source in 2026. We anticipate our net capital expenditures for 2026 to be between $30 million and $40 million, with the majority focused on optimization and mine development activities in Peace River and the existing terminal network. We expect 2026 to be another strong year for Western Canadian Sedimentary Basin completion activity, driven by additional export capability via LNG Canada as it ramps up its production. Over the longer term, we continue to believe the increased demand for natural gas driven by LNG exports, increased natural gas pipeline export capabilities and power generation will drive incremental demand for Source's services. Source continues to focus on our industry-leading frac sand logistics chain, and we have and will continue to execute on a number of opportunities to grow the company and further our competitive advantage. In addition to growth in our core markets, we continue to explore opportunities to diversify and expand our service offerings and to further utilize our existing Western Canadian terminals. Thank you for your time this morning. This concludes the formal portion of our call. We'll now ask the operator to open the lines for questions. Operator: [Operator Instructions] The first question comes from Nick Corcoran with Acumen Capital. Nick Corcoran: Just the first question for me, we're 2 months into '26. Any indication of how activity levels have trended relative to either the full year or the fourth quarter? Scott Melbourn: Yes. I think as we may have mentioned in our outlook before, we see 2026 right now as being a fairly flat year in terms of volume year-over-year. I think what we'll see in '26 in comparison to '25 is we'll see a little more steady. And so we expect kind of quarter-over-quarter to be much more steady than or much more flat compared to 2025, where we saw really heightened levels of activity in Q1 and Q2, then a significant dropoff in Q3 and then an increase in Q4. So we expect much more steady activity across the quarters in '26. I personally think that we'll have a little more activity in the back end of '26 as we start to see the impact of LNG Canada and we start to see the impact of more export capability out of Western Canada. But we're looking at it right now, we look like a fairly flat year-over-year in terms of overall volume. Nick Corcoran: That's helpful. And how much visibility do you have or how far out do you have visibility for your sand orders? Scott Melbourn: Yes. For the most part, we've got from our E&P customers, we'll have a fairly good visibility for the entire year. Pads will move from quarter-to-quarter. And so there still will be some movement within that forecast, but we have a fairly good handle on what the overall volume is going to look like for the full year. Nick Corcoran: Helpful. And then like there seems to be some good macro tailwinds for LNG and natural gas for power generation. Am I correct in interpreting that this will be more a back half? Scott Melbourn: Yes. I think as we look at the year, I think that if we see some movement in commodity price, especially natural gas price, that we'll see a much more activity sort of driven to the back half of this year. And so I think you're right in saying that the back half of the year has more upside potential than what we're seeing in the front half of this year. Nick Corcoran: Color. And then maybe one last question for Derren. I know margins were impacted in the fourth quarter by cold weather and peak service costs. Did any of those carry over into the first quarter? Derren Newell: No. We've seen much better performance so far out of these and cold weather knocked on wood, while it snowed, we haven't had quite the challenges that cold set up in December with the crazy amount of snow that fell up in Northern Alberta at the same time, hasn't impacted us the same way. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Scott Melbourn for any closing remarks. Scott Melbourn: Thank you for everyone who joined this morning. If you have any follow-on questions, please feel free to reach out to myself or Derren. Operator: This concludes today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day.