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Operator: Good morning, and welcome to the Ormat Technologies Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. And I would like to turn the conference over to Josh Carroll with Alpha IR. Please go ahead. Joshua Carroll: Thank you, operator. Hosting the call today are Doron Blachar, Chief Executive Officer; Assi Ginzburg, Chief Financial Officer; and Smadar Lavi, Vice President of Investor Relations and ESG Planning and Reporting. Before beginning, we would like to remind you that the information provided during this call may contain forward-looking statements relating to current expectations, estimates, forecasts and projections about future events that are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the company's plans, objectives and expectations for future operations and are based on management's current estimates and projections, future results or trends. Actual future results may differ materially from those projected as a result of certain risks and uncertainties. For a discussion of such risks and uncertainties, please see risk factors as described in Ormat Technologies annual report on Form 10-K and quarterly reports on Form 10-Q that are filed with the SEC. In addition, during the call, the company will present non-GAAP financial measures such as adjusted EBITDA. Reconciliation to the most directly comparable GAAP measures and management's reason for presenting such information is set forth in the press release that was issued last night as well as in the slides posted on the website. Because these measures are not calculated in accordance with GAAP, they should not be considered in isolation from the financial statements prepared in accordance with GAAP. Before I turn the call over to management, I would like to remind everyone that a slide presentation accompanying this call may be accessed on the company's website at ormat.com under the Presentation link that's found on the Investor Relations tab. With all that said, I would now like to turn the call over to Ormat's CEO, Doron Blachar. Doron? Doron Blachar: Thank you, Josh. Good morning, everyone, and thank you for joining us today. Let me start with a few key highlights from 2025, and then I will touch on several recent developments beginning on Slide 4. 2025 was a strong year for Ormat. Revenue increased 12.5% to approximately $990 million and adjusted EBITDA improved by 5.7% to $582 million. Our results reflect meaningful progress toward our long-term targets. This was supported by improved performance of our Product and Energy Storage segment alongside solid execution in our core electricity segment. Within our Energy Storage segment, we captured higher energy rates in the PJM market and benefited from strong market pricing. In addition, our energy storage facilities operated at higher availability levels, enabling us to fully capitalize on these favorable market conditions. The segment delivered robust gross margin in both the fourth quarter and full year, demonstrating the effectiveness of our strategy to balance contracted pricing with merchant exposure. Recently, we achieved several important new developments. We successfully commissioned Arrowleaf, our first solar and battery energy storage project in California. We completed the acquisition of our second solar plus storage project, Hoku in Hawaii, and we won a geothermal tender in Indonesia. On the PPA front, I know many of you have been awaiting an update. As promised, we have secured over the last few months, approximately 200 megawatts of new PPAs with hyperscalers, data centers, developers and existing utility and municipal customers, all at elevated PPA prices with potential for additional growth. These agreements include a 15-year portfolio PPA for up to 150 megawatts supporting Google's data center through NV Energy, and a 20-year PPA with Switch for approximately 13 megawatts of energy from our Salt Wells plant, which can serve as a platform for future PPA expansions. We also negotiated 2 blend and extend contracts totaling approximately 40 megawatts pending final approval, which will enable us to realize higher energy rates starting as early as 2027 rather than at the original expiration dates. Together, these contracts, along with future contracts provide profitable new revenue streams, enhance visibility into our development pipeline and validate the expansion of our exploration and drilling initiatives over the past several years. We also made strong progress advancing EGS towards commercialization. This is highlighted by our co-lead role in Sage Geosystems Series B financing, supporting the continued development of its geothermal power generation and energy storage solutions. This investment, combined with our commercial agreement with Sage and our SMB partnership broadens our EGS initiatives and positions us to potentially accelerate EGS time to market and expand geothermal deployment globally. I will elaborate on these initiatives in a moment. Before I provide some additional updates on our business, I would now like to turn the call over to Assi to discuss our financial results. Assi? Assaf Ginzburg: Thank you, Doron. Let me start my review of the financial highlights on Slide 6. Total revenues for 2025 were $989.6 million, up 12.5% year-over-year. Fourth quarter revenue was $276 million, up 19.6% versus the prior year period. This top line growth was largely driven by continued strength in our Product and Energy Storage segments. Gross profit for 2025 was $272.7 million, in line with prior year. Fourth quarter gross profit was $78.8 million, up 7.2% from $73.6 million in the fourth quarter of 2024. Gross margin for the full year and the fourth quarter were 27.6% and 28.6%, respectively, compared to 31% and 31.9% in the prior year period. This modest annual comparison was driven by previously disclosed curtailments in our Electricity segment at several U.S. facilities throughout the year and a change in our mix of revenues with higher revenues in our Product segment. Fourth quarter net income attributable to the company's stockholders was $31.4 million or $0.50 per diluted share compared to $40.8 million or $0.67 per diluted share in the prior year period. For the full year, net income attributable to the company's stockholders was $123.9 million or $2.02 per diluted share compared to $123.7 million or $2.04 per diluted share in 2024. The year-over-year decline in the fourth quarter was primarily driven by impairment charges related to our Brawley geothermal assets and one of our Ormat facilities, which we expect now to discontinue operation during 2026. This was partially offset by strong growth in profitability at our Energy Storage segment. Adjusted net income attributable to the company's stockholders for the fourth quarter was $41.8 million or $0.67 per diluted share compared to $43.6 million or $0.72 per diluted share in the fourth quarter of the prior year. For the full year 2025, adjusted net income attributable to the company's stockholders was $137.3 million or $2.24 per diluted share compared to $133.7 million or $2.20 per diluted share last year. Full year adjusted EBITDA was $582 million, an increase of 5.7%. Adjusted EBITDA for the fourth quarter was $158.7 million, a 9.1% increase compared to last year. The year-over-year growth was primarily driven by higher contribution from the Energy Storage segment, reflecting improved PJM pricing and new capacity addition as well as improved performance in our product segment. Slide 7 breaks down the revenue performance at the segment level. Electricity segment revenue for the fourth quarter increased by 3.6% to $186.6 million, primarily due to the recent acquisition of Blue Mountain and the improved performance at our Dixie Valley facility. This expansion to our operating portfolio helped to more than offset $4.3 million reduction at our Puna complex in Hawaii that was mainly driven by lower energy rates. For the full year, electricity revenue decreased by 1.2% to $693.9 million driven by curtailment in the U.S. earlier in the year that reduced segment revenues by $18.6 million as well as a temporary reduction in the generation at our Puna facility and repowering activities at our Stillwater facility. This was partially offset by new generation contribution from our Blue Mountain facility, the Beowawe repowering project and improved performance at Dixie Valley. Product segment revenue increased by 59.1% to $63.1 million during the fourth quarter, and grew by 55.2% to $216.7 million for the full year. The performance was driven by our strong backlog and the timing of progress made in manufacturing and construction. Energy Storage segment revenue increased by 140.5% in the fourth quarter. For the full year, revenue grew by 109.3% to $79 million. As Doron highlighted earlier, the strong performance was mainly fueled by elevated energy rate at our storage facilities in the PJM market, alongside contribution from new operational projects in late 2024 and in 2025, which include the Bottleneck, Montague and Lower Rio facilities. Moving to Slide 8. The gross margin for the Electricity segment decreased to 30.2% in the fourth quarter and 28.5% for the full year. This decline was driven by the curtailment and lower energy rates at Puna that I just touched on. In the Product segment, gross margin for the year came in at 21.2%, an increase of 280 basis points versus last year, in line with our expectation for the year. This performance was driven by the improved project profitability and more favorable geographic and contract mix in 2025. The Energy Storage segment reported gross margin of 51.5% and 36.4% during the fourth quarter and the full year, respectively, making a significant improvement versus the prior year. The increase was driven by the effectiveness of our strategic approach to balancing contracted pricing with merchant exposure. Moving to Slide 9. In the full year 2025, we collected more than $180 million in cash monetization PTCs and ITCs through tax equity transaction and ITC and PTC transfers. This is more than the anticipated $160 million in the year. In 2026, we expect to collect approximately $90 million from ITC tax equity transactions and ITC and PTC transfers. We recorded $20 million in income related to tax benefits in the fourth quarter compared to $18.5 million last year and $66.7 million in the full year 2025 compared to $73.1 million in 2024. In the fourth quarter and full year, we recorded ITC benefits of $10.5 million and $44.2 million, respectively, in the income tax line that drove down the tax rate to a negative 20%. These benefits are related to the energy storage facilities that commenced commercial operation in 2025 and include Arrowleaf and Lower Rio. With the 2 new storage assets expected to start commercial operation in 2026, we expect to record a tax benefits driven by higher ITC levels that will result in a negative tax rate of 15% to 20%. Slide 10 details our use of cash flow over the last 12 months, illustrating Ormat's ability to generate strong cash flow, which allow us to reinvest in our strategic growth while servicing debt obligation and returning capital to shareholders. Cash and cash equivalents and restricted cash and cash equivalents as of December 31, 2025, was approximately $281 million compared to approximately $206 million at the end of 2024. Our total debt as of December 31, 2025, was approximately $2.8 billion, net of deferred financing costs with a cost of debt of 4.8%. Moving to Slide 11. Our net debt as of December 31, 2025, was approximately $2.5 billion, equivalent to 4.4x net debt to EBITDA. During the fourth quarter, we secured $165 million in funding. This includes approximately $100 million in corporate debt raising during the quarter. In addition, we received approximately $59 million in tax equity proceeds, including $30 million from Arrowleaf. As shown on the slide, our total available liquidity is $680 million. We expect our total capital expenditure for 2026 to be $675 million. Following the sale of our Topp 2 plant in New Zealand during the first quarter for approximately $100 million, we expect the net investment to be around $575 million. Our detailed CapEx plan is presented in Slide 33 in the appendix. We plan to invest approximately $465 million in the Electricity segment for construction, exploration, drilling and maintenance in 2026. Additionally, we plan to invest $180 million in the construction of our storage assets and approximately $10 million in the EGS pilot with SLB. On February 24, 2026, our Board of Directors declared, approved and authorized a payment of a quarterly dividend of $0.12 per share payable on March 24, 2026, to shareholders on record as of March 10, 2026. In addition, the company expects to pay quarterly dividends of $0.12 per share in each of the next 3 quarters. Before I conclude my financial review, I would like to highlight that we anticipate a strong start to 2026. We expect first quarter performance to benefit from the approximately $100 million in additional product segment revenues, carrying an estimated gross margin of around 20% related to the sale of Topp 2. I would like now to turn the call over to Doron to discuss some of our recent developments. Doron Blachar: Thank you, Assi. Turning to Slide 13. Our electricity portfolio now stands at approximately 1,340 megawatts globally. We added 72 megawatts in the fourth quarter of 2025. And currently, we have approximately 149 megawatts under construction and development through 2027. Moving to Slide 14 to discuss M&A activity. Subsequent to year-end, we closed an agreement to acquire Hoku, a recently built solar plus storage facility on the Big Island of Hawaii from Energix Renewable Energies for $80.5 million in cash. The acquired assets include a 30-megawatt solar PV facility paired with a 30-megawatt 120-megawatt hour battery energy storage system with a 25-year PPA. This transaction strengthens our growing storage platform and supports our 2028 energy storage growth targets while enhancing the stability and long-term visibility of our revenue profile. The Blue Mountain Power Plant, which we acquired in June, has continued to contribute positively to our results and its capacity recently reached 22 megawatts. We are also making strong progress on planned upgrades to the facility that we expect to complete in the first half of 2027. In addition, we plan to add 12 megawatts of solar PV that will serve the auxiliary needs of the geothermal facility and enable more geothermal power to be sold to the grid. The upgrade and the solar addition will enhance the facility generation capacity and long-term revenue growth potential. Moving to Slide 15. Our Beowawe plant delivered improved performance over the year following the successful completion of its repowering and our Dixie Valley facility demonstrated stronger results during the year as operation normalized after the unplanned outage experienced in 2024. On the international front, we were recently awarded the Telaga Ranu geothermal working area by the government of Indonesia under the Ministry of Energy and Mineral Resources. This concession was awarded following a competitive tender process involving 4 qualified bidders, securing Ormat's long-term rights to explore and develop the geothermal resource. We have strong confidence in Indonesia geothermal potential and believe this site can add up to 40 megawatts to our exploration pipeline. This new award, together with previously announced Songa and Atedai tender wins and other prospects under exploration and development, sum up to 182 megawatts that we are currently developing in Indonesia. Moving to Slide 16 to discuss the 2 significant PPAs I mentioned earlier. In January, we signed a 20-year PPA with Switch, a premier provider of AI, cloud and enterprise data center. This represented Ormat's first direct PPA with a data center operator, highlighting the strategic alignment between our geothermal capabilities and the growing demand for sustainable energy to power data center infrastructure. Under the agreement, which can serve as a platform for future PPAs, Switch will purchase approximately 13 megawatts of clean renewable energy from our Salt Wells geothermal plant. Ormat also has the option to expand output by adding an approximately 7-megawatt solar PV facility to serve the plant's auxiliary power. The combined output will help support the power needs of Switch Nevada data centers, aligning with their commitment to sustainability and carbon reduction. More recently, we entered into a long-term geothermal PPA with Google. The PPA covers a multi-project portfolio enabled by NV Energy Clean Transition Tariff. Under the agreement, Ormat will supply up to 150 megawatts of new geothermal capacity to Google's Nevada AI and data center operations. This is a landmark development for Ormat. The portfolio structure provides long-term profitable revenue growth and visibility into our development plans while solidifying our conviction in our expanded exploration and drilling activities we have undertaken over the past several years. It also establishes a strong framework for similar agreements going forward. The combination of these PPAs attractive terms and the extension of the geothermal tax credit under the OBBBA framework significantly enhances our ability to execute our long-term growth strategy. In addition to these 2 agreements, we have negotiated 2 blend and extend PPAs for existing plants that are currently pending final approval. These agreements are expected to improve revenues at 2 facilities by approximately $20 to $30 per megawatt hour beginning in 2027. Collectively, these new PPAs demonstrate our consistent strategic execution over the past several years and reinforces our ability to secure high-quality long-term contracts that drive sustainable growth. Turning now to Slide 17. Our product segment backlog stands at $352 million, representing a 19% increase on a sequential basis. This growth was primarily driven by the Topp 2 project, which was recently removed from our pipeline due to the customer exercising its option to purchase the facility and our agreement to sell. Topp 2 added approximately $100 million to the backlog that will be recorded as revenues in the first quarter of 2026. Moving to Slide 18. Our Energy Storage segment produced another strong quarter of year-over-year growth with total revenues increasing by 140%. We anticipate that this strong performance in our energy storage business will continue into 2026, driven by higher energy rates in the PJM market. On Slide 20, we continue to remain on track to achieve our portfolio capacity target of between 2.6 gigawatt to 2.8 gigawatt by the end of 2028. This confidence is underpinned by strong momentum in geothermal development and the accelerated exploration efforts. In addition, the efforts that we took throughout 2025 to secure both battery supply and safe harbor status for additional projects helped improve our visibility towards achieving our capacity growth targets. Turning to Slide 21 and 22, which display our geothermal and hybrid solar PV projects currently underway. We anticipate adding 149 megawatts to our generating capacity from these projects by the end of 2028. As you can see from the table, we added a new 30-megawatt greenfield project, first since 2017 that we expect to start operation by the end of 2027. Moving to Slide 23 and 24. We currently have 6 projects under development in our Energy Storage segment, which are expected to add 410 megawatts or 1,540 megawatt hour to our portfolio. These projects, as you can see from the table, include the new 100-megawatt, 400-megawatt hour Griffith facility that we plan to build in California and another 20 megawatts, 100-megawatt hour facility in Israel. Turning to Slide 25 for a discussion on our EGS efforts. In 2025, we made significant progress advancing our efforts to bring new technologies, including EGS towards commercialization. Our partnership with SLB is designed to accelerate the development and commercialization of EGS projects. While still in the early stages, we are confident this collaboration will streamline project deployment from concept through power generation. By combining Ormat's market-leading capabilities in power plant design, development and operations with SLB strength in subsurface reservoir engineering and construction, we believe we can unlock greater efficiencies, reduce execution risk and deliver projects more effectively. We also announced a strategic commercial agreement with Sage Geosystems to pilot its advanced pressure geothermal technology, which extracts heat energy from hot, dry rock at one of our existing power plants. In late January, we further advanced this partnership by serving as co-lead investor in Sage Series B financing, supporting the continued development and commercialization of its geothermal power generation and energy storage solution. This investment is a natural extension of our collaboration and underscores our confidence in Sage technology. Overall, we are encouraged by the meaningful progress achieved across both our external partnership and internal EGS initiatives in recent months, which includes 2 pilots that will be conducted utilizing Ormat facilities. We believe these efforts position Ormat to expand our existing market leadership and accelerate the broader deployment of geothermal energy globally. Importantly, beyond project development within our Electricity segment, we believe our proprietary binary on surface plant technology provides a competitive advantage in the emerging EGS market. Our decades-long operating experience and large installed capacity create a significant learning curve advantage versus new entrants. This positions us not only to develop EGS projects, but also to potentially supply equipment and technology solution to third parties as the market scales. Ormat origins are rooted in technology and innovation. These developments, particularly in EGS will complement our market-leading capabilities in traditional geothermal applications. As these technologies mature, they will represent an additional growth vector at top our long-established core business. Given our expertise and strategic partnership, we believe we are uniquely positioned to bring these technologies to market efficiently and profitably. Please turn to Slide 26 for a discussion of our 2026 guidance. For 2026, we expect revenue to increase by 14.6% year-over-year at the midpoint, ranging between $1,110 million and $1,160 million. Electricity segment revenues are projected to be between $715 million and $730 million. Product segment revenues are expected to range between $300 million and $320 million and Energy Storage revenues are now expected to range between $95 million and $110 million. Adjusted EBITDA is expected to increase by approximately 8.2% at the midpoint, ranging between $615 million and $645 million. I will now conclude our prepared remarks with reference to Slide 27. Looking ahead to 2026, Ormat is well positioned to capitalize on the evolving electricity landscape driven by accelerating AI adoption, rapid data center expansion and supportive market fundamentals, including record high PPA prices and a constructive regulatory environment. This sustained demand reinforces our confidence in delivering on our long-term growth strategy and earnings objectives. We remain committed to delivering reliable, sustainable energy solutions while leveraging our expertise, proven track record and market leadership to drive meaningful growth and create long-term shareholder value. This concludes our prepared remarks. Now, I would like to open the call for questions. Operator, please. Operator: [Operator Instructions] Your first question comes from the line of Justin Clare with ROTH Capital. Justin Clare: And I wanted to start off here just talking about the PPAs. You've obviously signed a lot recently here. You highlighted the 40 megawatts of PPAs signed under a blend and extend strategy. And just wanted to see how should we think about the additional opportunity in terms of the amount of capacity that could be proactively renewed and with PPAs extended ahead of expiration? And then also just wondering if you could provide an update on the amount of capacity that might be coming up for renewal still here in 2026, 2027, 2028? Doron Blachar: As you said, we initiated this blend and extend 40 megawatts that are in the approval phase. And hopefully, in the next few weeks, we will be able to announce once they are fully signed and approved. And we have a few more assets, not too many assets that we can blend and extend, and we have started to work on the next phase that will take a few months to get them updated to the current pricing. Justin Clare: Okay. Got it. So then maybe shifting over just on the curtailments. I think there was an $18.6 million impact in 2025. Wondering if you could quantify what the impact was in Q4. I think things improved in the quarter. Maybe if you could just speak to that improvement. And then your expectations for 2026, what level of curtailments might be assumed in the Electricity segment guidance? Assaf Ginzburg: Justin, this is Assi. I'll start by saying that the curtailment in Q4 did lessen. We saw around [ $3.5 billion ] of curtailment in Q4. I will say that for the full year 2026, we are not expecting more than $4 million to $5 million, maybe slightly higher than that. But at least what we know today from NVE, which is the one that caused most of the curtailment during 2025, we're not expecting too much into it. Also in 2025, if you remember in January, there was some fires in California. Luckily to us this year, we didn't. So we don't expect in Q1 any significant curtailment. So things definitely are coming our way as we look into 2026. Justin Clare: Got it. Okay. And then maybe just one more. Considering those factors, could you share what you anticipate for the gross margin for the Electricity segment in '26 and how that compares to '25 given the factors you mentioned? Assaf Ginzburg: Yes, we do expect anywhere from 1% to 2% increase in gross margin. It's around $14 million, $15 million in total, which is in line with the difference in the curtailment. One thing that we do see this year slightly less than last year is the prices in Puna are lower. But with the tension in the Middle East, this can change very quickly. So right now, the prices in Puna are slightly lower. But again, we took it already into consideration in the guidance. Operator: Your next question comes from the line of Noah Kaye with Oppenheimer. Noah Kaye: Lots going on, lots to talk about. And I want to start with the comments you made in reference to the Google PPA. You talked about this portfolio structure being a model for future activity. And I was just wondering if you could expand on that a little bit in terms of how the structure kind of came to be, why it was the right fit for both you and Google as a counterparty and some of the optionality that it gives you in terms of development. Doron Blachar: Thank you, Noah. So the Google basically, as we all know, is looking continuously for clean renewable energy, and that aligns perfectly with geothermal, it is a baseload. Over the last few years, we've invested quite a lot, and we're continuously investing in exploration and developing greenfields. And we actually released, as you've seen on the presentation, our first greenfield 30-megawatt project, the first time after close to 7 years. And we have a few in the pipeline that are in the final stages of exploration, and I expect to release a few more this year and the next year. And the structure of the PPA basically, which is up to allows us, on one hand, to know that we have a PPA, a very strong and profitable PPA if we are successful on the exploration. And it basically give us the confidence to continue with this investment and exploration effort that we are doing that will grow significantly the company in the coming years. I'm almost sure to say that if we do maximize this PPA, we will be able to add another one. At this stage, it relates to until the end of 2030. And with the exploration efforts we have, this gives us the confidence to continue with this strategy. Noah Kaye: Okay. And then I think on the blend and extend comments that you made in response to Justin's question. So as we understood it, at this point, most of what was expiring through, I think, 2028 has already been recontracted. This blend and extend seems like a pull forward of contracts that were going to expire beyond that. So maybe you could just give us a little bit more insight on the contracts that are being affected here and the amount of kind of post 2028 capacity that you're looking at recontracting right now? Doron Blachar: Yes. The contracts that are being blend and extend are contracts that end, as you said, in the next 3 to 5 years. We have one more contract in this time frame that we are looking to blend and extend. The next wave of contracts actually that are looking for recontracting are mainly in 2032 and 2033, that is Jersey Valley, Don Campbell, McGuinness 1, Tungsten. So we will be looking at this for blend and extend. I don't know to say we'll do it in the next few months because it is longer term. But today, when NV Energy and others that have contracts with us that are set to expire in the range of 5 years plus/minus, they want to secure the recontracting with them. The fact that we did sign with Switch and we did sign with Google PPAs for a similar time frame actually drives their willingness or their desire to sign blend and extend and basically secure the baseload geothermal energy for a longer period of time. Noah Kaye: Makes sense. One quick one to sneak in before I turn it over. Assi, I think you mentioned that the CapEx guide is $675 million, but once the Topp 2 conversion to product revs completes, it will actually be $575 million. Can you just walk us through the mechanics of that and explain the timing on that a little bit, please? Assaf Ginzburg: Sure. So in Q1, we closed the sale of the Topp 2 transaction to our customer after he basically exercised his option to buy the asset. As a result, you will see through the P&L around $100 million of revenue with approximately 20% margin that will boost Q1 results. And what you will see in the financials in addition in the cash flow section, you will see a line item that will be a sale of assets that will offset the CapEx. So when we look at the cash flow for 2026, we will expect to see a CapEx of $675 million. In addition to that, we did made an acquisition in Q1 that was another $80.5 million. So you will see also the M&A of the $80.5 million in Q1. And then you will see a sale of assets of approximately $100 million. So that's what we expect to see on the cash flow. This is just for modeling for you guys to understand the debt and the net debt of the company throughout the year. I want to mention one more thing. You ask us how did Google came about? I do have a recording call with you that you told me, "Assi, if you have to sign with somebody, you have to sign it with Google." So that there, I went to Doron and that's how it all started. So I think you can give yourself some kudos, and we appreciate the support here. Operator: Your next question comes from the line of Julien Dumoulin-Smith with Jefferies. Hannah Velásquez: This is Hannah Velasquez on for Julien. So I'll go ahead and just get started. I wanted to circle back on this curtailment question. So if I'm just using 2024 revenue for the Electricity segment as a baseline, around $700 million, that's also what you did in 2025 for the segment. You brought on -- yes, I mean you brought on over 100 megawatts in the Electricity segment across that time period. And if I do the math there, that would suggest -- that would just suggest about $30 million of incremental revenue from those new assets that came online. And so that gets you to where your guidance currently is. So does that imply that curtailment is not being recovered from 2025? Or I know you talked about $4 million to $5 million recuperating it, but I'm just having a hard time bridging to the new assets or new capacity that you brought online for that segment and then also the curtailment that you expect to recover in the year. Doron Blachar: Hannah, thank you for the question. First, some of the 100 megawatts that you mentioned is solar. So the capacity factor is closer to 22%. So I suggest that you look into it when you model the number. Second, as I mentioned, we do expect $4 million to $5 million curtailment in the year in -- maybe even $6 million in 2026 versus the $18.6 million. So there is around $10 million, $12 million reduction in curtailment. But I think the main difference is that some of the additions are solar. Hannah Velásquez: Right, about 42 megawatts. Yes, I did do the math, and I'm getting about $25 million to $30 million contribution from the new geothermal and then less than $10 million from the new solar. So it still suggests to me not recovering. Doron Blachar: As I mentioned earlier, the prices in Puna are slightly lower. And we're also trying to be quite careful with our guidance for 2026, making sure we can, if possible throughout the year, try to raise the guidance and not be in a position that like we've been in 2025 that we were behind on electricity sales. So it's again also us being proactive here. Hannah Velásquez: Okay. I got it. That's super clear. So you do expect some of the, I guess, segment headwinds that you saw in 2025 to extend over potentially, but you're being cautious in your guidance outlook. Okay. As a follow-up question, just on the EGS front, from what I understand, there are multiple technologies or variations within EGS. It sounds like you're currently betting through Sage Geosystems and also a partnership with SLB. But would you consider any incremental partnerships with other next-gen technologies just because, again, it seems like there's such a wide variance in how different companies are approaching EGS. I'm just trying to get a sense of like the probability of success here. Doron Blachar: Yes. Thank you. That's exactly the way that we are operating, the reason that we have started the joint venture with SLB and also signed a commercial agreement with Sage and invested in Sage, is exactly, as you say, multiple approaches to EGS. There are technological barriers in EGS, mainly the water loss and the economics of it. And we are looking at spreading the risk. We are discussing with other developers in the EGS arena, different cooperations agreement. We believe that EGS, if successful, will turn the industry into something that is much, much bigger because you will be able to generate geothermal energy, baseload energy in many, many places. So we are focused a lot on it. We are looking at the different players, all of them are speaking with us. We are the largest operator of geothermal globally. We are the largest binary seller of supply of products in EPC. And I assume that over the next time you'll see us making additional moves in the EGS in order to make sure that if EGS is successful, Ormat will be able to capture this opportunity. Operator: Your next question comes from the line of Mark Strouse with JPMorgan. Mark W. Strouse: Maybe a follow-up to Hannah's question there on EGS. Instead of kind of looking beyond the existing partnerships, within the partnerships that you have with SLB and Sage, do you think that we could see additional pilot activity announced in 2026, potentially different site selection with different conditions, whatever it might be? And then on that same slide, on Slide 25, you mentioned the equipment sales to third-party developers. Can you talk about what you've embedded in your guide for 2026 from that? And how we should think about the timing of when that could potentially become more material? Doron Blachar: Thank you, Mark. I'll start maybe with the second part of the question. EGS has technological challenges that needs to be solved. I think most of the players that we know are dealing with these challenges. I would expect that during 2026, we will be able to negotiate with some of them, maybe EPC contracts. But revenue from that, first, they will need to demonstrate the technological issue. They will need to drill wells. And then the EPC revenue will come. So we have multiple discussions with different of them, as I said before, both on EPC agreements. But this will be EPC that will impact product segment probably second half of '27, '28, definitely, if it is successful. Regarding additional developments, we are speaking with other companies that are looking at technological ideas that have already invested and raised cash in order to develop them. We are also building internal capabilities to see how we adjust our technology to fit these large-scale power plants. We are speaking with different hyperscalers and data centers on PPAs once the technology is successful. So there's a lot, a lot of work that is being done within Ormat in the different areas. I'm sure that during the coming quarters and discussions, we'll keep on updating you on the various issues. And as I said before, if this is successful, it will take Ormat and the industry into a different level. Mark W. Strouse: Yes. I understand. Okay. That's helpful. And then can I just switch over to the storage side of the business. Just given the initial guidelines that came out recently, just curious for your take on that and how you're approaching potential safe harbor before the July deadline that would give you further visibility out to 2030? Doron Blachar: Ormat, over the last year, have safe harbored over 1 giga of project, and we plan to install and use it over the next few years. I will start by saying that Griffith, which is a 100-megawatt, 400-megawatt hour, which is our largest project was also safe harbor. We have basically for all of our interconnection for 2028, 2029, safe harbor basically the majority of the project. We were able to reiterate our 2028 targets for the storage, taking into consideration the FEOC. All in all, we are in a very good situation to continue and grow. We also see more and more capacity of batteries coming from outside China, which is very favorable. We see also increase in U.S. production. So I believe that the FEOC eventually will not impact us. I think that our position in the queue, especially in California is very good, which should enable us to release over the next year, potentially additional 2 projects, almost similar size to Griffith. So again, all in all, the ability to buy batteries, the extension of the credit and the fact that we safe harbored a sufficient project for the next 3 years really put us in a good place. In addition to the fact, when you look at our pipeline, you see the majority of it is in California, which battery is really, really needed. And those lines that we have in the queue really put us in a position to sign good tolling agreements or good RA contracts. Operator: [Operator Instructions] Your next question comes from Ben Kallo with Baird. Ben Kallo: Just thinking about -- as you think about longer-term targets past the '28 and there's been a lot of changes from the federal level in the United States. When do you think that you're in a position to update us on longer-term targets? And then have you adjusted the operations to the benefit of any of that and specifically just faster permitting or anything like that? And then my second question is -- and thank you for that. You kind of answered this, but just on the EGS front, outside of technology, how do you think about just building the infrastructure around your own development if we look out to 2030, 2031, whether that's employees or its financing or other things there because scale will get bigger if and when you're successful. Doron Blachar: Thank you, Ben. So we are -- I'll start with the second part. We're definitely looking how to prepare ourselves to this transformation event of EGS is successful. We are doing the exploration. We have increased our BD efforts. Obviously, the land position that you need for an EGS project is significantly bigger than what you need for geothermal. So we are looking at much larger land positions in additional states, not just Nevada and California. So the look for EGS is much broader than just Nevada and California. We are looking on our binary technology, how you manufacture so many turbines to a power plant, heat exchangers, how to multiple Ormat's efforts. All of these are things that we are working on in parallel to make sure that once the technology is successful, we are able to utilize it and move forward with it. Regarding the question on the growth target. So one, we've increased significantly over the last few years, the exploration efforts. We see the greenfield, the first one coming to fruition now. We will see additional coming. The change in the permitting helped us a lot and moved that faster than what happened in the past. The fact that there are multiple land options by BLM in different states in the West, again, push us faster. We are planning an Analyst Day in the September time frame. And at that time, we will give longer-term targets for megawatt. Operator: And thank you. And with no further questions in queue, I'd like to turn the conference back over to Doron for closing remarks. Doron Blachar: Thank you all for joining us today. 2025 was a very good year for Ormat. Looking to 2026, we continue to see growth in all our segments and expect significant progress in EGS during 2026. Thank you. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good day, ladies and gentlemen. Thank you for standing by, and welcome to the ACM Research Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I will turn the call over to Mr. Steven Pelayo, Managing Director of Blueshirt Group. Steven, please go ahead. Steven C. Pelayo: Good day, everyone. Thank you for joining us to discuss fourth quarter and fiscal year 2025 results, which we released before the U.S. market opened today. The release is available on our website as well as from Newswire Services. There is also a supplemental slide deck posted to the Investor Relations section of our website that we will reference during our prepared remarks. On the call with me today are our CEO, Dr. David Wang; our CFO, Mark McKechnie; and Lisa Feng, our CFO of our operating subsidiary, ACM Shanghai. Before we continue, please turn to Slide 2. Let me remind you that remarks made during this call may include predictions, estimates or other information that might be considered forward-looking. These forward-looking statements represent ACM's current judgment for the future. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Those risks are described under the risk factors and elsewhere in ACM's filings with the Securities and Exchange Commission. Please do not place undue reliance on these forward-looking statements, which reflect ACM's opinions only as of the date of this call. ACM is not obliged to update you on any revisions to these forward-looking statements. Certain financial results that we provide on this call will be on a non-GAAP basis, which excludes stock-based compensation and unrealized gain or loss on short-term investments. For our GAAP results and reconciliations between GAAP and non-GAAP amounts, you should refer to our earnings release, which is posted on the IR section of our website and to Slides 14 and 15. Also, unless otherwise noted, the following figures refer to the fourth quarter and fiscal year 2025, and comparisons are going to be with the fourth quarter and fiscal year 2024. I will now turn the call over to David Wang. David? David Wang: Thanks, Steven. And hello, everyone, and welcome to ACM's Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. I'm pleased with our fourth quarter results, which capped off a solid year of execution. Revenue grew 9% in the fourth quarter and 15% for the full year. We continue to execute well across our core business. We made a lot of progress with new product platforms, and we strengthened our position in China and globally. Investment in AI and data center infrastructure is reshaping the global semiconductor demand, shifting capital towards advanced logic, memory and advanced packaging. The industry is looking to key supplier for new technology, many of which have not yet been invented. ACM differentiated technology portfolio has been aligned well with this high-value process steps and the market is how -- now the market is coming for us for solutions. A good demonstration is recent momentum with several key global customers outside the Mainland China market that we announced in today's press release. First, we announced that we have delivered multiple single-wafer cleaning tools to Singapore facility of our Asia-based foundry customer. This marks ACM's first tool installation to Singapore, a key milestone for ACM. Second, we announced that we're receiving multiple orders for our advanced packaging tool from 3 global customers. This included orders for multiple-wafer level advanced packaging system from a leading global OSAT customer based in Singapore with deliveries scheduled for the first quarter of 2026. A panel-level advanced packaging vacuum cleaning tool from a leading global semiconductor packaging manufacturer based outside Mainland China, also scheduled for delivery in the first quarter of 2026 and multiple-wafer level packaging system from a leading North America-based technology customer with delivery scheduled later this year. Now on to our business results. Please turn to Slide 3. For the fourth quarter of 2025, we delivered $244 million in revenue, up 9%. For the year 2025, we delivered $901 million in revenue, up 15%. Top line growth of 15% was better than growth for the overall China WFE market, which third-party estimate as generally flat for 2025. We consider this good result, especially since our 2025 revenue includes very little contribution from our new products. We expect a strong product cycle in 2026 from SPM cleaning and our furnace product as we made a very good technical progress for this new product across our customer base. We also made a good progress with our supercritical CO2 dry, Track, panel-level plating and PECVD, which we expect to contribute some more in 2026, but more in 2027 and beyond. Shipments for 2025 were $854 million versus $973 million. Remember, 2024 shipments increased 63% over the year. So we had a tough compare. We also had some shipment for new product pushed into the 2026. Importantly, we expect 2026 shipment growth to be higher than our 2026 revenue growth. Gross margin was 41% for the fourth quarter and 44.5% for the full year. Q4 gross margin was slightly below our long-term target range of 42% to 48%. We attribute the Q4 level to product mixing, including a few semi-critical products with a lower margin due to the competitive pressure and also higher seasonal inventory provisions. We expect lower gross margin to be temporary. We believe our new product ramp, combined with the product design and supply chain initiative will enable us to deliver the best product at a lower cost. There's no change to our long-term target model range of 42% to 48%. Moving on, we ended the year with a net cash of $845 million versus $259 million at the year-end of 2024. This balance sheet provides the foundation to continue our effort to develop world-class tools for the leading global semiconductor manufacturers. Before I review our product, I will provide our view on competitive dynamics in China and how we will win in this environment. We have recently seen a flood of new local entrants to the China capital equipment industry. In many cases, there are 5 or more players going after a single point product, all with very similar design and performance. We believe we will compete and win in China market because, number one, we have a differentiated technology with many products almost the best in the world. Two, we have a deep portfolio of IP with strong protection in China; and three, our local customer demand the best technology in order to compete in the global market. Now I will provide detail on product. Please turn to Slide 4. Revenue from single-wafer cleaning, Tahoe and semi-critical cleaning tool was $626 million, up 8% in 2025 and represented 69% of total revenue. We now estimate our cleaning portfolio address 95% of the application and process steps, and we are working on developing remaining solution that will bring us to 100% in 2026. We believe ACM now has the widest coverage of cleaning tool, far more extensive as compared to all competitors. The 8% year-over-year growth in 2025 included very little contribution from our newer cleaning line. We expect this new product, including single-wafer SPM, Tahoe and N2 bubbling wet etch to contribute more meaningfully to our 2026 revenue. As the industry moves to more advanced nodes, we expect increased demand for high-performance cleaning tools. The increased adoption of multiple patterning is driving higher layer counts, potentially impact yields and demand more cleaning steps with a higher cleaning efficiency. We believe this plays right into ACM's strength. For example, our proprietary N2 bubbling etching technology is uniquely positioned in the market. We are seeing growth interest for advanced 3D NAND application where larger bubble size and uniformity control will become more critical as the industry moves to 300 layer and above. In SPM cleaning, customers recognize the advantage of our proprietary nozzle and chamber design. We believe our platform outperforming leading competitors in small particle cleaning performance. We made a significant technical progress at the end of 2025 with our new SPM nozzle design. We achieved a 50 nanoparticle size count of under 20, which we believe is the best-in-class performance for the industry. Our unique nozzle design does not require any routine chamber DI water cleaning. This is a big deal for customers because it not only delivers a better cleaning environment for the chamber, but also increased uptime of our equipment. As a result, I'm pleased to report today that we have received a strong repeat order for our SPM cleaning tools from a major customer for delivery to module fab in 2026. We are also seeing very strong interest for our unique SPM technology from numerous global customers because they are not satisfied with the performance of their current plan of the record tool. Our supply -- our supercritical CO2 dry tool integrated ACM proprietary cleaning IP while reducing CO2 consumption by approximately 40% as compared to their competitors. This results in process efficiency with lower operation cost. We made a successful in-house demo for the multiple Logic and memory customer at the end of 2025. We have already received a demo PO for evaluation tools from 2 customers for delivery middle of 2026, and we expect to deliver additional tools to multiple customers later this year. In Mainland China alone, we estimate the incremental market opportunity for this next-generation cleaning product is nearly USD 1 billion. We remain confident in our long-term objective to achieve approximately 60% of the market share in China cleaning market, and we expect the cleaning to outgrow the China WFE this year and in the year ahead. We estimate our market share for ECP in China is now more than 40%, and we remain confident in our long-term goal to achieve 60% or more. Front tool was -- represent about 70% of the mixing for year, including our Map, MAP Plus, ECP 3D, ECP G3 products. ECP back-end tool were about 30% of the mix, including our ECP AP product line. In Q4, we delivered our first Ultra ECP ap-p horizontal panel-level electroplating tool to industry-leading large panel fabrication customer. We -- our customer prefer ACM preferred horizontal plating solution versus competitors' vertical plating approach due to the much better plating film uniformity and much less cross-contamination between multiple plating chemicals. We expect a growing customer interest in our panel-level solution as the industry looks for higher throughput and lower cost to support advanced packaging solution for multiple large die size and HBM AI chips. As discussed earlier, we received order from 3 global customers for both wafer-level and panel-level packaging tools. Our furnace tool are under various stage of evaluation of many customers. Revenue from furnace was relatively small in 2025, and we expect a more meaningful contribution in 2026. We made several technical breakthrough for LPCVD and ALD and PEALD in 2025. We see good demand across multiple applications, including high-temperature neo, especially 1,350-degree version, LPCVD, ALD and PEALD. We believe ACM differential design position us to capture meaningful market share. Revenue from advanced packaging, which exclude ECP, but including service and spare was up 45% in 2025 to $76 million and represents 8% of revenue. This includes coater, developer, etchers, stripper, scrubber and vacuum cleaning tools. We believe ACM is the only company to offer a full portfolio of wet process tool and world-class plating product for the advanced packaging. We think the combination is very powerful. It provides ACM with a valuable insight into the challenging of next-generation packaging as AI drives industry towards 2.5D and 3D integration. We are making solid progress with our new Track and PECVD platforms. Last September, we delivered our high-throughput 300 WPH KrF track tool for evaluation at a key customer. We expect mass production qualification in 2026 for the tool. And we anticipate this will lead to demand from additional customers, including both stand-alone and full integrated system in line with the lithography tool. We believe our high throughput design positions this platform to compete effectively with the current supplier. In Q4, we delivered our first Ultra Lith BK system. This milestone represents the first customer deploy of our Track series following early demonstration and validation. It also marked our entry into the display panel market, a new segment that require high-volume manufacturing and strong performance stability. We anticipate to develop our proprietary PECVD platform. Our design has 3 trucks per chamber, which we believe is the only one in the world. This provides flexibility for a wide range of process with the same hardware. We feel good about our positioning as the team works through the technical detail with a few tool in our Lingang mini lab running wafer test and custom demo wafer. We expect to ship multiple EVA tools in the near term. In summary, we innovation -- our innovation engine contribute to drive differentiated solutions across a broader growing portfolio. As AI drives a more complex semiconductor process, customers are turning into ACM as a trusted partner to help solving their increasing challenges. Next, let me provide an update on our production facility. First, on Lingang, please turn to Slide 8. Our Lingang production and R&D center is now our primary production center. The first building is in volume production and the second provides capacity for the future expansion. Together, the 2 facilities can support up to $3 billion in annual output. During 2025, we made a good progress on our mini line and Lingang. We have enhanced our process development capability and now support the on-site customer evaluation in fab-like conditions. Our mini line, including ACM tools and tools from other players and metrology tools. We believe the mini line will accelerate our internal product validation, shorten R&D and qualification cycle and strengthen collaboration with key customers as we introduce next-generation platforms. Next, our Oregon facility, please turn to Slide 9. We are accelerating investment in Oregon with the operation expected beginning in the second half of 2026. This facility will allow customers to evaluate our technology and to test their wafer locally, and it will serve as our initial base for production in the United States. Our global customers are encouraging by our commitment, which we believe will help them to choose ACM as a key supplier to scale production. We remain very pleased by the success of ACM Shanghai team, which continue to be a key supplier to the semiconductor industry in Asia. ACM Shanghai has also proven to be a great source of capital and financial flexibility for ACM. In September 2025, ACM Shanghai completed a private offering of ordinary share, generating approximately $623 million in net proceeds. In February 2026, we completed the sale of approximately 4.8 million ACM Shanghai shares at RMB 160 per share, generating approximately $111 million in gross proceeds. ACM Shanghai also has been a good source of dividends in 2023, 2024 and 2025. We received dividends net of tax of $19.2 million, $28.5 million and $29 million, respectively. Our major ownership in Shanghai -- ACM Shanghai remain a strategic asset. It enhances our financial flexibility and supporting disciplined execution as we continue expanding globally. Taken together, our expanding product portfolio, increased manufacturing capacity and strengthening capital position give us confidence in our long-term strategy. Now turning to our outlook for the full year 2026. Please turn to Slide 10. In middle January, we introduced our 2026 revenue outlook in the range of $1.08 billion to $1.175 billion. This implies 25% year-over-year growth at the middlepoint. We reiterate this outlook today. Since our founding in California in 1998 and the establish of ACM Shanghai in 2005, we're building a globally competitive semiconductor equipment company grounded in innovation and different technology. Our leadership in cleaning and electroplating created a strong foundation, and we are now expanding across Furnace, Track and PECVD as we broaden our multiple product portfolio. In Asia, we are recognized as a leader in wafer cleaning and plating, and we are engaging with a global customer across U.S. and Europe. With continued progress across SPM, Tahoe, supercritical CO2 dry, Furnace, Track, PECVD and panel-level packaging, we believe we are entering a new phase of a product cycle that are driving sustained growth. We have the customer, the product, the capacity and the capital to execute our global business plan, and we remain committed to our long-term target of $4 billion in revenue. Now let me turn the call over to our CFO, Mark, who will review details of our fourth quarter and full year results. Mark, please. Mark McKechnie: Thank you, David. Good day, everyone. Please turn to Slide 11 and 12. Unless I note otherwise, I'll refer to non-GAAP financial measures, which exclude stock-based compensation, unrealized gain/loss on short-term investments. Reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. Also, unless otherwise noted, the following figures refer to the fourth quarter and full year of 2025 and comparisons are with the fourth quarter and full year of 2024. I will now provide financial highlights. Revenue was $244 million for the fourth quarter, up 9.4%. For the full year, revenue was $901.3 million, up 15.2%. Full year revenue was in line with our original guidance set a year ago and slightly above the updated range announced on January 22. Fourth quarter revenue for single-wafer cleaning, Tahoe and semi-critical cleaning was $159.9 million, up 3%. For the year, this category grew by 8.1%. Fourth quarter revenue for ECP, Frontend Packaging, Furnace and other technologies was $64.1 million, up 23.9%. For the year, this category grew by 32.1%. Fourth quarter revenue for Advanced Packaging, excluding ECP, services and spares was $20.5 million, up 23.8%. For the year, this category grew by 45.3%. I will now provide revenue mix by customer type for 2025. Starting this year, rather than disclosing specific customer names, we are now disclosing revenue by customer type once a year. For each customer type, this includes product, services and spare parts. We've included the mix table on Slide 7 of our presentation. For 2025, our revenue mix by customer type was split among Foundry, Logic and Other, 59%; Memory, 27%; Packaging and Wafer Processing, 14%. In 2025, we had 4 10-plus percent customers, including our top customer was 16.9%, next was 13.5%, then 11.6% and 10.2% for an aggregate total of 4 customers representing 52.2% of total sales. For 2024, we had 4 10% customer also for a total of 52.2%. Total shipments were $228 million for the fourth quarter, down 13.5% and $854 million for the full year of 2025, down 12.2%. David noted, we had a tough compare versus a strong 2024 when shipments increased 63% year-over-year. We also did have some shipments for new products pushed into 2026. We expect 2026 shipment growth rate to be higher than our 2026 revenue growth rate. Gross margin was 41.0% for the fourth quarter and 49.8%. For the full year, gross margin was 44.5% versus 50.4% in 2024. Q4 gross margin was slightly below our long-term target model. Adding to David's earlier remarks, gross margins were down 8.8 percentage points year-over-year on a quarterly basis. This was due to product mix and margin pressure concentrated in a few semi-critical products, which contributed about 5 points of the headwind and a higher level of inventory provisions that contributed about 4 points negative impact. As David noted, we expect the lower gross margins to be temporary. We believe our new product ramp, combined with supply chain initiatives will enable us to deliver the best products at a low cost and there is no change to our long-term target model range of 42% to 48%. For modeling purposes, we expect gross margins to be at the lower end of this longer-term target range for the first half of 2026 with an anticipated lift in the second half due in part to contribution from newer products, which generally have higher gross margins. Operating expenses were $70.6 million for the fourth quarter, up 21%. For the full year, operating expenses were $258.4 million, up 34%. For 2025, R&D was 15.1% of sales, sales and marketing was 7.8% of sales and G&A was 5.8% of sales. For 2026, we plan for R&D in the 16% to 18% range, sales and marketing in the 7% to 8% range and G&A in the 6% range. Operating income was $29.5 million for the fourth quarter versus $52.8 million. Operating margin for Q4 '25 was 12.1% as compared to 23.6%. For the full year, operating margin was 15.9% as compared to 25.6%. Long term, we look to grow our R&D spending in line with revenue, but we expect to show operating level -- operating leverage in SG&A with spending growth below our revenue growth level. Income tax expense was $6.6 million for the fourth quarter versus $17.3 million. For the full year, income tax expense was $13.3 million versus $35 million in 2024. For 2026, we expect our effective tax rate in the 8% to 10% range. Net income attributable to ACM Research was $17.3 million for the fourth quarter versus $37.7 million. For the full year, net income attributable to ACM Research was $110.2 million versus $152.2 million. Net income per diluted share was $0.25 for the fourth quarter versus $0.56. For the full year, net income per diluted share was $1.61 versus $2.26. Our non-GAAP net income excluded $6.4 million of stock-based compensation expense for the fourth quarter and $33.6 million for the full year. I will now review selected balance sheet and cash flow items. Cash, cash equivalents, restricted cash and time deposits were $1.13 billion versus $441 million at year-end 2024. Net cash, which excludes short-term and long-term debt was $845.5 million versus $259.1 million at year-end 2024. $585.4 million increase in net cash for 2025 included $623 million net raised in the private offering by ACM Shanghai in 2025. Total inventory at year-end was $702.6 million versus $676.4 million at the end of the third quarter. Raw materials were $349.7 million, up $23.5 million quarter-over-quarter. We made additional strategic purchases to support production plans and to mitigate any potential supply chain risk. Work in process was $61.4 million, up $1.9 million quarter-over-quarter. Finished goods inventory was $291.6 million, up $0.9 million quarter-over-quarter. Finished goods inventory primarily consists of first tools under evaluation at our customer sites along with finished goods located at ACM's facilities. Cash provided by operations was $33.9 million for the fourth quarter. For the full year cash -- 2025, cash used by operations was about $10 million. Capital expenditures were $58 million for the full year 2025. For the full year 2026, we expect to spend about $200 million in capital expenditures. This continues -- this includes continued investments in Lingang, including the mini line and the second production facility, fixed assets for the business and investments in Oregon, along with other items. That concludes our prepared remarks. Now let's open the call for any questions that you may have. Operator, please go ahead. Operator: [Operator Instructions] Our first question will come from the line of Charles Shi with Needham & Company. Yu Shi: I believe you gave pretty good color on shipment versus revenue growth this year. So I have a question since you mentioned about new products probably going to be a bigger driver this year for growth. And wonder if you can give us some color, let's say, excluding the new products, what's the growth, either shipment or revenue is expected to be excluding all the new products for the -- maybe -- I think maybe I'm talking about the existing product lines in cleans, plating, et cetera. David Wang: Okay. Okay. Thank you, Charles. And actually, you know that we -- as we said, we made quite a big progress, right, in the SPM process. Generally speaking, SPM, product SPM represent 25%, 30% of the cleaning market. And this market in the last couple of years, were not much touched so much. And as I said, last 2025, we made a very good progress both into the special module design for the high temperature and also Tahoe product. So we're getting to very aggressively into this market. And again, this is a very high-margin product and also a lot of customers, both in the Mainland China, also outside China, they suffered the particle issue with this high-temperature SPM process. And we think with our proprietary design model, we can control a very good environment, so therefore, can be -- will reduce particle size. So that can be really enhanced our market growth in cleaning. Secondly, I want to see that is our N2 bubbling proprietary bubbling wet etch technology is really critical for the 3D NAND silicon nitride etching process, which we believe our proprietary technology not only cover today's demand for 300-layer, we believe as people moving to 400 or even 500 layer will suffer this kind of uniformity on the wear top or wear bottom, right? So we're using large bubble and size. We also with our proprietary technology, we can make a very uniform and large bubble distribution in the tank. That will be really enhance the etching uniformity from the top to the bottom for the wear. So we believe that's not only demand in the market in China, we also see that demand outside in the global market, too. And third one, I also mentioned that is our supercritical CO2 Dry, we also made a lot of progress, right? And which is the past customer demo. We have 2 tools scheduled to be delivered in the first or second quarter of this year. We have additional interest in coming. Again, since the supercritical CO2 with our proprietary design, we got a capacity our CO2 chamber is about 40% smaller. So we believe that we're really providing customers a 40% reduction of the consumable cost. And that really also, again, right, driving this product not in the local, I call it China market, but also getting to outside China market. So with all this cleaning I call it add together, we believe also expansion in the future. This will probably represent even China, over $1 billion market potential for us to get in. So we're still very excited about our continued expanding our cleaning product in the China market, plus also give us really strong differential technology in global market, right? So that's for cleaning. And again, for copper plating, as I mentioned, we have a full set of the cleaning products, front-end, TSV, back-end, advanced packaging, including also this, I call it compound semiconductor. Plus recently, we just announced our panel horizontal plating, which we believe very, very key technology to driving for the panel size plating. This moment, everybody using vertical and copper plating for panel. We are the first one in the world so far doing horizontal plating, right? With our different technology, we believe probably most likely, we're the only one in the market to drive another horizontal copper plating. So this year also, we see the bigger interest, not only in the China market, we see also a lot of interest coming in for us to deliver this tool. So with that, all new products in our existing cleaning, copper plating can drive a lot of revenue this year, including next year, right? And then plus, as I said, our other Furnace and PECVD and also Track business, we are developing for the last 4, 5 years, really made a lot of technology breakthrough, too. So we believe those technology getting this year start getting market, and we're real sustaining our next 3- to 5-year growth. And which you know that last 3, 4 years, our major growth has come from cleaning and copper plating. And next few years, we see this new product coming will definitely strengthen our highgrowth profile in the next few years. So we are very excited, very try to execution our strategy to continue to grow our revenue. Charles? Yu Shi: Maybe a question on profitability. So you reported last year, you gave some color about this year. But I believe if my math is right, your operating margin will compress last year from maybe close to 26% in '24 to 16% in '25. But this year, based on your -- what you guided about gross margin, what you guided about R&D, SG&A, it doesn't look like operating margin can rebound. It feels like operating margin probably more or less the same or even coming down a little bit depending on how the gross margin trends for the remainder of the year. So I wanted to get some sense how -- what's the reason for operating margin being under pressure for almost 2 years? And how do you plan to address this and maybe try to expand the operating margin from here? David Wang: Yes. Actually, that's this way. Looking at gross margin, right, we are the probably top of the equipment company in China, right, for gross margin, right, for the last few years. And as you said, Q4 of -- Q4 last year, we do see our first time gross margin is lower than our range, 40% to 48%, right? As we explaining maybe 3 factors. One is the product mix. We have 1 or 2 products, which is a semi-critical tool, do have pressure from the competitor for pricing there. The next one is really this inventory provision. But we think this year, as we are new product coming, as I mentioned, the 3 products coming will definitely enhance our margin. And also our inventory provision, we believe will be also greatly reduced too. So with that, we still have confidence we're in the 42% to 48% gross margin in this year or beyond. And more than that is, as you said, we put quite a bit of R&D last year, right? It used to be R&D 13%, 14%. This -- last year, we're getting to 16%. We probably will keep that number in a way. Why? The next few years, AI is driving a lot of demand for the new technology. And everybody else, first tier company outside China, all people put a lot of R&D. And so we'll continue to invest that, which we know will impact a little bit our operating margin, but it's worth to spend money now. Why? I said the opportunity is there, right? And a lot of customers real demand for the new technology, which I believe a lot of AI technology today even not invented yet. So it really give ACM a good opportunity with our, I call it our innovation power, our different technology, development capability, we can use this AI trend, we catch a lot of new technology and also catch the customer. This horizontal plate is one good example, for example, right? So again, and it's worth to spend more R&D and even get a few percent of the operation margin lower, which is a real long run, and we're working for the investor interest and also the growth ACM market into the next few years. Mark McKechnie: Yes. David, I might add a few things. I think that was a good overview. But Charlie, I think kind of summarizing it up, we're spending into the $4 billion market opportunity. There's a number of products that -- areas that we've been investing in that haven't scaled yet, but we expect them to scale over the next few years. It's the right thing to do to spend into that. You're right about the operating margin for 2026 kind of comes in at the mid-teen level, similar to what it was here in 2025. You move out a few years, our target is to keep those gross margins at that target range and then grow our top line faster than our OpEx. I think you can see some leverage in the out years. Operator: Our next question will come from the line of Edison Lee with Jefferies. Yu Lee: Congratulations on the results. I just have 2 quick questions. Number one is that for the fourth quarter, the margin is a little bit low and the revenue growth also is a little bit slow and then your shipment, I think, declined on a year-on-year basis. So how much of that is just product mix and seasonality? And when do you think these numbers will actually start improving in 2026? And then the second question is about the USD 111 million you raised by selling down ACMS. Can you shed some light as to how you would actually utilize that proceeds? David Wang: Okay. So let's answer your first question, right? I think that you look in the -- I just mentioned last couple of years, our major growth engine from cleaning and also copper plating, right? Even the cleaning, I said there's one important product, which is SPM process were not touched too much. As I mentioned last year, end of last year, Q4 last year, we made a significant progress with this special nozzle design. We believe our performance is outperforming and top tier as a tool. So we see that growth continuously, right? And so then I would say our cleaning, copper plating and also horizontal panel continue to expand, too. So that keep momentum. Our cleaning market probably today in China about 35% range. We're expanding to 50%, 60% in the next few years. And the copper right now, the 40%, I still say we'll try to catch 60% beyond market in China. More than that is those product -- different products, we see a very high interest from global top-tier customer. So that's what we also reinforce our sales outside China. So that's where I see the impact or boost our revenue for our existing product. But -- and also, I want to see that through the last 5 years, we are really working with differentiated PECVD and Track and also Furnace technology, which we believe a lot of new technology we are putting in and nobody had it before, right? So that's what reinforce our, I call, market position. And plus those tool really with our differential technology, we put a lot of time to develop IP, develop the road map. It costs a little bit long time than the other guys. So -- and now it's come the moment for the market. And plus, I want to see another bigger impact is, I call it improvement is last Q3, we started using Lingang mini line, which we do not have it before. that was really helping our internal demonstration, internal R&D speed. We see the bigger impact already. So that will be helping our tool mature before we ship the customer. So with altogether, I want to say this new growth from the existing and also our new product coming, we're driving ACM is real high growth profile in the year -- this year and in the next few years. So we are very confident. Plus even I say WFE market in China is flat, we can get a higher growth rate because of new product coming. And plus also, as you say, we have made a lot of progress in the global customer, this news announced today. We also see a lot of interest in coming to our different technology from top-tier customer because we have a patent has been locked the technology already. They almost have no choice. They have to come to us. anyway, so that's really exciting for our technology. We're really trying to push in our technology will benefit the international global customer for their AI challenges. Dave, anything you want to add on that? Mark McKechnie: Yes. Let me add on to something before you answer his question about our Shanghai stock sales. So Edison, for Q4, you probably remember last call, we mentioned that Q4 and the year -- the overall year came in at the midpoint of where we started the year, maybe a little bit better. And don't forget, we had 2 things. Our newer products didn't kick in, very little in 2025. And then we did have a customer push out from Q4 into 2026. And so that was kind of -- those 2 things that hit 2024 -- I'm sorry, the Q4. When you look out to 2025, we're expecting linearity pretty similar to -- I'm sorry, 2026, we're expecting our linearity to be pretty similar. So the first half will be about 42%, 43% of revenue. Second half will be 57% to 58%. But I would kind of anticipate Q1 at about 18% to 20% of the full year mix. Maybe, David, if you wanted to take this question, what are we going to do with the cash that we raised in -- or that we sold -- the cash that we sold. Yu Lee: Sorry, Mark, Mark, Mark, can you hear me? Mark McKechnie: Yes. Yes. Yu Lee: Before we move on to the use of proceeds, can you also comment a little bit on what you said about, I think, some products having some pricing pressure, which I think partially account for lower margin in the fourth quarter? Mark McKechnie: Yes. And there's not much to add to what I said there. Or what David and I have both said. There were a couple of semi-critical products that had particularly low margins that hit us in Q3 and Q4. And we -- David mentioned in the prepared remarks, he talked about the competitive situation in China. We are very focused on developing world-class tools. We think that there is also a bigger provision in the back half of the year. So we think that will be -- the overall provision for 2026 probably be smaller than it was in 2025, and it will probably be more balanced throughout the year. Yu Lee: Okay. David Wang: So you want me to touch the how we're using proceeds, right? Yu Lee: Yes. David Wang: Okay. Well, obviously, we have a second offering in China, right? Those money will be really focusing on R&D again, our expansion for their manufacturing. We have a second building will start decoration this year. So with that add together, probably we can manufacture $3 billion annually, which really give us a lot of room for manufacturing. And plus, we're also putting money in the mini line, as I mentioned, this mini line really speed up our internal R&D and debugging tool and also even can do the joint development with the customer process, too. So it's really well spend for those money. And the proceeds we got from the -- so the 1.3% from Shanghai here, definitely the major purpose for that was spending global customer, global marketing sales. So we see that opportunity really big in the global market. As I mentioned, we do have some differential technology might be the only solution for their AI challenging. So those products, we think will be really gather attention from the global customer. So we have spent money and building the international strong sales channel and also where we already had a Korea manufacturer base already. And however, with this geographic tariff going on, we have to really minimize the tariff impact, right? So that's why we started assembly tool in the U.S.A. So that will be real reduce our concern or any dynamic changing for those tariff will impact our revenue. So anyway, that's really what we work on. And our goal is very simple. We try to working with satisfy all regulation and requirement and maximize the investor interest, we're building a global sales, global company. That's our goal. Operator: Our next question comes from the line of Jimmy Huang with JPMorgan. Jimmy Huang: Can you hear me? David Wang: Yes, please. Jimmy Huang: Congrats for the good results. I want to ask about we deliver single-wafer cleaning tools to a Singapore gas foundry. What would be the potential size of shipments in terms of units or dollars this year or next year and next year? This is my first question. David Wang: Yes. Very good question. Actually, we have a few tools, we're in the installation process right now, right? This tool will be qualified and go in production this year. And with that, we definitely will induce more of a cleaning tool. And also, we do have a copper plating and in -- behind. So that really will give us exposure of product in the Asian market. And so this will be real making more of, I call it, confidence and also get a high interest from other players in Asia and the market, too. So we see this will be a bigger milestone and for us, and plus we're not only looking at the customer only in Singapore, and we do have a customer in Korea and also we have a customer potentially in Taiwan. So we have really confidence we should have expanding quickly in the Asia market. And plus, again, we're also very focusing on our U.S. market, too. We do have advanced packaging tool PO and receiving and we should deliver by end of this year. And we see a lot of potential going on in the U.S. market, too. Again, because today, all the memory or logic, they are AI driven for their advanced technology. ACM, I want to say I feel good technology we needed for their production line. We believe that will be beneficial for the customer and also can help expansion of market to global. So it's a great opportunity because, again, innovation is a key and every customer and every key customer, they all demand for innovation technology, which will probably fit our strategy. Jimmy Huang: Yes. Yes. So for Singapore business, how is the chance that we penetrate to Singapore gas memory makers in the next few years? And my second question is for advanced packaging. We are making great process. But for Taiwan, Taiwanese foundries and OSATs are leading the panel-level packaging for AI GPUs . Could we talk about our POP progress with potential Taiwanese players? Do we have any like order forecast or purchase orders in -- from Taiwanese potential customers? David Wang: Yes. Actually, we are talking to a few key customers, right, even the panel large size, 515 x 510. And also, we're talking about their 310 x 310, right, which is a true vision right now, people try to push in. So we have very good exposure to those customers. By the way, April 7, 8, we have -- we're attending the panel conference in Taiwan. In that conference, we do the keynote speaker about the horizontal plating and also our vacuum cleaning technology. So that's really a lot of exciting, I want to say, interest coming. And also, I said -- I heard everybody say panel product or equipment, they're probably satisfy all other products, except plating. So plating become a bottleneck for their production expansion. So with that demand, I said we are the only one supplying horizontal plating. You probably heard that is the one key player in Taiwan, they said they only want horizontal plating. They don't want vertical. So our horizontal plating perfect fit their strategy or their demand. So as I said, really, we see a big opportunity and with our panel product. Actually, we're not only trying to introduce so far 3 products, right, panel plating, vacuum cleaning and also the bevel. We can develop also additional coater, developer, wet etcher, cleaning all kind of wet tool we are putting in. So that's really what we catch this wave of the panel, I call shift, right, for the advanced packaging. So we're in a very good position for those coming panel, advanced packaging expanding. We're very excited about this opportunity, right? Jimmy Huang: Yes. But do you know like in which kind of periods, quarters it will be more clear that whether we will have any order forecast or purchase orders for this POP equipment? David Wang: Well, let's put this way, we announced that we do have also PO from outside Mainland China, right? I mean we said already. So you know what I mean here. So -- and then we're continually expanding more, right? So again, I want to say this year, we have a confidence cash additional PO for our bevel, for our vacuum cleaning and also for the horizontal copper plating, not only in Taiwan market, we also see the opportunity in Korea, also in Singapore, by the way. So it's very exciting. Jimmy Huang: Yes. Maybe I can squeeze in my last question about the investor FAQ that ACM has disposed a small portion of stake in ACM Shanghai. How do we think about more further such disposal in the future? You mentioned that U.S. international capacity builds will require more funding. Will we dispose more stakes of ACM Shanghai in the future? David Wang: Repeat the question again. I'm sorry. Can you repeat again? Mark McKechnie: He's asking, are we going to sell more of our ACM Shanghai? David Wang: I see. I see. Okay. We sold 1.3% already, right? And we got a proceed of about $111 million. And we do have both arms to raise money. We can raise in U.S., we can raise in Shanghai. We're very flexible for what we're choosing, number one. And at this moment, I want to say our Shanghai stock is still -- we think it's still undervalued, okay, with our growth. So we maybe consider what the money demand and the time line, also what's the stock pricing in Shanghai. We decide where or when we should sell additional or not. And plus, as we have silver arm, we can raise the money in U.S.A. So it's quite flexible for us to raise the fund. And at this moment, I want to say, obviously we'll continue investing more in global market, and we have no concern for those money where it come from, right? We are very confident. We also have another , another tool we can get the money anyway. Operator: Thank you. Seeing no more questions in the queue. Let me turn the call back over to Steven Pelayo for closing remarks. Steven C. Pelayo: Okay. Great. Before we conclude, I just want to give everyone a quick reminder on our upcoming investor conferences. On March 9, we will participate virtually in Loop Capital Markets' Seventh Annual Investor Conference for one-on-one meetings. On March 23 and 24, we will present at the 38th Annual ROTH Conference in Dana Point, California. Attendance at the conference is by invitation only. For interested investors, please contact your respective sales representative to register and schedule one-on-one meetings with the management team. This concludes the call, and you may now disconnect. Take care. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.
Ana Fuentes: Good evening, and thank you very much for taking the time to attend Gestamp 2025 Full Year Results Presentation on what I know is a super busy for many of you. I'm Ana Fuentes, M&A and IR Director. Before we begin, let me refer you to the disclaimer on Slide #2 of this presentation, which has been posted on our website and that set out the legal framework, under which this presentation must be considered. The conference call will be led by our Executive Chairman, Mr. Francisco Riberas; and our CFO, Mr. Ignacio Mosquera. As usual, at the end of this conference call, we'll open the floor for Q&A session. Now please let me hand the call over to our Executive Chairman. Francisco Jose Riberas de Mera: So good afternoon, and thanks for attending this call with us in this busy day. So moving forward, overall, 2025 has been a good year for Gestamp by year, which has been marked by a complex context with the global tariff war that is still alive with many regulatory changes in different geographies, but mainly in U.S. and Europe. A year also with the major OEMs realigning their strategies to slower EV adoption and also with a limited growth in terms of volumes everywhere, but in China or India. In this context, Gestamp has focused on delivering a strong set of results in 2025, taking action in order to align our exposure to EV programs in line with our customers and enhancing our balance sheet profile with more -- adding more flexibility and more optionality for us in the future and of course, also delivering in our commitment for North America in the frame of the Phoenix Plan. In terms of the market, in terms of global manufacturing of light vehicles in our footprint has had limited volumes, again, another year, but probably volumes which were better -- which have been better than initially forecasted. In fact, by February 2025, we were expecting volumes in 2025 to be very much in line with 2024. Then when the tariff war started in April, the forecast was reduced. But at the end of the year, final volume has been around 85.5 million. So that meaning around a 4% increase. So a growth, clear growth, but only driven by Asia. In fact, between China mainly and India, the growth has been around 3.5 million units comparing with 2024 and it's been again a decrease in Europe and also in this case, in this year in North America. So moving to Slide 6. And as mentioned, Gestamp has met all the 2025 upgraded targets. In terms of revenues, we have been below the market growth with Gescrap also performing below 2024 due to the lower prices of the scrap. But in this environment, we have been able to increase our auto margin profitability by 78 basis points, generating a very sound free cash flow of EUR 228 million more than guided. and reducing our leverage ratio to 1.4x EBITDA, which is the lowest since the IPO. So basically, a quite solid year, reinforcing our fundamentals. So that means focusing in increasing profitability and increasing our balance sheet strength. With more focus on revenues, some revenues at FX constant have underperformed the market. In fact, the light vehicle manufacturing in our footprint has increased by 4.1% while at the same time, Gestamp sales at FX constant has been reduced by 1.2%. So that means a 5.2% underperformance, only 0.6% underperformance if we exclude in this analysis, the China impact. By regions, in Europe, the overperformance in East Europe has been cash compensated some slight underperformance in Western Europe. Basically, in North America, we are in line with the market. We had some underperforming in Mercosur due to some specific problems of some of our relevant customers in that area. And in Asia, we have a clear underperformance in China, but in the rest of the Asian countries, including India, we have more than a 15% overperformance. In our revenues in a reported basis, we are below 2024 figures by 5.4% from EUR 12 billion reported revenues in 2024, we have this year EUR 11.350 billion in 2025. There is a decrease, which is mainly coming from FX impact versus euro in most of the geographies, but also due to some lower activity and also to some lower scrap prices. If we go to the Slide #9, during 2025, Gestamp has entered into different agreements with certain customers impacting our profit and loss accounts, mainly in the fourth quarter 2025 and around EUR 34 million positive accounting impact at the EBITDA level with an asset write-down totaling EUR 52 million regarding these programs. So overall, these both items generating a net EUR 19 million negative impact at EBIT level. So these are effects, which are linked to the realignment strategies announced by several of our customers, largely driven by a slowdown in their EV rollout plan. And of course, these settlements fall within the framework of Gestamp's ongoing constructive negotiations with customers and always preserving our long-term relationship with them. So moving to Slide #10. So basically, 2025 has been another year of increasing profitability without growth. Our EBITDA margin for the auto business has increased from 11.1% in 2024 to 11.9% in 2025. Even without taking into consideration the extraordinary impact explained before, this increase has been to 11.6%. So again, a very solid recovery of profitability in our auto business activities. And we have been able to increase this profitability because we have a very clear focus in different actions like cost reduction initiatives, trying to introduce all kind of flexibility measures, of course, this constructive customers negotiations and with a clear focus in delivering on the Phoenix Plan. Moving to the Slide 11 about the Phoenix Plan. For the second year of the Phoenix Plan, we have been able clearly to match the target. And in this case, the target was to achieve more than 8% EBITDA margin. And we have done it in a market, which has been much weaker than expected when the Phoenix Plan was launched. At that time, we were forecasting a manufacturing level in North America of around 14.9 million units of light vehicles, but the real figures in 2025 have been EUR 14 million. So that means almost 6% decrease in terms of volumes, in terms of car manufacturing in North America. In this context, in the full year with sales of EUR 2,241 million, we have been able to generate EUR 182 million EBITDA. So that means 8.1%, which means a clear improvement comparing with the 7% EBITDA margin we had in 2024. And that we have been able also to do it with a very solid result in the fourth quarter with more than 11% EBITDA margin. So -- and we have been able to do it with extraordinary Phoenix cost below the plan with EUR 16 million in terms of profit and loss account and EUR 30 million in terms of CapEx cost. And in terms of Gescrap, we had a year which has been the performance of Gescrap has been clearly impacted by the scrap prices evolution. The scrap prices have been going down month after month in Europe with a total decrease of 12% in the scrap prices in Europe, more than 20% decrease in China and a little bit more stable in U.S. So that means that our revenues in terms of sales have been decreasing by 6.8%, even though in terms of tons, we have been able to preserve a very good level of activity. But this continued decrease of the price of the scrap has forced our company to reduce the profitability in terms of EBIT from EUR 42 million EBIT in 2024 to EUR 28.3 million. So -- but we are expecting for 2025 the scrap of the prices to be stabilizing and even growing. So that means that the profitability of the scrap for the future should be able to recover. Apart of that, we have also made an important acquisition. In this case, the company Industrias López Soriano. With this acquisition in scrap basically in the Iberian Peninsula, we have been able to get ourselves introduced in a different sector, the sector of the Shredding and also in the sector that now we are an active player in the recycling of waste of electrical and electronic equipment. Okay. So now with this, now I hand it over to Ignacio Mosquera. Ignacio Vazquez: Thank you very much, Paco, and good evening to everyone. Moving to Slide #14. Let's have a closer look to our financial performance in 2025. We have reached revenues of EUR 11.349 billion, which entails a 5.4% decrease when compared to the EUR 12.01 billion from 2024. As we have seen before, revenue has been strongly impacted by ForEx in most of our geographies. In the auto business, at FX constant, revenues have declined by 1.2% year-on-year. In terms of EBITDA, we have generated EUR 1.307 billion in 2025, meaning an 11.5% margin and a 1% increase year-on-year. Excluding the Phoenix impact, EBITDA in absolute terms would amount to EUR 1.323 billion, therefore, an EBITDA margin of 11.7%. As a result of the one-off impacts mentioned before by Paco and higher amortizations, reported EBIT decreased by 6.2% year-on-year to EUR 546 million with an EBIT margin of 4.8% or 5% excluding Phoenix impact. Phoenix Plan aimed at restructuring our NAFTA operations, has had a EUR 16 million impact in P&L and a EUR 13 million impact in CapEx for the entire year. Net income in the year has been EUR 152 million that compares to the EUR 188 million reported in 2024, mainly due to an increase of depreciation and amortization levels and a higher interest expense due to increased exchange impacts in 2025. Net debt has closed the year at EUR 1.821 billion, therefore, a decrease of EUR 276 million on a reported basis. As for free cash flow, we have reached EUR 278 million in 2025, excluding the extraordinary impact of the Phoenix Plan or EUR 249 million as reported. To sum up, we continue to demonstrate our ability to perform strongly and strengthen our balance sheet in a challenging market environment together with a negative ForEx evolution. If we now move to Slide #15, we can see the performance by region on a year-on-year basis. Looking at each region in detail, revenues in Western Europe have decreased by 4.2% year-on-year in 2025 to around EUR 4 billion. Performance in the region has been strongly affected mainly by volume pressure in the period and to a lesser extent, the fall in raw material prices. In terms of EBITDA, it reached almost EUR 453 million, and EBITDA margin stood at 11.2% in the period, down from the 11.4% reported in 2024. Profitability in the period has been impacted mainly by volume drop with still limited operating leverage despite the flexibility measures, which have been taken. As we mentioned in our previous call, results of these measures will take some time with limited tangible results in the short term. In Eastern Europe, the performance in 2025 has been very solid, proving again our strong market positioning in the region. On a reported basis, during 2025, revenues have grown year-on-year by 1.2%, up to levels of EUR 1.925 billion, and EBITDA levels have increased by 15.4% to EUR 293 million. Eastern Europe region has been strongly impacted by ForEx this year. EBITDA margin of 15.2% is above the 13.3% reported last year. The reported -- the profitability improvement is mainly attributed to a better project mix, highlighting the strong project ramp-up in Turkey and the good evolution of the business in the remaining countries. In Europe, overall, considering both regions as a whole, we have managed to improve our profitability, partly due to the shift in the mix to Eastern Europe. In NAFTA, Phoenix Plan continues to show signs of improvement in the underlying operations with a very good EBITDA margin evolution in 2025 despite the underlying end market conditions and FX impact. Our revenues have decreased by 6.7% year-on-year, while EBITDA has increased by 7.8% if we exclude Phoenix impact of EUR 16 million in full year 2025. This higher EBITDA in absolute terms leads to an EBITDA margin of 8.1%, improving last year's profitability and also slightly surpassing the target we had set of 8% for 2025. As you all know, turning around the operations in NAFTA to improve our market positioning and profitability is at the top of our priorities, and these show results and the profitability achieved in Q4 sets the way to achieve the target of a 10% margin in 2026. In Mercosur, 2025 has been marked by the ForEx evolution in Brazil and Argentina, leading to lower revenues in the period decreasing by 15.7%. Despite the revenue decrease, EBITDA has increased by 4.9% year-on-year, leading to an 11.8% EBITDA margin versus 9.4% last year. We have been able to improve our profitability in 240 basis points, thanks to the flexibility measures and the turnaround of our business in Argentina, where last year, we did some restructuring. In Asia, reported revenues have decreased by 7.7% year-on-year in 2025 to EUR 1.823 billion within a complex and very competitive market environment. Our negative revenue evolution in the period is partially explained by the ForEx evolution in China. However, our performance continues to evolve very positively. Despite negative revenues evolution in the period, we have managed to maintain similar levels of profitability with an EBITDA margin of 14.5% for 2025, which places Asia as the second most profitable region for the group. Our approach continues to be focused on premium products in the region. We keep on working to gain positioning in this region, maintaining strong levels of profitability. Asian region remains a great opportunity for us, not only China, where we continue to develop these high value-added products, but also India, where we have undertaken new projects with a strong performance. Finally, Gescrap has seen revenues decreasing by 6.8% year-on-year to EUR 534 million as a result of the sustained decline in scrap prices, as mentioned before. As a consequence, EBITDA in absolute terms has decreased by 23.5% year-on-year, reaching EUR 39 million in the period. Overall, we have seen that our unique business model and geographic diversification has supported and driven our performance in a year marked by volumes volatility and lack of growth. Turning to Slide 16. We see that we ended 2024 with a net debt of EUR 1.821 billion, which is EUR 276 billion below the EUR 2.97 billion reported in December 2024. This EUR 276 million decrease includes dividend payments of EUR 111 million and cash in of EUR 220 million of minorities acquisitions, so M&A and equity contributions, mainly due to the transaction executed with Banco Santander earlier in the year. During the year, the company has generated a positive free cash flow of EUR 278 million, excluding extraordinary Phoenix costs, surpassing significantly the updated guidance for 2025, partly due to one-off compensations mentioned earlier by Paco, which came in, in Q4. Moving to Slide #17. We ended December 2024 with a net financial debt of EUR 1.821 billion, which implies a net debt-to-EBITDA ratio of 1.4x, driven by free cash flow generation as well as cash inflow from the partial real estate asset sale of EUR 246 million. This is the lowest debt level since the IPO of the company, both on net level and on leverage ratios and complying with our commitment to be between 1 to 1.5x net debt-to-EBITDA target. As we have mentioned, our priority is to preserve our financial strength, and we remain disciplined over leverage in absolute and relative terms. Looking at Slide #18, we are proud to share the actions carried out during 2025 and that have been key to provide a strong balance sheet. Firstly, and as a reminder, in September, we closed our partial real estate sale and leaseback agreement of our assets located in Spain, strengthening our balance sheet. Secondly, in October, we closed the new senior secured bonds issuance that contributed to extend our debt maturity structure at a very attractive cost. As a reminder, Gestamp's new EUR 500 million senior secured bonds represent the tightest price callable bond by an auto parts issuer since September 2021 with a coupon of 4%, 375%, which underpins the debt investor support to the group. Further to that, in January, we executed an amendment to our syndicated facility agreement and our revolving credit facility, extending the maturity from 2027 and 2028 to 2030 and 2031. These 2 transactions have allowed us to increase pro forma average debt life from 2.6 to 4.3 years. We continue actively managing our balance sheet structure to strengthen it and flexibilize our financial profile. Finally, on Slide #19, we present the return on capital employed. We have managed to reach 15.8% return on capital employed in 2025, improving by 80 bps between 2024 and 2025 and by 180 bps since 2022 when we first released our new return on capital employed KPI. As we have made clear, Gestamp aims at remaining disciplined on CapEx investments and improving profitability. Our long-term strategy is focused on generating value for our shareholders. Thank you all. And now I hand over the presentation to Paco for the outlook and closing remarks. Francisco Jose Riberas de Mera: Thank you, Ignacio. So moving to the Slide 21. I would say that in terms of the market, nowadays, we are not expecting any growth for the market in 2026 versus 2025. And for the following years up to 2029 or 2030, we're assuming a limited growth of around 0.9% CAGR. In 2026, even though we are assuming a flat market, we are considering that the volumes in Europe will be stable with some decrease in Western Europe that could be more or less compensated by some increase in Eastern Europe. We see some increase in terms of volumes in areas like Mercosur and India. And probably we are now expecting a slight decrease for the first time in many years in China. In terms of the -- what we can expect for Gestamp in 2026, so basically very similar to what we have in 2025. So we see a market context in 2026, which means with a limited volume growth in our key geographies with, of course, still regulatory changes, especially in Europe, but also in NAFTA to happen with cost pressure expected coming from customers and also coming from the environment. And of course, some slower EV adoption, but probably with a little bit less volatility. So in this context, we will remain executing the same way we have done it in 2025, trying to base ourselves in kind of this execution of this solid backlog, trying also to focus ourselves in increasing profitability, even though we are not expecting any kind of volume increase. The idea is that we need to keep on improving the strength of our balance sheet and also increasing the flexibility of our balance sheet and of course, trying to focus in meeting the guidance for 2026. In terms of the backlog, at the end of 2025, we had EUR 47.5 billion backlog, which is covering more than 85% of the revenues expected by the group in the next 5 years. Solid backlog, but less backlog than we had 1 year ago because this has been impacted in terms of euros due to the negative ForEx and also it has been impacted by the rethinking of some of our customers of some of their EV programs. So basically, now what we have is a kind of a change in the backlog that we have because we have more content of programs, which are carryover with a less capital-intensive profile. And of course, we are using our CapEx in the future in a kind of conservative approach, trying to ensure the profitability and to be able to mitigate risk, but also to preserve some CapEx in order to be able to support the new customers and to support also footprint diversification with the new area. So again, I think, again, the message is the same. We are going to keep on in 2026 being very focused in working on profitability with a clear road map. The idea is to reinforce all kind of actions in order to have a very good control of all levels of cost, whether it's corporate division level or in the plant level trying to increase flexibility, trying to implement all kind of rightsizing of our operation whenever is required and trying to be more flexible and try to do our CapEx more in a steady basis. Of course, trying to be able to keep on moving with constructive negotiation with our customers and all the different regions and of course, also trying to be able to remain very focused in the third year of the Phoenix Plan, which is a very important milestone as I stated 2 years ago and which is going to provide our group to be able to get the profitability levels in NAFTA region equivalent to the rest of the group. In terms of the financial profile, and as Ignacio has already explained in the previous slide, by the end of 2025, we have been able to achieve a very, very solid financial profile, with a leverage of 1.4x net debt to EBITDA, which is the lowest since the IPO and mainly thanks to a very positive free cash flow generation during the last 6 years of more than EUR 1.4 billion. So taking all into account for 2026 in terms of the guidance, what's clear, the focus of the group is going to be to be another year of reinforcing our financial positioning. We are assuming a scenario in terms of market which is going to remain very flat. And in this environment of a flat market, we are guiding in terms of profitability, to be able to increase our EBITDA margin as a reported basis of more than 11.7% EBITDA margin in 2026. That means that we are guiding for an increase of the profitability in our auto market to be above 11.9% and in terms of Gescrap to increase also the profitability of more than 7.4% that we had in 2025. And in terms of our balance sheet, we are, again, looking for a less capital-intensive business profile. And what we are guiding is to have a good group operating cash flow conversion in the range of 35%. So that means that the operating cash flow defined as reported EBITDA minus the net cash CapEx. So again, clear focus in increasing profitability, a commitment to increase profitability in both auto business and Gescrap and improving our financial position by limiting our cash CapEx to the EBITDA that we are going to generate in this year. Moving to Slide 27. In the Phoenix Plan, the last year of the Phoenix Plan, the third year of the Phoenix Plan, we are expecting to complete the plant with a CapEx impact expectation of EUR 21 million and EUR 90 million impact in terms of profit and loss account, so a total of EUR 40 million. And in the total amount if we include the 3 years in the plan of EUR 100 million as guided 3 years ago or 2 years ago. And for 2026, we stress again our commitment to generate an EBITDA of more than 10% in 2026. And of course, a target that is right now very achievable in what we see and of course, a first stage in order to be able to increase the profitability of our North American operations to the level -- average levels of the rest of the group. So that's all with us. So message that full year 2025, we have been able to achieve very solid results in a difficult environment. For 2026, we are not expecting the market to recover, but we commit ourselves to increase our profitability and to increase also our financial profile. And of course, third year of the Phoenix plan, absolutely committed to be able to deliver. So that's all from my side and now open to your questions. Operator: [Operator Instructions]. And our first question came from the line of Francisco Ruiz from BNP Paribas. Francisco Ruiz: I have 3 questions, if I may. The first one is on your guidance for top line. I mean you commented that you do not expect any growth in this year, mainly also with deceleration in Asia. But mainly I still remember the old stamp when we talk about the -- I mean, the increase on growth above the market due to the increase of outsourcing. I mean, what is this driver? I mean it's already over. And on the other hand, I mean, could we think that the flat growth that the market expected and you are also assuming is because you are projecting nonprofitable projects that in the past you used to assume? The second question is a more modeling question. And if you could give us what's the split of the EUR 34 million extraordinaries in the different divisions -- and if this is something what we could expect also in the future or there are more contracts like this to be accounted in 2026 or '27? And last but not least is on the leverage. I mean, you are reaching a level, which is well below, I mean all-time low. What are you going to do with the cash, I mean, from here? Francisco Jose Riberas de Mera: Okay. Thank you very much for your questions. In terms of the revenues, in terms of the top line, it's true that we are not giving a clear guidance for that. It's true also that the market has not been growing in the last years. And also, we have been reporting in Europe, we have been quite impacted by the FX. In fact, we have made the analysis. And if we were to have the revenues in the kind of currency levels that we had in 2022, we are losing more than EUR 1.5 billion just because of FX because we are reporting in euros. For this year, we don't see a growth. As mentioned, the market is not assuming any growth. And of course, we are always planning that we will do our best, but we consider that it is better for us now to assume that we need to focus in profitability and rather just to be waiting for volumes to come back. So we are doing our job. We are assuming that the bad news are going to be there, and we are putting a lot of stress in the operations. As you know well, because you know us for years, we have been growing for many years. We have a very good position in the market. We have this kind of position with the traditional customers and also with the new customers. And that's why I feel very comfortable that our positioning and our market share remains quite intact. In terms of the leverage that you mentioned, I think it is true that we have reached this 1.4x, which is below all the different levels. I think for us, right now, the focus is in the cash flow generation. I think it's very clear for us. And what to do in the future with that is something that is not now our first priority. Of course, as we have already commented, the market that will have some opportunities. There will be some consolidation. There will be opportunities to increase the remuneration to shareholders. But today, it's very early. Today, I think the clear focus for us is to really focus on profitability and focus and generate a very sound free cash flow. You had another question around the claims. I don't -- I prefer not to provide you with data around what kind of customers or programs or regions. But I think I am quite positive surprised that even though customers are suffering, the kind of negotiations that we are having with them are very positive and I think are fair, not easy, but are fair. And I think the kind of this impact at the end of the day is no more than a compensation of the different expenses that we had in these programs and now these programs are canceled and the customers are doing a clear recognition of what we have been doing for them because they also want to preserve our long-term relationship. So I would prefer not to give you much more details, but probably there will be more -- a little bit more in the -- during 2026. Operator: [Operator Instructions]. And our next question comes from the line of Robert Jackson from Banco Santander. Robert Jackson: First question is related to your comments, Francisco, on the footprint diversification. Could you elaborate more on this comment, give us a bit more detail what the thoughts are on this outlook? That was my first question. Francisco Jose Riberas de Mera: Okay. So if I understand well around our footprint diversification, so that means that we are trying to, of course, to try to invest whenever the markets are growing. Even though, of course, we are trying to preserve our strength in terms of balance sheet. Probably in terms of the more clear bets in terms of growth is India. And India is a place that we are growing. We are investing. We are investing in opening new plants over there and also, which is something which was a kind of surprise to me, increasing in some specific high-tech technologies for that market. And we are growing a lot in areas like specific chassis solutions and also a lot in new hot forming lines. So India is a market that we see growth, and we are investing in that growth. Of course, in terms of growth, there could be other opportunities. There are other markets that we have a very good position like Brazil that we see still some room to grow, areas like, for instance, in Morocco that we are growing. But this is what we are expecting to do that. In terms of where we need to reduce in some extent our position, I think clearly, we are doing year after year some kind of downsizing of our operations in Western Europe. Robert Jackson: Okay. Second question is related to the NAFTA improvements. We saw a significant improvement in the rise in the EBITDA margin from the third to the fourth quarter. Is there -- what are the main drivers behind these relevant increases? Or is it just a general improvement? Ignacio Vazquez: Well, Robert, just to confirm, you're asking because we cannot hear you very well. You're asking about EBITDA margin drivers in fourth quarter? Robert Jackson: Yes. Yes. EBITDA margin in NAFTA, more specifically the improvement in NAFTA, in NAFTA, yes. Why is the NAFTA EBITDA margin increased so significantly. Just to get a better understanding looking forward into the next few -- into 2026? Francisco Jose Riberas de Mera: Yes. Well, I think, Robert, as you know, we usually have some kind of increase in the EBITDA margin in the fourth quarter compared with the -- that happened also in 2024. So it's in line with the trend that we have every year because we have -- and we have also this year some kind of agreements by the end of the year, for instance, when we are trying to be paid by the different agreements with customers around tooling and programs. So basically, it's a kind of trend that we have that we try to do this settlement and accounting of these agreements and negotiations with customers by the end of the year. So that's why basically we have this EBITDA margin in the fourth quarter more than the average EBITDA margin of the previous quarter, but this was very similar to the kind of evolution we had in 2024. Robert Jackson: Okay. I was just wondering whether there was any specific changes on an operational level, but you've answered my question. Operator: There are no further questions from the conference call at this time. So I will hand back to the management team. Thank you. Ana Fuentes: Well, thank you for your time today. We hope the call has been useful. And as always, the IR team remains at your disposal for any further questions you may have. Wishing you all a very [ good evening ]. Francisco Jose Riberas de Mera: Okay. Thank you. Ignacio Vazquez: Thank you very much.
Operator: Ladies and gentlemen, welcome to AIXTRON's Fourth Quarter and Full Year 2025 Results Conference Call. Please note that today's call is being recorded. Let me now hand you over to Mr. Christian Ludwig, Vice President, Investor Relations & Corporate Communications at AIXTRON for opening remarks and introductions. Christian Ludwig: Thank you very much, Anna. A warm welcome to AIXTRON's 2025 results call. My name is Christian Ludwig. I'm the Head of Investor Relations & Corporate Communications at AIXTRON. With me in the room today are our CEO, Dr. Felix Grawert; and our CFO, Dr. Christian Danninger, who will guide you through today's presentation and then take your questions. This call is being recorded by AIXTRON and is considered copyright material. As such, it cannot be recorded or rebroadcast without permission. Your participation in this call implies your consent to this recording. All documents referred to in this call can be accessed via our website in the Investor Relations section. Please take note of the disclaimer that you find on Slide 1 of the presentation document as it applies throughout the conference call. This call is not being immediately presented via webcast or any other medium. However, we intend to place a transcript on our website at some point after the call. I would now like to hand you over to our CEO for his opening remarks. Felix, the floor is yours. Felix Grawert: Thank you, Christian. Let me also welcome you all to our full year '25 results presentation. I will start with an overview of the highlights of the year and then hand over to Christian for more details on our financial figures. Finally, I will give you an update on the development of our business and our new guidance. Let me start by giving you an overview of the highlights of the year on Slide 2. The most important messages of the day from my viewpoint are: in 2025, we have performed well in a soft market environment by achieving revenues of EUR 557 million, a decline of 12% year-over-year. That translates into a CAGR of more than 13% since 2020. We delivered on our adjusted 2025 revenue guidance, meeting the upper end of our guidance given in October '25. Mainly due to the lower utilization in operations, due to one-off restructuring costs, and due to G10 ramp-up adjustments, our gross profit was down 15% to EUR 222 million, and EBIT was slightly down with minus 24% at EUR 100 million as a result of this. Similar to last year, we finished the year with a strong Q4 '25 performance. We achieved 31% EBIT margin, a level comparable to last year's extraordinary Q4. This marks a great achievement of our operations team as we managed to realize all shipments that customers had asked us to deliver in Q4. The highlight of the operating performance is our cash flow generation. Operating cash flow increased by more than EUR 180 million to EUR 208 million. And our free cash flow increased by more than EUR 250 million to EUR 182 million. With that, we concluded the year '25 with a cash level of EUR 225 million, a good step towards rebuilding our strong cash position that we always have desired. Thus, despite the weaker net profit, we have decided to propose a stable dividend of EUR 0.15 per share to our shareholders. Our outlook for the year 2026 is based on an expected continued weaker market environment. We expect revenues to come in at EUR 520 million in a range of plus/minus EUR 30 million with a gross margin between 41% and 42% and an EBIT margin between 16% and 19%. Breaking this down by segment, AI will be the key revenue driver in '26, fueling strong growth in optoelectronics and lasers through rising demand for optical interconnect. In contrast, SiC, silicon carbide power will face a weak year due to overcapacity and slowing EV momentum with LED and microLED and GaN power demand remaining broadly stable. This concludes the short highlights section. I will now hand over to our CFO, Christian Danninger. He will take you through the full year '25 financials. Christian? Christian Danninger: Thanks, Felix, and hello to everyone. Let me start with the highlights of our revenue development on Slide 4. As Felix mentioned, the revenues in 2025 were down 12% to EUR 557 million. Our strategy of serving various uncorrelated end markets with our equipment proved again successful in 2025. We saw strong growth in the optoelectronics area. This compensated to some extent, the weaker demand for equipment for LED and microLED as well as gallium nitride power electronics. The breakdown per application shows that 57% of equipment revenues comes from GaN and SiC power, 23% from optoelectronics, 15% from LED and a 5% contribution from R&D tools. The aftersales business contributed to total revenues with a growth of 1% to EUR 112 million. The aftersales share of revenues grew to 20%, up from 17% a year ago. Now let's take a closer look at the financial KPIs on the income statement on Slide 5. Gross margin decreased by 1 percentage point versus 2024 to 40%, which was primarily due to lower utilization operations, G10 ramp-up adjustment expenses and the one-off restructuring cost. Accordingly, gross profit was down by 15% year-over-year to EUR 222 million. As we had planned, our spending on R&D in the year 2025 decreased to a total of EUR 81 million due to a reduction in external contract work and lower consumables costs. This helped to drive our OpEx down 7% to EUR 122 million. Combined with the lower gross profit, this resulted in an EBIT of EUR 100 million, which is 24% lower year-over-year. Net profit was down 20% year-on-year at EUR 85 million. This results in an effective tax rate of 15% in fiscal year 2025, a clear positive were our Q4 2025 gross and EBIT margins at 46% and 31%, respectively. Despite the 18% lower revenues number at EUR 187 million, we were able to beat the very strong level of Q4 2024 on gross margin level and meet it on EBIT margin level. Orders in the quarter came in at EUR 170 million, an uptick of 8% versus last year's quarter. For the full year, order intake came in at EUR 544 million, slightly weaker than last year. And thus, our backlog at EUR 258 million is down by 11% year-over-year due to the above-mentioned softness in demand. Now to our balance sheet on Slide 6. We ended the year 2025 with a total cash balance, including other financial assets of EUR 225 million, which was well above the EUR 65 million last year. There are a number of factors driving this increase. Firstly, inventory levels at the end of 2025 came down by about EUR 85 million to EUR 284 million compared to EUR 360 million at the end of '24. This is the result of our adjusted supply chain strategy and corresponding measures after initially front-loading the supply chain in 2024 in expectation of stronger revenue growth. We target a further reduction of inventory levels through 2026. Second, we have seen a solid decrease in outstanding receivables compared to the last year and which generated some EUR 60 million in cash. As a result of putting on the brakes in our supply chain early on, the amount of payables have been stable during the course of the year. Advanced payments received from customers, on the other hand, were slightly down year-over-year at EUR 44 million due to the decline in order intake, combined with a shift in the regional customer base and partially impacted by some key date effects. At year-end, down payments represented about 17% of order backlog. As a consequence of all these factors, operating cash flow improved by more than EUR 180 million to EUR 208 million in the financial year 2025. As mentioned already in previous calls, CapEx decreased significantly in 2025 due to no additional investment requirements for the innovation center. As a result of the significantly lower CapEx, free cash flow improved by more than EUR 250 million year-over-year to EUR 182 million from negative EUR 72 million in 2024. We expect further solid free cash flow generation in 2026. Lastly, we are proposing a stable dividend of EUR 0.15 per share. Despite our lower net earnings, we want our shareholders to participate in the improved cash flow generation. Going forward, following an intensive investment phase in the years 2023 and 2024, CapEx alone for the innovation center was EUR 100 million. AIXTRON plans to use the cash flow in 2026 to further build a strong cash position. Also, I want to remind you that AIXTRON expressly does not pursue a fixed dividend policy, but rather adjust the payout ratio to reflect the respective business performance and capital allocation priorities. With that, let me hand you back over to Felix. Felix Grawert: Thank you, Christian. I will continue by giving you a brief summary of the key market trends we saw last year and before I move on to our expectations for '26. I will start with our currently weakest segment, the silicon carbide power business before moving on towards the strongest segment step-by-step. SiC. Throughout the past year, the global silicon carbide market has undergone a significant transition. In Western markets, we are seeing a temporary slowdown driven by weaker electric vehicle demand and substantial idle capacity at several customers. This has even resulted in reduced or scrapped 6-inch capacity in some cases. We expect the digestion period for silicon carbide epi tools to continue throughout 2026 in Western markets. China, by contrast, remained a strong pillar of demand in '25 for AIXTRON with solid order intake and robust shipments in the first half of the year. In the second half of '25, also in China, SiC demand has softened. And in '26, we expect the digestion to continue also in China. Despite this short-term softness, the midterm outlook for SiC beyond '26 remains highly attractive. Substrate prices have dropped significantly, making silicon carbide devices far more competitive versus silicon IGBTs and enabling broad market adoption, both in EVs and across industrial applications. Even more importantly, the technological transition is well underway. The industry is rapidly moving from 6-inch to 8-inch wafers, starting with Western customers, now also in China, with a full shift expected towards '27 and '28. At the same time, the introduction of superjunction silicon carbide MOSFETs, which require multiple thin epitaxial layers instead of a single thick layer will significantly increase epi tool demand. Our batch-based G10 SiC platform is ideally positioned for this new operating model and has already achieved major milestones with the shipment of our 100 system during 2025. In 2026, we expect very strong demand [Technical Difficulty] at the beginning of '25 and have been steadily recovering. AIXTRON maintains a clear market leadership position with more than 85% market share across GaN device classes, and we remain deeply engaged with customers expanding their GaN road map into [Technical Difficulty] coming years. Importantly, GaN is emerging as a central technology for AI-driven power architectures, particularly as hyperscale data centers plan the transition to high-efficiency 800-volt platforms. We expect additional volume from GaN from AI applications at some time in the 2027 and '28 time frame. The exact timing for when this happens is unknown, and we will keep you posted when signs of this are getting clearer. In parallel, we are working with a small set of customers on 300-millimeter GaN. These customers have existing 300-millimeter silicon fab, which they desire to repurpose for GaN. Our 300-millimeter GaN tool is fully operational with our own innovation center, as we call our 300-millimeter team room and collaborations with imec and leading power semiconductor manufacturers are ongoing. Now, let me come to the LED and microLED market. After a period of muted investment, now the market for red, orange and yellow LEDs, we call them ROY LEDs, is showing clear signs of recovery, driven primarily by development in China. This momentum from display makers who are pushing the boundaries of image quality. In fact, several major TV manufacturers are now transitioning to full RGB backlighting architectures, which further boosts demand for ROY LED as tool. This trend underscores a broader shift. Even traditional LED backlighting is being reinvented, establishing miniLEDs as preliminary storage stage towards microLED. Enhanced local dimming, full color backplanes and ultra-high brightness panels are now becoming standard in premium consumer displays. These innovations are breathing new life into an application space that many considered mature. At the same time, exploratory and qualification work of customers towards microLEDs continues with customers in Europe, U.S. and Asia. The focus of this work has shifted away from watch and television now strongly towards AR/VR glass applications. We expect this market is still some time out into the future until a larger revenue contribution. And given the fact that one wafer can serve hundreds of AR glasses, the expected demand will be much, much smaller than what we would have anticipated for television applications. Overall, we can say that for AIXTRON, ROY LEDs and microLEDs together translate into a solid revenue contribution of around 15% of group revenue for both '25 and '26. Now, let's finally come to our strongest segment in '26, the lasers for datacom. The global indium phosphide laser market has entered a new phase of growth. And from Q4 '25 onwards, we have seen an even stronger momentum in this segment. We have served this market for many years with our proven G3 and G4 platforms historically for telecom and datacom applications, supporting the further adoption of high-speed broadband communications. As far as cloud services with a market share we estimate well north of 90%. The demand we see today is linked to a structural up cycle linked to AI data center build-out and the development of data-hungry new generation of GPUs. And this structural shift creates the demand for indium phosphide-based lasers grown by MOCVD with a massive adoption of optical interconnect now also within the data center architecture. As bandwidth requirements move to 800 gig and data 1.6T, the laser content per data center is increasing multifold to enable the required bandwidth. Our customers are subsequently not only ramping their manufacturing, but also rolling out new product generations with higher bandwidth that are also more integrated like photonic integrated circuit, PIC, now in order to be always faster, more compact and more energy efficient. For the majority of our users, their road map now includes a shift away from 3 and 4-inch to 6-inch wafer size. That is an enormous step for a market that has been historically very conservative. It enables them to access the advanced manufacturing technologies for these new types of products. Our G10 ASP product has rapidly established itself as the tool of record, as we say, for this new generation of photonic devices, replacing customer legacy system, producing higher yield and cheaper 150-millimeter indium phosphide epi wafers. We are serving all of the top 10 suppliers to this market. And demand is coming from all regions of the world, from leading suppliers in the U.S., from the ones in Europe, but also from optoelectronic leaders in Japan, in Taiwan and in China. Looking at demand dynamics, we expect the optoelectronics business to more than double year-over-year from 2025 into 2026. With this, it makes up for a large part of the revenue that declined in silicon carbide that I illustrated earlier. Finally, let me now present our full year guidance for 2026 to you on Slide 19. This guidance takes into account all the factors that I just described previously. We expect revenues to come in at EUR 520 million in a range of plus/minus EUR 30 million. We expect a 2026 gross margin of 41% to 42% and an EBIT margin between 16% and 19%. The effects of a personnel reduction we have initiated in the beginning of '26 are already included in this forecast. Now, let me comment on the first quarter of '26. As usual, sales in the first quarter of the financial year will be lower than the annual average first quarters. In Q1 '26, we expect revenues of EUR 65 million in the range of plus/minus EUR 10 million. This is comparatively low figure, fully in line with expectations and with a seasonal pattern of the business. For completeness, we have adjusted our USD to euro budget exchange rate at which we record U.S. dollar-denominated orders and backlog to USD 1.20 per euro. With this outlook, I'll pass it back to Christian. Christian Ludwig: Thank you very much, Felix. Thank you, Christian. Anna, we will now be happy to take the questions. Operator: [Operator Instructions] So the first question is from Ruben Devos of Kepler Cheuvreux. Ruben Devos: I just have one on the guidance basically, pointing to EUR 520 million a year. Obviously, you started the year effects of the seasonality at EUR 65 million, which is about 12% of the total. So just curious about how you see the quarterly cadence at this stage. And what might give you maybe the confidence that orders of, I think you talked about EUR 280 million, whether that will materialize at the pace needed for a strong H2? Felix Grawert: Yes. Thank you very much. So we expect again in '26, the pattern that we have seen in previous years, where we have the year a pretty much back-end loaded towards Q3 and Q4. I think that's a seasonal pattern, which we have already seen in 2024 and 2025. If you recall in '24, in the fourth quarter, we even shipped over EUR 200 million. Now in the fourth quarter, it was around EUR 180 million. So it's not uncommon that we are backend or backwards loaded. I think it will not be as heavy in '26. But the Q1 is very weak. I think in Q2, Q3 onwards, we should be maybe around EUR 110 million, EUR 120 million, EUR 130 million, I don't know, something like this. So north of EUR 100 million, I would say. And then clearly, in the Q4, I think we will be peaking. So nothing to be -- don't expect the Q2 is again another EUR 65 million and I think we would be a little dry. But that's not going to happen. Does that answer your question? Ruben Devos: Yes, certainly. The second one is just around the G10, which is the tool of record at the leading laser customers. When a customer qualifies your tool and locks in, how long does that qualification typically last before it needs to be, let's say, recompeted? I'm just trying to understand a bit the stickiness of your opto business and whether your position today, which is very strong, obviously, whether that's a meaningful barrier already or whether there for each new product generation, that sort of, yes, reopens the door for competition? Felix Grawert: I think in the laser business, you have probably the most sticky and the most difficult to requalify from all the segments. So with many customers, qualification efforts have been going on since 1 or 2 years already. And the complexity comes in the qualification for a laser tool from the fact that it's not just one simple laser, or one simple layer like you have in silicon carbide. In SiC, this is our most simple tool, I would say. You have one single layer, a thick single layer and every customer is doing kind of almost the same. Now in contrast, in the laser domain, typically, each wafer gets not only put into the tool once for one layer, but the laser customers have very advanced structures. And in these modern architectures and high-speed devices that is currently now making up the market, many wafers of our customers see the tool 3, 4, 5 or even 6x from the inside, meaning the customer makes a layer, doing some other steps, the wafer is put into the tool again, makes another layer and so on and so forth. And you can imagine if something changes in the deposition and that is repeated 5 or 6 times, an error or a change is then repeated or taken to the power of 5 or taken to the power of 6 that depends on a very, very precise repeatability. And so with many of these customers, we've been working since multiple tools, multiple years. That's also the reason why the G10 ASP, which we launched already in '21, '22 is only now getting the strong momentum from the laser market because the qualification has taken such a long time. Ruben Devos: Okay. And just a final question is that you're launching the 300-millimeter Hyperion tool commercially in '26. Just curious how many customer qualifications are currently underway? And when would you expect sort of the first repeat orders to come in? Felix Grawert: We work with multiple customers. I think it's important to differentiate. Some customers are, I would say, in an exploratory and research stage. And there's many of these, I don't know, I think probably double-digit or so. However, I think from commercial relevance, 300-millimeter will, as I mentioned in my prepared remarks, only initially only for a relatively small number of customers. And that is those guys who have a very big 300-millimeter silicon fab, which they want to repurpose and convert an existing 300-millimeter silicon line to a 300-millimeter gallium nitride line. I think all the other stuff like microLED and so on is more like playing around, researching, exploring ways. But I think those market segments probably take another, I don't know, 2, 3, maybe 4 years until they really mature. We are engaged. We work on a lot. But I think in terms of revenue and really making numbers, that's still quite some time away. Operator: The next question is from Martin Marandon-Carlhian from ODDO BHF. Martin, unfortunately we cannot hear you anymore. [Operator Instructions] Christian Ludwig: Let us continue with the next question, please. We can take him later. Operator: The next question is from Rohan Bahl of Barclays. Rohan Bahl: I just wanted to touch on that 300-millimeter GaN tool. I mean your peers said overnight that have gotten several orders on 300-millimeter GaN already. So I just wanted to check your progress on getting Hyperion ready for production volume lines rather than sort of your R&D quality tool that you have at the [ minute ]. Felix Grawert: I think we are very well on track with respect to that. We have also multiple orders again from these few customers that I was mentioning. Rohan Bahl: Okay. And maybe just on the 800-volt AI data center opportunity for GaN, everyone is getting excited about this. So just curious on how things are progressing here? What have customers been saying to you and whether you're still sort of expecting orders to ramp up materially in the second half? I've noticed your backlog has been building for 2027. So I wonder if there's any 800-volt business in there? Felix Grawert: So the 800-volt is splitting essentially into multiple types along the architecture. You probably have seen the slides on the 800-volt architecture by NVIDIA and by major suppliers such as Infineon, right? So we are participating in multiple stages on that chain. The one part is coming from the overland line on the silicon carbide, which translates or transfers from over 10 kV down to 1,200 volts, 2 kV, 1 kV. This is the biggest part silicon carbide. Then gallium nitride comes into play at 650 volt at 100 volt and even at lower stages like 20 volts. So this is where we are participating. We are with multiple customers working on 650 and 100-volt devices for exactly this architecture. And to our understanding, the qualification efforts of our customers means either IDMs or foundries, again, with their customers, being the board makers and the power supply makers for these architectures is ongoing. To our understanding, there is no clear time line on when exactly the switch is taking place yet. And that is also the reason why I commented in my prepared remarks that we know that this is coming, and we are pretty sure that this is coming sometime in the time frame, I always say '27 and '28, but we don't know exactly when it is coming. So in the order backlog that you're referring to, I don't think there is still 800-volt orders in. I think this is other topics more like EV silicon carbide related. Of course, general tool for silicon carbide can be used for any segment. That's clear. But I think the button when exactly the 800-volt is getting pushed and the orders are coming in, the timing is still a bit uncertain. I would not be able to give you the point in time at this period of time. Operator: So Martin Marandon from ODDO BHF is back. Martin Marandon-Carlhian: My first one is on photonics and opto, et cetera. Considering that several of your customers are talking about very significant indium phosphide CapEx increase this year. And I understand that the big acceleration in terms of orders was really in Q4 last year. Do you think we are quite early in that CapEx cycle? Or do you think that '26 could be the peak? So how -- basically, how do you think about '27 at the moment? Felix Grawert: Thanks a lot. I think that's a very good question. Yes. Let me try to shine a little more light on it, how we see it. And again, we only have, again, a piece of the puzzle, but let me try to explain what we are aware of and what we believe. And so we see that the cycle really has kicked off towards the end of '25. So you have seen that in the fourth Q4 '25, our photonics orders have significantly increased. Q1 to Q3, they were still on a relatively low level. In Q4 '25, our photonics orders have increased. We still, already now in Q1, we see continued order momentum from our customers. Some orders have already received. Others are in discussion with customers. And we expect -- and this is also, by the way, the reason you may have seen that our coverage of revenues with orders, our backlog is lower than we have seen in many past years because we are at the very beginning of the cycle. I think that explains this topic, so on. However, we have indications from a number of customers like kind of their road map, their forecast, what they need throughout the year. This is baked in our guidance. So our guidance reflects that already. And we expect that the orders are coming in essentially throughout Q1 and continue to come in Q2 and covering then the revenues that we have forecasted for the year. And as you see, it's a quite significant increase. It's more than double year-over-year for the photonics side. And I mean, this is very helpful for us because I think we all are aware, silicon carbide is really dropping almost dead this year, meaning pulling a bit hole in our revenues. This hole is now just nicely getting filled up by the photonics. It's quite helpful. Now I think you've indicated how long this extends into '27. Of course, very difficult to predict the future. My guess is it's not only 1 year, but it's extending beyond that. However, to comment how much or to which extent it's the majority in '26 and is it even the same level in '27 or less in '27 and more in '27, that is too early. I have no indications to qualify that. Martin Marandon-Carlhian: Okay. And just another one for me on GaN adoption in data centers. I think in the past, you said you could expect orders in H2 this year or in '27 for '27 and '28 revenue. But how do you think about how the ramp will happen? What I mean by this is that, it looks like a big ramp. So how it usually happens with your customers? Do you have already some discussion with when and how much you need to be ready? Or do you really see that ramp once the orders start to come in basically? Felix Grawert: That is a very good question. I think both things come together at the same time. Typically, when a ramp for a new segment is happening, we see the first orders for that particular second or that particular application coming in from one customer or typically from 2 or 3 customers at the same period of time because normally then a segment is coming and also the guys who are using the chips are not only relying on one source, but typically on 2 or 3 sources. So typically, we then get the first orders, particularly for a given segment to come in. And along with the orders that are coming in, we sit together with our customers, they share forecast with us, and we jointly sit on the table making a ramping plan, because normally, it's not that the customer needs only 2 tools or only 10 tools, but rather the customer has a plan and say, look here, in the first year, I need 10 and the next year, I need 15 and the year thereafter, I need 15. How do we best do it? How do we best distribute it over time and so on and so forth. This is normally what's happening. And I expect when this 800-volt GaN ramp is really starting, we are not there yet, but then I expect to have these discussions with customers. Operator: The next question is from Oliver Wong of Bank of America. Oliver Wong: My first question is, again, back to 300-millimeter GaN. I understand that the -- we're not expecting huge revenues upfront. But I was wondering -- so my understanding is that whether it's with the 200-millimeter or the 300, usually customers kind of go with one major supplier, one tool of record, so to speak. I was wondering what kind of timing can we expect for the leading 300-mill GaN suppliers to kind of make a decision on that? Felix Grawert: I think Q4, Q3 or Q4 of '26. Oliver Wong: Got it. And my other question is regarding the lead times. I was wondering if we can get an update on currently where the lead times are for the major end markets and kind of where you expect that to trend? Felix Grawert: Excuse me, I didn't understand your question. Oliver Wong: The lead times between orders and revenues for kind of your major end market categories. Felix Grawert: I think we are probably around -- I think it depends by the market, somewhere between 7 and 10 months, I would say, or 6 and 10 months, something like this. But honestly, I don't have it broken down by end market. We are back to normal, right? If you recall, yes, in the post-COVID, our lead times were very long. We are now back to a normal lead time. Operator: Next question is from Madeleine Jenkins. Madeleine Jenkins: I just had one -- another one on GaN. You mentioned utilization rates are improving. Do you have a kind of a broad sense of where they are now? And then also on this data center opportunity, obviously, I know timing is uncertain. But sort of volume or demand-wise versus kind of the consumer business that made up GaN in the past. Do you think it's a similar size? Or do you see it being bigger? Any color on that would be great. Felix Grawert: Utilization rates, that's always very difficult to predict, because we get more like signs from our customers, qualitative signs like: we need new tools, we don't need new tools. I would guess across the market, probably utilization rates are maybe 60% to 80%, I would say. So on a decent level now, I mean, earlier, we were probably around 30% to 50% after the big GaN investment wave where the demand wasn't there yet. So I think it's still taking a little bit of time until the next investment wave is getting triggered. But as we said, somewhere around the '27 time frame, early in '27, end of '27 or maybe even end of this year, we will see some investment trigger. Now as for the size, and I think with GaN, it's important to note that GaN has been penetrating across all market segments. It started off, as you rightfully note, 4, 5 years ago, purely in the consumer market, chargers for smartphones, chargers for notebooks and those kind of applications where the form factor was the driving topic. By now, we have seen GaN penetrate kind of across all the market segments, which is addressed by silicon means motor drives for battery-driven applications. We've seen it in motor drives for things like air conditioners, more like high-power, high-voltage topics. We've seen it in 100-volt and 20-volt point of loads and servers to reduce the energy consumption of servers so kind of all market segments. So I think you cannot split GaN any longer into a consumer or non-consumer segment. I think GaN is really on a trajectory of getting a very widespread application. Madeleine Jenkins: Makes sense. And I know you -- in your release, you flagged that there's a decent chunk of orders for 2027 delivery. Could you just kind of provide some more color on that? Why is it? Kind of is it just lead times or -- is there kind of specific customer capacity additions going on? Felix Grawert: No, no. What we have said is, we expect as we see the utilization rates of the installed base now gradually increasing. And as we see further adoption of GaN, particularly in the 800-volt architecture for AI, we expect that at some point, whether it's the end of '26 or sometime in '27 or at the end of '27, we don't know the exact timing. We expect at some point, utilization rates to be at a level where it triggers new investments, new tool purchases by our customers, and where especially the 800-volt architecture is then switched to GaN. Today, a big part is still on silicon. And once that switch has happened away from silicon to the much more energy-efficient GaN, then this will trigger in our expectations, new tool orders by customers because they need to expand their capacities in order to serve this additional market segment. But when exactly it happening, whether this is end of '26 or early '27 or end of '27, we explicitly say we don't know the timing. Madeleine Jenkins: Sorry, I get it. So I was talking more kind of broad comment on your current backlog. I think over EUR 100 million is for delivery in '27. I just wondered why that was the case? Felix Grawert: Well, this is a mix of applications. It's a mix of applications. A big part is silicon carbide, where customers have ordered and as the market fell down and became slower, customers said, can we have it a little later? Yes, I think the biggest part -- I would guess the #1 application amongst those is silicon carbide. Operator: The next question is from Martin Jungfleisch of BNP. Martin Jungfleisch: First one is a bit of a follow-up on the guidance and the lead times. It looks like that you need around EUR 300 million in new orders in the first half to make the '26 guidance. Is that kind of the right way to think about it with lead times of 7 to 10 months? And then maybe if you can comment if you're on track to meet this kind of EUR 150 million order run rate in Q1 already? That's the first question. Felix Grawert: Yes. We see ourselves fully on track. We sleep very well. We feel very well in covering and securing that. Martin Jungfleisch: Okay. Then maybe another follow-on on the moving parts. I think if I understood you correctly, you mentioned that you expect photonics revenues to double this year. So then what are the moving parts? I think you said also GaN should be up moderately. So is it like the 3D sensing part or the LED part that should be down massively this year then? Felix Grawert: Sorry, I didn't get the last one. I didn't get the last part of your question. Martin Jungfleisch: Yes, I was just asking with photonics doubling, I think that's what you said this year. And what are the moving parts within that revenue guidance? I think you said GaN should also be up moderately, so is 3D sensing, LED, silicon carbide then down quite massively? Is that the right way to think about it? Felix Grawert: Yes, exactly. That's the right way to think about it. I would say LED/microLED roughly is flat. Silicon carbide massively down. This is a big hole that's in there. And this hole, to the largest part, is getting filled up by the doubling of the optoelectronics. And that's why overall, and if you sum it up, we come at those slightly down numbers from the whatever EUR 557 million we had in the past year in '25 and now to the EUR 520 million plus multiple. Martin Jungfleisch: Okay. And maybe if I can, just a small follow-up on the gross margins. Can you just break down the moving parts a bit on the gross margin guidance for this year? So what is kind of the headwind from lower revenues that you're seeing, what is the better product mix and so on? And maybe if you think about -- if we go back to EUR 600 million revenue next year, what would be the gross margins on a like-for-like basis when you assume all the benefits from the restructuring program, et cetera, should this be like 45% then? Felix Grawert: So great question, but I don't have all the numbers prepared. It sounds like almost I would need an Excel sheet next to me to answer your question. So on a joking note. No, let me try and best to help you explain as much as I can without having a computer next to me, yes? So you see we managed to keep the gross margins around stable compared to last year or improve even a little bit. And what you see here is already we did first a slight amount of headcount reductions early in '25, so last year already. So a part of that benefit already becomes effective in '26. We then, as you have seen, have been able to gain further efficiencies, and we do another slight headcount reduction now or have done in January already. It's completed. We did it very early in the year. And the cost for that is, of course, included in the guidance. And we've been working a bit on our efficiency in operations, streamlining processes and operation shop floor work and all that kind of stuff, right? And all that allows us to keep the gross margin stable. Now the question is, how should you think about it? Well, if you go into next year, into '27 -- again, I just do it on a like-for-like basis. I didn't do it the Excel spreadsheet for your hypothetical EUR 600 million. But you can then take out from the cost this what we said, mid-single-digit million restructuring cost. That's, of course, a onetime cost, and that's onetime in '26 and not again in '27, kind of. So that will help on the gross margins. And honestly, I haven't looked at the details of the product mix, which, of course, also plays a role. I haven't done that. But it will certainly help on the margin. And just to make sure -- maybe one more comment, just to make sure that you get that, as you now probably looking to get some numbers into your model. And if you look at the R&D cost, we had in '24 an R&D cost on the order of EUR 90 million, and we had in '25 an R&D cost on the order of EUR 80 million. In the current year '26, if you do your model, we'd rather put in EUR 90 million of R&D cost. You will come to that if you do the math anyways with gross margin and the EBIT margin, just to make sure that you get the right number so everybody gets the right numbers here because we have quite some new ideas for new products, and that always translates then for us into R&D because at some point, '27, '28, we expect the markets to pick up, and of course, our investors and you guys expect that we have then a fresh portfolio winning and securing our market position again. Now it's down. But when new markets are there, then it's a lot of fun. We want to be prepared and we want to be ready for that. Operator: Next question is from Jarad Abed of mwb research. Christian Ludwig: It doesn't seem to be there. Let's take the next question please, Anna. Operator: Maybe it should work now, Mr. Abed, can you hear us? Abed Jarad: Yes. Can you hear me? Operator: Yes, we can hear you now. Abed Jarad: Okay. Sorry. Yes, I just have a quick question regarding Q4 backlog movement. I mean there is notably an order cancellation of approximately EUR 11 million. Can you provide some color on this? Felix Grawert: Yes. I think that was 2 process modules. I think it was a customer from laser and gallium nitride, if I recall. Abed Jarad: Okay. And my second question, I'm trying to understand the overcapacity in silicon carbide. Is it like structural or cyclical? Felix Grawert: Cyclical. So we get from our customers literally the feedback that they say, look, gradually capacity is now starting to fill. I mean we looked 1 year ago probably at 30% utilization, but the adoption of silicon carbide continues in the market. A big element that helps is that the prices for substrates have dropped significantly. And due to that, the overall -- and substrates make in silicon carbide a major part of the overall cost, probably the #1 cost position is substrate. Those are getting cheaper. With that, and the silicon carbide power devices are getting more affordable. The cost is going down. And as cost is going down, silicon carbide MOSFETs gain relative in attractiveness compared to silicon power devices, silicon IGBTs. And with the gaining attractiveness that design-in is increasing, they're getting more widespread and the demand in terms of units is increasing. And as the units are increasing, the existing capacity gradually gets filled. And at some point -- again, we don't know the timing, but at some point, the overcapacity will be digested and then new orders will be triggered. And again, we expect this sometime in the '27 and '28 time frame. When exactly, we don't know. Abed Jarad: Okay. But you know that like -- I mean, it's -- you mentioned previously that you expect some orders once annual EV production with silicon carbide inverters surpassed 3 million units. Is it still the case? Felix Grawert: I didn't get your question with the numbers that you were just saying. Sorry, I couldn't understand. Abed Jarad: Yes, sure. You mentioned previously that you are expecting like silicon carbide acceleration once annual EV production with silicon carbide inverters surpassed 3 million units. Is it still the case? Felix Grawert: I think we've never given out a number of 3 million units for inverters. I think that's a very specific number, which is probably not from us. Christian Danninger: I think it is referring to a broad assessment of how many cars we would need on the street to see a pickup. That was -- that's where it came from. Christian Ludwig: As a proxy. Christian Danninger: As a proxy, exactly. Felix Grawert: Honestly, we cannot comment on that. Operator: Next question is from Craig McDowell of JPMorgan. Craig Mcdowell: My first one is on pricing. And certainly, on the device side of opto, we're sort of seeing, obviously, a tight market, and it seems like device makers -- laser device makers are able to take price and pretty significant price. I'm wondering whether that changes the value that you offer to your customers on the indium phosphide tool and whether you're able to see price increases and specifically whether that's included in your more than doubling comments for 2026? Felix Grawert: The main driver for the doubling is literally on the number of tools. So it's not a doubling by price, yes, that would be nice. It's literally doubling by the number of tools, by the number of shipments. But historically, optoelectronic tools are on the higher side of the pricing in our portfolio simply due to the fact that those laser tools are of a very high level of complexity. If you compare an LED tool going into China and you take a laser tool and you open them and look at them next to each other, you feel that one tool is filled with twice the number of technology inside than the other tool. And somehow that's, of course, reflected in the price. Craig Mcdowell: But given the tightness in the end market, you're not yet raising the prices of your own tools, to be clear? Felix Grawert: No. We don't. That's never a good idea towards customers. They don't like that. Craig Mcdowell: Understood. Okay. And then just on -- you mentioned that you're still in discussion with opto customers through Q1. Some of those orders might have been written, certainly discussions ongoing. Just wondering whether there's a change in tone with your opto customers, are you talking on a multiyear period now in terms of delivery? Or is it still very much sort of within the next sort of 6, 12 months that conversations are happening? Felix Grawert: It depends customer by customer. We have both types. We have some customers discussing kind of literally the next tool. I need something very, very fast. When can I have 5 tools? Please as fast as possible. I have others more engaged in a structural discussing throughout the year '26 and then others more looking around the multiyear road map. It really depends by customer purchase team or strategic planning team. We have all of it. Operator: The next question comes from Om Bakhda from Jefferies. Om Bakhda: I just had a question on your silicon carbide business. I guess when we look through the course of the year, is there -- I mean is there anything that you see today that could happen, that could mean that the guidance that you've given on SiC could prove to be conservative in the second half of this year? Felix Grawert: Well, that's a very good question with lots of buts and if. Let me think. Honestly, I think for the second half of '26, my gut feeling tells me it would be a bit too early, seriously for silicon carbide and talking about revenue, because I think there still is some capacity in the market, which still needs to be digested as we had discussed earlier. I think if we look into '27, purely the EV demand can be a nice driver, as discussed. We see now that silicon carbide devices more and more get designed into higher voltages. So not only 1 kV, 1,000 volt, 1 kilovolt, but also 2,000 volt, 3,000 volt, 10,000 volt, so 2, 3 10 kV, and notably in the space of grid applications for solid-state transformers and applications like that. But I think this is -- would be too early to expect a tool demand, equipment demand for that in '26. I think we are clearly looking towards '27 and '28 for these new applications and new trends. That's my gut feeling. Maybe I'm wrong. If we can ship more, we are happy to serve the market. We have capacity. We can serve the market, no problem. But I think realistically, and giving you the most realistic estimate, I would not expect an uptick in terms of revenues, maybe orders towards the end of the year, but I don't think there's a big uptick in shipments in '26. Om Bakhda: Got it. And then just a follow-up in terms of your sort of the order momentum you're expecting in the first half of this year. When you sort of look at the discussions you've had year-to-date, how should we think about the mix in your order book? Is it sort of largely opto based in H1? Or could we see some GaN tool orders coming and inflecting in H1 potentially for shipment in the second half of this year? How should we think about that mix in the order book? Felix Grawert: I would expect, if I look at ongoing customer discussions at this point in time, again, there can always be surprises, but I'm just extrapolating what kind of discussions are ongoing. And we know then the discussions take between, I don't know, 1 and 3 or 4 months to materialize, which kind of covers the H1 quite well. I would expect in H1 a significant optoelectronics/LED loaded order intake, whereas then in the second half, I would expect the power electronics gradually to come back. Operator: Moving on to the next question from Michael Kuhn of Deutsche Bank. Michael Kuhn: I'll stick with, let's say, order composition. Of the roughly EUR 260 million order book you currently have, I think you gave some indications already. But could you maybe give some deeper insight into how the composition is by category, power versus non-power and maybe even going into a little more detail? Felix Grawert: Yes. I think if we look at the order backlog of '25, I think opto is around 40%, SiC 30%, GaN 20%, LED 10%. Do you think so, Christian? Christian Danninger: Yes. That makes sense. Approximately. Felix Grawert: Approximately, right? Christian Danninger: Yes. Michael Kuhn: Understood. And then on GaN and let's say, the next upward cycle, you mentioned at some point in the presentation that you expect AI data center power to drive the tool demand by factor 3. What would be the comparison base for that factor 3, just to get a better idea on how big the market could grow? Felix Grawert: I think we look here at the comparison, the total market size is more like around '24, '25. And the factor of 3, which we've illustrated more like an upside scenario comparing '25 versus 2030 kind of a 5-year comparison, one point in time, '25 versus 2030. I think this is what we have looked at right now. Michael Kuhn: Okay. So this is -- '30, this is nothing like 4 in 2 years' time, at least from today's point of view? Felix Grawert: No, no, no, no. I think this is a gradual increase. As we have discussed in this call already, we believe at some point in '27, there could be the first momentum starting and then it's a design in. And as always, in our applications, our markets, it's a ramp. It's a new trend, which is then happening. It's getting designed in. So our customers, our IDMs have now made devices, which is in the qualification with their customers, board makers, GPU makers, rack makers and so on and so forth. The architecture has been set. Now the complete industry is working on it. Hopefully, it's going to be fast. We know the AI industry is a very fast-moving industry. So maybe it's faster than some of the other industries. But then at some point, it's being designed in and then the volume is starting and then gradually over time, it gets penetrating and the adoption rate goes from today 0% then whatever, 10%, 20% in the initial stage and at some point, 2030, 100% adoption rate after the adoption is completed, and then we look at that point in those numbers. So a gradual adoption. Again, still our assumption. You never know how the adoption goes. Sometimes things go very, very fast, would be nice, but that's the assumption which is under. Michael Kuhn: All right. Understood. And then one more question. Obviously, we are not yet there. But let's say, the -- say, cycled as well and you're ramping capacity big time. When would you reach, let's say, your current capacity towards 100%? And when would you consider, let's say, reactivating your Italian capacity that is currently mothballed and what would be the potential cost associated with that? Or is that not even a planning scenario as of now? Felix Grawert: Honestly, it's not relevant for the overall business or profitability. I would say capacity can always be scaled up in one way or another, which way we choose to take, we will decide when we are there. But I think it's nothing that affects the P&L in one way or another. It's not a constraint. It's not a limit to us. It's not a profitability limit or inhibitor or whatever it is, it's just operations. Operator: The next question is from Nigel van Putten from Morgan Stanley. Nigel van Putten: I just wanted to follow up on some of the customer behavior in the optoelectronics end market. I mean, some of them have said that they're currently ramping supply. They see demand ahead of supply, maybe even towards next year. But do you feel that comment is directed at you? When you speak to customers, do you have to disappoint them? Are you shipping to, let's say, 80%, 70% of demand? You've mentioned, as an example, a customer that comes in with a shipment for 5 tools as quickly as possible. Are you still able to serve those type of requests? Or do you have to sort of disappoint them and saying, well, that's going to be quite a bit longer than maybe the 6 to 10 lead time month lead time you've indicated before? Felix Grawert: Well, in this case, good for our optoelectronics customers. The silicon carbide customers are so nice to step to the side for them in this year, leaving a lot of unused capacity, both in our shop floor and within our suppliers. And as you know, we work on a -- how do you say, modular system with our Planetary systems. So all our products are closely related to each other as a family, you can say. That is now a capacity that is not being emptied or not used by silicon carbide customers because that market is currently sleeping. We can use the same supply chain for parts and of course, also the same kind of assembly tools on our own shop floor and the skill set of our people now to do the labor part. In other words, we have free capacity to literally serve all the demand, which is currently coming in. It might be a different game if the silicon carbide would be at the same time in the party now. But silicon carbide, as we have illustrated, is really leaving the gap, and this gap is currently just now being taken by the laser guys. It's good for them. Nigel van Putten: Got it. So when they say we can't ship, it kind of reflects your lead times, you think? Or especially when your customers... Felix Grawert: It should not be us who's the bottleneck. Yes, it should not be us who's the bottleneck. And my team, my operational team, my sales team is handling it. I expect if there would have been a bottleneck, I would know it. I'm not aware of any bottleneck across the entire industry. Nigel van Putten: Perfect. That was my question. But then maybe a broader question. You said larger wafer size and better yield. I think one customer said it's 6 inches is 4x the product of the 3-inch, which -- or yes, the current capacity. So maybe ballpark to give us an idea in terms of the capacity you're shipping this year relative to the installed base, what do you think the increase is you can serve with sort of your view on the revenue you're shipping into '26? Felix Grawert: Well, that's a very, very difficult question. I can only illustrate to you the various factors to that because the installed base is -- first of all, many, many tools, but many of them still on 3-inch and 4-inch wafer size, as you said, which is a much, much smaller capacity in terms of square centimeters or number of chips that you can get out of it in other ways. The other point is, that while the installed base counts many, many tools in the installed base, many times those old tools, they would be dedicated to one product and they would only be qualified for certain products, so with huge inefficiencies. So I think we are currently like the shift in new architecture towards photonic integrated circuits to the PIC on indium phosphide, also much bigger chips, much more functionality is really -- it's a world which is not comparable to the old world I would say. Because it's different chips, different products, a much larger wafer size, much higher productivity. So I think the industry is really seeing a massive momentum. But on the other hand, as illustrated, inside of the data centers, even inside of the racks, we go completely away from electric cables and go completely to optical data connects, which inside of the racks is really new to the industry. So the demand is massively increasing. Operator: The next question is from Adithya Metuku from HSBC. Adithya Metuku: Just firstly, just thinking about the capacity that's coming on board for indium phosphide lasers. From what I understand, the yields are something like 50% and that the continuous wave lasers used in CPOs are about 1/10 of the die size of EML lasers. So I just wanted to hear your thoughts on how you think about the yield improvement, especially if the die sizes go down. That combined with the die sizes going down with the existing capacity that's in place or you will have put in place by the end of 2026. I suppose the question is, it's been asked, but how much does the capacity go up? And will there be enough demand to drive further growth in your optoelectronics business in 2027 if yields go up, die sizes go down 10x because of continuous wave laser adoption. So any thoughts around that would be great. And I've got a follow-up. Felix Grawert: I think you asked the billion-dollar question, but I don't have the answer for you, unfortunately. I think the effect you're alluding to is a typical pattern across the whole semiconductor industry that in a new market segment, you start with a relatively low yield simply because the application is there, the application needs the capacity, the application needs a ramp. But then over time, new generations of products step-by-step come in, which come with a die size shrink and higher yields, means you get more capacity out of your installed base. Typically, such a process, so I cannot -- upfront, I cannot quantify this for you. This is -- I don't know. I think also our customers at this point in time don't know. Typically, this process that you are describing is happening over a 2.5, 3, 3.5, 3, 4-year time horizon because it takes one generation of chips and after the next generation and the next generation, typically, at least you need 1.5 to 2 years for one generation after the next, because your customers are simply not able to digest a faster succession of generations and also to increase the yield takes some time. So what it means is my personal guess, and again, it's only a speculation, but I can share the opinion I have with you is that this is not only a 2026 trend, but at least this trend in this market will extend into 2027, that I think is very, very clear. This does not happen within 1 year. Now to which extent and how large this will extend in '27 and '28? I think that's the billion-dollar question I cannot quantify for you. But I'm very convinced that we are not talking about 1 year, but at least about 2, and I would guess rather a 3- to 4-year time horizon. Adithya Metuku: Got it. So essentially, you are expecting growth in '27, but you don't know the magnitude of the growth at this stage. Would that be a fair way to characterize it? Felix Grawert: That's a fair way. Yes, exactly. That's a fair way. Adithya Metuku: Got it. And then just following up on an earlier question, you talked about the epitaxy machines not being the bottleneck. To my understanding, it's the indium phosphide substrates. Is that right? Or is there some other bottleneck in the system that's preventing your laser customers from ramping capacity and meeting the demand that they're seeing? Felix Grawert: I hear also that indium phosphide substrates is a bottleneck that's currently being addressed by the entire value chain. I know this both on the side of our customers who need the substrates in their factories, and I know it also from substrate manufacturers. And I'm aware that there is a large, very well coordinated and well-orchestrated initiatives by our customers and by the substrate makers together in place to address these bottlenecks. But yes, that's, I think, a topic which is currently being worked on in this value chain and in this industry. Adithya Metuku: Understood. And then maybe just one last clarification. Are you able to give any color on the divisional growth revenue expectations for the first quarter? Felix Grawert: Honestly, I don't have the numbers. Operator: And the last question for today from Malte Schaumann from Warburg Research. Malte Schaumann: My first one is on silicon carbide superjunction technology. So can you maybe share your view on how the time line until adoption might look like? And then associated to that, would your tools in the existing base require an upgrade to incorporate that? Felix Grawert: A very good question. So we are aware that all the leading device makers are currently working on superjunction technologies. To my understanding, the first devices will be launched at the end of '26 by suppliers, means in the second half of '26 or the first half of '27, volume ramps of devices happening in the market. And we think that superjunction technologies in silicon carbide will be strongly embraced by Western players because it's a major way for them to get more dies per wafer and hence, to reduce the cost per chip. So it's a massive trend, which is currently being strongly pushed across the entire industry. As for our tools, there's no further upgrade needed for our tools. They are able to run as is. And one point I would like to illustrate, nevertheless, is that the superjunction technology where essentially you don't take one thick layer, let's say, 10, 12, 14 microns of thickness, but you rather split this into 3 or 4 thinner layers and the wafer gets put into the tools multiple times. Most customers embrace a technology, which is called multi-EP, multi-implant, so you do an epi step to do an implant, you do another epi step, another implant. So the wafer gets several times into our tools, a little bit like what we saw in the indium phosphide just earlier in the discussion. And that means that for one wafer of superjunction devices, you need more epi time. You need more tool time in the epi, and we expect that this will be also one driver at some point, as illustrated in the '27, '28, '29 cycle, which will trigger additional demand from our customers for more tools because they need to expand their epi capacity in order to accommodate all the superjunction MOSFETs. So it's a market trend that we like a lot because it helps our business. Malte Schaumann: Okay. Understood. Secondly, on working capital. With the shift in the product mix away from power to opto this year, can you keep your inventory target? I think it was around EUR 200 million by the end of '26. And then secondly, with respect to the down payments, we have seen quite a significant decline over the past few years relative -- down payments relative to order intake. So what are your thoughts where these levels should normalize going forward? Felix Grawert: Yes, good question. So inventories, yes, we expect inventories to go further down. The shift in product mix, in fact, is an effect which is not helping. So we are still -- but we are still targeting EUR 200 million to EUR 220 million in terms of inventories. So maybe there's 20 more than we initially expected due to the shift of product mix, let's see. But still, we target a significant further reduction of inventories. It's gradually burning down, maybe a little bit slower as you're indicating, but still significant. Christian, maybe you can take the second part. Christian Danninger: On the down payment, it's a little bit more difficult because we don't have complete control on it. It really depends on end market mix, regional mix, customer mix and also cutoff date effect. I mean, the number at the end of the year was really low. We expect it to recover to some degree, but to predict this in detail is quite difficult. And it's also not the major negotiation point with customers, right? It's part of the deal, but not the major part. So it's a little bit difficult to predict. It should increase trend once again. Malte Schaumann: Okay. Okay. Lastly, a quick one on R&D. You indicated an increase in R&D spending this year. Would you expect another increase with the rising business volume generally over the next years and '27? Or would that volume be more or less sufficient to support your programs you have in mind? Felix Grawert: I think we discussed already earlier. So in '24, we had around EUR 90 million. In '25, we had around EUR 80 million. For '26, we expect again around EUR 90 million. Malte Schaumann: And then beyond '26, so the EUR 90 million is sufficient for the next few years... Felix Grawert: It look -- that always depends a little bit on individual cycles of products. At some point in the cycle, the products take a little more money. At some point in the cycle, they take a little less, it depends throughout where the portfolio stands. Honestly, I wouldn't want to predict beyond that. Operator: Thank you very much from my side. With that, there are no more questions in the queue. So I'm closing the Q&A session and handing the floor back over to Ludwig. Christian Ludwig: Well, thank very much. Thank you very much all for your questions. The IR team and part of the management team will be on the road in the next couple of weeks, so we'll see a lot of you, hopefully, in-person. And for those we do not see, we will have our next quarterly call scheduled for April 30, when we will report our Q1 figures. So if we don't see you until then, then have a happy Easter and talk to you end of April. Goodbye, and thank you. Felix Grawert: Bye-bye.
Operator: Good morning and welcome to UMH Properties Fourth Quarter and Year-end 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. It is now my pleasure to introduce your host, Mr. Craig Koster, Executive Vice President and General Counsel. Thank you. Mr. Koster, you may begin. Craig Koster: Thank you very much, operator. In addition to the 10-K that we filed with the SEC yesterday, we have filed an unaudited fourth quarter and year-end supplemental information presentation. This supplemental information presentation, along with our 10-K, are available on the company's website at umh.reit. We would like to remind everyone that certain statements made during this conference call, which are not historical facts, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements that we make on this call are based on our current expectations and involve various risks and uncertainties. Although the company believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the company can provide no assurance that its expectations will be achieved. The risks and uncertainties that could cause actual results to differ materially from expectations are detailed in the company's fourth quarter and year-end 2025 earnings release and filings with the Securities and Exchange Commission. The company disclaims any obligation to update its forward-looking statements. In addition, during today's call, we will be discussing non-GAAP financial metrics. Reconciliations of these non-GAAP financial metrics to the comparable GAAP financial metrics as well as the explanatory and cautioning language are included in our earnings release, our supplemental information and our historical SEC filings. Having said that, I would like to introduce management with us today: Eugene Landy, Founder and Chairman; Samuel Landy, President and Chief Executive Officer; Anna Chew, Executive Vice President and Chief Financial Officer; Brett Taft, Executive Vice President and Chief Operating Officer; Jim Lykins, Vice President of Capital Markets; and Daniel Landy, Executive Vice President. It is now my pleasure to turn the call over to UMH's President and Chief Executive Officer, Samuel Landy. Samuel Landy: 2025 was another strong year for UMH Properties, marked by continued operational excellence, strategic growth and solid financial performance. We made significant progress in increasing the value of our portfolio, driving occupancy gains, breaking our sales record, growing the company through external acquisitions and positioning the company for sustained future growth. The affordable housing crisis has gained national attention. Factory-built homes for sale or rent in communities is a solution to that crisis. Normalized FFO was $0.24 per share in the fourth quarter of 2025 compared to $0.24 in the prior year. Normalized FFO for 2025 was $0.95 per share compared to $0.93 in the prior year, representing an increase of 2%. Gross normalized FFO increased 7% for the quarter and increased 15% for the year. We strive for per share earnings growth and anticipate strong earnings growth in 2026. At this time, we are announcing 2026 guidance of $0.97 to $1.05 per share, representing an increase of approximately 2% to 10%. During the year, we strengthened our balance sheet through prudent capital management. We refinanced 17 communities for $193.2 million in total proceeds at a weighted average interest rate of 5.67%, using the proceeds to repay existing debt, fund our rental home program, support capital improvements, pursue acquisitions and repurchase stock. These refinanced communities were appraised at $309 million, representing a 121% increase over our original $140 million investment, underscoring the significant value we've created. Additionally, we issued $80.2 million in 5.85% Series B bonds due 2030 to foreign investors, providing flexible capital for general corporate purposes. Further, in the fourth quarter, we repurchased 320,000 shares of our common stock at an average price of $15.06 per share for an aggregate cost of $4.8 million, reflecting our confidence in the company's undervaluation. We also realized $5.7 million in gross proceeds from the sale of 100,000 shares of Realty Income Corporation from our securities portfolio. Rental and related income, a core driver of our business, grew to $226.7 million for the year, representing a 10% increase over last year. Our total revenue, including home sales, was $261.8 million for the year, representing an increase of 9% over last year. Our same-property results continue to demonstrate the effectiveness of our long-term business plan. We generally purchase properties where we believe we can improve results through increased home rentals, sales income and finance income. Our team and our platform have proven time and time again that we can preserve and increase the supply of affordable housing while delivering solid and sustainable operating results. In 2025, we delivered same-property revenue growth of 8.2% or $16.9 million and same-property NOI growth of 9% or $11.1 million. This growth in same-property revenue and same-property NOI was driven by site rent increases of 5% and increase in occupancy of 354 net units. Our occupancy gains continue to be driven by the successful implementation of our rental home program. During the year, we added and rented 717 new homes across our portfolio, including those in our joint venture communities, bringing our total rental home inventory to approximately 11,000 units with a 93.8% occupancy rate. Our rental home program continues to operate efficiently with a turnover rate of approximately 20%. Our expenses per unit per year are approximately $400. Our capitalized turnover costs vary but we are generally able to increase rents to earn 10% on any additional investments in the rental homes. Our home sales business also performed well, generating gross revenue of $36.4 million for the year, including contributions from our new Honey Ridge community in our joint venture with Nuveen Real Estate, representing a 9% increase from $33.5 million in 2024. In the fourth quarter, gross home sales reached $9.3 million, up 8% from the prior year period, including sales from Honey Ridge. We have acquired and developed communities in strong locations, which should allow us to further increase our gross sales and sales profitability in the coming quarters. On the acquisition front, we completed the acquisition of 5 communities during the year, adding 587 developed homesites for a total purchase price of $41.8 million. The average occupancy in these 5 communities was 78% at acquisition, providing immediate upside through the infill of vacant sites, which should result in value creation through our proven turnaround strategy. On the expansion and development front, we officially opened Honey Ridge, our 113-site greenfield development in Honey Brook, Pennsylvania. Sales at this community are going very well, and we anticipate a rapid infill pace. Additionally, we completed the development of 34 expansion sites and made progress obtaining entitlements, which should allow us to develop 400 or more sites in 2026. Over the past 4 years, we have developed an average of approximately 200 sites per year. Expansions greatly increase the value of our existing communities. A large asset generally operates with better margins as a result of economies of scale. Additionally, these expansion sites are well located and have the potential to greatly increase our sales and sales profits. As we fill our recently developed sites, our earnings will grow. Expansions in development require patient capital but lead to strong returns over time. UMH continues to deliver solid results while growing the company through the infill of our existing communities, acquisitions and development. We have built a best-in-class operating platform that continues to produce results year after year. We invested significant additional funds for long-term growth, which will result in stronger improvements in our operating results over the years to come. Our long-term business plan allows us to acquire communities at a discount to their stabilized value, complete improvements and over time, realize the increases in value through refinancing. Our quality income stream is derived from our 24,000 families that have chosen to make UMH communities their home. This income stream has proven resilient through all economic cycles. Overall, these accomplishments demonstrate the resilience and growth potential of our business model. I'll now turn the call over to Anna, our CFO, to review our financial results in more detail. Anna Chew: Thank you, Sam. Normalized FFO, which excludes amortization and nonrecurring items, was $20.5 million or $0.24 per diluted share for the fourth quarter of 2025 compared to $19.2 million or $0.24 per diluted share for 2024. For the full year 2025, normalized FFO was $80.1 million or $0.95 per diluted share for 2025 compared to $69.5 million or $0.93 per diluted share for 2024, resulting in a 2% per share increase. We were able to obtain this increase in annual normalized FFO despite our operating results being impacted by our investments in growing the company through value-add acquisitions and developments and increased expenses. Rental and related income for the quarter was $58.2 million compared to $53.3 million a year ago, representing an increase of 9%. For the full year, rental and related income increased from $207 million in 2024 to $226.7 million in 2025, an increase of 10%. This increase was primarily due to acquisitions, increases in rental rates, same-property occupancy and additional rental homes. Community operating expenses increased 12% during the quarter and 10% for the year. This increase was mainly due to acquisitions and an increase in payroll costs, real estate taxes, snow removal and water and sewer costs. This increase also includes onetime legal and professional fees of $724,000 for 2025. Despite the increase in community operating expenses, community NOI increased by 7% for the quarter from $31.1 million in 2024 to $33.3 million in 2025 and increased by 9% for the full year from $119.7 million in 2024 to $130.7 million in 2025. Our same-property results continue to meet our expectations. Same-property income increased by 8% for both the quarter and for the year, generating same-property NOI growth of 6% for the quarter and 9% for the year. From a liquidity standpoint, we ended the year with $72 million in cash and cash equivalents and $260 million available on our credit facility with a potential total availability of up to $500 million pursuant to an accordion feature. We also had $129 million available on our revolving lines of credit for the financing of home sales and the purchase of inventory and $55 million available on our lines of credit secured by rental homes and rental home leases. During the year, we issued $80.2 million in 5.85% Series B bonds due 2030 to foreign investors, providing flexible capital for general corporate purposes. As we turn to our capital structure, at year-end, we had approximately $761 million in debt, of which $556 million was community level mortgage debt, $28 million was loans payable and $177 million was our 4.72% Series A bonds and 5.85% Series B bonds. 99% of our total debt is fixed rate. The weighted average interest rate on our mortgage debt was 4.73% at year-end compared to 4.18% at year-end last year. The weighted average maturity on our mortgage debt was 6.1 years at year-end and 4.4 years at year-end last year. The weighted average interest rate on our short-term borrowings was 6.38% as compared to 6.54% last year. In total, the weighted average interest rate on our total debt was 4.9% at year-end compared to 4.38% at year-end last year. In 2025, we successfully refinanced 17 communities, generating total proceeds of $193.2 million at a weighted average rate of 5.67%. This capital was used to repay existing debt, invest in our rental home program, capital improvements, acquire new communities and buy back our common stock. The appraisals conducted for the refinancing demonstrates the value created by our business plan. Our total investment in these communities was approximately $140 million or $37,000 per site, and they were valued at approximately $309 million or $82,000 per site, generating an increase in value of $169 million, representing an increase of 121% in value, which, as Sam mentioned, underscores the significant value we've created. During 2026, we have 6 mortgages maturing totaling $38.2 million and expect to have the same success in refinancing these communities. At year-end, UMH had a total of $323 million in perpetual preferred equity. Our preferred stock, combined with an equity market capitalization of over $1.3 billion and our $761 million in debt results in total market capitalization of approximately $2.4 billion at year-end as compared to $2.5 billion last year. In the fourth quarter of 2025, we repurchased 320,000 shares of our common stock at a weighted average price of $15.06 per share for a total of $4.8 million, reflecting our confidence in the company's undervaluation. Our common stock repurchase program allows us to repurchase up to $100 million of our common stock, and we will continue to monitor the market to determine the appropriate time to continue using the program. During the year, we issued and sold 2.6 million shares of common stock through our common ATM program, generating net proceeds of approximately $44.1 million. Currently, the common ATM program remains closed. The company also received $9.3 million, including dividends reinvested through the DRIP. In addition, we issued and sold 93,000 shares of our Series D preferred stock during 2025 through the preferred ATM program, generating net proceeds of approximately $2 million. Subsequent to year-end, we issued 66,000 shares of our Series D preferred stock through our preferred ATM program, generating net proceeds of approximately $1.5 million. From a credit standpoint, we ended the year with net debt to total market capitalization of 28.3%, net debt less securities to total market capitalization of 27.3%, net debt to adjusted EBITDA of 5.4x and net debt less securities to adjusted EBITDA of 5.2x. Interest coverage was 3.6x and fixed charge coverage was 2.3x. Additionally, we had $23.8 million in our REIT securities portfolio, most of which is unencumbered. The portfolio represents only approximately 1.1% of our undepreciated assets. We are committed to not increasing our investments in our REIT securities portfolio aside from dividend reinvestment and have, in fact, continued to sell certain positions. During 2025, we realized $5.7 million in gross proceeds from the sale of 100,000 shares of Realty Income Corporation from our securities portfolio. We are well positioned to continue to grow the company internally and externally and are introducing 2026 normalized FFO guidance in a range of $0.97 to $1.05 per share. And now let me turn it over to Gene before we open it up for questions. Eugene Landy: Thank you, Anna. UMH is well positioned as a leader in the manufactured housing industry. We now own 145 communities containing 27,100 developed homesites with approximately 11,000 rental homes on those sites. Every year, we make a considerable amount of progress building an irreplaceable company and best-in-class operating platform. Our business plan has resulted in outstanding operating results, growing earnings per share and an overall larger, more profitable company. We intend to continue growing the company through compelling acquisitions when they are available, developing our vacant land, the investment in rental homes and further increasing the profitability of our sales company. We accomplished all of this while executing on our mission of providing the nation with much needed high-quality affordable housing. Our portfolio of communities has materially grown over the years. We have selectively acquired well-located communities that have benefited from our capital improvements and rental home program. I am proud to say that every community we own is in better condition today than the day we bought it. Our investments in our communities provide the highest quality of living at the most affordable price in just about any market we operate in. These investments generate strong demand, which results in waiting list for rental homes and increased home sales. Our 4,000 acres of land in the Marcellus and Utica Shale areas have considerable unrecognized value that will become more apparent as we continue generating revenue through lease signing bonus and royalty income. Our 2,300 acres of vacant land also carry substantial value as we explore the expansion of our communities or other uses such as single-family home developments, apartments or data centers. In addition, the recent announcement to build a new natural gas generation facility in Portsmouth, Ohio, which will be the largest natural gas generation facility in history, generating 9.2 gigawatts of power, further supports the untapped potential value we have in the 4,000 acres we own within the Marcellus and Utica Shale regions. Our country needs an affordable housing solution. We are working diligently to do more to help provide this housing and position manufactured housing as the preferred solution to the problem. Housing is a bipartisan issue, and we believe that new legislation will encourage new development of manufactured housing communities. Additionally, 2-story and duplex homes will increase the viability of manufactured housing in urban areas and areas with higher land costs. Changes to finance laws could result in lower cost loans for our tenants, which will further improve the fundamentals of our business. We are well positioned to benefit from these legislative changes and are excited about the prospects of each of them. Looking ahead to 2026, we anticipate strong growth prospects supported by positive industry fundamentals. Demand for affordable housing remains high, and our sector benefits from limited new supply and favorable demographics. Our recent acquisitions and ongoing community improvements will further contribute to organic growth, while our joint venture and opportunity zone fund provide additional avenues for long-term growth while limiting the impact on our short-term earnings. We expect these factors to drive continued FFO growth in 2026. Our team is focused on executing our strategy to deliver long-term value for shareholders. Thank you again for joining us today. Operator, we are now ready to take questions. Operator: [Operator Instructions] And the first question will come from Rich Anderson with Cantor Fitzgerald. Richard Anderson: Great year and forward-looking perspective. I want to ask about the rental versus home sale strategy. You sort of focus on rentals as the sort of the driver to the growth story, you're breaking records in selling homes. I know the rental business is a byproduct of the Dodd-Frank legislation and so on. But I'm curious if you guys have an idea in mind and what the ultimate breakout in the portfolio might be between rental and owned homes if there's sort of a sweet spot in your mind? Samuel Landy: Rich, Sam here. We will always use the rentals because there's so many people just looking for short-term housing, 1 year to 3 years. There are so many people who never lived in a manufactured home community, don't really know what to expect, don't understand the houses. So the renting program creates buyers and fill sites so much quicker than selling homes. So we never won't have rentals, and we have 11,000 of them today. But the new changes to the Title I finance laws, right now, there's a limit to how much you can finance approximately $70,000, and they might increase that. And those are government-guaranteed loans that the customer only needs 3% down. That could dramatically increase our sale of the older rental units because somebody can switch their home rent portion of their payment. If they're paying $1,000 a month, $500 lot rent, $500 is the rent for the house, they could convert that $500 rent for the house to a loan payment so that for the future, they're always building equity. It will never increase. It's beneficial to them, and then they own the house, which is beneficial to us. So we could be buying brand-new homes for $75,000, selling old homes for $60,000 and only needing $15,000 cash as to replace them. So we're perfectly happy doing Memphis Blues as 100% rental communities. Rentals work. We consider it horizontal apartments. We take all the efficiencies of factory-built housing and that efficiency is cumulative. Even people in the business don't really understand how much better and more cost-effective our houses get year after year. If you look at a 1970s home and you look at the house of today, there's nothing in common. They're complete different houses. And yet the affordability component is better than ever in comparison to any other type of housing. So we take that fantastic efficiency of the factory-built home plus the efficiency of managing 250 lots on approximately 40 acres and pass that on to the customer and how many people have household income of only $40,000, and they can rent the house from us for $1,000 per month, which is 30% of income, and there's nothing else they could have as good in such a high-quality community. So it works every time and then generate sales because as people live in our communities as they think they might want a bigger house, a multi-section house, they feel comfortable buying it. Richard Anderson: Okay. So would you say like the sweet spot rental versus home owned is just for a lack of a better number, 50-50 as an efficient frontier for UMH? Samuel Landy: I'm going to say yes, and I just want to -- every community is different. So some communities can be 100% rental. You get to New Jersey, you almost have 0 rentals. So every community is different. But as a company, do I think we'll have 50% rentals? Yes. Richard Anderson: Okay. On the same-store performance, you had some elevated expenses in the fourth quarter. I assume that was snow removal and weather related. What would it have been without that if you were to normalize a normal quarter's worth of expenses, would have been approaching a 10%-ish type number, same-store NOI? Brett Taft: Yes, exactly, Rich, and this is Brett here. And just looking at the numbers for the year, we were very happy with the 8.2% revenue growth, the 7% community operating expense number and the overall 9% community NOI increase. So that's pretty close to where we expect it to be. We're always out there saying we anticipate expenses to rise 5% to 7%. We did have elevated snow removal costs. We did have overtime related to snow removal. We also had additional tree removal related to snow removal in the fourth quarter. And then you've got some real estate tax increases and some insurance expenses that also increased that overall number. So looking at a normal quarter without the bad winter we've had, we do expect that we would have been in that 10% range. But looking forward, we anticipate being able to get our 800 new rentals installed and rented. We anticipate to get our annual rent increases and we should be able to control our expenses in that 5% to 7% range, which, again, should result in high single-digit or low double-digit NOI growth, which is where we've been over the past few years. Richard Anderson: Okay. And last for me. Any meaningful change to home prices, supply chain issues, tariffs, blah, blah, blah. Like how is that changing what the wholesale cost is for your homes when you kind of bring them into your community and then either rent or sell them? What has the dynamic been there lately? Samuel Landy: Yes, Sam here, Brett will elaborate. But everything I see is favorable. No dramatic waits for houses. Prices actually, in some cases, coming down. Go ahead, Brett. Brett Taft: Yes. No, prices are in a very similar position to where they were all of this year and last year. We'll keep an eye on that going forward. But we're still able to get our rental homes in the $75,000 to $80,000 range, which positions us well to rent homes at $1,000, $1,200 or $1,400 a month depending on the market. Factory backlogs for the most part, are in good shape in the 6- to 8-week range. There's a few factories that are a little bit further out than that but we're working with those manufacturers to try and either get homes or find a comparable home from another factory. So we don't anticipate any problems getting homes, getting them set up with the one caveat being that it's been a very snowy winter in most of our locations. So that does slow down sets a little bit. But demand is strong for both sales and rentals. We have homes either on site or being delivered to the sites. They're being set up in a timely manner, and we anticipate similar occupancy gains in 2026. Operator: The next question will come from Barry Oxford with Colliers. Barry Oxford: Sam, real quick, if you could kind of walk me through -- I understand some of the headwinds that existed in 2025. But then when I look at what you're doing on a same-store NOI internal growth, very strong numbers, no reason to think, at least at this particular juncture, that you won't be able to put up similar numbers. But yet when I look at the low end of your guidance at $0.97, that's only $0.02 more than what you did this year. Can you help me kind of walk through what's holding back the FFO per share? Samuel Landy: I think you're better suited asking Jim to answer on the guidance. Go ahead, Jim. James Lykins: So that could be a number of things, Barry. Home sales could be worse than what we're anticipating. We could potentially raise capital that we're not anticipating right now. But sitting here right now, we would expect to come in right in the middle of that range. That's kind of a sitting here right now, worst case and best case scenario, we don't consider that number to be either conservative or overly optimistic. We think it's straight down the fairway. Samuel Landy: And the only thing I'll add to that, we really don't know what sales will be. Two -- communities in 2024, between the 2 of them had approximately $8 million in sales that were full in '25. So we couldn't have any sales from them in '25. And they will have available lots in '26. So that there's a potential of all the sales in '25 plus $6 million just from those locations. Additionally, there's other expansions just built, places where you're getting to -- as expansions or new communities become more mature, the sales get easier. So there's a lot of reason to be even more optimistic on sales but you just never know because there's so many factors that come into it. But if everything goes right, sales can really get beyond $40 million in a year. Operator: The next question will come from Gaurav Mehta with Alliance Global Partners. Gaurav Mehta: I wanted to ask you on the rental homes outlook of 700 to 800 homes this year. What's the timing of that? Do you expect that to be evenly split during 4 quarters? Brett Taft: Probably not evenly spread as we are seasonal. And as I just mentioned, the first quarter, we are experiencing some challenges with incredibly cold temperatures and snow, which unfortunately, does slow things down on the home side and in some cases, the move-in. But I am happy to say that sitting here now, we're happy with where sales are. We're happy with the occupancy gains we've seen so far this year. We do have 100 homes in inventory that are fully set up and ready for occupancy at the moment, and we've got another 380 homes being set up. So we should see some occupancy growth in the first quarter. The second and third quarter is where the majority of that occupancy growth will come in and the fourth quarter does tail off a little bit. But we do expect it to be heavily weighted to the spring and summer months, and that's pretty consistent with previous years as well. Gaurav Mehta: Okay. Second question, maybe on the acquisition opportunities. What are you guys seeing in the market as far as acquiring new properties? Brett Taft: Yes. The acquisition market remains competitive, high-quality assets that are well located and stabilized are trading in the sub-5% area in most cases, in some cases, sub-4%. We are looking at several smaller portfolio opportunities and one-off acquisitions that could trade in the 5% to 6% range but we're out there analyzing the opportunities, doing our detailed underwriting and making sure that we fully account for any capital items that may be needed and get the right deals in the right locations to continue our growth and try and put together deals that are accretive to earnings. So nothing to report on the pipeline at the moment. We were very happy to find 5 communities to acquire last year. Those 587 sites for $41.8 million in markets that we like and think we'll do well in for the future. So we're out there looking for those similar opportunities in 2026. Samuel Landy: And I'll just mention the joint venture with Nuveen for newly built communities as well as the opportunity zone fund create incredible opportunity to expand what we've done in new community construction. UMH, the parent company, can only develop so many new sites per year because it's a lost business for 3 to 5 years. But doing it in a joint venture or doing it in the opportunity zone fund, there's almost no limit to how much we can do, and that has incredible potential to allow us to build new communities throughout the country. Operator: The next question will come from John Massocca with B. Riley. John Massocca: So apologies if I missed this earlier in the call but been hopping around between a couple of different earnings calls. But with regards to the guidance provided, any color on what you're expecting in terms of the contribution from new home sales and just the kind of scale of potential new home sales in 2026? Samuel Landy: Jim, you can tell us what you used. Yes. James Lykins: So we -- John, we haven't disclosed what we -- or what the amount will be in anticipated home sales this year or the number. I would just tell you that we assume an improvement. Sam mentioned earlier that we could get to $40 million. So I would keep that in mind but we haven't disclosed an actual dollar amount where we anticipate sales coming in. Samuel Landy: I was just going to -- sales are very difficult to predict, but we have more available expansion sites than we've ever had in the past. We have the turnaround communities such as Oak Tree in New Jersey. We have a lot of locations that could potentially increase sales more than conservative people would expect. John Massocca: Okay. In terms of the in-place portfolio, any changes you're seeing in terms of delinquency or the bad debt outlook? Brett Taft: No, Collections remain incredibly strong in that 98.5% range. It really hasn't fluctuated too much. Every year around the holidays, it goes down a little bit but then picks back right up towards the end of January. So rent continues to be paid. We haven't had any issues passing through our annual rent increases and don't anticipate any changes coming here shortly but constantly monitor it and if anything changes, everybody will know. Anna Chew: And our write-offs are approximately 1% or a little less of our rental and related income. And that has been consistent for the last, I don't know how many years. John Massocca: And then one thing, apologies if this is already addressed in the call, but you sold some shares out of the marketable securities portfolio. Is that something you think you could continue doing going into 2026? Or was that kind of one-off in nature? Eugene Landy: No, no. We have announced that we have a $100 million buyback. And of course, the timing of the buying back shares depends on whether we have any acquisitions, whether we invest in new greenfield developments more than we originally planned. And the whole purpose of the securities program is always to keep liquidity. And so we have about $26 million in liquidity there but we also have unused bank lines of $260 million. We've been conservative, and we plan to keep being conservative but we do eventually intend to carry less cash because it puts a drag on our earnings, and we do plan to eventually take down the securities program to 0. But at the present time, we like having $26 million available for any acquisition or other reason we would need capital. We're a very conservative company, and we intend to continue to do that. But we will be reducing the securities program. John Massocca: Okay. And I guess was the reason for tapping that due to the buyback you had in place, you thought your stock was more attractive than maybe the valuation on some of the assets in the marketable securities portfolio? Eugene Landy: No, the securities portfolio at its present low level, we're very pleased with the securities portfolio, have nothing but admiration for the 3 basic companies that are in it, and we think they're great investments. We just think our own properties are better investment. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Samuel Landy for any closing remarks. Samuel Landy: Thank you, operator. I would like to thank the participants on this call for their continued support and interest in our company. As always, Gene, Anna, Brett and I are available for any follow-up questions. We look forward to reporting back to you in early May with our first quarter 2026 results. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. The teleconference replay will be available in approximately 1 hour. To access this replay, please dial U.S. toll-free 1 (877) 344-7529 or international (412) 317-0088. The conference access code is 1544518. Thank you, and please disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Neinor Homes Full Year 2025 Results Presentation. [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, José Cravo. Please go ahead. Jose Cravo: Hi. Good morning, everyone. My name is José Cravo, and I'm the Head of Investor Relations at Neinor Homes. Today, we are going to go over results for the fiscal year 2025. And as usual, we are here with Borja Garcia-Egotxeaga, our CEO; Jordi Argemí, our Deputy CEO and CFO. We will start the presentation with the key highlights in Section 1. Then on Section 2, we will provide an update on the closing of the AEDAS transaction. On Section 3, we will review financial results. And on Section 4, we'll finish with key takeaways. After the presentation, there will be a Q&A session to answer any questions you may have. Now I hand over the presentation to our CEO, Borja Garcia-Egotxeaga. Borja Garcia-Egotxeaga Vergara: Thank you, Jose. Good morning, and thanks, everyone, for joining. Let me be very clear about the most important message we want to convey during this presentation. We are executing today, and we are accelerating tomorrow. That is the story. Let's break it down. First, results. Full year 2025 is the seventh year in a row that we delivered on our operational and financial targets, 7 years, not 1 or 2, 7. In a fragmented market through cycles and through volatility, we have consistently done what we said that we would do. That is the value created by this management team. It's discipline, it's execution and focus. Second, AEDAS. In less than 8 months, we have secured full control, doubled the scale of the platform. This is not incremental. This is transformational. With AEDAS, we created the national champion in a highly fragmented market. We moved from being a strong operator to being the clear consolidation leader. Third, the market. The macro is strong. GDP in Spain is growing fast. Employment is solid. Population is increasing and household leverage remains low. At the same time, supply is structurally tight. And when supply is scarce, price move up. But -- and this is important, affordability for our clients remains healthy. We operate in a market where demand fundamentals are real and sustainable, not speculative. That is what we call HALO, Heavy Assets, Low Obsolescence in a structurally scarce environment. That combination creates resilience and long-term value. And fourth, Grow. We are very well positioned. We have a scale. We have the best land, we have visibility, and we have a proven capital allocation framework. We will continue to grow, but we'll do so the same way we have delivered 7 consecutive years of results with discipline, with focus, and with equity-efficient execution. So again, we are executing today. We are very focused in AEDAS integration, and we are accelerating tomorrow. Now let's move to Slide #5, and let's see the numbers. We have closed the year with a land bank of almost 38,000 units. Around 25,000 of those are currently under production and more than 12,000 are in work-in-progress or already finished. That is production capacity. That's multi-year visibility. Our order book stands at record levels of nearly 9,000 units, representing more than EUR 3 billion of future revenues. And during the year, we have delivered close to 3,000 homes to our clients. On the right side of the slide, you have the financials. Jordi will go through them in detail later, but let me highlight 3 points. First, we reached the high end of our guidance. Second, operating margins remained solid with 27% gross margins. Third, at the bottom line, net income came in 7% above guidance, excluding AEDAS. On the balance sheet, leverage increased versus last year as expected, but it remains fully aligned with our strategy and supported by a strong cash flow visibility. Finally, shareholder value creation has been strong with 25% growth in NAV per share plus dividends distributed. So when we say we are executing today, this is exactly what we mean. Please follow me to the next slide to see how the platform has transformed in just 3 years. Now let's zoom out. The Spanish residential market is highly fragmented. Even the largest players have a very small market share. Neinor's platform today is 2, 3 or 4x larger than most of our peers. And in a fragmented market, a scale wins. Look at the evolution since 2023. Our order book is up by almost 7x. Our units under construction tripled. Our active portfolio is up by 4x, and our total land bank has more than doubled. This is not incremental growth. That is a structural expansion. But let me be clear, this is not growth for the sake of growth. It's rooted in a disciplined strategy. It's grounded on our equity-efficient model, and it is designed to create value for our shareholders. Yes, the scale is important, but quality is even more. Please, let's go to next slide. Now let's turn to the quality because scale with the quality doesn't create value. More than 80% of our GAV is concentrated in 8 regions. These are the areas with the strongest economic growth, the strongest demographics and the tightest supply in Spain. This quality land bank is worth more than EUR 10 billion in future revenues. And more important, it was acquired through a disciplined investment strategy. This provides meaningful downside protection and a clear upside in the current market environment. It is important to highlight also the segment in which we operate. We focus on the mid- to mid-high segment, selling homes at EUR 300,000 to EUR 400,000, more than 90% to Spaniards who are buying a residence where they will live. Around 30% of our clients buy with cash, while those that use leverage do so conservatively with an average loan-to-value of 65%. As a result, our buyers enjoy structurally strong affordability metrics with house-price-to-income 40% below the national average. Moreover, in recent years, when house prices started to accelerate due to the structural imbalance of demand and supply, affordability for Neinor clients remains at the same levels or even is improving a little bit. This combination of premium locations, disciplined land acquisition and resilient demand positioning underpins the quality of our earnings profile. Please follow me to next slide so that we can explain why Spain continues to be one of the safest residential markets worldwide, which further strengthens our current setup. For many years, we have been saying that Spain is one of the safest residential markets worldwide. And we say so for a structural reasons. It is true that most residential markets in developed countries are undersupplied. Spain is not unique in that sense. Their real difference lies on the demand side and in the financing structure. The Spanish economy is performing well. Employment is growing. Population is increasing. But more important, the Spanish housing market is much less leveraged than the others. In Spain, typical loan-to-value ratios are around 70% to 80%. While in many other countries, it is normal for buyers to get 90% of the purchase price. Moreover, the cost of financing is also very different. In Spain, our clients are signing long-term fixed mortgages close to 2%, while in other markets, mortgage rates can easily be double that level. So lower leverage and lower financing costs make the Spanish market more resilient to shocks. So when we think about the housing cycle and evolution of house prices, the key variable is not only supply, it is affordability under stress. In markets with high leverage and higher mortgage rates, affordability can deteriorate quite quickly when interest rates move. In Spain, the impact is much more limited. Buyers use 20% to 30% less leverage when buying. They lock in long-term fixed rates 30 years versus mixed rate to more short term in U.K., for instance. And household balance sheets are stronger than in previous cycles. That is why we believe Spain is structurally more resilient. And that is why we believe this market can sustain moderate price growth without undermining affordability, especially in our segment. Now let me step back and explain why we believe Spain offers structural growth opportunities beyond the economic cycles. Over the last years, Spain has accumulated a housing production deficit of more than 800,000 units. To put that into perspective, this deficit is equivalent to roughly 8 years of current annual housing production. As you can see on the chart, household formation is exceeding year-by-year housing production, especially after '21. The gap keeps increasing, and it is expected to do so in the following years. This tells us something fundamental. Spain simply doesn't build enough homes to meet underlying demographic demand. And as population growth accelerates and household formation continues, this deficit does not correct itself. That's why we believe Spain residential is supported by structural fundamentals, not just macro momentum. For a scaled industrial platform like ours in a quality land bank and embedded execution, this creates a long runway for disciplined growth and value creation. And now let me pass the word to Jordi to see a little bit more of AEDAS transaction and financials. Jordi Argemí García: Thank you, Borja. Let's go through the key milestones of the AEDAS transaction, which we have successfully executed in just 8 months. In December, we acquired almost 80% of AEDAS by purchasing the stake from Castlelake. At the end of January, the CNMV authorized the mandatory tender offer and confirmed the price as equitable. Shortly after, we reorganized the Board of Directors, securing full operational control of the company. And since then, we have already implemented decisive actions. First, we have restructured the corporate debt using the Bolus facility. Second, we signed a management agreement so that we are in charge of the key strategic decisions and have full control of cash management. And third, we canceled AEDAS shareholder remuneration policy to fully align capital allocation with Neinor strategy. As you know, the acceptance period of the mandatory tender offer will finish tomorrow, and the final results will be published next week. Regardless of the final percentage that we will own, the strategic objective of this transaction has already been achieved. We have control, integration is well advanced and synergies are underway. With that said, let's move to Section #3 to review the 2025 financial results. On the left-hand side of the Slide 13, you see 3 columns. First, our original guidance for the year. Second, the reported results, excluding AEDAS, which are fully comparable to our guidance. And third, the actual results, including the impact of AEDAS from the 22nd December onwards. Let's start with deliveries. We neutralized around 1,900 units, out of which 1,565 units correspond to build-to-sell projects with an average selling price of EUR 421,000 and 352 units correspond to build-to-rent projects. As anticipated during the year, the higher average selling price reflects the delivery of Santa Clara development, where units are sold above EUR 1 million each. In addition, the build-to-rent projects divested were for an amount of EUR 70 million. And remember that these are recorded directly as margin in the P&L due to the applicable accounting standards. As you can see, revenues from the asset management business are amounting around EUR 20 million, while construction and other revenues contributed approximately EUR 30 million. In total, revenues reached close to EUR 700 million. And this is basically the higher end of our EUR 600 million to EUR 700 million guidance range. In terms of profitability, gross margin stood at 27%, also above our 24%, 25% objective. EBITDA reached EUR 110 million, also at the high end of guidance. And at the bottom line, net income came in at EUR 70 million, representing a 7% beat versus guidance of EUR 65 million. Regarding leverage, we closed the year with an LTV of 16%, which is below our target of 23% and this already includes the dividend distribution executed earlier this month of EUR 92 million. So overall, solid operational execution and cash flow generation from the underlying business. Now looking at the third column, which includes the impact of the transaction, you can see that AEDAS contributed 26 units at an average selling price of EUR 412,000. Basically, it adds EUR 12 million of revenues and bringing group revenues to EUR 709 million. At EBITDA level, the impact is minimal, around negative EUR 1 million, mainly due to the structural costs and the margins for finished products, which are lower. The most relevant impact is at net income level, I would say, due to the purchase price allocation accounting with a positive contribution net of transaction costs and net of one-offs of EUR 52 million. That implies that the net income increases from EUR 70 million Neinor stand-alone to EUR 122 million at a consolidated basis. Note that this is a non-cash item that was triggered by the badwill arising from the M&A transaction. This extraordinary profit represents an anticipation of the EUR 450 million target net income we announced in June of last year. And if you look at the net debt, it increases to EUR 1.1 billion. This basically implies a loan-to-value of 36%, which again is slightly below to our 37.5%, 40% target, including guidance. So with that said, let's move to the Slide #14. Let' s zoom out for a moment and go back to basics. We operate a highly industrialized and scalable platform in a fragmented market. Our business consists of buying raw land and transform the plots into new homes for our clients. And as you can see, over the last 9 years, we have perfected this model, delivering more than 16,000 homes across Spain. Financially, this translates into more than EUR 5 billion of revenues, industry-leading gross margins of 28%, more than EUR 900 million of EBITDA and more than EUR 600 million of net income. And that profitability has not remained in our balance sheet. It has been returned to shareholders through dividends and share buybacks. If we focus on our strategic plan, we have distributed EUR 450 million with a further EUR 400 million forecasted for the upcoming 2 years. In practical terms, these companies will return approximately 80% of its market cap as of March 2023 to shareholders in only 5 years. And we have done this while doubling the size of the company. Originally, the plan contemplated to reduce the size of the company by 30%, but instead, we are doubling earnings per share. So we have demonstrated that we are disciplined and be sure we will continue being. And now I hand over the presentation back to Borja for the key takeaways. Borja Garcia-Egotxeaga Vergara: Thank you, Jordi. So let me close by summarizing the investment case in 4 clear points. First, our positioning. We operate in heavy tangible assets, land and housing. These are real assets with very low obsolescence risk. In a world increasingly exposed to technological disruption, our business is structurally protected. People will always need homes and the real raw material is the land, not the metaverse. Second, our asset base. We control the largest and highest quality land bank in Spain. Fully permitted land in prime regions is scarce. Scarcity protects value and scarcity embeds margins. When you own the right land in the right locations with permits in place, you control both timing and profitability. This is a structural competitive advantage. Third, the market environment. As we have seen, Spain is structurally undersupplied. At the same time, the housing market is under leveraged with conservative mortgage structures and resilient affordability. That combination makes the Spanish residential market one of the safest globally. And importantly, this structural imbalance does not disappear if GDP moderates. Supply constraints are long term. Demand fundamentals are demographic. This is not a short-cycle story. And fourth, growth. We will continue to grow, but with discipline. Every investment must be equity efficient. Every transaction must be value accretive. Scale is important, but discipline is what creates value. That is why we believe Neinor is positioned not just for this cycle, but for the long term. Thank you very much. Jose Cravo: Operator, we can now start the Q&A session. Operator: [Operator Instructions] We will take our first question. And the question comes from the line from Ignacio Domínguez from JB Capital. Ignacio DomÃnguez Ruiz: I have a question on outlook for the next few years. What gross development margins do you expect to deliver on a consolidated basis, particularly as the combined Neinor, AEDAS platform stabilizes? Jordi Argemí García: Everything regarding the business plan and the future, we prefer to wait because, as you know, we are in the middle of the Mandatory Tender Offer. So results should come -- will come next week. And after it, we try or our intention is to present the business plan and all the guidance at the AGM that will be in April. So a few weeks from that. We don't expect any changes to what we presented in the tender offer in all the guidance for the JVs. But in any case, it's better to wait for the final result of the tender offer to answer. Operator: We will take our next question. The question comes from the line of Fernando Abril-Martorell from Alantra. Fernando Abril-Martorell: I have 3 questions, please. First, on execution. So what is your target for new housing starts in your fully owned portfolio in 2026? And also would like to -- if possible, if you can elaborate a little bit on the constraints you may be facing in launching new developments and whether you see any change in the stance from public authorities regarding permits and approvals. Second, on land purchases. I don't know, you've raised -- you've done another capital increase aiming for new growth opportunities. So I don't know if you can comment a little bit more on this. And if you have any -- I don't know if you have any land acquisition target for this year as well. And third, maybe you will not answer much on this based on what Jordi just said. But if we assume that you paid the remaining EUR 150 million dividends this year, I don't know if you can comment on your year-end net debt target or loan-to-value based on this assumption. Borja Garcia-Egotxeaga Vergara: I will start with the first question that was regarding -- I understood about what we are going to launch in this year for the year '26 which target. As we said during the tender offer, the new size of the company of the whole group between Neinor and AEDAS will lead us into a situation where we will be delivering between 5,000 to 6,000 units per year. So right now, we are just closing, as Jordi was saying, the business plan. And therefore, all the portfolio is being adapted into that metrics that I'm telling you. So more or less, you can consider that during the year, we should launch enough to recover in year '28, '29 those 5,000 to 6,000 units. Regarding the situation with the politics and the permissions, well, you know that in Spain, the situation with the house crisis is getting louder year-by-year. And this is making most of the regions we are seeing in all the regions, in fact, where we are working, how the rules are changing. Basically, what all the regions are trying to do is to do it easier to get the licenses to short times and to try to increase the supply. All of this is good for our business. So we are happy with the situation in terms of the action of the politicians that we have been asking for, for so long. Regarding your second question, the land purchase, I give the word to Mario. Mario Lapiedra Vivanco: Okay. Well, as mentioned, we are closing the investment strategy. And in the coming weeks, we will provide further details. But as of today, we can say that we have a good pipeline of above EUR 500 million in the different living verticals, both in build-to-sell in Senior, in Flex and in strategic land. We will keep discipline. So we know that today, we are the rock stars of the sector, but our main mantra is to keep the discipline that has allowed us in the last years to invest more than EUR 3 billion, but providing IRRs of above 20%. So that's a bit of what we can say today. Jordi Argemí García: I take the last one, the net debt target. As I said before, Fernando, we prefer not to close down mandatory tender offer, and we will come back in a few weeks to explain the business plan in details. In any case, as I was saying before, whatever comes will be aligned with what we presented in June. And remember that the debt target there was 20% to 30% Neinor HoldCo Level on a consolidated basis should be around 40%. Then it will go down because we will deleverage AEDAS. Fernando Abril-Martorell: Okay. Just a quick follow-up on the politics. Are you willing to play via affordable housing or not it's not a priority for the moment? Borja Garcia-Egotxeaga Vergara: Well, Fernando, regarding the affordability houses, we must say that right now, more or less every year, we are delivering around 200 houses of protection. We are delivering, for instance, last year, we did 500 units that we deliver what we call affordable housing that at the end is houses that instead of EUR 300,000 to EUR 400,000 case, as I have said in the presentation, cost between EUR 225,000 to EUR 275,000 and we deliver this type of houses, for instance, near Madrid in the places where we can get to buy land at cheap price. Regarding affordable housing in the rental segment, we have an active program now with Llei de l'Habitatge de Catalunya that we are building for them 4,700 units. We keep looking the different opportunities that we are seeing with Plan Vive Madrid and others in Valencia or in Navarra. Basically, we need to be very sure before we enter into these operations that we have a clear exit when we get in and that the rentability -- the profitability of the transaction is enough for that exit. So being a priority to contribute in the affordable housing solution in Spain, we are also very close to the design of these programs in order to try to make them, I think, more profit -- a little bit more profitable and it's something that, for sure, Neinor will play an important role in the following years. Today, it's not in our business plan, but it's something that we work with. Operator: [Operator Instructions] We will take our next question, and the question comes from the line of Manuel Martin from ODDO BHF. Manuel Martin: Gentlemen, just one follow-up question and then 2 other questions from my side, please. The potential 5,000 to 6,000 units deliveries per annum, more or less. Just to make sure, this is build-to-sell and from your own portfolio as far as I understood. Borja Garcia-Egotxeaga Vergara: Yes. Basically, right now, we are delivering more than just small amounts of affordable housing that are more for the rental segment that both Neinor and AEDAS we are doing, but not too many units. Most of it is build-to-sell product. build-to-rent, private build-to-rent, we are not launching many, many developments because there was a loss of interest in the markets. Manuel Martin: The 2 other questions, one general question. I don't know if you can answer that before your AGM comes. In terms of future growth, would it be able for you to indicate whether you would like to grow through JVs or through other acquisitions in the future? Do you have a preference there, which you can share? Or is it a bit too early? Mario Lapiedra Vivanco: I'll take this one, Manuel. Mario here. Well, we are monitoring always the full on balance investment and the JV co-investment vehicles. We have a queue of investors in our offices. That's the reality because there are less players and the appetite has increased in the last months. So we are selecting very well, which deals we do directly and which ones we prefer to do on that vehicles. So we have flexibility in the budget depending on the best option for our shareholders. Manuel Martin: I see. Okay. And third and last question, actually, maybe a bit technical and for curiosity, the Purchase Price Allocation gain you had for 2025, the EUR 50 million to EUR 60 million roughly. Can you give us an insight how you arrived to that amount? Why is it EUR 50 million? Why not EUR 150 million, just for curiosity? Jordi Argemí García: It's a good curiosity. The only thing that this is -- for us, this is not good because as I said before, this is a non-cash item. We -- this implant anticipate part of the future revenue, accounting revenue that we set in the guidance. So for us, the preference was to be at 0 being honest. But this is impossible because accounting rules do not allow that. So what we have done is working with the auditor to try to minimize as much as possible this level or this amount. It comes from the difference between the valuation from third party, in this case, Savills, non-CBRE and the purchase price finally paid, but also we have included additional structural costs because obviously, one thing is the asset value. Other thing is a corporate company, a corporate that needs to deliver those units. And obviously, we have some structure. So it's a combination. But again, our preference was to be at 0 being honest. Operator: There seems to be no further phone questions, if you wish to proceed with any webcast questions. Jose Cravo: Thank you. So we'll go with the webcast now. We have here only one question. It's with regard to the results of the tender offer, the mandatory tender offer that will come out next week. If we can give some details on what is the strategy if we don't reach the squeeze out. Jordi Argemí García: Okay. I take it. I mean, let's see what happens next week. If we get the squeeze out, fantastic. If we don't get the squeeze out as you are questioning, for us, it's also fantastic. I mean, for us, the deal is completed already independently on the percentage that we finally own by next week. We control the company. We control all the policies that's what matters to us. So once the mandatory tender offer is finished and imagining a scenario in which we don't get the squeeze-out -- our focus day after will be the activity of the company. We will not be there trying to buy again those minority shareholders that want to keep and be in the company, fantastic, we welcome them. But our priority will be completely on activity. That's the reality. Also, that means that the dividend we canceled because we prefer to use the cash to deleverage the company. So dividend distribution is not something relevant today at AEDAS level. This doesn't mean that in Neinor Homes, we will have capacity to reach the guidance we set, and we don't need actually the cash coming from AEDAS to accomplish with these targets for the next 2 years. Remember that AEDAS has around EUR 300 million of corporate debt; that is the bond plus the commercial paper. As I was saying, that's our priority for the coming 1 year or even 2 years. So whoever is there because we don't reach the squeeze-out, should be a medium- to long-term investor together with us. And one last comment from my side is that in a delisting tender offer, normally, the company, the buyer needs to allow during 1 month potential purchases if minority shareholders want to sell 1 month later, the tender offer. In this case, it's not a delisting. So Neinor is not obliged to continue buying once the mandatory tender offer is fully completed. Jose Cravo: Thank you, Jordi. We have no further questions on the webcast. So that concludes the conference call. Thanks, everyone, for joining. Jordi Argemí García: Thank you. Borja Garcia-Egotxeaga Vergara: Thank you. Mario Lapiedra Vivanco: Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello, and welcome to the EPR Properties Q4 and Year-End 2025 Earnings Call. [Operator Instructions]. Also as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I will now hand the call over to Brian Moriarty, Senior Vice President of Corporate Communications. Brian Moriarty: Okay. Thank you, Jenny. Thanks for joining us today for our fourth quarter and year-end 2025 earnings call and webcast. Participants on today's call are Greg Silvers, Chairman and CEO; Greg Zimmerman, Executive Vice President and CIO; Mark Peterson, Executive Vice President and CFO; and Ben Fox, Executive Vice President. I will start the call by informing you that this call may include forward-looking statements as defined in the Private Securities Litigation Act of 1995, identified by such words as will be, intend, continue, believe, may, expect, hope, anticipate or other comparable terms. The company's actual financial condition and the results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of those factors that could cause results to differ materially from these forward-looking statements are contained in the company's SEC filings, including the company's reports on Form 10-K and 10-Q. Additionally, this call contains references to certain non-GAAP measures, which we believe are useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measures are included in today's earnings release and supplemental information furnished to the SEC under Form 8-K. If you wish to follow along, today's earnings release, supplemental and earnings call presentation are all available on the Investor Center page of the company's website, www.eprkc.com. Now I'll turn the call over to Greg Silvers. Gregory Silvers: Thank you, Brian. Good morning, everyone, and welcome to our fourth quarter and year-end 2025 earnings call and webcast. The fourth quarter capped a year of solid execution and clear progress toward accelerated growth. Our resilient portfolio benefited from durable tenant performance and steady consumer demand contributing to strong financial performance, including FFO as adjusted per share increase of 5.1% and AFFO per share increase of 6.2%. During the fourth quarter, we announced transactions which significantly expanded our portfolio of championship golf courses along with premier regional water park acquisition, further diversifying our attraction sector. As we move into 2026, we expect to build on our strong industry relationships while substantially increasing our investment spending. We are actively pursuing opportunities across multiple target property types with a flexible approach that encompasses both potential portfolio scale acquisitions and smaller strategic transactions, positioning us to capitalize on attractive opportunities as they arise. Turning to industry and tenant performance. Our portfolio of properties continues to demonstrate broad stability. For the year, North American box office grew 1% and we anticipate further growth in 2026, supported by an increased number of wide release titles. Performance across our other property sectors remained steady, demonstrating the strength and resilience of our diversified portfolio. As we expand the diversity of our experiential portfolio, we're seeing a balancing effect, strength in certain sectors helping to offset periodic softness in others, reinforcing overall portfolio resilience. Our strategic capital recycling program continued to deliver meaningful results in 2025. By executing targeted dispositions, we strengthened portfolio qualities, reduce concentration and unlock capital to deploy into higher returning experiential investments. We will continue to use disciplined opportunistic recycling as a proven lever for driving value creation. Our balance sheet remains one of our most important competitive strengths. During the fourth quarter, we successfully closed a $550 million public debt offering and established a $400 million at-the-market equity program, 2 significant capital market initiatives that bolster our financial flexibility and fund our growing investment pipeline. Reflecting the confidence we have in our earnings trajectory and conservative payout ratio, we are also pleased to announce a 5.1% increase to our monthly dividend to common shareholders. In summary, we built a robust pipeline of high quality experiential investments. Our strong balance sheet and expanded operator relationships now give us access to larger opportunities and our disciplined approach to capital allocation positions us to capitalize on the significant investment opportunities we anticipate in 2026. Now I'll turn the call over to Greg Zimmerman to go over the business in greater detail. Gregory Zimmerman: Thanks, Greg. At the end of the quarter, our total investments were approximately $7 billion with 333 properties that are 99% leased or operated. During the quarter, our investment spending was $147.7 million. 100% of the spending was in our experiential portfolio. Our experiential portfolio comprises 278 properties with 54 operators and accounts for 94% of our total investments or approximately $6.6 billion. And at the end of the quarter was 99% leased or operated. Our education portfolio comprises 55 properties with 5 operators, and at the end of the quarter, was 100% leased. Turning to coverage. The most recent data provided is based on the December trailing 12-month period. Overall portfolio coverage remains strong at 2x. Turning to the operating status of our tenants. 2025 box office was $8.7 billion, a 1% increase over 2024. Q4 box office was $2.2 billion compared to $2.4 billion in Q4 2024. Q4 performance was led by strong results from Zootopia 2 which gross $337 million in Q4 and has exceeded $420 million to date. Wicked: For Good gross $335 million. Avatar: Fire and Ash gross $250 million in Q4 and picked up an additional $147 million after the first of the year. Five Nights at Freddy's 2 also outperformed. The slate for 2026 looks solid with the Super Mario Galaxy Movie, The Mandalorian and Grogu, Toy Story 5, The Minions 3, Moana, The Odyssey, Spider-Man: Brand New Day, Avengers: Doomsday and Dune Messiah. Analysts expect box office to increase in 2026. Going forward, we will be moving away from providing annual estimates for box office performance. We initiated the practice after the pandemic as theaters reopening, box office was recovering, and we were navigating the writers and actor strikes. With all the dislocation, we thought it was helpful to share our perspective. The business is stabilizing, so this is no longer necessary. Additionally, it's important to highlight that the bulk of our theater rent is not tied to fluctuations in box office. The only significant percentage rent component of our theater rent comes from Regal, which is based on a lease year rather than a calendar year, and our estimate of Regal percentage rent is embedded in our percentage rent guidance. A couple of points related to box office. First, higher-margin F&B spending increasingly constitutes a higher percentage of exhibitors overall revenue. As such, it is not necessary to reach 2019 box office levels for us to have comparable coverage. Second, as we have consistently noted the number of major releases directly correlates to box office, an increased number of major releases typically drives increased box office growth. Over time, major releases tend to generate an average performance in the range of $70 million. Turning now to an update on our other major customer groups. Our East Coast ski and Midwest key operators got off to a great start with above-average snow, and that strength continued through the winter. Our Northern California asset opened late because of lack of snow, but conditions have improved significantly with recent snowfall. We will see if snowfall continues to hold throughout the season. Alyeska has had strong demand throughout the season augmented by its membership program and inclusion in the iConnetwork. Our Eat & Play coverage remains strong even with some continuing macro pressures on consumers and expense increases. In Andretti Karting, Kansas City location opened well in mid-November, Schonburg, Illinois is expected to open in the second quarter of 2026. Our second Penn Stack located in Northern Virginia is also expected to open in Q2. Of note, in early January, Topgolf Callaway announced the completion of its sale of a 60% interest in Topgolf to Leonard Green Partners, the transaction value TopGolf at around $1.1 billion. We view this positively because Topgolf now has a focused private equity majority owner. Many of our attractions are closed for the season. The Cartes Outdoor Winter Park and Hotel de Glace opened in December and are benefiting from sustained domestic travel within Canada. We are quite pleased with the performance metrics at Enchanted Forest Water Safari in our operator's first full year of ownership. With the indoor water park and family entertainment center fully opened at Bavarian Inn, we saw significant year-over-year increases in revenue and EBITDARM. We are bullish on the fitness and wellness space. Since 2024, we have invested approximately $150 million in this vertical including golf, Fitness and Hot Springs. All 3 of our Hot Springs assets delivered strong year-over-year performance. Our education portfolio continues to perform well. Our customers' trailing 12-month revenue for Q3 was essentially flat with EBITDARM down due to expense increases. Coverage remains strong. Our investment spending continues to be entirely within our broadening range of experiential asset types. In Q4, we invested $147.7 million, bringing our total for 2025 to $288.5 million. This includes funding for projects that we have closed on but are not yet open. In addition, we have committed approximately $85 million to experiential development and redevelopment projects, which we expect to fund in 2026. Q4 investment spending was anchored by our acquisition of a 5-property portfolio of championship golf courses in the Dallas Metroplex for approximately $90.7 million. The properties will be leased and operated by Advance Golf Partners, a leading golf course operator. This investment follows our extensive research into the golf space and adds to the additional golf investment we made earlier in 2025. Given our deep relationships, the increased focus on fitness and wellness among multiple generations and demographics and the wide range of investment opportunities, including golf, climbing gyms, traditional gyms, hot springs and spas, we are excited about the potential for continued growth in this space. We also acquired the Ocean Breeze Water Park in Virginia Beach, Virginia, in a sale-leaseback transaction for approximately $23.2 million. Ocean Breeze will be leased and operated by an affiliate of Premier Parks, a long-time strategic partner. We kicked off investment spending for 2026 with the first quarter acquisition of the Vital climbing Lower East Side in Essex Crossing for approximately $34 million. As I noted before, we are particularly bullish on the fitness and wellness space and excited to grow our relationship with this outstanding operator by adding a high-quality Manhattan location along with our existing vital climbing location in Williamsburg, Brooklyn. As demonstrated by our investments in Q4 and already in Q1, we are increasing our investment spending cadence. We are seeing high-quality opportunities for both acquisition and build-to-suit development in our targeted experiential categories. Our disciplined deployment strategy has enabled us to expand the depth and breadth of our portfolio of experiential properties over the past several years. Our investment spending throughout 2025 and heading into 2026 reflects our deep relationships and high-quality opportunities. We are announcing investment spending guidance for funds to be deployed in 2026 in the range of $400 million to $500 million. During the quarter, we sold 2 leased theater properties for alternative uses and 2 land parcels for net proceeds of $16.1 million and recognized a gain of $5.3 million. Additionally, as announced on our Q3 call, we received $18.4 million in proceeds from a partial paydown on a mortgage note relating to the Gravity Haus and Steamboat Springs. In the past 5 years, we have sold 33 theaters. We had one remaining vacant theater. Disposition proceeds totaled $168.3 million in 2025. We are announcing 2025 -- 2026 disposition guidance in the range of $25 million to $75 million. I'll now turn it over to Mark for a discussion of the financials. Mark Peterson: Thank you, Greg. Today, I'll discuss our financial performance for the fourth quarter and the year, provide an update on our balance sheet and close with introducing 2026 guidance. FFO as adjusted for the quarter was $1.30 per share versus $1.23 in the prior year, an increase of 5.7%. And AFFO for the quarter was also $1.30 per share compared to $1.22 in the prior year, an increase of 6.6%. Before I walk through the key variances, I want to point out that we had disposition proceeds totaling $34.5 million for the quarter and recognized a gain on sale of $5.3 million, for the year, we had disposition proceeds totaling $168.3 million and recognized a gain on sale of $39.5 million as we continue to make progress reducing our investments in theater and education properties and recycling those proceeds into other experiential assets. Note that these gains are excluded from FFO adjusted and AFFO. Now moving to the key variances. Total revenue for the quarter was $183 million versus $177.2 million in the prior year. Within total revenue, rental revenue increased $7.9 million versus the prior year, mostly due to the impact of investment spending, rent and interest bumps and higher percentage rents and participating interest. Percentage rents and participating interest for the quarter were $7.8 million versus $4.9 million in the prior year, and the increase was due primarily to higher percentage rent recognized from our attraction and cultural properties as well as from one of our early childhood education tenants. We also had higher participating interest related to our Northeast Ski property. Both other income and other expense relate primarily to our consolidated operating properties, including the Kartrite Hotel & Indoor Water Park and our 4 operating theaters. The decrease in other income and other expense versus prior year is due primarily to the sale of 3 operating theater properties in the first half of 2025. On the expense side, G&A expense for the quarter increased to $14.6 million versus $12.2 million in the prior year due primarily to higher payroll and benefit expense, particularly incentive compensation. Equity and loss from joint ventures for the quarter was $2.4 million compared to $3.4 million in the prior year. This better performance is due to our decision to exit our joint venture in Breaux Bridge, Louisiana in late 2024 as well as improved results at our 2 remaining RV Park joint ventures. Shifting to full year results, FFO as adjusted was $5.12 per share at the high end of guidance versus $4.87 in the prior year, an increase of 5.1% and AFFO was $5.14 per share compared to $4.84 in the prior year, an increase of 6.2%. Turning to the next slide, I'll review some of the company's key credit ratios. As you can see, our coverage ratios continue to be very strong with fixed charge coverage at 3.4x and both interest and debt service coverage ratios at 4x. Our net debt to annualized adjusted EBITDAre was 4.9x at year-end, which is below the lower end of our targeted range. Additionally, our net debt to gross assets was 39% on a book basis at year-end, and our common dividend continues to be very well covered with an AFFO payout ratio of 68% for the fourth quarter and the full year. Now let's move on to our capital market activities and balance sheet, which is in great shape to support our expected growth. At year-end, we had consolidated debt of $2.9 billion of which all is either fixed rate debt or debt that has been fixed through interest rate swaps with an overall blended coupon of approximately 4.4%. In November, we closed on $550 million of new 5-year senior unsecured notes at a coupon of 4.75%. And at year-end, we had $90.6 million of cash on hand and no balance drawn on our $1 billion revolver. Additionally, in December, we finalized our new ATM program. While no equity issuance is required to fund our plan for 2026, given that we project to be below the midpoint of our target leverage range at year-end without any such issuance. This program provides us with an additional tool in our toolbox to issue equity opportunistically, including forward sales. We are introducing our 2026 FFO as adjusted per share guidance of $5.28 to $5.48, representing an increase versus the prior year of 5.1% at the midpoint. We expect a similar percentage increase in AFFO per share. Note that due primarily to the timing of expected percentage rents, which are heavily weighted to the last 3 quarters of the year, as well as the fact that the first quarter is off-season for our operating properties, we expect results for the first quarter of '26 to be lower than the full year divided by 4 by about $0.11 per share. We are also providing our 2026 guidance for investment spending of $400 million to $500 million and disposition proceeds of $25 million to $75 million. We expect percentage rent and participating interest of $18.5 million to $22.5 million. As you can see on the slide, I have provided a reconciliation of the prior year amount to the midpoint of this guidance. The changes include out-of-period percentage rents and participating interest of $3.5 million recognized in 2025 that does not repeat lower projected percentage rents in 2026 of $1.1 million related to our Northern California ski property due to delayed snowfall for the season and lower projected percentage rents of $0.4 million related to certain properties having base rent increases in '26, causing the breakpoint for percentage rents to increase. These decreases were offset by a projected net increase of $1 million in percentage rent for other tenants, including Regal. We expect G&A expense of $56 million to $59 million. In addition, guidance for our consolidated operating properties is provided by giving a range for other income and other expense. Guidance details can be found on Page 23 of our supplemental. Finally, based on our expected 2026 performance, we are pleased to announce a 5.1% increase in our monthly dividend, beginning with the dividend payable April 15 to shareholders of record as of March 31. We expect our 2026 dividend to be well covered with an AFFO per share payout continuing to be about 70% based on the midpoint of guidance. Now with that, I'll turn it back over to Greg for his closing remarks. Gregory Silvers: Thank you, Mark. 2025 was a very solid year as we delivered strong per share earnings and our portfolio delivered the resilience that we anticipated. In 2026, we expect to increase our investment spending materially over the levels we achieved in 2025, which should result in another year of strong per share earnings growth. As we begin the year, we are excited about our investment pipeline, our balance sheet and the team to create value out of this combination. I would also like to take a minute to express my sincere appreciation to Greg Zimmerman, who is participating in his last earnings call as he is retiring from EPR. Greg provided leadership and a steady hand as we navigated COVID and then emerged on the other side. He is my business partner, colleague and friend, and he will be missed. Ben Fox will now officially take over the role of Chief Investment Officer, and we are excited about his leadership and vision for our future. With that, why don't I open it up for questions? Jenny? Operator: [Operator Instructions]. Our first question will come from Michael Goldsmith with UBS. [Operator Instructions]. Michael Goldsmith with UBS, you may ask your question. Michael Goldsmith: Consistent with last quarter, where you pointed to $400 million to $500 million in acquisitions, you put this out formally with your guidance. Can you just talk a little bit about what you're targeting, what you have line of sight in because it represents an acceleration. So just trying to get a sense of what you're looking at, what you have line of sight and just your confidence level of hitting that $400 million to $500 million in acquisitions? Gregory Silvers: Clearly, I think line of sight or anything, while we don't want to comment on specific. We wouldn't put it out there if we didn't have great confidence in it. Again, if you look historically, we've been successful in not only hitting our numbers, but raising those throughout the year. So I think -- and I'll let Greg comment that we feel really good about where we're positioning for the beginning of the year. I think we're looking at opportunities across most, if not all of our sectors. I think, again, we feel like we have particular unique access to the areas that we invest in. But let Greg talk about... Gregory Zimmerman: No, I agree, Greg. And I would also say that developing a pipeline is usually a multiyear process. So we've been building up to this with line of sight to the fact that we turn on investment spending this year. So again, as Greg mentioned, we're very confident about it, and that's why we're... Michael Goldsmith: Got it. And then second question, just Topgolf is one of your top tenants and they've been taken private by private equity. Have you had conversations with Leonard Green and just trying to get an understanding of what they're going to do with the company now that they have their hands on it and just the path and your comfort level with your specific locations that you own? Gregory Silvers: Yes. Michael, and we've had multiple conversations with them. So as you can imagine, both as they were evaluating it as an opportunity and now subsequently I think the thing that we're encouraged is, in fact, what they've told us is they're very much aligned with what we have said that the growth pattern needs to slow down to 3 to 5 units a year where they can hit kind of the demographic and location requirements that we kind of agree with them. As we said all along, our units continue to demonstrate very, very strong coverage I think it's an integral part of the value equation that they saw. I think there are opportunities that they're going to very much look at being -- they have a long history of multi-unit retail and even in the fitness and wellness space. So I think they're very, very focused on kind of the food and beverage and promotional opportunity sets. And you've seen that those early impacts of the second half of last year, where Topgolf was already addressing some of those and saw some very, very positive numbers going into the second half of the year and the fourth quarter. Gregory Zimmerman: And I would also add, Michael, they're going to -- we're very pleased they're going to continue their refresh program, which benefits us greatly. They do a handful of our units every year with a nice refresh to keep them up. Operator: Our next question will come from John Kilichowski with Wells Fargo. [Operator Instructions]. John Kilichowski with Wells Fargo. You may ask your question. John Kilichowski: My first question is just on where you see your cost of capital today. You're trading back close to a range where we were end of the third quarter. When does it start making sense to tap the ATM. Gregory Silvers: Sure, John. Great question. I'll join in and I'll ask Mark. I think we probably see it now in the kind of upper 50s or low 60s at kind of low 7s, low mid-7s. I think that works. We can make that work. we're doing things in the low to mid-8s. So there's 100 basis points of spread. I think it's important for us to let people know that we can execute that way and get back on that flywheel of issuing equity. As Mark talked about in his comments, we don't need to. And in fact, we'll still be not even near the midpoint of our leverage range doing the plan that we have executed. But what it does mean is maybe we can do more, maybe we could even further delever. I think it gives us a lot of options, and we are clearly entering the zone where it makes sense, but Mark? Mark Peterson: I think, as Greg said, I think we'll be kind of opportunistic about it, particularly if we're headed to the higher end of spending, investment spending. As Greg said, I think as you get to the high 50s, low 60s, you're low to mid-7s type of cost of capital. And as Greg said, you get nearly 100 basis points out of the gate. And then, of course, on an IRR basis, it's quite a bit higher than that. when you factor in our rent bumps. So I feel good about that and the opportunity that lies ahead. John Kilichowski: That was very helpful. And maybe just along the same lines, if we could do sort of a sensitivity analysis, let's say, if your cost of capital got 50 bps better from here on a blended basis, where does that take maybe the high end of your investment guide, if this is a better buying opportunity here. I'm just curious how much more you think you could do if you just had a little bit of improvement on that cost of capital? Gregory Silvers: Yes. Clearly, there's -- we think there's opportunity out there, John, I think, again, it's probably not as linear as we're laying it out that it's 50 basis points. It's really about are the right opportunities in the risk and reward. I think overall, you're hearing our excitement about the opportunity set out there. I think there are there continues to be good opportunities. I think we're excited about those. We're excited about where our cost of equity seems to be trending. And so hopefully, that combination will allow us to continue to grow and grow that base. But to speculate on a kind of a sensitivity table would probably be not productive for us right now. Operator: Our next question will come from Smedes Rose with Citi Global Markets. [Operator Instructions]. Smedes Rose from Citi Global Markets, you may ask your question. Bennett Rose: I was just wondering if you had any updates on what's going on in Sullivan County in terms of the ability to sell the ground lease that kind of came up a while ago? That would be my first question. Gregory Silvers: Thanks, Smedes. I would say we've not had really any meaningful conversations with them. I mean, again, this is the -- when I say that, meaning our operator. It's their call on how they want to proceed. It's not built into our plan. Our plan is utilizing our existing kind of cash flow dispositions, things that we've done. But the easiest thing to say, Smedes, is no, we've not had any meaningful conversations with the operator. Bennett Rose: Okay. And then I was just wondering, when we look in a sort of theme park world, there seems to be I guess, a certain amount of disruption going on and some new management changes. I'm just wondering, are they kind of showing up on your radar screen as a possible solution to some of the issues they might be facing? Gregory Silvers: I think that's a very reasonable approach. I mean if you think about the names that are being dropped around we partner with many, if not all, of those names that are being dropped around. So I think it's something -- we think that business is actually very, very -- if you look over time, very stable cash cow kind of business. It needs to be a smart, thoughtful, well-covered kind of thoughtful business. But again, we play in that field. I don't know, Greg, if you want to. Gregory Zimmerman: Well, I agree. And as we announced, we acquired something in the fourth quarter. So yes, we're enthusiastic about the attraction space. Bennett Rose: All right. Thank you. And best wishes to you, Greg, going forward. Operator: Our next question comes from Anthony Paolone with JPMorgan. [Operator Instructions]. Anthony Paolone with JPMorgan. You may ask your question. Anthony Paolone: Just, Greg, going back to the opportunity set that you talked about, can you be a little bit more specific and maybe how much of it is development, redevelopment versus buying existing assets? And maybe kind of the range of cap rates and like what would take you into the 8s versus where you'd probably be maybe in the 7s if something is perhaps a bit higher quality or different? Gregory Silvers: Sure. And I think it's going to gear at least early part of this year, going to be more on the acquisition side. So I would say, and I'm looking at Greg and Ben, probably 70-30 acquisitions. Right now, I think, again, where you would look at most of our stuff has been in the 8s where you would look at something below that potentially would be a much lower advance rate. It's really going to be risk return or if you had a credit, you had a much, much higher credit scenario to where you would think lower 7s, but better growth profile. But I would say most of our stuff are -- right now that we're looking at has at least an initial 8 handle on it. Gregory Zimmerman: And Tony, obviously, development deals are going to carry a higher cap rate because there's more risk adjusted, there's more risk. So that's kind of what we look at... Anthony Paolone: Okay. Got it. And then my only other question, maybe for Mark and just on the spending here. If I look at Page 19 of the supplemental, there's about $63 million of spending outlined there. Is that different than the $85 million that you guys talked about in the presentation? Or do you put those together? Gregory Silvers: The $63 million is only related to those projects that have been started at the end of the year. So and then the difference between that and the $85 million is projects that haven't been started, but that we have commitments and line of sight to. So if you're looking at kind of spending sort of what's spoken for kind of heading into the year, $85 million is the number to use. And then if you add, for example, the VITAL Climbing Gym that we did, we're sort of sitting at around $119 million right now and sort of spoken for spending. And as Greg said, I think the amounts that we will add to get to the midpoint of guidance of $450 million will be mostly acquisition-oriented. Operator: Our next question comes from Michael Carroll with RBC Capital Markets. [Operator Instructions]. Michael Carroll of RBC Capital Markets. You may ask your question. Michael Carroll: I guess, Mark, just sticking with the guidance ranges that you provided in the investment. With that remaining investments to get back up to that $450 million with guidance, when do you assume that gets completed? Is it just kind of ratably throughout the year? Or do you kind of have a back-end weighted? What's kind of implied in that guidance range? Gregory Silvers: Yes, it's actually, frankly, weighted more towards the first half of the year, the way we see things kind of laying out. Michael Carroll: Okay. And then on the Regal percentage rents what you put in guidance, what did you assume would be the box office, at least for the Regal lease year ended July 2026 versus the prior year? Is it kind of a similar box office, so we're expecting percentage rents for Regal to be kind of in line with what it was last year? Gregory Silvers: No, I think it's slightly up, consistent with kind of analysts. But as you can see, it's probably kind of up 2% over where they were last year as our number is up slightly over there. Gregory Zimmerman: Yes. When we lay out that percentage rent slide, you can see once you cut through the prior period and so forth, you get to about $1 million of net growth amongst all our tenants and a good chunk of that is Regal because we do expect box office to be higher next year. And again, Mike, the Regal lease year ends in July. So you're not going to have the advantage of the fall season. Michael Carroll: Yes. And then just last one for me. I know, Greg, you mentioned and talked a little bit about the investment opportunities you have across all your property types. I mean are there any specific property types where you're seeing bigger opportunities or other types of activity that you could pursue? Gregory Silvers: I think as we've talked about, we've hit several things. I would say the top 3 continue to be fitness and wellness attractions and Eat & play. Again, when you look at those, we're still seeing an occasional opportunity in gaming, but not as much. Ski is more opportunistic. So those other 3, I think, are going to be where the anchor part of what our investment is going to come from. Gregory Zimmerman: And Mike, again, I would -- when we say fitness and wellness, that's a very broad category for us. So obviously, we've done a couple of golf deals now. We did a climbing gym deal this quarter. We did a regular fitness deal last quarter, and we have done hot springs deals. So we see a lot of opportunity to expand the aperture in that space. Operator: Our next question comes from Upal Rana with KeyBanc Capital Markets. [Operator Instructions]. Upal Rana with KeyBanc Capital Markets. You may ask your question. Upal Rana: Just curious on how the transaction market looks like in terms of larger deals. Are you seeing more or less out there? Gregory Silvers: Again, I think we're starting to see, as we said, I don't know we're seeing more. We're seeing our ability to participate in larger deals more. And, Upal, I think -- so that's beneficial to us. But I think it feeds into what -- when you look at what we've done, we're talking about 2 years in a row of delivering 5% plus kind of earnings growth. It's getting back into what is our kind of normal trajectory of delivering outsized value for our shareholders. And now we're going to be able, as we, A, one, generated a lot of proceeds from dispositions or, two, getting close to our ability to issue equity through our ATM program, it's going to allow us to participate in some of these deals, which will further that growth so that the idea that we've been done -- we did 5% last year, we're doing 5% this year. Let's get on that track of what we delivered 20 years before COVID. Upal Rana: Great. That was helpful. And then it looks like negotiations start to begin to start up again on SAG-AFTRA with the contracts that were negotiated in '23, expiring in May for writers and in tune for the actors. So the environment is certainly much different today than it was 3 years ago. So I just wanted to get your take on those negotiations and how that could play out? Gregory Silvers: Again, I think we think it's still really early, but I think you're correct. I think the -- it's really early. I think it's going to still be about AI and the ability to do that, but they set a nice framework to deal with that. And everybody, I think, at this point, saw how negatively the market was impacted by a strike. And much like what we've seen in some other areas like baseball, people have tried to avoid strikes because they have long-lasting effects and everybody is saying the right thing about wanting to avoid that. Operator: Our last question comes from Upal Rana -- apologies that is Jana Galan with Bank of America Merrill Lynch. [Operator Instructions]. Jana Galan with Bank of America Merrill Lynch. Jana Galan: I know this is a much smaller part of your portfolio, but curious if you could just provide an update on the education portfolio and kind of any changing trends there between early childhood and the private school. Gregory Silvers: Again, I think if anything, the strength of that portfolio has continued to be demonstrated over the last several years. I think one area that as we think about dispositions this year, maybe an area that we start to think about. I mean last year was all about kind of cleaning up the theater portfolio and getting through that I think the strength of that will allow us to capture good value if we want to do that and could be another lever that we pull to accelerate growth. Jana Galan: Great. And also wanted to congratulate Greg. Operator: There are no more questions. So I will now turn the call back over to Greg Silvers, Chairman and CEO, for any closing remarks. Gregory Silvers: I just want to thank you all. As we said, we're excited about the year. I look forward to talking through the year and look forward to delivering on the guidance that we've set forth. Thanks, everyone. Thank you.
Operator: Good day, everyone. My name is Kahai Illani, and I will be your conference operator today. At this time, I would like to welcome you to the Kymera Therapeutics Fourth Quarter 2025 Results Call. [Operator Instructions] At this time, I would like to turn the call over to Justine Koenigsberg, Vice President, Investor Relations. Justine Koenigsberg: Good morning, and welcome to Kymera Therapeutics Quarterly Update Conference Call. Joining me today are Nello Mainolfi, our Founder, President and Chief Executive Officer; Jared Gollob, our Chief Medical Officer; and Bruce Jacobs, our Chief Financial Officer. Following our prepared remarks, we will open the call for questions from our publishing analysts. [Operator Instructions] Before we begin, I would like to remind you that today's discussion will include forward-looking statements subject to risks and uncertainties described in our most recent Form 10-K filed with the SEC. Please note that any forward-looking statements speak only as of today's date. And with that, I will now turn the call over to Nello. Nello Mainolfi: Thank you, Justine, and thank you, everybody, for joining us this morning. As this is our year-end 2025 call, I wanted to spend a few minutes recapping what was an incredible year for Kymera. Those of you that know us well appreciate the fact that we're always forward-looking, highly focused on what's in front of us. And the bulk of the call would feature just that. But given how important our 2025 accomplishments were, I'm hoping that a quick reflection on the year will provide some context for the foundation we have set for 2026 and beyond. Before we start, I would like to mention that this year, we will celebrate our 10th year anniversary since Kymera's founding in May of 2016. Over the past decade, we've executed on our strategy and have built the capabilities, the platform and the team to deliver on our goal to develop the next-generation breakthrough immunology medicines. We've accomplished so much in our short history, but arguably, 2025 was truly a breakout year. I'll start with the significant progress in our first and best-in-class STAT6 Degrader Program. We shared outstanding results from both our Phase I healthy volunteer study and our Phase Ib study in AD patients. In the healthy volunteer study, KT-621 demonstrated robust STAT6 degradation with excellent safety and tolerability. That was followed by a highly encouraging impact on efficacy endpoints in Phase Ib that supports our view that KT-621 has the potential to deliver robust efficacy in line with pathway biologics with the convenience of oral daily dosing. On the strength of these 2 studies, we launched our first Phase IIb study in atopic dermatitis patients last fall and started the asthma Phase IIb early this year. Jared will talk more about our KT-621 clinical development plans, but both studies are benefiting from the awareness of and appreciation for the data we have recently shared as well as from clear enthusiasm from clinicians and patients around promising oral options. We were busy advancing the rest of our pipeline as well. In May, we unveiled our first-in-class IRF5 program, supported by a compelling preclinical profile and validating human genetics. Last year, we completed IND-enabling studies, and we're excited to announce this morning that after IND clearance from the FDA, we recently initiated dosing in the Phase I healthy volunteer study with KT-579. Finally, we're building on the success of our internal pipeline by advancing our existing collaborations with Sanofi around IRAK4 and by signing a new partnership last year with Gilead around our first-in-class CDK2 molecular glue program. Bruce will provide an update later in the call on the potential upcoming collaboration milestones, which would be incremental to our financial position. Speaking of finances in 2025, we raised almost $1 billion, bringing our year-end cash balance to $1.6 billion. We believe that this amount of capital, which extends our runway into 2029, will enable us to execute on our broad development plans that are designed to realize the full potential of our wholly-owned programs while maintaining the productivity of our discovery engine, which we expect will expand our innovative pipeline. Now with 2025 behind us, our focus is squarely on 2026 and beyond and the multiple milestones we plan to achieve. For KT-621, we expect to complete enrollment in the AD study this year and share data by mid-2027. The first patient was dosed in the asthma trial last month, and we expect to share that data in late 2027. In the meanwhile, we're planning to report scientific publication and presentation to continue to build awareness of this exciting program. This is an important year for KT-579, our lead IRF5 degrader. We expect to complete the recently started Phase I healthy volunteer study and share the data later this year. And the next step will be to advance the program into a patient proof-of-concept study, which we expect to be in lupus soon after that. Our partner, Sanofi, is expected to start the healthy volunteer Phase I trial with KT-485 this year. We also hope to be able to advance our CDK2 program in partnership with Gilead into further development. Finally, our goal continues to be to announce at least one new program annually, and we're targeting the second half of this year to share our new development candidate program. We clearly have a busy 2026 plan, which makes me particularly happy to announce the most recent addition to Kymera's leadership team, Neil Graham, who joined us as Kymera's Chief Development Officer. Neil is a seasoned life sciences executive with more than 30 years' experience in global drug development in both early and late-stage clinical trials across a wide therapeutic spectrum, including dermatology, allergy, rheumatology, virology and pulmonology. Neil has led several groundbreaking programs, including the development of dupilumab at Regeneron. We're thrilled to have him join our team as we enter the next phase of our growth and look forward to his contributions as we continue our efforts to build a fully integrated commercial company. Now before I turn the call over to Jared, I wanted to spend the remainder of my remarks speaking in more details of the unprecedented market opportunity of our STAT6 program. I can't overstate the opportunity we have to significantly increase the number of patients who are treated effectively. We hear overwhelmingly from both physicians and patients that current advanced therapies, including biologics, just aren't sufficient. There is a palpable excitement for the potential of a simple and convenient oral therapy for Type 2 diseases that doesn't compromise on safety or efficacy. We have cited these numbers in the past. We believe there are about 140 million diagnosed Type 2 patients in the U.S., 5 major EU countries and Japan. Of this total, about 50 million patients are estimated to be in the moderate to severe category. Yet despite this significant need, only an estimated 2 million patients are treated with advanced systemic therapies, mostly biologics and overwhelmingly with dupilumab. So the question is why are so many patients not treated with advanced systemic therapies? The gap is clearly not due to lack of need, but it reflects barriers built into the current treatment paradigm. There are many patients who rely on local therapies, most often topical or inhalers depending on the diseases. However, most of these treatments do not address the underlying drivers of Type 2 diseases and as a result, do not deliver adequate treatment for many moderate to severe patients. There are existing oral systemic therapies in both asthma and AD, for example, but those can be limited by efficacy. And certainly, for example, in the case of JAKs, safety concerns, including box warning and the requirements from blood monitoring and initiation and/or during treatment. Finally, injectable biologics have delivered important advances and now account for the majority of systemic therapy use, actually more than 75%. However, they're associated with significant treatment burden, injection site pain, needle fatigue, burdensome loading regimens after often 4 to 5 injections in the first month, cold stain storage requirements and ultimately with high drop-off rates over time. So when we ask why so many moderate to severe patients remain untreated with advanced therapies, the answer lies in the limitation in efficacy for some, safety concerns for others and very real convenience and access hurdles built into the system. The consequence is that millions of patients who would benefit from more effective therapies remain untreated, cycling through suboptimal options and living with inadequately controlled disease. This is the unmet need, and this is the opportunity in front of us. Going from patient numbers and unmet needs to market opportunities, the gap is even larger. As previously mentioned, about 2 million patients are currently receiving advanced systemic therapies for Type 2 diseases. This segment represents an annual market value of about $20 billion with dupilumab serving as the predominant drug. Although this is already a significant figure, the broader market opportunity is much larger. given that there's tens of millions of patients that are not reached by current approved drugs. In fact, I would characterize the current Type 2 market as very early in its development. Historically, the introduction of new products and mechanism has expanded immunology markets by enabling access to additional patient populations. In addition, an oral therapy that overcomes many limitations associated with existing treatments while maintaining safety and efficacy could, for the first time, provide a viable alternative for millions of patients across all age groups. It is reasonable to assume, in my opinion, that the current market for Type 2 diseases is positioned for substantial expansion well beyond the current $20 billion. In fact, a comparable example can be found in the psoriasis market, which has experienced a fivefold growth over the past decade, mostly thanks to new drugs and oral therapies. I think this all comes well together when we consider the limitation of existing therapies and what KT-621 has to offer, a drug that has the potential to deliver biologics-like efficacy and safety without requiring patients to compromise efficacy and safety for convenience, a drug that has the potential to change the way patients are treated around the world. How will it do so? In two important ways: one, expand the existing treatment -- treated patient population, which for us is the #1 goal. Second, provide an easy and convenient alternative to patients currently on injectable biologics, many of whom, based on our market analysis and industry survey data are eagerly waiting to switch to an oral therapy. So then how might this paradigm shift look? And what will it mean for patients with Type 2 diseases. Our goal and the cornerstone of our development plan is to position KT-621 as the product of choice for this large underserved or inadequately [ deserved ] patient population. In many inflammatory diseases, advanced systemic treatments are typically reserved for patients who fail conventional therapies, which in turn are typically biologics. We believe having an effective safe oral medicine, we can fundamentally change the treatment paradigm, making it practical to intervene earlier in the disease course rather than waiting for significant progression or treatment failure. If successful, we believe KT-621 has the potential to shift advanced therapy from being a last resort for a small subset of patients to a mainstream option for millions and improve standard of care. I hope that context around the market opportunity makes it clear why we believe that KT-621 has the potential to be one of the biggest programs in the biotechnology and pharma industry. With that context, let's turn the call over to Jared and discuss clinical progress with KT-621 and KT-579, our IRF5 degrader. Jared? Jared Gollob: Thanks, Nello. As you've heard, we're building significant momentum across our pipeline, driven by the strong scientific, clinical and operational foundation that we've established. This morning, I'll discuss our ongoing KT-621 Phase IIb trials in atopic dermatitis and asthma. I'll then provide additional context on our clinical development strategy for KT-579, our oral IRF5 degrader. I'll begin with KT-621, our oral STAT6 degrader. In December, as many of you are aware, we released the BroADen Phase Ib results, providing the first look at KT-621's impact on patients with atopic dermatitis. The data demonstrated a dupilumab-like profile that strongly supports continued development of KT-621 in both AD and asthma. Across all of the study's objectives, we exceeded expectations. We demonstrated strong fidelity of translation from healthy volunteers to patients with deep STAT6 degradation in blood and skin. We observed a significant reduction in Type 2 biomarkers across blood and skin lesions, including TARC and Eotaxin-3 and importantly, also in lungs as measured using fractional exhaled nitric oxide or FeNO testing. The greatest impact on FeNO was observed in AD patients with comorbid asthma who had the highest baseline FeNO levels. We also achieved robust improvements across all key AD clinical endpoints, including EASI, Pruritus NRS, IGA, SCORAD and patient-reported outcomes or PROs, addressing disease severity and quality of life. For all of these endpoints, KT-621 data were in line with or numerically exceeded published data for dupilumab at 4 weeks, further highlighting the exciting potential patient impact. In addition to these effects on AD, KT-621 had a clinically meaningful impact on patient-reported outcomes, measuring disease control in patients with comorbid asthma as well as on symptoms and quality of life in patients with comorbid allergic rhinitis. And importantly, KT-621 was well-tolerated with a favorable safety profile. I should also note that we recently completed the 6- to 9-month GLP toxicology studies in rat and nonhuman primate and consistent with earlier KT-621 tox studies, we did not observe any adverse findings of any type across all doses and concentrations tested. We now have 2 parallel Phase IIb dose-ranging placebo-controlled trials underway in AD and asthma, supported by the positive biomarker and clinical endpoint results in both AD and comorbid asthma from BroADen. The BROADEN2 trial in approximately 200 adult and adolescent patients with moderate to severe atopic dermatitis has a primary endpoint of percent change from baseline in EASI at 16 weeks. The study continues to progress as planned with completion of enrollment expected by the end of 2026 and announcement of top line results by mid-2027. We will update you all on enrollment later in the year, but we can say now that we are confident in achieving this timeline based on the strong interest from patients and clinicians in a safe and effective oral therapy and given the high level of awareness of and appreciation for the KT-621 data we have generated. Moving on to asthma. Just last month, we announced that we had dosed the first patient in our Phase IIb BREADTH trial in approximately 264 adult patients with moderate to severe eosinophilic asthma. The trial's primary endpoint is change from baseline in pre-bronchodilator FEV1 at 12 weeks. Using pre-bronchodilator FEV1 will allow [indiscernible] effects across dose levels in a smaller, faster study and will inform dose selection and probability of success for subsequent Phase III trials. Data from this trial are expected in late 2027. Taken together, we expect to generate data in close to 500 patients next year from both KT-621 Phase IIb studies while also continuing to build our safety database with long-term treatment in AD patients rolling on to the 52-week open-label extension portion of BROADEN2. Importantly, these trials are designed to support parallel Phase III development beyond atopic dermatitis in asthma and other Type 2 dermatologic, respiratory and gastrointestinal diseases as part of the overarching regulatory strategy for KT-621. Turning now to our novel IRF5 degrader program. We view IRF5 as an exciting new opportunity to address complex autoimmune diseases. We continue to receive positive feedback from KOLs and investigators on the potential of KT-579 to offer an effective oral treatment for diseases such as lupus, IBD and RA. This past fall, we presented additional compelling KT-579 data in lupus and RA preclinical models at the American College of Rheumatology meeting in Chicago. Chronic heterogeneous inflammatory conditions like lupus, RA, IBD and others are driven by broad immune dysregulation across multiple inflammatory pathways, including Type 1 interferons, pro-inflammatory cytokines and B cell-derived autoantibodies. While biologics have clinically validated each of these pathways individually, the current treatment paradigm has been constrained by the reliance on injectable therapies optimized for narrow segments of disease biology and therefore, incapable of addressing the full complexity of the inflammation underlying the various disease manifestations. As a result, many patients experienced incomplete responses or loss of efficacy over time. An oral medicine capable of modulating multiple disease-defining immune pathways simultaneously could enable more effective and durable disease control and potentially expand access to treatment across broader patient populations. IRF5 is a genetically validated transcription factor that functions as a central amplifier of immune responses. In autoimmune diseases, where there is strong genetic association with IRF5, persistent IRF5-mediated immune activation drives skewed inflammatory signaling across Type 1 interferon, pro-inflammatory cytokine and autoantibody pathways. KT-579 is designed to selectively degrade IRF5, enabling modulation of these interconnected inflammatory pathways through targeting of a single master regulator with a goal of rebalancing the immune system while avoiding the infectious adverse events caused by broad immunosuppression. We are encouraged by the strong genetic rationale, our compelling preclinical efficacy and safety data and the potential to deliver a novel oral therapy across multiple serious autoimmune diseases with significant unmet medical need. With that said, we are now focused on advancing KT-579 in our ongoing Phase I healthy volunteer trial and reporting the first-in-human data in the second half of 2026. In terms of the Phase I specifics, the study is designed to evaluate both single and multiple ascending doses of KT-579 administered orally once daily compared with placebo. The primary aim of the SAD/MAD study is to demonstrate robust degradation of IRF5 in blood, which we define as a reduction of approximately 90% or greater at dose levels that are safe and well-tolerated. Because the IRF5 pathway is not activated in healthy volunteers, we plan to use full blood ex vivo stimulation assays to assess the functional impact of IRF5 degradation on the induction of Type 1 interferons, pro-inflammatory cytokines and inflammatory pathway gene transcripts by TLR7, 8 and 9 agonists. It's our expectation that we should see a 50% to 80% reduction in these biomarkers across the 3 TLR pathways assessed if we're engaging IRF5 effectively, which would increase the probability of IRF5 degradation translating into clinical activity in subsequent patient studies with KT-579. As we did with our STAT6 program, we also expect to conduct a Phase Ib patient study and intend to share more details on the design and patient population later. We have said, however, that we would expect to focus the study on lupus patients, which we believe is the right patient population for our first proof-of-concept study given the strong genetic association of IRF5 with lupus and the robust activity of KT-579 across multiple mouse models of lupus. I'll now turn the call over to Bruce for a review of the fourth quarter results. Bruce? Bruce Jacobs: Thanks, Jared. As I walk through the fourth quarter results, please reference the tables found in today's press release, which was filed this morning. Collaboration revenue in the fourth quarter of 2025 of $2.9 million is attributable to our Gilead partnership. More broadly, with respect to Gilead, we received an upfront payment of $40 million upon signing the licensing and option agreement last year. Under this agreement, we're eligible for up to $750 million in total milestone payments, including $45 million payment payable if and when Gilead exercises its option on the CDK2 program at the declaration of a mutually agreed upon development candidate. In addition, Sanofi is advancing KT-485, our oral IRAK4 degrader, with plans to initiate Phase I testing this year. We expect to share additional updates on this program in the coming months, including the receipt of a milestone upon dosing of the first healthy volunteer. As a reminder, under the structure of the Sanofi agreement, we have the potential to realize nearly $1 billion in total milestones. While these 2 potential near-term milestones are not reflected in our current cash guidance and are not expected to materially impact our runway, they remain important validation points and support a continued advancement of these partnered programs and the downstream value we can realize. We look forward to sharing further progress as these programs move forward. With respect to operating expenses, R&D for the quarter was $83.8 million. Of that, approximately $7.6 million represented noncash stock-based compensation. The adjusted cash R&D spend of $76.2 million which excludes that stock-based comp, reflects a 16% increase from the comparable amount in the third quarter of 2025. On the G&A side, our spending for the quarter was $16.9 million, of which $6.9 million was noncash stock-based comp. The adjusted cash G&A spend of $10 million, again, excluding that stock-based comp, reflects a 1% increase from the comparable amount in the third quarter of 2025. And finally, we are well-capitalized to execute on our goals. As Nello mentioned previously, we ended in December with a cash balance of $1.6 billion, providing a runway into 2029. This allows us to complete both KT-621 Phase IIb trials in AD and asthma and to fund a large part of the first Phase III trial for KT-621. The runway also will allow us to advance KT-579 through initial POC testing and to progress our research pipeline as we scale and grow Kymera. With that, we'll pause while we regroup in our conference room and assemble the queue for your questions. Thank you. Operator: Thank you. [Operator Instructions] Your first question comes from the line of Marc Frahm with TD Cowen. Marc Frahm: Congrats on all the progress. Maybe a high-level one for Nello. Since your Phase I data came out with the STAT6, a handful of other kind of early mid-stage programs in AD have also read out data, and there were some data even ahead of yours. So over the past year, there's just a lot going on in AD. What's your kind of vision for what the treatment of AD looks like and how these therapies all fit together when you roll the clock forward a few years? And then maybe if I can sneak a little bit in for Jared also. Just for IRF5, can you just remind us what really could be learned in the healthy volunteer portion of that trial beyond target engagement and safety or do we really need to learn more and have to wait for that lupus cohort to enroll? Nello Mainolfi: Thanks, Marc. Great question. So I'll start with the first one. So just to remind you, as we shared today, hopefully, even more clearly than before, the AD, I would say the Type 2 diseases market is still very early. Again, there is -- if you look at moderate to severe patients, there is about 40 million to 50 million patients in the 7 major market and only about 2 have been dosed with advanced systemic therapy. So clearly, there is a need of more therapies. And as we mentioned and others have done so, we mentioned if you parallel AD to psoriasis, psoriasis market in the past 10 years has grown fivefold. Maybe it is somewhere around where psoriasis was 5, 10 years ago or so. So we expect this market to increase dramatically. And you can only do that by bringing in new therapies to the market. So first, I want to start by saying that this is obviously a non zero-sum game, right? I think there is a need of new therapies and new therapies would benefit patients first, but also actually companies that develop all the other therapies. I mean, for 2 simple reasons. We need -- especially from our viewpoint, patients need convenient oral options that can increase the probability of patients with moderate to severe disease to access effective therapies. And so I think that that will transform how these diseases are treated. With our mechanism with STAT6, I think the main difference that I could point to without going company by company, which will take us half a day, is that we are targeting an intracellular target of the most validated pathway in Th2 inflammation, which is IL-4 and 13. So we're going after well-validated efficacy and safety. We're going after a well-defined patient population. And so I think we have a level of derisking that I would point to being, I think, superior to many other agents that are still interesting and exciting that are out there. So I think we need more therapy. I think it's great that there are more drugs. And obviously, we need to move into late-stage development to really assess for our drug and many others, what is the risk benefit that we can bring to patients. Jared, do you want to take the IRF5? Jared Gollob: Sure. Yes, Marc. Regarding IRF5, as you mentioned, the primary clinical objective is safety and then our primary translational objective is to show 90% or greater IRF5 knockdown in blood. And showing that knockdown is going to be important, we think, from a derisking standpoint for the subsequent patient studies because of the strong genetic association between IRF5 and lupus and the strong preclinical activity in multiple lupus models that we've seen with that degree of IRF5 knockdown. Now with that being said, yes, it's true that unlike STAT6, where we had circulating biomarkers like TARC and Eotaxin-3 that were useful for us to assess that sort of translation in healthies, with regard to IL-4/IL-13 pathway. Here for IRF5, while we don't have those circulating biomarkers, as we mentioned, we have these ex vivo stimulation assays, which I think will provide very important functional information around IRF5 degradation. These assays are looking at stimulation of toll-like receptor 7, 8 and 9, which are the 3 toll-like receptors driving hyper interferon, pro-inflammatory cytokine and B cell autoantibody production. And to be able to show an impact across those 3 pathways on ex vivo stim, we believe, significantly derisk our probability of success in subsequent patient studies, including the lupus studies. Nello Mainolfi: And maybe just to add a quick thing on top of Jared, like if I think a bit more from my point of view, maybe higher, more simple level, which hopefully still scientifically sound, we know that the strength of this program is the genetic association, right? There is very few programs in the history of drug development that have the strength and the depth of genetics that we have with IRF5. And that's why it's one of the most interesting programs in immunology, I think, in the next 5 to 10 years. So -- but when you have genetic association, you try to figure out, okay, biologically, what does that mean? So we've shown preclinically that actually IRF5 activation leads to, as Jared said, activation of this pro-inflammatory cytokines, Type 1 interferon and B cell activation, autoantibody activation. So even in healthy volunteers, we can prove even ex vivo that we can block these 3 axes of inflammation. I think it's going to tell us that you combine that with the genetics that it should work into patients. Operator: Your next question comes from the line of Geoff Meacham with Citi. Geoffrey Meacham: Can you hear me? Okay. Awesome. So I just had a couple. Thanks for the question, first of all. So on 621, the BROADEN2 and BREADTH studies are probably mature next year. We're used to seeing you guys have Phase I biomarker data and kind of maybe -- a lot of data points along the way. For these Phase IIbs, is it going to be -- let's just wait until the full and final? Are you guys planning on having any kind of biomarker or interim analysis or anything like that for these 2 studies? And then for the IRF5, interesting program for sure. The indications you guys have talked about include some that are very much unmet need, lupus, Sjogren's in particular and definitely not as crowded. Curious how that informs like your priorities when you think about kind of development for this program? Nello Mainolfi: Thanks, Geoff. So on the first one, obviously, we'd love to get data along the way and understand what's going on in the Phase IIb studies. But obviously, these are important studies that are placebo-controlled. And to protect the integrity of the study, we're going to wait until the end of the study to unblind and obviously share the data. For IRF5, yes, so I think I go back to the reasons to believe, and as I said, human genetics, lupus, Sjogren's, myositis, RA, IBD, those are areas that we believe this target is extremely relevant. And so we're letting that combined with the preclinical data guide us. So those -- the reason why we've talked often about some of those indications is because they match so well both the genetics, the preclinical data, the unmet need. I mean if you look at the ones you mentioned, lupus, Sjogren's, these are diseases that don't have effective therapies that are approved or at least some that don't have, maybe I should say, at least oral effective therapies that are approved, which will serve a much broader population than what's being evaluated now in clinical development that I believe are really probably going to be positioned for really late-stage patients. I think another important axis of our development plan will be outside of, let's call it, this interferon-related pathways or pathologies, which could be, again, IBD could potentially be [indiscernible] down the road. And I think we plan to share more data on IBD, which is increasingly becoming an area of focus for this program, at least preclinically, and we hope for it to be clinically as well in the not-so-distant future. Operator: Your next question comes from Charles Ndiaye with Stifel. Charles Ndiaye: Congrats on the quarter. One question from our side. I guess, as you think about starting Phase IIs for 621 outside of asthma or AD, what are sort of some of the gating factors? Nello Mainolfi: Yes. So as we've outlined in the past, I believe it's still on our corporate deck. There is a new one today on our website. Our strategy is to use the ongoing dose-ranging Phase IIb study, the one in AD to support late development in all of the other derm indications, the one in asthma to support late development in the other respiratory indications. So we actually do not plan to start any new Phase II studies. The new studies that you see us starting will be, we believe, all registrational studies. Now obviously, some of this still has to be vetted with the right authorities, but that's our current strategy. And we believe this is a strategy that has been proven to be successful with other drugs in this pathway. So it wouldn't be the first time that this is adopted. Operator: The next question comes from Brad Canino. Bradley Canino: A question from me on the trigger to start the KT-621 Phase IIIs. So to initiate, how far into the Phase IIs do you need to reach and what needs to be collected from those studies? And will this be one study start or multiple at once? Nello Mainolfi: Yes. Thanks, Brad. So unlike what we may be getting everybody used to that we start a study while the previous one was still ongoing as we've done for the healthy and Phase Ib. For starting a Phase III study, we need to complete Phase II. We need to have an FDA meeting post Phase II, and then we can start Phase III. I assure you that we will do our best as we always have, to do that as quickly as possible. But obviously, there are some things that we must do in order to move into Phase III. With regards to how many, as you know, at least the paradigm that companies have adopted in the past 10 years for, let's say, atopic dermatitis registration has been 3 Phase III studies, 2, there are 2 placebo-controlled, mostly placebo-controlled studies and then one on top of topical corticosteroid. So we -- if that will continue to be the paradigm, which is something, obviously, we will explore given the recent news from FDA. But let's say, that continues to be the paradigm, you should expect us to start all studies as much in parallel as possible. Operator: Great. The next question comes from Eli Merle with Barclays. Eliana Merle: Congrats on all the progress. In terms of 621, if you could talk about both the clinical and preclinical data that you've seen, where do you see the most potential room for efficacy improvements over dupilumab? And can you talk about some of the respiratory preclinical model data and compare that to what's been seen preclinically in atopic dermatitis? Nello Mainolfi: Yes. Thanks, Eli. You often asked the tricky question. So we want to make sure like we maintain kind of our credibility when we compare a drug that is -- have been so successful in millions of patients with the drug that has been so far in about a couple of hundred patients or subjects and up to 28 days. So I'm always very thoughtful about how we make comparisons. What I can say is that in our preclinical models, if you look at the asthma models that we both published, KT-621 has performed always at least as well and in many cases, better than dupilumab. We don't know whether that is the result of the model or it's actually real biological differences or drug distribution differences. And that's why we're really excited that we're in a Phase II study, so we can assess the full clinical activity of our drug in a large study with hundreds of patients. With regards to AD, the preclinical AD models are not very robust. We like to talk about the asthma model because it's a highly translatable model. The AD preclinical models, you have this local activation with a pathway activator that is not really, in many cases, a Type 2 discrete pathway activator. So we also show really robust activity. But to be honest, as a scientist myself, I don't like to talk about preclinical AD models that are mostly useless. But if we look at the clinical data, obviously, you've seen the data from last December, we have shown really robust activity. I start from biomarkers. I look at what we've shown even with biomarkers that were either not shown to change much with dupilumab like IL-31 or the ones that we showed comparable if not superior Eotaxin, even FeNO. And then we look at all the clinical endpoints that we measured, we've been consistently at least as good as the injectable biologics. So again, it's hard for me to say it will be equal, slightly inferior, slightly better. But I think we delivered that ballpark scenario that we talked about for last year. And so for us to really know how it looks, we need to wait for the Phase II studies. And to be honest, the only other thing to keep in mind is you can never compare drugs unless you run a head-to-head study. But our goal, again, is to deliver an oral drug with biologics like activity with great safety and the convenience of being an oral pill that one can take once a day, stop and start whenever they want. I think that will transform the treatment paradigm for Type 2 diseases well beyond whether the drug is exactly like dupilumab, slightly less or slightly better. I don't think that will matter if we can deliver the type of drug with the profile that we speak about. Operator: Your next question comes from [ Anna Lee ] from Truist. Unknown Analyst: This is Anna on for Kripa. One quick question on 621. I was just wondering if you could give us kind of an overview on how you're thinking about compliance you're seeing in the Phase IIb trials right now and how the durability of 621 kind of ties into that? Nello Mainolfi: Cool. So that's a great question. So when you -- compliance, you mean patients taking the drug. That's what you mean? Yes. So I think that's obviously -- it's a very important point because when you're in a clinical trial or an injectable biologics, you can actually ensure 100% adherence, right, because patients often, in most cases, actually go on site to receive the injection. When you -- the beauty of oral drugs is actually you give patients freedom, right? That's the beauty of oral drugs. And that obviously plays a role into clinical studies. So we have measures that probably go even beyond what has been done generally to make sure that we understand patients' adherence well. So we are confident that the adherence of patients will be the one that will allow us to have a great integrity of our study. I will also add that the beauty about protein degraders, unlike small molecule inhibitors, if you miss a small molecule inhibitor dose, you actually lose all your activity. If you miss one dose of KT-621, this is not an advertisement to not take the dose every day. But I will say, if you miss a dose of KT-621, if you miss one dose, you will not lose any of pathway degradation. So we have that additional layer of, let's call it, protection against any challenges that might come with humans forgetting one dose during a study or during normal life. Operator: The next question comes from Judah Frommer with Morgan Stanley. Judah Frommer: Congrats on the progress. Just on IRF5, I think we're clear on how you think about STAT6 degradation versus inhibition. Kind of same question for IRF5. I think we'll get a little bit of preclinical data from an inhibitor next month. And then just on the targeted nature of your degrader, any risk of kind of pan-IRF inhibition? I think IRF8 has been a question in degrading IRF5 previously. Nello Mainolfi: Yes. Maybe I'll start and then I'll pass it to Jared to speak even maybe it's an opportunity to talk about how we think about the safety of IRF5. But maybe I'll talk more about the chemistry of it, even that I'm technically still a chemist. So the beauty about this target and the challenges with this target is that it's extremely hard to find a molecule that binds to IRF5 only without binding to all the other IRFs. You mentioned a few. I think there is 11 or 12, sometimes I lose count, but there's more than 10 IRFs. So we need to bind only two IRF5. And there are different -- I like to call them splicing variants, people call them differently. There are different IRF5 splicing variants. They all need to be targeted. So you need to be consistent across the IRF5 family, but do not bind to any other IRF. So we've been able to do that. Our selectivity is pristine because we've been able to find this molecule that is actually not functional. So it does not inhibit anything. It only binds to IRF5, all the IRF5s splicing variants, but not other IRFs. And this allows us to give the utmost selectivity. So we're not worried about any of those things. But Jared, do you want to speak about why we think 5 only is potentially really interesting. Jared Gollob: Yes. I think IRF5, because it is one of multiple different IRFs, there is a certain redundancy there when it comes to the role of IRF in innate immunity. So even getting rid of IRF5 really does not impact overall innate or adaptive immunity. It's also true that IRF5, its expression is very restricted, especially to certain immune cell subtypes like B cells and dendritic cells and monocytes and macrophages. So it's not ubiquitously expressed, which is another reason why one can knock it down and do so safely. And its activation is also very context specific. So here, in the context of pathologic inflammation, that's where you're going to see activation, where you're going to see activation in restricted cell types. And that's the reason why you can really degrade IRF5 strongly and chronically and not get broad immunosuppression and not have infectious adverse events. And in fact, if you look at mouse knockouts for IRF5, you don't see any susceptibility to infections or any phenotype. And in our preclinical animal tox studies, including our 4-week GLP tox studies in nonhuman primates as well as in rats, we don't see any adverse events -- adverse findings. We don't see any susceptibility to infection. So for all those reasons, we believe that this is a safe target for us to degrade deeply and chronically. Operator: The next question comes from Joe Catanzaro with Mizuho. Joseph Catanzaro: Hope you guys can hear me okay. Maybe one on 579 and something kind of maybe related to something you just said, Jared. But I was looking at another healthy volunteer study for another anti-inflammatory drug, and they actually utilize a skin immune challenge model where they injected volunteers with actually a TLR agonist and then looked at cytokines. Wondering if you guys are aware of that model, whether you considered this? And if you did consider why you didn't decide to use it? And then I guess related, what informs the 50% to 80% target reductions in biomarkers? Is that all preclinical or is there some genetic basis for that target reduction? Nello Mainolfi: So maybe I'll take the first one and Jared takes the second one. So yes, we're obviously well aware of there are many type of skin challenge model, sometimes even systemic models, systemic challenge model, people have done LPS, inhaled LPS, local LPS. So there are many models that one could run preclinically for healthy volunteer studies. We philosophically feel like the right context to ask these pathway questions are in patients. And what you do by activating the skin is you artificially activate a pathway and then you look at downstream regulation. You can do that just the same way by taking the blood and ex vivo activating the pathway. So yes, you could do those things. We just don't believe that it's the complexity of it derisks any more or less what we would do with an ex vivo blood stimulation. If you have questions about does your drug reach particular tissues and especially with small molecule inhibitors where you actually cannot measure target engagement, that is a way to do it. But we can measure target engagement directly. So we don't need a surrogate downstream biomarker to make sure our drug gets to the tissue. So that's at least our view. Jared, do you want to speak to the? Jared Gollob: Yes. I mean we know in terms of the amount of knockdown that we think we need or the amount of functional inhibition that we would need for those pathways. One has to keep in mind that here, we're talking about not just one pathway that's controlled by IRF5, but multiple pathways. Here, we're looking at 3 different TLR pathways, for example, 7, 8 and 9. And so whereas you're talking about one pathway and all your activity is dependent on one pathway, you might have a threshold that could be 80%, 90% or more to really have clinical impact. Here, we know that if you're impacting multiple different pathways in parallel at the same time, you don't need necessarily 90-plus percent inhibition, 50% to 80% inhibition from our preclinical data across multiple different pathways can have a synergy that can give you significant activity in preclinical models. So that's the reason why we say that, that's sort of a range, which is really just a range, if you're seeing it across multiple different TLR pathways with these ex vivo stim models would be very encouraging, and we would expect to translate into activity in subsequent patient studies in diseases like lupus. Operator: The next question is from Derek Archila with Wells Fargo. Unknown Analyst: This is [ Hal ]. I'm calling in for Derek. So I guess our question is about the potential oral autoantibody delivery program. Just kind of the timing and what data, what events we can hear more from these assets? Nello Mainolfi: Sorry, I didn't quite get the question. Say that again? Unknown Analyst: The internal oral antibody. Nello Mainolfi: So do you mean the next oral immunology program that we were going to disclose? Yes. So as we said in, I believe it's in the press release and in our remarks earlier, we plan to disclose at least a novel program, most likely an immunology program this year and likely would be in the second half of the year. Operator: The next question comes from Brian Cheng with JPMorgan. Lut Ming Cheng: Just on IRF5, as you mentioned, 50% to 80% reduction across the TLR7, 8, 9 pathways. Just thinking about IRF5 regulates many of the levers in the pathways. Are there any specific downstream cytokines that you can point to today that will be the most impacted, most reliable and perhaps the easiest to monitor from an ex vivo stimulation test setting to best assess the PD of the drug? Nello Mainolfi: Yes, that's a great question. Jared, do you want to take that one? Jared Gollob: Yes. Through the stimulation of these pathways, there are key cytokines that we can look at. So for example, Type 1 interferon psych interferon beta, we can look at interferon beta protein production in these ex vivo stim assays. We can also look at gene transcripts that are part of the type 1 interferon pathways, looking beyond just the interferon itself. You can look at various genes that are part of the type 1 interferon pathways. We can also look for pro-inflammatory cytokines like IL-12 and tumor necrosis factor and even IL-6, which are stimulated by macrophages and dendritic cells. So these are a number of different pro-inflammatory cytokines that are coming off of these TLR pathways that can all be measured either the protein level or the gene transcript level that will be very helpful biomarkers for us. Operator: The next question is from Brian Abrahams with RBC. Unknown Analyst: Can you hear me? This is [ Kevin ] on for Brian. Maybe just on IRF5. How are you guys thinking about degradation in -- I know you mentioned whole blood, but just in PBMCs and maybe potentially skin as well. I think that's something you're looking at in the MAD portion. And I know you talked about IRF5 not being as activated in healthy volunteers. So just maybe curious what our expectations should be there for degradation in those tissues. And just kind of how much do we really know about sort of IRF5 expression in healthy volunteers and how that impacts your expectations for the study? Nello Mainolfi: Yes. I mean in blood, we know that we can measure IRF5 well. And in fact, when we say blood, we obviously then practically need PBMCs because we isolate PBMCs as we measure it using mass spec. The expression of IRF5 in healthy volunteers in the skin is extremely low. And so for that reason, we believe it's going to be -- it would be really hard to measure IRF5 in healthy volunteers. This is something that as we go into patients and especially if we go into lupus with cutaneous manifestation or even CLE, eventually, that's maybe a context where we can look at IRF5 expression. I think in [indiscernible] expectation is to be extremely low, lowest than any other program that we've looked at even preclinically. So hard to measure. Operator: [Operator Instructions] Your next question comes from Sudan Loganathan from Stephens. Sudan Loganathan: I wanted to ask my question around 621's opportunity in asthma. Looking at the current FDA-approved treatment options for AD, not all of them have really panned out that well in asthma as maybe people have expected. STAT6 degradation is a new approach. So curious to hear what theoretical and preclinical data you may have that gives you some conviction here that it also has an opportunity in asthma. Nello Mainolfi: Yes. I think IL-4 and 13, and just I remind everybody that there's only one drug that blocks IL-4 and 13, which is dupilumab. And so that has shown to have really, really robust activity in eosinophilic asthma and actually eosinophilic COPD, chronic rhinositis with nasal polyps. So it's well established to really have huge impact on patients with Type 2 inflammation in respiratory tract. So STAT6 biology, again, we've shown it extensively preclinically and also in the early clinical development that we can mimic the same IL-4 and 13 blockade. And again, I refer you to the asthma studies that we've published preclinical study that we published, showing the robust activity we see both on biomarkers and efficacy endpoint. The pheno reduction that we've seen in patients is actually even more robust than biologics in asthma patients. So we have all the ingredients to have reasons to believe that this drug actually is going to -- has the potential to be extremely effective in asthma. Operator: Next question is from Jeet Mukherjee with BTIG. Jeet Mukherjee: As we just look ahead to the evolving competitive landscape in atopic dermatitis and specifically on the next-gen oral agents that might be coming around the corner, just your thoughts on ITK as a target and some of the recent data we've seen there and how that might compare and contrast to STAT6. Nello Mainolfi: Yes, great question. As I said earlier, I think more mechanisms are great for patients first. I think, obviously, these are very different mechanisms. STAT6 is an IL-4 and 13 drug, as I said, the most validated pathway in the space, both in terms of safety and efficacy. We have shown preclinically that we can mimic biologics, both in terms of efficacy. And I would actually argue in safety, we just shared today that we completed chronic tox, so 6- to 9-month tox in rodents and nonhuman primates, again, without any adverse event. Other targets, ITK is a target that we've looked extensively at Kymera. We decided not to work on it because the human genetics show that because of challenges with clearing ETV, I think all patients end up developing some form of lymphoma. So this is the reason why we decided not to work on that target. That doesn't mean that it could not be a great target. It's just something that we don't believe fulfills the risk-benefit profile of Kymera and how our target selection strategy has been evolved over the years. But again, I think more mechanisms, especially with complementary pathways, whether it's ITK or others, I think are going to be great for patients and expand in this market that we need to do so that more patients get access to more therapies. Operator: Next question is from Faisal Khurshid with Jefferies. Faisal Khurshid: I wanted to ask, as you guys get the sites up and running in the Phase IIb studies, do you expect to provide any kind of color or context around how enrollment is going in those studies? Nello Mainolfi: No. I think what we -- obviously, if we feel we're not on track, obviously, we will share. But as long as we remain on track with the expectation, we don't plan to be providing ongoing updates on enrollment. I don't think it's necessary. But obviously, again, if we deviate from expectation, we will make sure to do so. Operator: Next question is from Biren Amin with Piper Sandler. Biren Amin: Congrats on the quarter and all the progress. For the Phase IIb AD trial, what measures are you taking in the trial to mitigate against placebo response? For example, will you be requiring photographic evidence of AD at baseline to provide evidence of moderate to severe disease on screening? So I guess that's first question. Second question on 579. I know you're enrolling healthy volunteers. However, there are healthy volunteers that may have positive antinuclear antibodies, but do not have autoimmune disease. Would you potentially screen for these types of healthy volunteers and that may potentially provide read-through into your Phase Ib lupus trial? Nello Mainolfi: Great question, Biren. I'll take the second one quickly. Jared, do you mind taking the first one? Yes. So great idea. Sometimes simple is better than complicated. So we're going to actually enroll healthy volunteers that are healthy, move quickly through it, selected dose and go into patients. That doesn't mean your idea is not a good one. It's just not what we're planning to do. Jared, do you want to take that? Jared Gollob: Yes. I think in the Phase IIb, I mean, your question about avoiding high placebo rates is an important one. And while I can't get into all the details at a high level, I can tell you that we're paying a lot of attention to this, both with regards to our eligibility criteria, how we're providing oversight with every patient that comes on and is screened in terms of looking to make sure that patients are truly meeting eligibility criteria, not just in terms of actually having AD, but also having moderate to severe disease. And we've carefully trained the investigators and selected investigators who are more certified dermatologists to make sure that they're fully capable of doing all of the clinical endpoint measurements across the study and that they're doing it consistently from baseline all the way through to the end of the study. And we also have global site selection. So we're not just in the U.S., we're also ex U.S. And in fact, the majority of our sites are ex U.S., whether that be in Europe or in Asia and Australia. And I think that's also important because access to drugs like dupilumab are diminished ex U.S. And so those are patients who are more apt to come in maybe more on the severe end of the spectrum of disease, and that can also be very helpful in helping to mitigate placebo effect, which you tend to see in milder patients compared to more severe patients. So I think all of those steps are being taken, and we're really very actively staying on top of all of that to try to mitigate a high placebo rate on study. Nello Mainolfi: I mean we're doing -- I'm sorry, we're way out of time. But we're doing lots of things, probably more things than anybody has done before to ensure that we do that. Obviously, we can't guarantee the lowest placebo rate, but we're trying our best. Operator: Your final question comes from [ Paurav Desai ] with B. Riley. Unknown Analyst: I'm on for Mayank. On asthma trial, if you could kindly confirm the dose levels are the same as BROADEN2? And how might you be enriching for pheno in your target patient population? And is there a chance your 12-week FEV1 endpoint data could come around the same time as your 16-week BroADen Phase II study? And also it would be helpful to learn competitive trial enrollment dynamics in atopic dermatitis versus asthma. Nello Mainolfi: Yes. Thank you. These are 4 questions in one. But let's see if you guys have to help me remembering. So the first one, the dose levels, yes, they are the same across AD and asthma. So the inclusion criteria for the asthma study is high [ EOS ] more than 300, high pheno more than 25. So that's how we're going to select that patient population. In terms of timing, we said that we expect the Phase IIb AD study data by middle of next year, while the asthma data by the end of next year. So I guess that answers the question. Things would always change one way or the other. And as I said earlier, if they change materially, we will share. And then competitive dynamics, all I can say that we have seen a ton of enthusiasm for our study in both actually, I would say, AD and asthma. And that's for 2 main -- actually, I would say 3 reasons. One, sites and hopefully also patients appreciate the really, really interesting and innovative science of our program. They appreciate that this -- while this is a novel target within a well-established biology and clinical experimentation. It's an oral drug and has some compelling early data. When you put all of that together, we have seen a ton of enthusiasm. So we really hope that this enthusiasm will translate into good enrollment. And that's what we're seeing so far, but we're still a long way to the finish line. Operator: There are no more questions at this time. Yes. There are no more questions at this time and I'd now like to turn the call over to Nello Mainolfi for closing remarks. Nello Mainolfi: Yes. So first, let me apologize. This call has taken the longest that we've ever done. I'm not really sure why. But I want to thank everybody for attending the call. All great questions, so I don't blame our analysts. And you know where to find us. We're very excited about where we are. This is a pivotal time for the company. And so we're excited to engage beyond the call if there are questions, and enjoy the rest of the day.
Operator: Welcome to the Schneider Electric's Full Year 2025 Results with Olivier Blum, Chief Executive Officer; Hilary Maxson, Chief Financial Officer; and Nathan Fast, Head of Investor Relations. [Operator Instructions]. I'd like to inform all parties that today's conference is being recorded. If you have any objections, you may disconnect at this time. I will now hand it over to you, Mr. Nathan Fast. Nathan Fast: Good. Good morning, everyone, and welcome to our full year 2025 results presentation and webcast. I'm joined in Paris today by our CEO, Olivier; and our CFO, Hilary. For the agenda, you already have the slides available. We'll go through them now and then make sure to have enough time for Q&A. As always, I want to remind everyone about the disclaimer on Page 2. And with that, Olivier, I hand it over to you. Olivier Pascal Blum: Thank you very much, Nathan. Extremely happy to be with all of you today. Look, more than 15 months in the job, the first time I'm doing really this earnings call with you for the full year '25. And I'm extremely excited to be with you to report on what happened in '25 and even more important, what we see for the future. As you know, with the management team, we did spend a lot of time in '25 to define the next cycle. We were with many of you during our Capital Market Day. And we launched the new mission of Schneider Electric, which is to be your energy technology partner, to be the company which will be at the convergence of electrification, automation, digitalization in every single industry, to drive efficiency and sustainability for all. That's what we call at Schneider Electric, advancing energy tech to the next level. And of course, I'm going to come back on that. The point I want to make here, it has really received a very, very good feedback. We got a very good feedback from the market, from our business analysts, from our customers, from our employees, from all our partners. So that's really exciting for us to enter '26 with this new positioning, which is giving a lot of inspiration for all our stakeholders. So now let's turn to the most important part, of course, of this call, which are our results. I'm pleased to report a very strong Q4 revenues growth at 10.7%, EUR 11 billion. And even more important for me, it's really the acceleration of the 2 businesses, the acceleration of Energy Management, but the acceleration again in Industrial Automation in Q4 with a growth of 8%. If you go look at the full year results, that's an important milestone for Schneider Electric. For the first time, we have exceeded EUR 40 billion in terms of revenue, with a 9% organic growth. So that's, as you can imagine, an important milestone for a company. And even more important is the acceleration that we have seen in our 2 business. I was just talking about Industrial Automation. We told you with Hilary a year ago that we will turn positive for Industrial Automation in '25. We did it, and we delivered 7% growth in H2, which as a result, has helped us to achieve 3% growth for Industrial Automation. As you know, Energy Management has been really the driving force from a growth standpoint for the past years, and it continue again to be the case in '25 with a growth slightly above 10%. So all in all, again, a great year from a top line standpoint, both businesses driving good contribution to the growth of the company and an important milestone, EUR 40 billion. When you go a bit deeper in all our achievements, we are pleased to report that we have achieved a margin expansion of 50 bps, which is in line with the target we set up for us at the beginning of the year, which translates in an adjusted EBITA growth of 12.3%, which is again within our guidance of 10% to 15%. Extremely important milestone also for Schneider Electric, free cash flow of EUR 4.6 billion with a conversion rate slightly above 110%, which show again the strong financial health of the company overall. We are pleased to report that we are going to distribute a dividend of EUR 4.2 per share, again, in line with our progressive dividend policy, which has been the case for the past 16 years. And our TSR has grown by 89% for the past 3 years. So all those financials show really the solidity of Schneider Electric strategy, but even more the solidity of our execution. And as you know, it's equally important for me and the team that we always look at our digital metrics, which are translated inside the digital flywheel. It has been an important transformation for Schneider Electric in the past cycle. It will continue in the future. And the digital flywheel is giving us really the illustration of the execution of our portfolio strategy transformation. So we reached EUR 25 billion of our turnover with digital flywheel, which represents 62% of our overall revenue. And pleased to report that it has achieved a growth of 15% last year. We continue to grow very fast on all the aspects of the digital flywheel, but very excited to see that we are now close to 20% of our total portfolio in services and software. And last but not the least, it has been an important focus for us in the past year, not only the acquisition of AVEVA, but the transformation of AVEVA, the acquisition of OSI. And last year, we have achieved an outstanding performance with 12% growth in ARR for AVEVA. It's also important to mention that '25 was the last year of our sustainability program, the one we launched 5 years ago. You know that we have this culture at Schneider since 20 years to launch every 3 to 5 years, a new program where we set up an ambition on where we want to take the company. And we are pleased to report that we have achieved overall our goal. I'm not going to go through all the metrics, but that's very, very important, and I'll talk later about -- when we speak about '26. The only thing I'd like to mention is when you look at all these metrics, if I just highlight some of them, extremely pleased to see that with the portfolio of Schneider, we have helped to save and avoid 862 million tonnes of CO2, which is tremendous since we created that initiative in 2018. You will see later that we'll keep going in the next chapter, but that show how the impact of the business of Schneider Electric can support all our customers everywhere in the world. And we have embarked not only our customer, but our partner, our supplier. Our supplier have also achieved their goals. So we divided by 2 the CO2 emission of our suppliers that were part of that program. And we continue to have a very strong focus on access to clean energy to many people who don't have access energy in the world. And we have achieved this milestone, which was super important for us, 50 million plus. Actually, we have exceeded reaching 61 million. And of course, all those achievements have been recognized multiple times in the past year. It's always great to be a leader in that domain. So if we wrap up '25 in short, as I said, a record year in terms of revenue, crossing EUR 40 billion, all-time high level in terms of backlog. We'll come back to that with Hilary. Extremely strong performance in adjusted net income and free cash flow and acceleration of the demand and profitability in H2, which is what we told you with Hilary when we were together in July. What is very important for me, and we told you that during our Capital Market Day, we are accelerating the transformation of the company. We have a plan. We are accelerating the transformation of the portfolio, making Schneider Electric the company which will advance energy tech to the next level. We are going to the next level to -- of our digital portfolio, leveraging AI and bringing energy and industrial intelligence. We have reinforced our multi-hub strategy in a world which is very fragmented. We do believe that our regional model brings a lot of advantage. We have reinforced in particular, in India for the international market with the acquisition of L&T last year, the completion, I should say, of the acquisition. And last but not the least, we spent a lot of time with the team last year to simplify the operating model to make sure we can generate more efficiency and create even faster execution. So now if I turn to '26. I'm not going to talk about the long term today. It was done during the CMD. But if I recap what we told you in London in December: We have 3 megatrends in front of us that have been the main driver of Schneider Electric growth in the past year: The evolution of the new energy landscape, electrification of usage everywhere in the world; digitalization going to next level with AI; and of course, a world which is more and more multipolar, and we don't believe it's going to stop. So for us, what is very important is to make sure we can leverage and accelerate really everything we do at Schneider Electric to make the most of those 3 trends. And of course, what we see, and I'm sure you see it as well, all those 3 trends are accelerating at the same time at a speed which is unprecedented, which impact, of course, all our end markets. But speaking about the end market, it's fairly positive for Schneider Electric. And we like always to go back to those end market growth and to tell you how we see the market. We continue to see a double-digit opportunity plus in data center and network, solid growth on buildings and industry, and we'll say a little bit more with Hilary also on that one. And we continue to see infrastructure growing fairly fast between 5% and 7%. What you see as a result of the past cycle, we continue to be a very, very balanced company in terms of exposure. We'll talk about geography, but balanced in terms of end market, having our 3 largest market contributing all to 1/3 of the revenue of Schneider Electric and infrastructure step-by-step going also to the next level with close to 15% of our revenue. So what's next for '26? We are basically going to execute our plan, our strategic plan, the one we present to you, which is really to advance energy tech to the next level of intelligence. We are going always to follow those 3 important transformation, which we have launched internally. We call that inside Schneider, our company program. This is a vehicle we are using to align all the entities of Schneider Electric everywhere in the world. For me, what is very important is not only to define the North Star, advancing energy tech, defining those strategic priorities but equally and even more important is how we align our teams everywhere in the world to make sure we execute faster the strategy of Schneider Electric. So talking about Energy & Industrial Intelligence, we want to reinforce our energy, our technology leadership. We've presented in detail our strategy in December, but I want to recap what we told you. We have built a huge portfolio in the past, which is extremely differentiated, starting by our legacy product business, but going to the next level of Edge Control, starting to do more and more in digital and software and digital services everywhere in our portfolio. What makes Schneider Electric very, very different at the end of the day? We are combining a unique expertise in different domains. Those domains are the building domain, the power and IT domain and the industrial automation domain. What we want -- we don't want those domains to innovate in parallel universe. We want to create a unified customer experience for our customer. Let's make it simple. Every time we sell solution to our customer, we want to keep it simple for our customers to commission the asset, to be able to leverage all the software, to create a unique user experience. It means that, for instance, you need to have a digital platform, which are the same, and we need to create hub, which are the same. So for us, it's not only about creating the largest portfolio in our industry in those domains, is to make sure we make it simple, easy for our customers to use all those offers of Schneider Electric. And what we want to do even more in the next cycle is to do it through their full life cycle. Schneider was known 10, 15 years ago as a company which was more at the CapEx stage when we built. We've moved big time in the past 5 years to make sure we are also at the design level. We can help our customers to design, to simulate, to create digital twin for their asset. And of course, when we have installed our solution, what we want to do even more through digital is how we can help them to operate efficiently, how we can help them to maintain efficiently, to extract data that will help them to manage the obsolescence of their asset, for instance. So all in all, this is what you see on this slide, which is the strategy of Schneider, I think. And what are we doing differently in the next -- in this cycle? Now we've reached a level where most of our assets are connected. Again, keep in mind the digital flywheel, going step by step to 70% of the digital flywheel. So it's about extracting all those data at all layer of our digital stack, extracting external data, federating, structuring those data in the data cube to make sure, thanks to AI, we can amplify what we give to our customer and deliver more intelligence. So it's about building the foundational model in AI, in energy and industry that will create more value for our customers in the future. And it's not something that we are dreaming to do in 5, 10 years from now. It's something we do already. If you take just one example of the data center, which is a place where we have invested, as you know, a lot in the past years. We are, of course, in the middle, as you can see, present at the build stage historically. We have reinforced our portfolio, for instance, with the acquisition of Motivair in liquid cooling. But what is equally important is being able to work with NVIDIA, with our customer, the large hyperscaler on how you can design and simulate, how you can work in the universe of NVIDIA, on how we'll behave digital and electrical infrastructure in the future based on the next generation of GPU that NVIDIA will launch in the future. And then we can move to a stage where we are working with our customers to design their own AI factory. We can build, we can execute with them. And we can also extract data at the end of the cycle to make sure we give more to those customers. So that's really a typical illustration of what we mean going to the next level of energy intelligence, unique customer experience, leveraging all the portfolio of Schneider and being able to do it through the portfolio of -- through the full life cycle of our customer. Now we have multiple proof points and other example we are doing. We are launching, for instance, EcoStruxure Foresight Operation, which is basically the convergence of power and building management in one software amplify with AI that can give a lot of opportunity for our customers to improve the efficiency of our building. And I'm not going to cover all the examples, but we have also what we presented to you in November -- in December, what we are doing in Industrial Automation with EAE, EcoStruxure Automation Expert, which is taking automation to the next level. So all in all, just as a recap, we are investing a lot in R&D. We are growing progressively to the next level of our journey in R&D with 7% approximately of our turnover. And having always in mind those end targets, which is keeping on increasing the part of our portfolio, which will be more digital, more than 70% by 2030, accelerating everything we do in software and services, so going step by step to 25% of our total revenue. And all of that helping us to multiply by 2 our recurring revenue as part of the turnover of Schneider. The second chapter, which is very, very important for me, and I'm passionate by technology. I strongly believe in innovation. I strongly believe that what will make Schneider Electric very different. But I'm equally passionate on how we are going to differentiate in front of our customer. You know it, but we have decided to go to the next level of the regionalization of Schneider Electric. So it's basically how we structure the company in terms of innovation, in terms of supply, but also in terms of sales and making sure that we are creating 4 regional loop: in North America; Europe; China, East Asia; and Southeast Asia and International to create agility and speed. So what does this mean in simple terms? You identify needs in one of those regions. You can speak to R&D people who are very, very close to you. You can speak to the supply chain people, and you can execute projects very, very, very fast. And you don't need always to go back to the top of the company. Now it doesn't mean that we want to cut Schneider Electric in 4 pieces. All of that is supported by a global governance where we define very clearly where we want to go in terms of R&D. For instance, what are the platform we want to develop, what are the choice we want to make in terms of electronic. Also the way we want to design our supply chain. But when this global framework has been defined, we want to empower our 4 regions to go much faster. And what we are doing also in terms of operating model evolution is how we go to the next level of engagement with our global customer, which, as you know, will represent a growing part of our sales. When we go, for instance, to cloud and service providers to utilities in all the segments, we are going to next level also of engagement with our global customer. So on this slide, you have a couple of, again, of proof points of what we are doing to make it happen. I'm just going to give you a few examples. We want to have 90% of our sales to be manufactured in each region. Manufactured means both what we buy from outside, but also the cost -- the labor cost that we have for manufacturing. So for us, it's important that we keep investing in all the regions. I said it, we've completed the acquisition of Lauritz Knudsen in India, which creates a very, very strong India hub to support the international market. We continue to invest in the U.S., in North America, for North America, especially to support the growth of our data center business, both in low voltage UPS, but also in liquid cooling with the acquisition of Motivair. Talking about Motivair, we have decided to open a new factory in India. Actually, we announced last week to accelerate the expansion of Motivair outside of North America. And we continue to leverage, for instance, China as one very important hub for us in terms of power electronics but also localizing offer like GVXL to make sure we are more competitive in the Chinese market. And we continue also to invest in Europe, new factory we are launching in Macon and taking our joint venture, Schneider eStar to the next level for electrical vehicle. So the last pillar of that transformation is operational excellence. Also extremely important for me. We've been very, very vocal with Hilary and the management team in December that we want to innovate in technology. We want to accelerate the growth of the company, but all of that has to translate in a very strong operating margin, strong return for our shareholders. And that's why we decided we need to accelerate all our plan when it comes to cost competitiveness and scalability. Cost competitiveness on one side because I want to make sure we always stay competitive in everything we do, the design of our product, the cost of our product, the cost of our solution for our customer, how we do a better job to collaborate with our supplier to deliver innovation, cost and time to market, which is very important for me. And having a very strong machine where we deliver strong industrial productivity every year. At the same time, I want Schneider Electric to be extremely scalable. We just said it, EUR 40 billion, huge milestone for a person like me who joined the company no more than 32 million -- 32 years, which was, I think, EUR 5 billion at that point of time. I mean it's just an impressive milestone. But if we want to go to the next level of our ambition, 7%, 10% growth every year, that's super important that we always work on the fundamental of the company, our IT system, our supply chain and so on and so forth. And I do believe we have a huge opportunity to leverage AI to keep really a strong level of scalability but also efficiency at the same time. And I said it, I will go very, very fast. We are also working a lot with the management team on how we keep simplifying Schneider Electric year after year to make it easier for our people to execute. Here again, a certain number of proof points on how we want to collaborate more with partner, supplier, company like Infineon, for instance. I mentioned going to next level of flexibility in capacity also, working strongly with companies like Samsung and Foxconn, for instance, where we believe it will give us an opportunity to accelerate really our capacity everywhere in the world, accelerate our competitiveness and an absolute obsession on at cost by design in order to contribute really to a very strong improvement of our gross margin. So a couple of examples that you have on that slide, but I remind you on the right-hand side of the slide, those operational metrics we've defined with Hilary during the Capital Market Day, which are absolutely essential for us. While we want to grow very fast, we want to stay very, very healthy at the gross margin level, always focus on the efficiency of the company. And last but not the least, always working also on our portfolio to make our portfolio more efficient. So these are really the main chapter that we presented to you on which we will give you an update every year, every half year on how we are progressing. But of course, I would not be complete if I would not speak about what makes Schneider Electric extremely different in the market, a very, very, very people and sustainability-centric company. I said it, we've completed successfully the past cycle when it comes to our sustainability achievement. We've presented that to you already. So I'm not going to go one by one, but we have launched our new program when it comes to what are the next transformation we want to deliver, with a very, very strong belief that as a company, we can have a lot of impact, but we believe that advancing energy tech will bring progress to all everywhere in the world. So there are a couple of metrics that we have kept from the past program. Again, saved and avoided emission, going to the next level. I told you 800 million tonne, plus we want to achieve 1.5 gigaton by the end of 2030. But new metrics we are building right now on how we can build, train more electrician in the world to support that big trend on electrification. And of course, always covering all the aspects of ESG and trying to impact our entire ecosystem, including supplier partner everywhere in the world. When it comes to people, we continue to invest a lot. Super important for me that, one, we keep our employees engaged in the transformation of Schneider. We are moving very, very fast. So we want to keep our employee along with us to keep the management, and we want really to make sure they are motivated and engaged to work with Schneider Electric. And at the same time, what is super important for me, we are moving really to this tech world, which require new competencies. So training our people in digital, in AI, in those new energy landscape technology is extremely important. And last but not the least, the second metric for us in terms of engagement is always offering the possibility of our employees to become shareholder of Schneider Electric and extremely pleased to tell you that 63% of our employees have invested in our worldwide plan last year with some country going above 80% of employee. So you imagine that's a strong demonstration of the commitment of our employees. And we've built this multiyear model, going to the next level of regionalization. We have a unique model of management where we want to have a very decentralized leadership, not only for the regional team, but also for the global people who are managing Schneider Electric. Why? Because I believe that in a world which is going to be more and more fragmented, that will make Schneider Electric much more agile and much faster to make the right decision. So to wrap up on the priority for me as the CEO of the company in '26, definitely, first and foremost, delivering a very strong performance. We'll come back to that with Hilary in a couple of minutes. But again, accelerating everything we do on the technology leadership side, being the absolute leader in the new energy landscape. We are the worldwide leader in electrification. We know the energy landscape is changing. It's bringing even more electrification, more change in our industry. We want to keep and reinforce that leadership. Going to the next level, leveraging AI and creating energy and industrial intelligence for our customers. And of course, with the data center market, which is growing fast, keeping an absolute leadership and making the most of this growth opportunity. Going to the next level of regionalization to satisfy even more our customers, local, regional and global. We see strong demand everywhere in the market. Most of the geography, all key geography will contribute positively in '26. So let's make the most of the growth everywhere in the world. And of course, executing seamlessly, the record high backlog that we delivered last year. Last but not the least, I said it, huge focus on operational excellence, gross margin improvement means strong focus on cost, productivity, pricing, margin obsession. This is very high in my agenda, very high in the agenda of the management team. And of course, we want to continue to build the next level of scalability for Schneider Electric and in particular, leveraging AI. So this is about the -- really what we plan to do in '26. But before going more in detail on how it translates in terms of financial ambition, I would like to hand over to Hilary, our Chief Financial Officer, to tell you more about our '25 financial performance. Over to you. Hilary Maxson: Thanks very much, Olivier, and good morning, everyone. Happy to be here with you all today. I'll start with our key financial highlights for the full year, some of which Olivier has already mentioned. Starting with revenues, and Olivier mentioned a few times, we're excited to show revenues of more than EUR 40 billion for the first time, finishing the year at EUR 40.2 billion in revenues, up 9% organic. In gross margin, as expected, we finished the year slightly negative. Despite this, we did continue to see a step-up in our adjusted EBITDA margin, which improved by 50 basis points organic, supported by strong cost control and the simplification actions we started in 2025. Our free cash flow was above EUR 4 billion for the third year in a row, a bit higher than our expectations, driven by strong operating cash flow and working capital improvements. In terms of net income, we were slightly negative at minus 2% with our adjusted net income up 4% recorded. And lastly, we did see a step-up in our ROCE to greater than 15% for the first time, reflective of our strong operating results. To get into a bit more detail, both businesses contributed to our overall growth in revenues of plus 9% organic with Energy Management up double digit for the fifth year in a row at plus 10% and Industrial Automation back to full year growth at plus 3%. And while it's not on this slide, I'll mention that all 4 of our geographies finished with positive full year organic growth in revenues in both businesses, a reflection of our strong portfolio positioning across our hubs. The positive contribution from scope is from Motivair and Planon, and we did finish the year with a negative impact from FX as anticipated, primarily due to the depreciation of the U.S. dollar and U.S. dollar impacted currencies. Based on current rates in 2026, we'd expect this negative FX impact to continue with minus EUR 850 million to minus EUR 950 million impact on full year revenues and minus 10 basis points impact on adjusted EBITDA margin. Of course, FX rates are not easy to predict. So to support your modeling efforts, we've updated our FX sensitivities to key currencies in the appendix of this presentation tied with the 2026 guidance we're giving today. Olivier already mentioned the 15% growth in our digital flywheel, which we use to track the progress of our transformation towards more digital and more recurring revenues. The only additional point I'll mention here is that you can see we're now at 79% recurring revenues in our agnostic software business. This recurring revenue profile supports greater visibility and margin and cash flow resilience over time, and it remains a central pillar of our value creation strategy. Turning now to our backlog at the end of 2025. We exit full year 2025 with a record backlog of more than EUR 25 billion and a growth of 18%. And just to note, that 18% is not in constant currency, so it reflects a similar drag from FX as we saw in our 2025 revenues. A couple of points I'll make here. First, this strong backlog will obviously support our sales in 2026 and into 2027. And more importantly, it gives us very good visibility, particularly in our data center business for the next 18 to 24 months. Second point, we did see a clear acceleration in orders in the fourth quarter, driven by data center, but not only, we also saw a good pickup in demand in infrastructure and in industry, including process and hybrid in the Q4. Moving now to Q4 revenues, which was a record high quarter for us. All 4 geographies contributed to our strong finish to the year, driving sales to EUR 11 billion, or plus 11% organic, and both businesses also contributed strongly. The positive scope is for Motivair. The first year there was very strong, better than business plan, and we saw a negative impact in FX in Q4, tied to the depreciation of the U.S. dollar and dollar impacted currencies. In terms of business models, we were up plus 4% in products with around half of that due to price as we ramped up our pricing to offset tariffs and inflation, particularly in North America. Our systems business grew very strongly, plus 19%, with growth led by data center with strong growth in Industrial Automation as well. Software and services was back to double-digit growth, plus 10% organic growth for the quarter, driven by double-digit growth in revenues in AVEVA and digital services. Turning to the 2 businesses. Energy Management was up 11% for the quarter, with North America at plus 19%, driven by growth in data center as well as industry and infrastructure. We did still see negative growth in residential in the U.S. and in Canada with some early signs, maybe wishful thinking of stabilization of demand in terms of orders in the U.S. In Western Europe, up 5% organic, the growth was led by data center with solid contribution from residential buildings. Asia Pacific was up 5%, with China up low single digit, driven by continued demand in data center with the building and construction markets still subdued. India was up double digit with strong growth in both products and systems, and Rest of the World was up 9% organic, with continued double-digit growth in Middle East and Africa. Industrial Automation was up 8% for the quarter, with North America turning to growth, up 5% organic, driven by discrete automation in the U.S., supported by the market as well as some investments we've made in the commercial organization there and with double-digit growth in both discrete and Process & Hybrid in Canada. Western Europe was up 8%, with growth led by AVEVA with solid growth in discrete and Process & Hybrid. Asia Pacific was up 7%, supported by sales at AVEVA with solid growth in discrete and Process & Hybrid. China was up low single digit and India was up double digit, both driven by continued growth in discrete. Rest of World was up 14% with strong growth across most of the region. Turning now to our P&L. We finished the year with adjusted EBITA of EUR 7.5 billion, up 12% organic, and we continued with another year of progression in our adjusted EBITA margin, up 50 basis points organic. This was driven by our strong organic revenue growth as well as strong leverage on our operating costs as we focused on cost control and started the implementation of our simplification program. These actions translated into our SFC to sales ratio, which stepped down almost 1 point to 23.3%. At the same time, we continue to support investments for the future in technology leadership and in customer differentiation. And you can see our R&D as a percentage of sales remained flat at close to 6% for the year. Our gross margin was negatively impacted by inflation, tariffs and by mix, partly offset by a strong acceleration in productivity in H2, and I'll speak more to that in a moment. Energy Management finished the year with adjusted EBITDA margin of 21.8%, flat to 2024, impacted by the same negative trends in gross margin as the group, offset by operating leverage. Industrial Automation finished with adjusted EBITDA margin of 14.2%, an improvement of 10 basis points organic, driven by improvements in gross margin, mostly offset by a deleverage in operating costs in the first half of 2025. Gross margin at the group level came in at 42.1%, down 40 basis points organic. And you can see the details quite clearly in the bridge. We did see a pickup in product pricing in H2, but not yet enough to offset headwinds from tariffs and raw materials, as expected. Mix continued negative for the full year, also as expected, due to the higher growth in our systems business. And we did see a strong pickup in productivity in the H2, supporting a stronger gross margin evolution in the second half of the year. Now Olivier will speak to more details in the trends we expect for 2026 in a few minutes, but we do expect a continued pickup in pricing throughout 2026, which, alongside the other drivers of our gross margin that we presented at our Capital Markets Day, should support a positive evolution of our gross margin in full year 2026. However, the timing of that ramp-up in price as well as the timing in RMI and tariffs will likely mean we continue with flat to negative gross margin progression in the first half of 2026 and tariffs being a bit difficult to predict at the moment. I mentioned the strong operating leverage we drove in our operating costs, or what we call our support function costs, in 2025 through both cost control as well as the kickoff of our simplification program. You can see we drove EUR 349 million in cost savings in 2025, more than offsetting inflation and allowing for investments in R&D, in commercial initiatives and in our digital backbone, including AI. Turning now to net income. Including scope and FX, our adjusted EBITDA is up 6%. As I mentioned in December at our Capital Markets Day, our restructuring costs did tick up to close to EUR 300 million tied to the simplification program that we kicked off this year and in support of the additional minus 1.5 to minus 2 points, we expect to drive in our SFC to sales ratio between '26 and 2030, and that excludes R&D. The only other item I would note is we did have an additional around EUR 100 million impairment in H2 tied to some equity method investments in the U.S. Alongside as anticipated increases in financing costs and PPA accounting, we did see a negative evolution of our net income of minus 2% with our adjusted net income, which excludes restructuring and impairments of EUR 4.8 billion, up 4% reported, or plus 14% organic, better reflecting our strong operating results. Free cash flow came in at a strong EUR 4.6 billion, a bit better than we expected, with strong operating cash flows, up 7%, and strong working capital improvements in inventory and days sales outstanding, driving a free cash flow conversion ratio of 106% or 111%, including those noncash impairments. As I mentioned in our Capital Markets Day, we'd anticipate our cash conversion ratio to be around 100% over the next years despite the capital investments we're making to support our growth, bolstered by structural working capital plans. And I'll finish with a slide on our balance sheet and ROCE. We did close the India transaction at the end of 2025, so you can see a small uptick in our net debt to adjusted EBITDA ratio. But overall, our balance sheet remains strong, well supportive of the A-level credit ratings we committed to at our Capital Markets Day. And I'm pleased to see our ROCE surpassed 15% at the end of 2025, reflecting our strong operating results. With that, I'll hand back to Olivier to cover our 2026 expectations. Olivier Pascal Blum: Thank you very much, Hilary. Indeed, let's close the first part of our call with what we see as a key trend in '26. It's going to be a summary because we've covered already a lot. But in short, what we see is a continued strong market demand, which will help us to drive growth and with positive contribution for all our end markets. Obviously, data center end market will lead the growth based on the growth demand -- the strong demand we've seen in '25 and we see that to continue in the future. What is very, very important for me is while we like and we love really taking the most of that opportunity, we will continue to position Schneider Electric strongly in industry and infrastructure, and we see great opportunity to accelerate the growth, and buildings to improve its contribution progressively also aligned with the macroeconomic trends. System will continue to lead our growth, but we see also some improvement on our product business, which will have a positive contribution this year and in particular, but not only in discrete automation, which has also been a very important point of focus last year. We'll keep growing in software and services. This is a translation of our energy intelligence story, with a very, very strong focus at the end of the day to drive more recurring revenues in all part of our business. The good news, all 4 regions will contribute to the growth, from North America, Europe, China, Southeast Asia and International, of course, led still by U.S. first and India probably second. But the good news is all markets will contribute positively. It's very, very important. We said it several times. What makes Schneider Electric very, very different, it's a balanced exposure by end market, by business model, also by geography, and we want really in '26 to continue to have this balanced exposure and to make sure we always make the most of those market opportunity and always building strong muscle for the future in case some part of the market might be less exciting in the future. So as a result of that, we are also putting a lot of action on price. Hilary said it. We want to be net price positive in value to be able to offset raw material impact and tariffs, ramp it up throughout the year. And as Hilary said, bringing and turning our gross margin positive during the year 2026. So the group expects the other driver of adjusted EBITDA margin expansion to be aligned with what we shared with you during the Capital Market Day. As a result of that, we have set up the following target for '26. So an adjusted EBITA growth between 10% and 15% which is supported on one side by a revenue growth of 7% to 10% organic. I insist organic is really an important point for us. We see massive opportunity in the market. And at the same time, we'll keep on increasing our adjusted EBITDA margin between 50 and 80 bps organically in '26. So all of that will translate our adjusted EBITDA in margin -- I mean, margin in a bracket of around 19.1% to 19.4% for the full year '26. So exciting year in front of us. We are ready. We have a plan. And definitely, we plan to accelerate the overall execution of that strategy in '26. So before we hand over to you for Q&A, today is an important also day. We made the announcement this morning that it will be your last earnings call, Hilary. Hilary has been with us for 9 years. She has been the CFO for the past 6 years. She's going to take the next assignment in the United States that will be announced later. And she will be replaced by Nathan Fast, which is actually on my left. So Nathan has been in the company for almost 20 years, have been doing a lot of different job in different part of Schneider Electric, the last one being Investor Relationship. So very pleased to have you Nathan, in this new role, and I'm sure you will build on the strong legacy that has been built by Hilary in the finance, and you will help us to execute that plan very, very fast and to drive strong shareholder return. Hilary, I want to thank you for the partnership. It has been a great journey in the past 10 years, but in particular, in the past 15 months, the 2 of us. You have been a fantastic support for me to become the CEO of Schneider Electric. So I want to thank you on behalf of the team here at Schneider Electric and wishing you all the best in your next chapter. Hilary Maxson: Yes. Thanks, Olivier. Schneider has obviously been a huge piece of my life and my career, and I'm extremely grateful to the Board, to yourself, the CEOs and colleagues with whom I've worked over these past 9 years and for the trust and support they've given me. And in particular, you mentioned I'm excited on the work we've done together over the past 15 months, to put the company on the trajectory we described in our Capital Markets Day and reiterated today. I'm certain I'm leaving at a time when the company is on a great trajectory, and I'm really pleased we've been able to prepare a great successor with Nathan over the past few years. I'm confident that he'll hit the ground running. And then just for those curious, my next role will be announced closer to the date of my departure. So Olivier, back to you. Olivier Pascal Blum: All the best, Hilary, and we will work together, you, Nathan and I in the coming weeks to do a very smooth transition and starting next week, by the way, with all our investor roadshows. So we'll continue to have fun together for a couple of weeks. Nathan, back to you for the next part. Nathan Fast: Okay. Olivier, maybe I can say a couple of words as well. First, I'd really like to thank Hilary, right, first, for her leadership across the finance function, but also the opportunity to have learned many, many things, Hilary, over the last 9 years working extremely closely together. And then I guess, Olivier, also maybe a bit to you. Thank you for the trust. I, of course, take the position with humility and determination to succeed together with you and your leadership team. So thank you for that. Nathan Fast: I'll make the transition then to the Q&A, of course. and thank you both for the presentation. We have around 20, 25 minutes. I'm sure there's a lot of questions, and I want to make sure we get to every analyst with the question. So if you can please just stick to one question, that would be great. And with that, operator, let's go to you for the first question, please. Operator: [Operator Instructions] The first question is from Phil Buller of JPMorgan. Philip Buller: Just to follow up on that CFO transition topic, if I can, to start. And obviously, thanks, Hilary, very best wishes for the next chapter, and congrats, Nathan, of course. The question is on timing. I've had a few investors asking about that today. It obviously sounds very smooth, but it's obviously also been announced shortly after a major CMD. So if you could just share some additional color as to the genesis of this, Olivier, perhaps, is this something that you were envisaging during the CMD buildup as you build those 2030 objectives together as a team? How involved was Nathan, in particular, in that process? And has anything changed? One of the data points offered at the CMD was in relation to the AVEVA margin expansion. And obviously, there's a question at the moment about software more broadly. So just a little bit more color about the genesis and the time line and if anything has changed in terms of the assumptions even in that relatively short period since the CMD, please? Olivier Pascal Blum: Sure, sure, sure. Well, look, as we said, and I'm sure you can feel it today, this is a very smooth transition that we are managing with Hilary. Just want to tell you that Schneider Electric is not one man or two people show. What we've presented to all of you at the CMD, it's the work of the entire executive committee. They have been associated to the building of this next cycle. I told you many, many times in '25 that it was time for Schneider Electric to build this next cycle, inventing what advancing energy tech and with actually more executive last year that we have usually to work all together as a team. And Nathan has been associated in the later part of last year, of course, as a new IR of the company in the building of that plan. So I understand that a change of leadership always raised question. But again, we respect, first of all, the choice of Hilary to take a new role and to have a next chapter in your career life. But what is very, very important at the same time, we are very, very solid team behind this plan. I've been now the CEO for 15 years -- 15 months. Before that, I was in Schneider again for more than 32 years. So I think what is super important and Hilary has helped me a lot to build this very strong plan for the next cycle. Whatever we presented to you in the CMD in terms of assumption, driver and how we want to accelerate the performance of Schneider Electric remain absolutely valid. And as I, Nathan has been associated through this plan from day 1, so I feel confident that we will manage this transition smoothly, and we are fully ready this year to execute our plan extremely fast. Operator: The next question is from Alasdair Leslie of Bernstein. Alasdair Leslie: So a question on pricing. I mean, obviously, if we look at that EBITA bridge, it does look like the gross pricing was still relatively muted in H2, but obviously, you're flagging an acceleration in Q4. I was just wondering if you could talk a little bit more about those kind of pricing exit trends. Any price increases you've already put through year-to-date? And then I was actually wondering if you could comment specifically on the pricing environment in China. Have you seen any stabilization or improvement in the deflationary environment there? It's a market, I think you said recently at the CMD that you were working on pricing as well. So what's the problem is for 2026 and our margins generally in China still holding up at high levels? Olivier Pascal Blum: Yes. Absolutely. Thank you very much for the question. I'll start and hand over to you, Hilary, to complete. Look, we told you last year in H2 with Hilary that definitely, we were ramping up step-by-step more pricing everywhere in the world and in particular, in North America, we know with impact of the tariffs. Last year, as you know, was a complicated year where we had up and down on tariff. It kept changing. So it was not always easy really to plan what would happen. Last year, in Q4, we put a very solid plan to accelerate pricing. What happened since Q4, we have seen also a huge increase of raw material. So there was, on one hand, the need to implement what we decided last year, but also to accelerate everything we plan in pricing to compensate the impact of raw material. We have a lot of silver and copper in all our products. So I think the good news this time we were ready with the initial plan of Q4, and it was just about how we accelerate to add on top of that the compensation of raw material. I'll let you complete maybe on the second part of the question on China [indiscernible]. Hilary Maxson: Yes, sure. Indeed. So we did see an acceleration in 2025 in the Q4 in pricing generally, of course, in particular, in North America, that's where we have the tariff impacts in front of us. China for 2025 definitely remain deflationary. So those low single-digit numbers that we're talking about in China would be higher without that deflationary. They're higher in volume. We would expect China -- it's not always easy to call. The government is trying to combat deflation. But in general, we'd expect China to remain deflationary in 2025. That said, with the uptick of raw material prices, which impacts far more beyond just our industry and our own competitors, we did start to see pricing and price increases, including with all kinds of local competitors across industries in this Q1 in China. So we expect there to be a bit of a turn there as well. And I'll just mention that we did update in the appendix of this presentation, a slide we gave a few years ago with the breakdown of copper and silver for us in terms of raw materials in 2025. So you can see all of the information. And like Olivier mentioned, '26, we expect that we'll continue that ramp-up that we already talked about in the second half of last year. Operator: The next question is from Andre Kukhnin of UBS.. Andre Kukhnin: I'll focus on data centers, please. Historically, you gave us very helpful disclosure on how much of your backlog is from data centers and distributed IT and how much of that sort of pure data centers and hyperscalers within that. Could you please give us those details for 2025? And the bigger question really, I wanted to get your view on how you're positioned for the 800-volt direct current architecture transition and in particular, what are your state of offering at the moment in solid-state transformer and solid-state braking? Olivier Pascal Blum: Absolutely. Well, look, it's a very important question. Maybe I can start by the second part of the question, Hilary, and hand over back to you for the first part on that backlog. Indeed, when you look at the evolution of data center, the type of AI factory you will have to build in the future to support the next generation of GPU of NVIDIA like Rubin Ultra or Feynman, that will require at one point of time, a different type of infrastructure. So that's why there is so much buzz on 800-volt DC. We see that it will be an important trend. It's very difficult to say by 2030, when you look at all the data, we say 200 gigawatts to be built in the world. We estimate all reports in the market estimate 15%, 25% of the demand could be impacted by 2030. What is super important, you are talking about an evolution of the electrical infrastructure, which is, again, where Schneider Electric has a very strong leadership. So we are developing one, what we call, as you know, the sidecar concept, which can be available immediately, which is a minor evolution of the infrastructure. But we are developing those full definitely architecture that could be ready by '28 when the market will start to grow. And we are leveraging here a lot of competency we have in-house, in particular, in China, but also we're working with partners. So again, that's a domain that we know very well because it's touching the core of the electrical infrastructure that creates actually also opportunity for Schneider Electric to stay extremely differentiated in the market in the future. And as I said, we have to get ready for a transition that will be slow, that will take time, but it's super important that as a worldwide leader in electrical distribution, Schneider Electric is the first one really to offer the most innovative solutions. So again, you're absolutely right. That's an important trend. We are extremely well positioned. We have accelerated our investment in '25 to develop concept. A bit too early to say because the demand is just about to start, but we are fully ready to face this new trend, which again will impact our market step by step between probably '28 and 2030. Hilary? Hilary Maxson: Thanks, Olivier. In terms of the backlog, you're right, we didn't give a backlog breakdown by end market. And I don't think we would intend to do that. But what we are doing, and you can see we've updated the exposure in terms of our 2025 orders across our end markets. So now we're doing that annually. I think you can infer generally the orders growth that we've seen there, and you can infer from that probably some component of data center and networks. Of course, out of the energy management piece of the backlog, which we showed, a good portion of that is data center and network, but not only. So we also had good growth in the rest of the end markets. Operator: The next question is from Jonathan Mounsey of BNP Paribas. Jonathan Mounsey: And may I just also say, sorry to see you go, Hilary, but welcome, Nathan. In terms of my question, will you just so -- the intake so far in Q1? I mean, obviously, there was a big step-up in DC intake in Q4, I think probably for all the players, and you've confirmed that again today. Just wondering whether that's really continued into 2026. And also, with the order intake where it is and with your comment around it really gives you visibility through for the next 18 months, are we saying now that kind of revenue growth in data centers is capped this year and what we're booking now is really for 2027? Olivier Pascal Blum: Do you want to start, Hilary? Hilary Maxson: Sure. So in terms of intake in Q1, well, we've said quite a few times before, and we're not quite done with the Q1 yet that we don't consistently look at orders as the right way to look at data center and network. But what I would definitely say is that demand for data center accelerated in the Q4, and we don't see a different change in trend in the Q1, if that's what you mean. That's the first part of your question. Visibility, indeed, we have good visibility. We've talked about it for some time, and you can see it even in orders in the backlog now, 18 to 24 months in terms of data center. In general, those projects now are being planned probably mostly in those later two years. That's what the hyperscalers and the others are doing. So yes, we would have a decent visibility on 2026 revenues associated with data center at this time, exactly. Operator: The next question is from Gael de-Bray of Deutsche Bank. Gael de-Bray: So just a follow-up on this. I mean, you obviously finished the year with a very strong backlog now exceeding EUR 25 billion. So can you help us understand how we should think about the timing of conversion, specifically for 2026 and '27? And what are the potential bottlenecks you may have to solve to convert that backlog into revenues? Olivier Pascal Blum: Yes. Thank you for the question. First of all, I'd like to remind and probably rebound on what Hilary said. In the way we operate in that market and in particular, with the large hyperscaler, we work with them on the design, we freeze the design, we look at the planning they need in terms of capacity, and it help us to adjust our capacity. So the combination of this work we are doing on design agreements we are making with them is helping us really to have a good visibility, as Hilary said, 18, 24 months on what's going to happen. To answer more specifically your question, in the acceleration of Q4, a large part of what we booked in Q4 will be executed more in '27, but that will impact a little bit '26. And the second part is definitely, we see an acceleration in demand of those AI factory everywhere in the world. We see that in North America, but I was just in India last week, for instance, for the AI Summit. We see also that India is accelerating. So that gives us the confidence that we can predict pretty well what's going to happen because we are really very well connected first with hyperscaler. We are operating in those key geography. And for a company like Schneider Electric, if we have a kind of 2 years visibility on the demand, we can react on capacity. We can do it by ourselves by building extra capacity. But we are also working more and more with different partners. I was mentioning Foxconn, the regional partner everywhere in the world to adjust capacity plus/minus if needed. So the only change for a company like us, probably a couple of years ago, we are looking at our overall capacity every 2 to 3 years, and then we move to 1 year. Now it's a very dynamic process where every quarter, we revisit the demand for the next 3 years, and we adjust eventually the capacity we need. Keeping in mind that we want to stay very balanced. So it's not only about building capacity for North America, but also making sure we are building capacity in the other part of the world. That's why I was saying you, for instance, before that we decided last year to invest in a new factory for liquid cooling in India because we see the demand for AI factory in India also coming, and that's why we have accelerated the execution of the plan. So that's how we are managing. There will be up and down. Of course, we'll continue to adjust. But I think we are fairly confident with the visibility that we have in the pipeline, the way we are working with all those key stakeholders and adjusting permanently our capacity. Hilary Maxson: And we do give a breakdown of the backlog between less than 1 year and more than 1 year. We would intend to meet the customer commitments we have. So all that backlog you see in less than 1 year, we'd obviously expect to accomplish in 2026. Operator: The next question is from James Moore of Redburn Atlantic. James Moore: Hilary, thank you for all your help and best of luck. And Nathan chapeau. Could I ask about software and AI and the disruption risk in sort of 3 dimensions. I think we're talking increasingly about software being made up of a kind of UI SaaS application layer that is going to be fully disrupted by agents, but under that a system of record and a database with more of a moat. And I would argue that your AEC business does have some of that top UI layer that could be disintermediated. Have you done any work on what proportion of revenue do you think that is at risk and what proportion you think is safe from AI directly substituting you? And secondly, as customers increasingly use AI to increase their workflow productivity and presumably, if you continue to price on a seat-based monetization model, you're going to see a decline in revenue. How quickly? And are you planning to pivot to tokens or to another form of usage? And how quickly do you think you can do that? And I guess the third dimension is you're going to be trying to increase the degree of AI in your own software products to add compute and value. Are you worried that, that aspect of AI uplift can also be disintermediated by others taking that aspect of the productivity improvement work? This is sort of quite a lot bundled into that. But Olivier, I'd be very interested in your thoughts. Olivier Pascal Blum: Thank you. No, it's an excellent question and indeed, a very complete question. Let me start. Of course, we are doing analysis permanently. And I tell you why, because when we really started to see even end of '24, the acceleration of AI, we discovered that it was a massive opportunity for Schneider. We've been quite vocal with you for the past 2 years on what we do in digital services. Digital services is basically a business where we extract data coming from all the assets that we make more connectable. We've been -- we built this offer that we call EcoCare. AI has helped us to go much faster actually in creating more value for our customer. So obviously, when we realize that it will help us to go much faster, and to deliver more value and you don't need to go through a very complex software in the middle. Immediately, what we've done with Caspar, the CEO of AVEVA, was ready to look at our own portfolio and to check if it could be disrupted. Now I don't want to be too oversimplified, but what AI brings is when you have simple repetitive task, a lot of information that you need to capture. And when you look at the portfolio of AVEVA, I don't want to say that we have 0 risk. But the large part of what we are doing is about leveraging extremely complex data that come from industrial infrastructure, working on very complex and critical installation, where cybersecurity, by the way, on top of that is extremely important. So I see that there is still a space for huge growth for all those complex software because we are solving complex problems for our customers. And here, as you said in one of your question, AI is also an opportunity to amplify what we have been doing with AVEVA with the AI agent to go to the next level. So at that point of time, I don't want to say we are not worried, but we believe a large part of what we are doing in our software portfolio is not impacted negatively, but more positively. I'll just give you a last example maybe before I hand over to Hilary on the pricing side. You take what we have been doing with ETAP. ETAP is about building a software to design electrical infrastructure for the future, where you have to simulate a lot of assets, which are extremely complex assets. That's what we are doing in the Omniverse, for instance, with NVIDIA. We don't see AI at all being able to disrupt that kind of software. Now again, building AI agent on top of our software to make it even easier for our customer to use it, of course, why not? So all in all, we are -- we believe we are in a good place. We will be attentive. And at the same time, wherever we don't have a strong software business, we believe it will help us to accelerate some part of our portfolio for simple implication that we can deliver to our customer. Hilary Maxson: And in terms of your question about the seat-based model or pricing in the software business, as part of the AVEVA transition to subscription, and we did a lot there. It's not just changing contracts and things like that. But you may recall that we've talked about the flex pricing model that we've been invoking at AVEVA more and more tied with Connect, but not only with most of the services of AVEVA and into OSI. That's the pricing model that we've been moving to over the past few years. And that's effectively token-based. So we didn't do that because of foresight on AI -- agentic AI, but that is the model that we've moved -- started to move to and that I feel comfortable will be sort of the model of the future for this type of software. Nathan Fast: Thanks, James. We probably have about 5 minutes left. So if you can make the questions pretty concise, then we can maybe fit in a couple more. Operator, next question? Operator: So the next question is from Ben Uglow of OxCap. Benedict Uglow: I will keep it brief. It's really just on Industrial Automation and the margins. I have to be honest, I am surprised to see your margins still below 15%. And I guess it's two things. One is why aren't we seeing a little bit more operating leverage? And certainly, that's what we have seen in some of your peers. And secondly, just in absolute terms, why are we so low? Is this to do with China and country mix? How much is to do with process? How much is to do with SaaS transition? If you can just give us a sense of what part of the business is keeping the margins so low, that would be helpful? Hilary Maxson: Sure. So with Industrial Automation, indeed, we did finish below 15%. I mentioned that on the positive side, we do start to see that -- those improvements in gross margin in the business, which is exactly what we expected as we moved into the second half. So the big -- the detractor, I would say, in 2025 is that we did continue to have negative operating leverage in the first half. So what's driving -- and I'll talk to that in a second, but what's driving those lower margins, we've mentioned it a couple of times. A big component of it for us has been mix, the mix between Process and Hybrid and Discrete. We saw Discrete start to come back in the second half. That's been a big component of the mix return for us, and we'd expect that to move forward in future. Second, AVEVA and that transition to subscription, we shared in the Capital Markets Day that we're going to be moving our adjusted EBITDA margins up there now more swiftly over the next couple of years. So that's been a bit of a detractor, although it was an improver, obviously, in gross margin in the second half in terms of mix contribution. And then we have had a real drag in terms of operating leverage at the business. We have Gwenaelle, our new leader there in Industrial Automation that spoke about the changes that she's making in not just 2026, but going forward. But we would expect all of that to be operating in the right direction on all cylinders in 2026. So we'll have some more improvement in mix, normal productivity. And AVEVA, we're almost done with that transition to subscription. So we'll start to see more and more contribution at the level of adjusted EBITDA as well. So yes, not where -- exactly where we would have liked to be in 2025, but I think all the levers are there for '26 and beyond. And we gave a little bit of an idea of that margin journey in the Capital Markets Day to 18% and perhaps even a bit better by 2028. Nathan Fast: Thanks, Ben. Maybe one last question, and we can try to go quick on this one. Operator, next question? Operator: The next question is from Martin Wilkie of Citi. Martin Wilkie: First, Hilary, thanks for all the debates and interactions over the years and good luck for the future. My question was just on the seasonality and the implications for the profit uplift in the second half. And I know you've not guided explicitly, but if gross margins are lower in the first half, presumably the organic EBITA margin expansion is sort of clearly less than 50 basis points. As we think about the implication for the second half and at the upper end of the range, it would have to be more than 100 basis points up in H2. Is that all driven by price cost? Or is the leverage from industrial automation coming back and the volume effect from that? Or is the AVEVA timing? What would drive that quite large uplift in profitability in the second half? Hilary Maxson: So in terms of seasonality, we have two pieces of seasonality in my mind. One, something that is completely out of our control, which is raw materials and then the pricing that we do beyond that. The pricing is obviously in our control. That can pull our seasonality one way or another. So we've seen in 2022, 2023, that seasonality going in different directions being pulled by that. And here, when I talked about that negative gross margin potential in the first half, that's a lot driven by that uptick in pricing. And for example, with tariffs, we don't have any baseline of tariffs in the first half, whereas we do in the second half. So there's timing there. The other component of seasonality that we generally always see in our business is just associated with volumes. We have stronger volumes in the second half than the first half. That's been a seasonality for a long time across the business. So we have stronger leverage and we have stronger productivity usually in the first half. So in 2026, in particular, we would have better baseline on RMI and tariffs, the pricing plus productivity and volumes and operating leverage, which is those differences you'll see between the H1 and the H2. Olivier Pascal Blum: And I'd just like to complete indeed, there are a couple of drivers which are very specific to what's going to happen in '26. But as we said multiple times, in the plan we built last year, we have the ambition to work on all the cylinders of the gross margin. So of course, this year, we have a very strong focus on pricing, and we'll keep on going and especially with raw material. It's pricing of product. It's also how we price our services business, how we bring the right level of selectivity in our system business. It's also working on the portfolio. We have historically some activity which are more dilutive than the others. You've seen in the CMD that we want to take out EUR 1.5 billion. So since last year, we built this very strong plan that we call gross margin obsession, making sure we work on all the drivers. But indeed, as Hilary said, there are some specific drivers for this year, but it's a short term and long term because we want really to make sure that we have an extremely solid gross margin, which is for me, the best reflection of the health of the business of Schneider Electric. Nathan Fast: Okay. Thanks, Martin, for the question. Olivier, you have one word, and then we... Olivier Pascal Blum: We are done with the question. I guess... Nathan Fast: Yes, we're done with the Q&A. Olivier Pascal Blum: So again, I want to thank you for spending time with us today. We are closing the chapter of '25. You can feel that we've been excited, EUR 40 billion, EUR 4.6 billion of cash flow generation. It has been the great year, but it's closed. We have a plan. Now our focus is really to make the most on '26 and make sure we can continue to drive a strong shareholder return. So we will be excited, of course, in the coming days, coming weeks to follow up with some of you and especially next week to go more in detail on that presentation. Again, thank you for the time spent with us. Thank you again, Hilary. All the best to you, Nathan, and focus on '26 now. Nathan Fast: All right. Thanks, Olivier. I think we'll stop there. Look forward to meeting you, Olivier, mentioned earlier on some virtual road shows in the coming weeks. And additionally, of course, the IR team is available for you to engage. Thank you very much, and have a good rest of the day. Olivier Pascal Blum: Thank you.
Operator: Welcome to the Primo Brands 2025 Fourth Quarter and Full Year Earnings Conference Call. I will now turn the call over to Traci Mangini, Vice President, Investor Relations. Traci Mangini: Thank you, operator, and hello, everyone. With me on the call today are Eric Foss, Chairman and Chief Executive Officer; and David Hass, Chief Financial Officer. Our discussion today includes forward-looking statements within the meaning of U.S. securities laws, which are subject to risks and uncertainties that may cause actual results to differ materially. For more information, please refer to the forward-looking statements disclosure in our earnings release. In addition, the definitions of and applicable reconciliations for any non-U.S. GAAP measures are included in our earnings release and supplemental earnings slides, which were made available today on the Investor Relations section of our website. With that, I'll pass it over to you, Eric. Eric Foss: Thanks, Traci. Good morning, and thank you all for joining us today. To set the framework for today's discussion, I'll start with a high-level review of our fourth quarter and 2025 results, take you through our progress on our direct delivery customer experience and our 2026 growth and capital allocation priorities, and David will then take you through the details of our quarterly and annual performance as well as our 2026 guidance. We're encouraged by our performance as we finish the year and how that positions us into 2026. In the fourth quarter, we delivered net sales of $1.554 billion, a decrease of 2.5% on a comparable basis from prior year, which included an improved pace of recovery for our direct delivery business. At the same time, we built on the strength of our well-known brands at retail, further expanding our leadership position through dollar and volume share growth in the category for the quarter. For the full year 2025, we delivered comparable net sales of $6.660 billion, down 1% from the prior year. These results demonstrate the strength and resilience of our business model and indicate early signs that our initiatives are resulting in an improved trajectory for the business positioning us for continued operational and financial improvement as we move forward. Our fourth quarter comparable adjusted EBITDA was $334.1 million, up 11%, with related margin of 21.5%, up 260 basis points versus a year ago. Our annual comparable adjusted EBITDA was $1.447 billion, up 7.4% with a related margin of 21.7%, up 170 basis points from prior year. As we set our sights on 2026, our top priority is to get the business back to growth while also expanding margins that leads to generating consistent growth in free cash flow. In 2026, excluding our office coffee service business, which we exited at year-end 2025, we anticipate comparable net sales growth of flat to 1% and an adjusted EBITDA range of $1.485 billion to $1.515 billion. This implies margin expansion of 60 to 80 basis points on top of our attractive adjusted EBITDA margins. Going forward, we're positioning the business for top line growth and margin expansion to drive solid earnings, free cash flow generation and long-term shareholder value. I've recently completed my first 100 days as Chairman and CEO of Primo Brands. I've been doing a lot of listening with key stakeholders, including our associates and our retail partners as well as conducting market visits, looking closely at opportunities, capabilities and processes across the business. What remains clear is the investment thesis behind the merger is firmly intact. We compete in an attractive growing category and have a differentiated portfolio of leading brands, and we benefit from an advantaged route to market. As One Primo, I'm confident in our ability to drive top line growth and margin expansion to leverage the power of our strong free cash flow through disciplined allocation of capital and to develop a winning culture to fuel ongoing success. So let's start with top line growth. We're very well positioned in our industry. We compete in an attractive category. Unlike some categories within consumer staples, the bottled water industry has structural tailwinds given quality questions around municipal water and the ever-increasing focus on health and wellness and hydration. The category is large, highly penetrated, frequently purchased and continues to be one of the fastest-growing categories within liquid refreshment beverage category. Within the bottled water category, we are the clear leader with a comprehensive portfolio of brands and advantaged route to market designed to serve all consumer occasions across product, format, channel, price point and time of day. We are the third largest player by volume in liquid refreshment beverages and the leader in branded water and healthy hydration in the United States. We have strong industry-leading brands. And if you look at brand health, we have the top 5 bottled water brands as measured by our biannual study. So we believe we have a strong base from which to grow, and we see multiple top line building blocks for 2026. First, we're focused on improving our customer experience in our direct delivery business, which we call customer direct. Encouragingly, we believe we are making progress. We saw continued strength in top-of-the-funnel demand, and we saw trend improvement in the quarter on a customer net adds. Our on-time in full or as we refer to OTIF, which is a key performance indicator and priority going forward, continued to improve throughout the quarter. From a customer feedback perspective, our Net Promoter Score increased every month and our Trustpilot ratings returned to pre-integration type levels. While we're pleased with our progress, we still have work to do to stabilize and return our direct delivery business to consistent growth. As we move forward, we have initiatives underway that include implementing a new warehouse management system for superior supply chain execution from product supply to in-branch inventory to help satisfy customer demand. On the technology side, following the completion of the last 2 rounds of integration in the coming months, we will be fully integrated and our focus will be to continue to harmonize our systems to create better management tools, data analytics and insights as well as improve our digital and app experience for our customers. We intend to continue to optimize the customer journey, including a new program to support customer retention called Solve by Sundown, which should help us address and resolve customer service issues faster. It connects our customers more closely with our call center as well as our operational teams, reducing friction that could lead to customer loss. While early, we're pleased with how the team is responding with urgency to drive continued improvements. Lastly, we're envisioning a new approach to our call center to elevate satisfaction throughout the customer experience. This includes improved digital opportunities and leveraging AI to more quickly serve and solve customer issues. Our second building block is to drive executional excellence at retail by fully leveraging both the power of our brands and advantaged route to market. We intend to increase our presence across the store. Our goal is to have more feature frequency, which leads to more display inventory, while also expanding our shelf space and cold drink penetration and scaling our sizable exchange and refill footprint. On the brand front, we're excited about our marketing calendar for 2026. It includes partnerships with Major League Baseball for our regional spring waters, where America's favorite past time joins with America's favorite water brands. Complementing this, we will continue to lean in behind our premium brands with partnerships with high-profile events like the Golden Globes, where the Saratoga's Blue Bottle recently showed up on the red carpet. And next up is the Academy of Country Music Awards with Mountain Valley. We believe these programs leverage consumer passion points and serve to increase the positive brand perceptions and build momentum. Our third initiative is to prioritize premium. Mountain Valley and Saratoga Springs, while still relatively small, have been meaningful contributors to growth. Combined net sales for these brands increased an impressive 44% in 2025, driven by strong demand in retail and away-from-home. With our investments in capacity coming online across the first half of 2026 and the marketing campaigns I just mentioned, we plan to continue to grow share and distribution for these highly accretive brands. Our final building block is implementing a more strategic and holistic revenue management approach across price points, package types and channels. This will allow us to zero in on SKUs that matter most to the consumer focusing on the most profitable packages and channels and simplify our production and route to market. We remain focused on the long-term potential of our business within the water category and are confident in our ability to grow and enhance margins. Investing in those areas provides an opportunity to enhance growth in our premium business, gain our fair share of opportunities like cold drink and enhance portions of the direct delivery relationship with our customer. As it pertains to the integration in 2025, we completed the first 5 and most complex rounds. Despite reserving the final 2 rounds until 2026, we were able to realize tangible synergies in 2025, and we remain confident in our ability to complete the final integration rounds. Synergy capture remains just one driver of our margin expansion. We have multiple other levers to drive long-term margin expansion, like building on our pricing competencies across the business, as I just mentioned. In addition, opportunities for ongoing cost and productivity initiatives across our supply chain with increased facility automation, warehouse management oversight and reducing SKU complexity, all while driving an efficient SG&A structure. These efforts support continued growth in free cash flow, providing us even greater financial flexibility. Leveraging the power of our highly cash-generative business, we continue to take a disciplined approach to capital allocation to optimize our returns. We intend to put the right support behind our brands, innovation, supply chain and commercial operations to drive sustainable, profitable growth. We plan to balance these investments alongside reducing our net leverage ratio and returning cash to shareholders by both growing our dividend and executing against our share repurchase program. Finally, for us to be successful, we need to continue to pursue a winning culture. We're committed to being one Primo team, developing a team and culture that is obsessed with our mission, including putting the customer at the forefront of all we do and ensuring our frontline focus gives our frontline associates the training, tools and technology to meet and exceed customer expectations every day. To sum up, the industrial logic of the merger remains intact. We have more work to do to fully restore our direct delivery service model, but we're making progress, and I believe we are well positioned for the future. Now before I pass it to David, I'd be remiss if I didn't share how proud I am of the entire Primo Brands team. I continue to be impressed by the pride and passion of our people. We have strong employee engagement scores from our internal surveys, which clearly demonstrates that our unified team is committed and motivated towards driving a successful 2026. We remain focused on our mission of hydrating a healthy America with one culture and one unified set of behaviors and values. With that, let me turn the call over to David. David Hass: Thank you, Eric. As you've just heard, we are making progress. Our fourth quarter top line results were achieved due to improving service levels, which supported volume recovery in our direct delivery business. We believe this indicates early signs that our initiatives are resulting in an improved trajectory for the business into 2026. Now before we get into the details on the financial results, recall that the GAAP financial comparisons in this morning's press release reflect the 2025 results of the new Primo brands versus 2024 results that are primarily of the base legacy Blue Triton plus the combined company after the merger date. This is a typical GAAP reporting outcome of a merger transaction. To assist with more apples-to-apples comparisons, we will be primarily discussing comparable results, which incorporate the combination of both legacy organizations while adjusting for the exited Eastern Canadian operations for both years 2024 and 2025. Also recall, volume for Primo Brands is defined as case goods equivalents, which are measured in 12 liters. For the fourth quarter, comparable net sales declined 2.5% versus the prior year, driven by a 2.9% volume decrease, partially offset by a 0.4% increase from price or mix. The volume decline was driven by both retail and direct delivery. In retail, we cycled higher hurricane purchase activity in 2024, but finished the year largely in line with our expectations. Direct delivery declines were driven by a lower customer base. However, as Eric mentioned, while the customer net adds were negative, we saw month-to-month improvement throughout the quarter. Our premium brands helped to offset this volume decline and contributed to the favorable price/mix in the quarter. Saratoga and Mountain Valley net sales were up 39% in the quarter, continuing the strong momentum behind these highly accretive and consumer-coveted brands. Sequentially, the business showed continued signs of improvement, highlighting a positive inflection in our direct delivery business. The fourth quarter decline in this channel was 5.3% and represents an improvement from the 6.5% decline in the third quarter. Comparable adjusted EBITDA increased $33 million to $334.1 million with comparable adjusted EBITDA margin up 260 basis points to 21.5% versus the prior year. On a full year basis, comparable net sales declined 1% or $65.3 million to $6.660 billion. The 1% decline versus the prior year includes a 0.6% volume decrease and a 0.4% decrease from price or mix. Net sales for the direct delivery channel were down 3.2%. This was largely due to the lower volume related to the integration as previously discussed. This was largely offset by the strength in the mass and away-from-home channels with net sales up 0.9% and 1.2%, respectively, and by the continued strength of our premium brands with Saratoga and Mountain Valley net sales up 44%. Notably, our results include interruptions from the Hawkins tornado, which occurred in the second quarter and 1 less trading day from the leap year adjustment impact in 2024. Leap Day in 2024 created a net sales headwind of $17.6 million for 2025. Separately, disruptions caused by the Hawkins tornado created a net sales headwind of $27.4 million. So all in, the cumulative aspects of these 2 activities alone was approximately $45 million. Further, our office coffee services business weighed on our results as we wound down the business in 2025. This business contributed approximately 40 basis points of our 1% full year decline. Comparable adjusted EBITDA increased $100.3 million to $1.447 billion with comparable adjusted EBITDA margin climbing 170 basis points to 21.7% versus the prior year. Moving to our balance sheet and cash flows. Our balance sheet remains in solid position with year-end debt capital, gross of deferred financing costs and discounts totaling $5.2 billion. Our liquidity remained strong with approximately $990 million of availability between our cash balance and our unused line of credit. At year-end, our net leverage ratio was 3.37x. We generated $680 million of cash flow from operations for the full year when accounting for significant items, including, but not limited to, our integration and merger activities, our cash flow from operations would have totaled approximately $996 million. Additionally, we invested approximately $245.7 million in capital expenditures, excluding integration and natural disaster Hawkins related capital expenditures, which resulted in adjusted free cash flow of $750.3 million. When compared to the prior year, on a combined basis, adjusted free cash flow grew $105.4 million. For full year 2025, our adjusted free cash flow conversion, which we define as adjusted free cash flow divided by adjusted EBITDA, was 51.9%. Related to year-end capital allocation, we have the financial flexibility to reinvest in the business while at the same time to return significant cash to shareholders. Our full year 2025 total capital expenditures were $434.4 million. This included $151.5 million in integration capital expenditures and $37 million of natural disaster Hawkins-related capital expenditures, with the remainder supporting growth and maintenance spending. We also returned significant cash to shareholders in 2025, which included actively executing our share repurchase program as we view our stock as a compelling investment. As of year-end, we had repurchased $193 million of our stock or 10.3 million shares under the Board's $300 million share repurchase program authorization announced on November 9, 2025. There remains approximately $107 million available for share repurchases under the program authorization. In addition, prior to establishing the share repurchase program, we repurchased approximately $214 million of shares from entities affiliated with One Rock. Moving to our financial outlook. We remain confident in our ability to reestablish annual growth in our business. As a reminder, for 2026, we will cycle the exit of our office coffee services business, which accounted for $25.5 million of our 2025 net sales. This puts our comparable or equivalent 2025 ending net sales at $6.635 billion. This is the base from which we are establishing our full year 2026 guidance. We expect organic net sales growth in the range of 0% to 1% with the return to growth weighted in the second half. We face a difficult first quarter comparison, cycling 3% year-over-year sales growth, after which we expect the comparable trend to improve over the balance of the year. In direct delivery, we expect to transition to top line growth in the second half of the year on trend improvement and as we cycle the onset of the disruptions that began in the second quarter of 2025. We expect growth in our consolidated retail channels, driven by the strength of our brands, our commercial plans and continued momentum from premium. This is supported by capacity expansion from Saratoga, which remains on track to come online this spring and our New Mountain Valley facility, which remains on track to open midyear. Further, we will develop and implement our revenue growth management capabilities over the course of the year. Lastly, in terms of revenue phasing within the year, we expect a typical pattern in terms of quarterly contribution percentage to full year net sales with the year being relatively balanced 50-50 between first and second half and the first and fourth quarter representing lower contributing shoulder seasons. Turning to adjusted EBITDA. We expect a range of $1.485 billion to $1.515 billion with a midpoint adjusted EBITDA margin of 22.5%, up approximately 70 basis points year-over-year. Our guidance midpoint contemplates adjusted EBITDA growth in excess of our midpoint net sales guidance as we expect to benefit from the productivity of synergies, partially offset by investments as we improve our customer experience, redesign of our call center and invest in capabilities to drive future growth. We expect adjusted free cash flow in the range of $790 million to $810 million, which we expect to support our capital allocation priorities. We intend to deploy approximately 4% of net sales in capital expenditures. Additionally, we have approximately $100 million anticipated remaining integration capital expenditures, of which $50 million was carried into 2026 due to project timing. Also, given our commitment to returning cash to shareholders, last week, we announced our Board of Directors authorized a $0.12 quarterly dividend, which annualizes to $0.48 per share, a 20% increase. We also intend to continue to execute our share repurchase plan, which has approximately $107 million remaining under the $300 million authorization. With that, I'd like to turn the call back to Traci. Traci Mangini: Thanks, David. To ensure we can address as many of your questions as as possible, please limit yourself to 1 question only. And if we have time remaining, we will repoll for additional questions. Operator, please open the line for questions. Operator: [Operator Instructions] And your first question comes from Derek Lessard with TD Cowen. Derek Lessard: Just wanted to hit on some of your key KPIs in the quarter, more specifically on the direct delivery side. I think the silver lining view is that the volume decline wasn't as bad as expected. So I was curious, like how did some of those KPIs, tips and what have you, how did they perform exiting the quarter? And then maybe as a follow-up, how should we be thinking about the guide in terms of when you expect to get back to your historical financial algorithm? And maybe said another way, should we view your 0% to 1% sales guide as conservative? Eric Foss: Derek, it's Eric. And thanks for joining us. So I think as it applies to customer direct, yes, I've used the word encouraged relative to how the quarter progressed. I think you're well aware that we had some work to do on the business process side. We had and still have some work to do on the technology and tools side, including the capability side, some work with the call center. But I think as I look at the business, as simply as I can state it, what's really, really important to us around the supply chain is to really make sure we get an accurate forecast. We get product produced to schedule. We eliminate the warehouse out of stocks, and we get trucks loaded as scheduled. And if you look at those KPIs, each and every one of them improved dramatically, and most of those are, I would say, north of the high, high 90s from where they were when we really were experiencing some pretty significant challenges. Where I think we still have some work to do is on OTIF. And while we saw, again, sequential improvement each and every month as the quarter progressed, we're still not where we need to be. We need to get OTIF back north of 90%. And so there's still some work to do on that side. I would tell you some other positive indicators from my perspective are we saw our customer calls reduce to kind of pre-merger levels as we exited the quarter. And we also saw a very important indicator, our customer quits were lowered and our customer nets increased as we exited the year. So again, all in all, encouraged with more work to do. Relative to your second question around the guide, I guess the way I would describe it is when I walked into the job about 3 months ago, there were 2 issues that were really front and center for me. The first was to fix the overall customer experience on our customer direct business. We just talked about that. And the second was to get the business growing. And we delivered a down 1% in 2025, not at all where we want this business to perform. There's more work to do on the direct delivery front. But our focus right now is to make sure we get the company growing and we deliver against our financial commitments. As you think about the year, we've got more difficult comps certainly in the first half of the year. But again, once we get the business growing again, I think we can better assess the upside potential. But ultimate -- our ultimate goal is to reach obviously the full potential of this business, and I've got a very high degree of conviction and confidence in our ability to do that. So we remain very optimistic. We've got multiple growth vectors for this business, and our intent is to capture that to drive sustainable, profitable growth. Operator: Your next question comes from Nik Modi with RBC Capital Markets. Nik Modi: I was hoping you could just provide a little bit more color and maybe some details on the top line guidance drivers across channels, volumes and just kind of thinking about the pricing strategy. I know there was an expectation that you'll be able to harmonize pricing in the delivery business in '25, but obviously, that got thrown off track with some of the integration issues. So any color you can provide just to give a sense of kind of how you're thinking about the details in the divisions on your top line guide? Eric Foss: Sure, Nik. I think first, from a sequencing perspective, if you think about the full year, I touched a little bit on this in Derek's question, but there's no doubt the growth will be more second half weighted. We would expect trend improvement pretty much quarter in, quarter out as the year unfolds. And importantly, we expect to not only stabilize the direct delivery business, but to see that business return to growth. So I guess one of the ways I would characterize it as we think about the growth algorithm going forward, we would expect it to be balanced, meaning both volume and price and within price, both rate and mix. We've got a really big opportunity, I think, Nik, on the immediate consumption business, in particular, in our cold drink business. We're far less developed on that area of the business than we are in the future consumption business. And so over time, the profit pools available in the industry around immediate consumption and cold drink are a big, big mix opportunity for us. Continuing to play the leadership role we played in premium, obviously, also plays to a mix advantage for us. And then I think in addition to the customer direct business, which we spent most of our time focused on and talking about with investors, I'm a big, big believer that not only more strategic revenue management across all the business, but importantly, I think continuing to really dial up our executional efforts at retail to be a much more complete executor across the key causal indicators of feature activity, display inventory, shelf space are real, real opportunities for us from a selling strategy standpoint. So we would expect to see the top line growth progress. And again, even over time, I think you'll see it be very broad-based across channels, brands, packages. Operator: Your next question comes from Andrea Teixeira with JPMorgan Asset Management. Drew Levine: This is Drew Levine on for Andrea. So Eric, just hoping to dig in a little bit more just following up on Nik's question. Maybe you could just provide some context on what's embedded in the guidance from a retail perspective. Obviously, category has gotten off to a good start here in 2026 with some pantry loading benefit. You mentioned lapping the Hawkins issue, lapping some poor weather into the spring. So more context there would be helpful. And then related to that? Maybe on the other side, if you want to call anything out from a phasing perspective, maybe from direct delivery side, if there's been any impact from the severe winter weather here in the Northeast where you have disproportionate share? Eric Foss: Sure. Thanks for your question. I'll start, and I'll let David jump in as well. I think let me take your second question first. I think weather hasn't been our friend as we started the year, but I think the teams have done a really good job. The good news is kind of the first wave of weather that hit us, I think we were able to proactively get out ahead of it. And so I think all in, it's probably going to be a little bit of a headwind, but not overly significant in terms of our ability to both show agility to respond to it as we think about how the quarter will play out. I think -- relative to our retail business, again, we've started the year in a very, very strong position, not just within the water category, but across the broader liquid refreshment beverage category, had a very strong share month during the month of January. We would expect that to continue. And again, as I said earlier, I think the way we're approaching this is we want to get balanced and broad-based growth across the enterprise. So we want to return the customer direct business to growth. We certainly want to continue the momentum we've seen on our retail business. We want that to be both volume-driven as well as some price as we get a little more strategic on the revenue management and price pack channel architecture. So I would say our intent and the way we've built the plan is to have balanced and broad-based growth across channels, across brands, packages and certainly geographies. David, do you want to add anything on the sequencing? David Hass: Yes. Thanks, Drew. So I think as Eric just mentioned, our goal within that implied 0.5 is obviously a tougher start to the year with volume as we have some of those volume headwinds coming in the customer direct business based on obvious disruptions and things that occurred in 2025. We do expect that to balance out with volumetric growth in the second half of the year and notably in direct itself in the latter quarter, partial Q3, but largely Q4. So we do expect that to be balanced. Obviously, it's retail and as the premium areas like Saratoga and Mountain Valley volumes from our investments come online, there's obviously potential for those to continue to perform strongly. So again, we view this as a tale of 2 halves with that second half really getting us back into more of a normalized and balanced volume and price sort of contribution. Operator: Your next question comes from Lauren Lieberman with Barclays. Lauren Lieberman: Free cash flow guidance came in better than we were thinking and implies growth ahead of the EBITDA growth. So we're just kind of curious about that piece and kind of specific opportunities there that you'll be pursuing. David Hass: Lauren, this is David. So thanks for the question. Areas there that we have are year 1 was really not focused on working capital enhancements. We were bringing together payable teams, bringing together procurement arrangements. And then obviously, as the direct delivery business ran into some obstacles from the integration, that concluded with some collection and some other AR timing complexities. So we believe that on a more normalized operating platform, we can begin to work through some of the benefits of the merger, both with turns, days against our procurement spend as well as a smoother collection process with our direct delivery customers exhibiting less disruption from their service. When there's less disruption from service, there's a lot better payable from the customer to us. So our AR is smoother. There's not a lot of disputing activities that go on within that. And then over time, our credits, so things that we would have issued that could have been a detriment to our sales should stabilize and go back to more normal course patterns, and that should also help. Obviously, on the CapEx on the base investment, that remains consistent. The integration CapEx and the Hawkins repairs, we're adding back. So that's not really a contributing factor. But it's largely around our working capital benefit and sort of working through that. Operator: Your next question comes from Daniel Moore with CJS Securities. Dan Moore: Appreciate all the color. In terms of pricing, how much of an impact do you expect discounting promotions to win back new customers will impact pricing in '26? And when should we think about lapping or anniversarying those initiatives? And then just secondarily, when do you expect to inflect a positive month-over-month growth in net customer adds? Eric Foss: Yes. Daniel, I think a couple of things. I think relative to the reinvestments, if you think about 2025, obviously, given the disruption, we had reinvestments that centered around route labor, call center labor, additional routes that we ran on weekends and absorption of overtime. And then we had the investment, probably more specific to your question around the customer winback initiative. We're continuing to invest in that initiative. And I think as we go forward, we would continue to see reinvestments broadly around the business of marketing and brand building. Certainly, we're looking at making sure we're wired to win and we've got the right selling resources in place across not just customer direct, but our entire business. And then in the area of technology and capability, continued reinvestments on those. So I think we would want to see those investments drive sustainable profitable growth. And I think as we think about that on the specific return to growth on the customer -- direct customer net, hopefully, I would anticipate that maybe sometime in the second quarter that we might see that development. Operator: Your next question comes from Peter Galbo with Bank of America. Your next question comes from Steve Powers with Deutsche Bank. Stephen Robert Powers: Eric, following up on that net add conversation, I guess, is there a way to frame, I guess, what I define as kind of the active customer base in the direct business, kind of where you are now relative to where you were pre-disruption? That would help. And then secondarily, related to recruitment and getting those net adds trending more positive. Is there a way to kind of frame aggregate incremental investment in '26 versus '25? And are those efforts first half loaded as you try to kind of kickstart the recruitment effort? Eric Foss: Yes. I think the answer is yes, they'd be first half loaded as we continue our recovery. So I think more first half than second half to answer your second part of your question. I think the way I would frame it, and obviously, we're not going to give a lot of specific numbers for a lot of different reasons on the competitive front. But the way I would think about it is -- the great news is that the top of the funnel never really has been disrupted. So if you look at our customer adds really throughout the year other than a little bit of kind of typical seasonality, if you will, the top of the funnel remains strong throughout the year. And the real trough was what we experienced during second -- starting in the second quarter, continuing in third quarter. And then as I mentioned earlier, a pretty nice rebound on the quick side and therefore, the net side as we exited the year. So I think, as I mentioned on the earlier question, we would expect customer nets to kind of return to positive sometime in the second quarter. Obviously, the initiatives we put in place are focused to do that as soon as we can. And I just think that, again, whether you look at our direct delivery business or the exchange and refill business, I mean, the beauty of this is there is just a ton of opportunity for us to take advantage of. And again, most of the efforts that we're recovering from are ones that are well in our control. And so we feel confident about the initiatives returning that business to the kind of growth trajectory we expected when we put the deal together. Operator: Your next question comes from Peter Galbo with Bank of America. Peter Galbo: Sorry about that technical issues this morning. Eric, Dave, thanks for all the detail. I was hoping to get a little bit more color just on cadence actually of EBITDA for the year of kind of the $1.5 billion. I know you gave some color around the sales cadence, but just any help on kind of the phasing on EBITDA, particularly as we think about the first half would be helpful. David Hass: Thanks, Peter. We will expect that to sort of be a little bit different than sort of our, what I'll call, 50-50 setup, if you will, from the top line. And largely, that would be a little bit more, call it, like 48, 52 kind of setup. So not terribly off, but what that really means is a first half kind of lean in on some of these continued investments. So what would that look like? That would look like higher route counts to stabilize service and return the business to the appropriate levels of OTIF and other things that customers expect. And then over time, that can phase back out. That's just one example, but that would be why you have a little bit different of a seasonal pattern sort of first half, second half within the business specifically. Now I will say that if those RGM and other capabilities come online and we have greater permission both with our retail customer as well as our direct delivery customer base, that could change, but that's sort of the initial landscape view of how we've laid out EBITDA, the margin progression that we talked to in the guide. And again, we'll comment on that further as the year progresses. Operator: [Operator Instructions] Your next question comes from Andrea Teixeira with JPMorgan. Andrea Teixeira: Just one, David, maybe you could just update us on what the synergy capture was in the quarter? And then what's left to capture in '26 from the remaining 2 rounds of integration? David Hass: Sure. So again, we substantially covered off the synergy capture required inside the calendar year of '25. How we look at 2026 starts with 2 integration waves that we have left. One was a few last weekend actually. And so far, that seems to have gone well. Again, we can see things pretty quickly in that regard now that we've had a little bit more space between the prior integration waves and the ones we're executing this year. The team deployed significant training on-site sort of teach-ins and things, and that seems to have gone quite well. And obviously, the way we were able to navigate the recent storms, again, performed very smoothly through that. The last wave is a little bit closer towards the end of the quarter in which, again, we experienced and expect that training and sort of teach-in activity to sort of help that occur. From there, what will happen is some additional consolidation through teams where systems or other things that were prevented from being captured due to those last waves being incomplete will start to occur. So again, I think we remain very confident in our ability to sort of execute against that. Obviously, we have placed some investments in the business either to win back the customers or to sort of increase our service attention, and those should be able to be sort of looked at and reviewed as we get closer to midyear and understand sort of our glide path into year-end 2026 and potentially again, set us up for a 2027 period that looks and feels a little bit more different and normalize to how we want to attack and execute against the business. Operator: Your next question comes from Steve Powers at Deutsche Bank. Stephen Robert Powers: David, actually, a follow-up on Lauren's question on free cash flow. I agree the underlying guidance for free cash flow came in a bit ahead of our expectations as well. I'm just curious if you have any estimate of any -- I guess, of free cash flow net of any integration synergy capture or restructuring cash costs. Just trying to get a sense for where you think the actual free cash flow will land for the year if you've got that visibility. David Hass: Yes. I mean, again, outside of the integration CapEx add-back that we sort of go through, we really don't have any sort of curveballs that are occurring in the business. So again, we feel pretty confident that the flow-through, we'll be able to produce an increase in our cash flow from operations. Our CapEx will remain in line with where our sales are going. Obviously, the One, Big, Beautiful Bill has provided some tax benefit where some of that occurred in '25. We'll get some additional deployment and execution of that in '26. And then it really comes down to focusing in our working capital improvements to sort of go from there. But again, we can follow up with any sort of activities you need there. But again, we feel pretty confident in our ability to sort of step through the year and sort of deliver that value. Operator: That concludes our Q&A. I would now like to turn the call back over to Eric Foss for closing remarks. Eric Foss: Thank you. Well, in closing, again, I'm more energized and excited today than I was when I stepped in this role a few months ago. We continue to see encouraging trends as we close the year and look to returning to growth and achieving our financial commitments. So I want to thank everybody for joining us and appreciate your interest, and everybody, have a great day. Operator: This concludes today's conference call. We thank you so much for your participation. You may now disconnect.
Operator: Good morning, and welcome to Novavax's Fourth Quarter and Full Year 2025 Financial Results and Operational Highlights Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Luis Sanay, Vice President, Investor Relations. Please go ahead. Luis Sanay: Good morning, and thank you all for joining us today to discuss our fourth quarter and full year 2025 financial results and operational highlights. A press release announcing our results is available on our website at novavax.com, and an audio archive of this conference call will be available on our website later today. Please turn to Slide 2. Before we begin with prepared remarks, I need to remind you that this presentation includes forward-looking statements, including, but not limited to, statements related to Novavax's corporate strategy and operating plans, its strategic priorities, its partnerships and expectations with respect to potential royalties, milestones, cost reimbursements, the current macro and regulatory environment, the development of Novavax's clinical and preclinical product candidates, the timing and results of clinical trials, timing of regulatory filings and actions, its APA agreements and related negotiations, projected market opportunity, full year 2026 financial guidance and revenue framework, and Novavax's future financial or business performance, including long-term growth, savings and profitability targets. Each forward-looking statement contained in this presentation is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears under the heading Cautionary Note Regarding Forward-Looking Statements in the presentation we issued this morning and under the heading Risk Factors in our most recent Form 10-K and subsequent Form 10-Qs filed with the Securities and Exchange Commission available at sec.gov and on our website, novavax.com. The forward-looking statements in this presentation speak only as of the original date of this presentation, and we undertake no obligation to update or revise any of these statements. Please turn to Slide 3. This presentation also includes references to non-GAAP financial measures, which are total adjusted revenue, adjusted licensing, royalties and other revenue, combined R&D and SG&A expenses plus partner reimbursements and non-GAAP profitability. Please turn to Slide 4. Joining me today is John Jacobs, our President and CEO, who will highlight our growth strategy. Elaine O'Hara, Chief Strategy Officer, will focus on progress with our partnership strategy. Dr. Ruxandra Draghia, Head of R&D, will discuss our R&D updates; and Jim Kelly, Chief Financial Officer and Treasurer, will review our financial results and 2026 financial guidance and revenue framework. Please turn to Slide 5. I would now like to hand over the call to John. John Jacobs: Thank you, Luis. I'm excited to be here today with members of our executive team to share our fourth quarter and full year 2025 financial results. We made significant progress on our corporate strategy in 2025, successfully executing against our existing partnerships while advancing our organic pipeline, innovation efforts with our Matrix technology and making progress towards new potential partnerships. Our progress in 2025 was possible because of how we have reshaped the company since 2023 and with our new strategy, which we launched last year. Since the launch of our new strategy, we have evolved Novavax from a vertically integrated global commercial organization with a singular focus on COVID to a company that is focused on driving both near- and long-term value with our proven technology platform via partnering and R&D, supported by a lean and efficient operating model. We've also come a long way in stabilizing the company financially, doing so in a thoughtful, stepwise manner to maintain the capabilities needed to advance our strategy. And we are successfully executing our plan. For example, just this January, we announced a new agreement with Pfizer for Matrix-M. This new partnership allows Pfizer to utilize Matrix-M in 2 disease areas within their vaccine portfolio with one disease area already identified. If Pfizer commercializes just one significant product based on this agreement, this partnership could generate billions of dollars of revenue for Novavax over time through a combination of milestones and royalties. This agreement further demonstrates the value other companies with vaccine portfolios see in Matrix-M. Please turn to Slide 6. The changes we have made to date continue to strengthen our company, and we believe we can do even more to create value both today and in the future. As you can see on the slide, today from our existing partnerships, we have earned and received upfront and milestone payments, including those from our agreements with Pfizer and Sanofi, with over $800 million in nondilutive capital earned in the last 18 months. Anticipated continued royalties from our marketed and partnered products, including Nuvaxovid and the R21/Matrix-M malaria vaccine. And we're pleased by the progress made by Takeda in 2025, where they delivered over 12% market share for Nuvaxovid in Japan and more than 30 million doses of the R21/Matrix-M malaria vaccine marketed by Serum Institute have been distributed to help people fight this disease. In the mid- to long term, we intend to amplify this value through upfront payments from new potential partnerships, milestone payments from both new and existing partners for continued development of their assets with our technology. For example, Sanofi's combination vaccines with their flu products and our Nuvaxovid for which we are eligible for a $125 million milestone when their Phase III study initiates and/or development of additional assets with Matrix-M, for which we are eligible to receive launch and sales milestones of up to $200 million plus mid-single-digit royalties for each new vaccine Sanofi may choose to develop in the future using Matrix-M, plus a growing set of potential royalty revenue streams from multiple partners. Please turn to Slide 7. In addition to partnering, the other key lever in our growth strategy is R&D innovation. We are focused on leveraging R&D to strengthen our technology platform, expand its utility both within and potentially beyond infectious disease and drive further proof points and data to develop new assets with which we can partner. Our Matrix technology is a cornerstone of our partnering model, and we believe that we can build on our proven technology and expertise to create a portfolio of Matrix-based adjuvants to serve as an engine of innovation and value creation, reflecting our conviction that differentiated adjuvant offerings could represent a significant and expanding long-term growth opportunity for Novavax. Importantly, this model potentially positions us to generate diversified recurring revenue across multiple partnered programs. For example, we're exploring the potential development of new Matrix-based adjuvants for oncology and some hard-to-treat infectious diseases, potentially opening an even wider opportunity set. And we are exploring new formulations of Matrix-M, such as dry powder with the intent to increase its utility in our own and in partnered candidate vaccines. You will hear more about our approach to building a Matrix-based adjuvant portfolio from Elaine and Ruxandra later on in the presentation. Please turn to Slide 8. In 2025, we continued our commitment to operate in a lean and efficient manner. Of note, during the year, we significantly decreased our R&D and SG&A spend. As we continue to advance our growth strategy, we intend to continue reducing our operating expenses while maintaining the capabilities needed to support the strategy. Jim will provide an overview of our operating expenses and guidance later on in the call. We are pleased with the progress we made last year in 2025 and are excited about the potential that lies ahead in 2026, such as the potential for more partnership announcements, making continued progress across the spectrum of our R&D efforts, including the advancement of our preclinical pipeline and continuing to support our existing partners with implications for incremental milestone revenue. Elaine will address this component in her next remarks. Before we continue with the call, I want to acknowledge that the current macro and regulatory environment in the United States poses some significant uncertainties for vaccine companies. However, we remain optimistic about the future of vaccines and of Novavax. Deadly diseases are here to stay, and people still need proven approaches to protect themselves and their loved ones from those diseases. This is a long-term, serious and meaningful endeavor to be part of, not a short game. And with continued execution of our growth strategy, we intend to see our technology fueling multiple new vaccines and immunotherapeutics across multiple partner portfolios with the potential to save millions and potentially even billions of lives over time, driving significant value for our stakeholders and leaving a global health legacy we can all be proud of. We look forward to the year ahead, and we approach it with enthusiasm. And with that, I'll turn it over to Elaine to talk about our business development efforts. Elaine? Elaine O'Hara: Thank you, John. As John said, we're excited about the potential for 2026. On the business development front, we're focusing on driving immediate value with our existing technology platform. Please turn to Slide 10. We're pleased with the progress we have made on partnerships to date and have honed our capabilities in this area to drive future success. And we have proof points that this model is working. We are successfully executing on multiple partnerships and business deals since the launch of our company transformation. Some of the highlights include, in January, we signed a license agreement with Pfizer, which provided Novavax with an upfront payment of $30 million with the potential for up to another $500 million in development and sales milestones across 2 disease areas, $70 million in development milestones and up to $180 million in sales milestones for each disease area, respectively, plus future sales royalties for 2 decades. We have also signed new and expanded existing MTAs with a variety of pharmaceutical companies who are presently evaluating the potential of utilizing Matrix-M in their vaccine portfolios. This has included a new MTA with a large pharma company in the fourth quarter -- in February, the expansion of an existing MTA with a major global pharmaceutical company to include an additional field for exploration. And just this week, we signed a new MTA with an oncology company. So as you can see, we are quite active on the partnering front, and there is a depth of interest in our Matrix technology. We're seeing that once vaccine-focused companies experiment with our adjuvant, they often come back to us to explore more broadly after seeing results from their initial experiments. We have also continued to execute on our Sanofi partnership with all $225 million in eligible milestones achieved in 2025, and the expansion of our agreement to include Matrix-M in Sanofi's pandemic flu candidate program, which has recently received funding by BARDA. In addition, we're excited about the progress of Sanofi's combined flu and COVID-19 vaccine candidates with each combined Nuvaxovid with their leading flu candidate as further proof of the potential value that our platform can generate. We are encouraged by the recent public updates from Sanofi that included positive Phase I/II results from both flu/COVID combination programs shared in December and their recent comments highlighting this product as a key driver of future new product growth for them. Importantly, market research presented by Sanofi at last year's World Vaccine Congress suggests that 82% of those people who receive both influenza and COVID vaccines and 54% to 69% of those who receive one would adopt combo barring no material impact to reactogenicity and/or efficacy, thus indicating potential significant value over the current standard of care. We've also seen continued execution of our other partnerships, where, as John mentioned, we saw market share gains for both Takeda with Nuvaxovid in Japan and Serum with malaria. Finally, we executed agreements related to our facilities as we rationalized our footprint. Agreements signed with AstraZeneca to transfer one U.S.-based facility and sell certain equipment netting $60 million in cash and resulting in future cash savings of up to $230 million and the sale of our Czech Republic manufacturing site to Novo Nordisk for $200 million. So please turn to Slide 12. As we look to generate new partnerships, our goal is to create a funnel of interested organizations, all of whom may be in various stages of discussions with us, and we are partnering closely with our R&D team to facilitate these conversations in 1 of 3 ways: First, generating our own data to share with potential partners and providing Matrix-M to potential partner companies for their experimentation to help determine if they want to move forward in a formal partnership. Secondly, continuing the exploration of potential new Matrix-based adjuvants. Matrix-M is our cornerstone adjuvant with broad utility, and this unique product is in our existing marketed products. We are working with our Matrix platform to develop new adjuvants each with their own unique attributes. The intention of this work is to create tailored adjuvants for disease areas such as oncology and difficult-to-treat infections. Third, advancing our recombinant technology with our own internal pipeline of vaccine candidates such as C. difficile, shingles and RSV combinations. In summary, as you can see from the slide, our strategy has several core pillars. We generate data for partner discussions, we expand the utility of Matrix to enable a portfolio of Matrix-based adjuvants and we create data from our preclinical programs to facilitate partnering discussions. Please turn to Slide 13. Importantly, the focus of our R&D efforts is grounded in where we see market opportunity. The markets we are targeting have the potential to reach over $100 billion by the early 2030s, with the global vaccine market projected at over $60 billion in the next 4 or 5 years and the immunotherapeutic vaccines subset of the oncology marketplace projected to reach over $42 billion by 2032. In addition, we're strategically directing our development work with the intent of creating differentiated assets. For example, our R&D team is exploring a multivalent adjuvanted C. diff vaccine candidate with potential for enhanced activity in a market where others have failed. If successful, this vaccine would address significant unmet need in this underserved population. Not only do we see this as a significant opportunity to reduce human suffering, but it also has the potential to tap into a projected over $2.5 billion total addressable U.S. market opportunity. We believe our partnering strategy best positions Novavax for long-term success and shareholder value creation while maintaining the flexibility to internalize assets when strategically advantageous. With each partnership, including existing, expanding and new partnerships, we have the opportunity for upfront payments, development milestones and royalties for current and future commercial sales, ultimately creating the potential opportunity for Novavax to earn billions of dollars over time, assuming, of course, successful execution. So Ruxandra will provide more detail on these programs supporting our business development efforts, and I'd like to turn the call over to her now. Ruxandra Draghia-Akli: Thank you, Elaine. Please turn to Slide 14. As John and Elaine have said, we are very excited about the potential in 2026 for R&D. We believe that our R&D efforts can generate incredible value for both our shareholders and the people who will benefit clinically from our innovations. The driving force behind [ this ] is our technology, which is front and center in our own pipeline of assets and R&D work and now in our partners' development efforts and pipelines. Let's take a look at each. Please turn to Slide 15. On our in-house R&D efforts, first, we are expanding our efforts in infectious diseases with our internal early-stage pipeline, including programs targeting C. diff, shingles and an RSV triple combination. We are making steady progress with the intent to advance at least one of these assets into the clinic as early as 2027. As Elaine mentioned, we are intentional in moving forward with work that targets an unmet medical need and offers the opportunity for differentiation. Please turn to Slide 16. Let's take C. diff, for example. This disease is a major public health threat, in particular, in the United States, Europe and in the elderly population, causing nearly 500,000 infections and tens of thousands of deaths annually in the U.S. Currently, there is no vaccine available. We have learned from existing data and applied available learnings when designing our antigens and implementing experimental plans. Multiple hypothesis might explain the type of data generated by previous vaccine candidates. Previous vaccine candidates were toxin-based designed to neutralize toxins rather than kill the bacteria themselves. Consequently, vaccinated individuals could still become colonized and the vaccines might not have reduced the overall burden of C. diff in the gut. Second, previous vaccine candidates might have generated insufficient mucosal immunity. Because C. diff infection is restricted to the gastrointestinal tract, protection is sought to require robust mucosal immunity, which we assessed in our very preliminary studies. Third, previous vaccines might have targeted only 2 toxins, A and B. However, a proportion of clinical C. difficile isolates express a binary toxin, which these vaccines candidate did not cover nor did they cover any of the pathogens/antigens. Please turn to Slide 17. As we started exploring how our technology might make a difference, we have been encouraged by early data. Our early-stage Matrix-M adjuvanted C. diff vaccine candidate uses a multivalent antigen approach, targeting a vast majority of circulating clades and rybotypes. Aside from immunogenicity studies, we have explored mucosal immunity and conducted challenge studies, results of which showed that this vaccine candidate outperform a 2-toxin alone comparator. We look forward to next steps and if successful, bringing this vaccine candidate into the clinic. We are sharing C. diff just as an example today. As we've previously stated, we believe we can advance one of our preclinical assets into the clinic as early as 2027. Please turn to Slide 18. Next, our R&D work is also looking at driving life cycle management and innovation for the Matrix-based adjuvant platform. Matrix positions us as a platform partner that can help to enable next-generation bacterial and viral vaccines because it has the potential to be utilized across multiple platforms such as in protein-based vaccine, our own vaccines are based on that platform, nanoparticles, inactivated toxoid conjugate or VLP vaccines. Matrix-M has a remarkable broad utility. But in addition to Matrix-M and based on our expertise with this asset, we have used the know-how and history to explore the potential creation of other Matrix-based adjuvants with differentiated properties. In fact, a key focus for our R&D work with our Matrix technology is to broaden the utility of Matrix, both inside and outside infectious diseases, while also evolving the life cycle of this critical technology. This includes potential new versions of Matrix-M and new Matrix-based adjuvants as we look to build a portfolio of new adjuvants. These efforts could enable expansion beyond infectious diseases, such as powering next-generation immuno-oncology strategies. Early research on this potential new adjuvants indicates that modifications to our technology have the potential to drive specific responses such as robust CD8 positive T cell activation responses as part of a comprehensive immune response. Please turn to Slide 19. Beyond our in-house R&D efforts, the impact of our technology has the potential to be amplified via our partners. First, we have marketed products, which include our technology, Nuvaxovid and the R21/Matrix-M malaria vaccine. In line with our strategy, our R&D efforts are designed to be an innovation engine for Novavax, supporting partnerships through our BD team. Elaine discussed the development work Sanofi is undertaking and could undertake in the future and the recently announced partnership with Pfizer with the potential for development of 2 vaccine products utilizing Matrix-M with one disease area already identified. And as Elaine mentioned, we have multiple MTAs in place as well as ongoing conversations with other parties about the potential of Matrix-M and the portfolio of new Matrix-based adjuvants. Our partnering discussions have the potential to result in collaborations and partnerships focused on a variety of areas across the respiratory, nonrespiratory and oncology markets and other areas, perhaps not yet contemplated. Of course, our approach hinges on the fact that in every instance, whether it's adding our technology to other platforms, creating new candidates with our own platform or creating a new portfolio of adjuvants, we strive to offer something new and different to potential partners. This R&D model, coupled with the infrastructure we have built using our deep bench of expertise and AI and machine learning enable us to quickly and efficiently explore opportunities in a low-cost, high-throughput manner with the potential for earlier value creation for the company. With that, I'll now turn the call over to Jim to discuss our financial results in more detail. James Kelly: Thank you, Ruxandra. Please turn to Slide 20. This morning, we announced our financial results for the fourth quarter and full year 2025. Details of our results can be found in our press release issued today and in our Form 10-K filed with the SEC. Please turn to Slide 21. I will begin with key highlights from our fourth quarter and full year 2025 financial results. We reported total revenue of $1.1 billion, a 65% increase year-over-year. As a reminder, our current year revenue results include $625 million that is primarily noncash revenue recognition from the resolution of Nuvaxovid APA agreements with Canada and New Zealand announced in the first quarter of 2025. For the fourth quarter of 2025, we reported total revenue of $147 million, a 67% increase compared to the same period in 2024. In addition, we reported positive income for both the full year and fourth quarter of 2025. We believe this reflects important progress as we improve our financial performance on many fronts, including addressing historical liabilities. During 2025, we continued to drive down our combined R&D and G&A expenses. On a non-GAAP and net of partner reimbursement basis, we reduced these costs by 42% and 53% for the fourth quarter and full year 2025, respectively. We accomplished these reductions while continuing to execute on partnership commitments and targeted core R&D investments to drive value. Novavax ended 2025 with $857 million in cash and accounts receivables. In addition, we added another $80 million of nondilutive cash in the first quarter of 2026 including a $30 million Pfizer agreement upfront payment and a $50 million initial draw from the new $330 million credit facility announced today. We executed this new credit facility with MidCap Financial to enable flexibility and continued access to nondilutive capital as we execute on our growth strategy. Based on the combination of our year-end 2025 cash and receivables and the $80 million in nondilutive cash in the first quarter of 2026, we believe we can fund our operations into 2028 without contemplating any new cash flow to Novavax. That said, we do anticipate the addition of significant cash flow from partners over time. Please turn to Slide 22 for a recap of our full year 2025 financial performance compared to our revenue framework and expense guidance. A reminder for all is that our non-GAAP adjusted total revenues exclude Sanofi supply sales and royalties that totaled $22 million in 2025. On a non-GAAP basis, we achieved $1.1 billion in adjusted total revenues. This was approximately $50 million higher than the midpoint of our revenue framework range and was driven by additional Nuvaxovid product sales, primarily to Israel as we delivered doses on an amended APA schedule. Additional adjuvant supply sales and royalties from Takeda and the Serum Institute as they continue their successful marketing of Nuvaxovid in Japan and R21 malaria vaccine in Africa, respectively. And finally, $22 million additional from R&D reimbursements from Sanofi related to clinical supply and support for commercial manufacturing preparations for the 2026, '27 season. These points highlight strong execution as we support our customers and partners and advance our growth strategy. For combined R&D and SG&A, I'll begin with GAAP performance of $500 million that was approximately $20 million favorable to the midpoint of our guidance. This was primarily related to R&D cost reductions and lower spend in the fourth quarter. On a non-GAAP basis, the approximately $42 million favorability result comes from a combination of the $20 million in lower GAAP R&D spend and the $22 million increase in Sanofi R&D reimbursement noted earlier. Please turn to Slide 23 for a detailed view of our fourth quarter revenue results. For the fourth quarter of 2025, we recorded total revenue of $147 million, a 67% increase year-over-year. A few comments on fourth quarter results. Nuvaxovid product sales of $20 million was split between Israel APA deliveries and Novavax sales to other global markets. Supply sales of $19 million reflected both Nuvaxovid finished goods sales to Sanofi and Matrix-M adjuvant sales to our partners. Sanofi licensing, royalty and other revenue of $98 million was primarily driven by the $50 million in milestones for the achievement of MAH transfers for both the U.S. and Europe and $28 million from R&D cost reimbursement in the period. We look forward to Sanofi's Nuvaxovid commercial efforts in 2026 and beyond. Importantly, 2026 reflects the first year where Sanofi is in a position to leverage all the commercial tools to compete effectively in the U.S. and global markets. Please turn to Slide 24. We made significant progress improving our cost structure in the fourth quarter of 2025, and I will focus my comments on our non-GAAP results for combined R&D and SG&A net of partner reimbursements. We delivered a 53% decrease in the fourth quarter of 2025 with major contributions from both R&D and SG&A as we executed on our cost reduction program. This highlights that excluding the R&D reimbursed by partners, our fourth quarter cost structure is just under half the size of where we were a year ago and annualizes to a $328 million run rate, highlighting that we are on track for a significantly lower spend profile as we enter 2026. Please turn to Slide 25. Now since I've covered most of fourth quarter and full year financial results already, I'll emphasize the positive operating and net income for both the fourth quarter and full year 2025. Please turn to Slide 26. Taking a moment to recap accomplishments made towards improving Novavax's financial strength and performance. Key takeaways from this work are that we've put Novavax in the position to have an estimated cash runway into 2028 and prior to contemplating any new cash flow into the company as we drive towards our goal of non-GAAP P&L profitability as early as 2028. Keys to the timing of our path to non-GAAP P&L profitability are the successful development and regulatory approval of the Sanofi flu/COVID combination program and successful commercial execution by Sanofi on both the COVID and combination programs. This could be further supported by any additional cash flow from new business development agreements and further cost reductions. Please turn to Slide 27 for a review of our multiyear combined R&D and SG&A expense guidance. We are committed to continuing to streamline our operating expenses to enable value creation. Today, and for the first time, we are providing our 2028 guidance of $200 million or below. This 2028 target calls for a $200 million and approximately 50% decrease compared to 2025. For 2026 and 2027, we're improving our non-GAAP combined R&D and SG&A expense guidance by $25 million each year to $325 million and $225 million, respectively, at midpoint. Importantly, in 2026, we anticipate operating at an approximately $200 million core spend profile when excluding costs tied to completion of partner and APA performance obligations. These include non-reimbursed Sanofi R&D support and COVID strain change and commercial manufacturing support of approximately $125 million and $25 million in 2026 and 2027, respectively. As these near-term activities are completed, we expect to be in a position to further decrease our cost. We recognize that reducing cost is only part of the value equation. Novavax's core combined R&D and SG&A run rate of approximately $200 million or below is focused on a targeted R&D investments to unlock value from our technology, including advancement of the early-stage pipeline with the potential to bring at least one program into the clinic as early as 2027, generation of new data supporting partnering Matrix-M, advancing our adjuvant technology for both infectious disease and oncology use, including new formulations as we look to build a portfolio of adjuvants and support for our ongoing Matrix-M manufacturing operations. Please turn to Slide 28. Now turning to our 2026 revenue framework. For 2026, we're following an approach similar to the 2025 revenue framework in that our non-GAAP adjusted total revenue excludes Sanofi supply sales, royalties and milestones from CIC and Matrix-M. This means there may be revenues in 2026 that are additive to our expectations for adjusted licensing royalties and other revenue. We believe that in the 2026, '27 season, Novavax royalties will grow significantly as compared to 2025 as 2026 reflects the first year where Sanofi is in a position to leverage all the tools needed to compete effectively in the U.S. and global markets. For 2026, we expect to achieve adjusted total revenue of between $230 million and $270 million. This includes $35 million to $45 million of Nuvaxovid product sales under existing orders to Israel and Germany, $40 million to $50 million of adjusted supply sales to our license partners, which primarily reflects sales of Matrix-M, $155 million to $175 million in adjusted licensing, royalties and other revenue consisting of $70 million to $80 million in R&D reimbursement as we continue our R&D support and technology transfer activities for Sanofi. $50 million to $60 million from other partner revenue from Takeda, Serum Institute and Pfizer, including the $30 million upfront payment under the Pfizer agreement received in the first quarter of 2026. And finally, $35 million of noncash amortization related to the previously received upfront and R&D milestone payments from Sanofi. While our current revenue framework excludes the potential for the $125 million milestone linked to the initiation of a Sanofi flu/COVID combination Phase III study, we are encouraged by Sanofi's progress and public comments and look forward to sharing updates in the future. In addition, we are highlighting our expectation that we will be earning the Sanofi $75 million technology transfer milestone although we are excluding this milestone from our 2026 revenue framework at this time. This is due to the recent Sanofi request that we complete a subset of these tech transfer activities at a new manufacturing site, and we are evaluating the potential timing impact of this request. We don't anticipate the outcome to impact either our stated estimated cash runway or vaccine supplies for the current or future seasons. We look forward to sharing additional updates as we improve Novavax's financial performance, cost structure and strength to deliver shareholder value. With that, I'd like to turn the call back over to John for some closing remarks. John Jacobs: Thank you, Jim. In summary, we are proud of our progress in 2025 and look forward to continued progress this year. We have started the year off strong with the new Pfizer partnership and look forward to executing against this agreement and our Sanofi agreement this year while continuing to pursue new partnerships. We're also excited about the continued advancement of our R&D efforts, including our early-stage pipeline, Matrix-M life cycle management and the exploration of new potential Matrix-based adjuvants. We are executing our growth strategy and believe that we are on a path to deliver long-term sustainable value. Thank you to our shareholders for your support. And as always, we appreciate all of the hard work and dedication of our employees without whom the success would not be possible. I would now like to turn the call over to our operator for Q&A. Operator? Operator: [Operator Instructions] Your first question comes from Roger Song with Jefferies. Jiale Song: Maybe 2 from us. So one is we know Sanofi is about to have a new CEO. Just curious, based on your interaction with them or recent interactions, any updated views, strategies on their vaccine business? We saw quite a few M&A in the past couple of months, but just curious about the new management or the new leader for the vaccine business. And particularly, if anything you can give us some comments around the 2026 expectation for the COVID sales, that would be very, very helpful. And secondly, totally here, you used the C. diff as the example for your pipeline showcase. Just curious about your early pipeline, any prioritization you are contemplating understand the first IND as early as next year into clinical. John Jacobs: Thank you, Roger. Great to hear your voice. Appreciate you joining us today. Let me take on your first question about the new CEO. The new CEO for Sanofi is not in place yet. There's a long history with Sanofi. But we -- our connectivity with our partner has not changed at all. They're outstanding partners, completely transparent and positive relationship. We're very pleased with Sanofi as a partner. And the folks we work with on a daily basis are there fully engaged and nothing has changed. So we see a continued bright future with that partnership. And I think you had a follow-up question then from there on potentially the fall season. Elaine, did you want to touch base on that? Elaine O'Hara: Yes. Thanks, John. I'll just take that. Hopefully, Roger, this is the question that you asked around the COVID, the upcoming COVID season. So we're very excited about the upcoming COVID season. Just to pick up on John's point, we obviously have multiple teams that work across both companies as it relates to COVID and future programs with Sanofi. And we've been working expeditiously over the last -- since we signed the collaborative license agreement back in 2024, both for last year's season and this upcoming season. This season is going to be the first real full season that Sanofi will be selling Nuvaxovid globally. And so all of the plans that we've been engaged on with Sanofi over the last year, very deep. Obviously, they've had a time to get through their contracting cycle at the retail level. This is the first full year that they'll have had the ability to do that. And so yes, the upcoming season looks very promising. They have direct-to-consumer advertising programs that they will be initiating later this year as well. So it looks like all systems go from a good -- for a good season in the 2026, 2027 year and season for Nuvaxovid. John Jacobs: And then Ruxandra, did you want to take Roger's question? Roger, I believe you were asking about our pipeline. And if we have priorities, we chose to share some information about C. diff today as an example. Rux, did you want to take that one? Ruxandra Draghia-Akli: Yes. Thank you, Roger. So indeed, we have chosen to give an example in C. diff. But of course, we are advancing with all the other early programs, the VZV, the RSV triple combination as well as the work around Matrix in -- both in the sense of new formulations and maybe new Matrix-based adjuvants. So all these programs are advancing each and every one at their own pace. There are actually very interesting results that we are generating in the preclinical space with each and every one of these programs, and we are looking forward in the future to sharing with you data from other programs. And thank you for the question. Operator: Your next question comes from Tom Shrader with BTIG. Thomas Shrader: Just kind of a broad question. I assume you don't want to build another vaccine commercial framework or at least you'd love help. As you look for partnerships for the Matrix-M, are co-promotes attractive? Is that something we might hear about. And then a very different question for Ruxandra. You've obviously piqued our interest that you've already tweaked Matrix-M to get a bigger T cell response. How do you develop from here? Do you need a partner with a vaccine, maybe a cancer vaccine? What are the next steps we might look for because it's certainly an exciting comment? John Jacobs: Tom, thank you for your questions, as always. And number one, as you know, Novavax has gone through a remarkable transformation in the last 3 years with this -- with the new management team and our focus and new strategy. And we've cut out our commercial capabilities, reduced expenses and are really focusing on partnering business development under Elaine O'Hara's leadership, who's with us here today and R&D under Ruxandra's leadership. And so we reserve the right always, of course to think about down the road, doing some kind of commercialization or co-promote, et cetera, with a product that might really be a game changer in a blockbuster if we were to get one out of the clinic. But our core focus right now is not that. So we'll be open-minded. If we get a real winner coming out of there and it looks exciting, we'll make the right decision to drive value for our stakeholders, for Novavax and for everyone who's counting on us when that time and if that time were to come. But our intention is lean investment, drive data and proof points for our tech, invest in Matrix as a platform creating -- our intent is to create new adjuvants tailored specific adjuvants for different purposes, both within and outside of infectious disease. We have a vision to have a portfolio of adjuvants based on this Matrix technology, starting with Matrix-M, which as we all know, is a remarkable adjuvant and product. That's our focus. And our new pipeline of assets, which we shared a bit about C. diff today, we're very excited. We're excited about all 3 of those assets right now, but we chose that as an example. Such significant unmet need there with C. diff. And I will say very quickly, Tom, we -- my family felt the impact of that as my sister-in-law lost her best friend to C. diff infection and the sequelae following that on a routine procedure in a hospital. So quite a difficult condition to treat, and we really hope we can bring forward a vaccine that would be meaningful. So then the other point on your question, go ahead, Ruxandra, about Matrix. Ruxandra Draghia-Akli: Yes. Thank you, Tom, for the question. So we are actually using our know-how and historical knowledge of not only Matrix-M, but this entire adjuvant field in order to create new formulations and new variants, versions of Matrix-based adjuvants that can be tailor-made to specific immune responses. Of course, that is a type of work that is undertaken in-house by our teams -- and when those types of new variants of Matrix will be actually completely tested and ready to partner, of course, that we are going to offer them to our partners in different fields like in oncology or in hard-to-treat infectious diseases as we have actually -- we, Elaine and her team went and realized these fantastic deals around Matrix-M. So internal work in view of partnership. Operator: Your next question comes from Anupam Rama with JPMorgan. Unknown Analyst: This is Joyce on for Anupam. It's great to see the continued progress on new Matrix-M partnerships. I think you noted one of your agreements this month was expanded to explore an additional field. I was just wondering if you could provide any more color on that. And then just broader, what is your view on the potential time horizon for these MTAs to turn into more formal partnerships? Just at what stage of development or evidence generation do you think you could start having those conversations with your partners? John Jacobs: A really great question. I'll have Elaine elaborate on that. Elaine's team leads our efforts on business development and the strategy on how we approach partners, which she shared some of in our prepared remarks earlier today. There's a methodology to that, that starts with R&D, with data that Ruxandra and her team generate and then Elaine and her team are able to share that data in partnership with our R&D colleagues with potential partners. And one comment I'll make and hand it over to Elaine for a little bit more elaboration on the process and what we might be able to expect. But what we're seeing is as other companies start to experiment with Matrix, learn more about it, most often, they're coming back to us to do more. And you heard that in some of Elaine's comments today. Elaine, you might want to elaborate there. Elaine O'Hara: No, thanks very much, John. So in some instances, we create and generate data ourselves internally to utilize and have that presented to various partners in partnering discussions. In other instances, we allow and provide Matrix-M to companies to test and experiment in their own clinic and in their own preclinical situation across either existing vaccines or vaccines that they may have in development. And as John mentioned, what we're seeing at the moment is several companies are coming back and asking to expand that opportunity to other fields, whether it's bacterial, viral situations and most recently, even oncology as well. So we're very excited about that. The time line is TBD. We don't have any -- necessarily any control over that because it's up to the partner in terms of what they're developing and how long that time line is going to sort of unfold. But that's why, obviously, we work with our partners then to gain an upfront payment for the ability to utilize Matrix-M and go through a collaborative license arrangement then where we can receive various milestone payments depending on when those partners hit those milestones as well as royalties in the future as well. So that's really the structure of the and strategic sort of direction that we move in with our partners, and we work very closely with them in many situations to get them from the start to the finish. And then obviously, they take it over themselves as well as they move Matrix-M through their own pipeline. So hopefully, that answers your question. Thank you. John Jacobs: Well said, Elaine. And Pfizer was one of -- just to build on that a little bit, Pfizer was one of the first organizations as our new strategy began to launch to begin assessing the potential of Matrix-M as we were focused on out-licensure of our technology and making this a cornerstone of the future for Novavax. There's been multiple potential partner discussions behind that and all at different stages. And we're not in a position to ever promise or commit that we're guaranteeing anything about another partner coming on board, but we can say that we have a pipeline of potential partners that is now building and growing. And as Elaine said, we had a large global pharmaceutical company, a top 10 kind of company that came back to us to expand their MTA into another field to explore. So as these companies learn and they see Matrix, Matrix won't work for everything, nothing works for everything. But it often works to solve problems and help these other companies unlock value or value potential in their pipelines. And as they see that, they're coming back again and again to us to expand and create additional opportunities with this asset. So we're excited. We anticipate and intend to drive additional partnerships in the future, and we will share those with you when they're inked and done should that occur. We can't say much more about it before that other than a lot of traction, a lot of work behind the scenes, all at different stages of progress and dialogue toward that eventual intended end. Operator: Your next question comes from Mayank Mamtani with B. Riley Securities. Mayank Mamtani: Congrats for the momentum you have on partnerships and pipeline... John Jacobs: Thank you, Mayank. Mayank Mamtani: Impressive discipline on spend scale down. So my 2 questions. One on the respiratory vaccines, FDA and also ex U.S. regulatory road map, what's your best understanding since you do have some correspondence relating to your own Phase III stage programs, CIC and flu. And there's obviously the Sanofi-partnered CIC program -- I don't know to what extent you've compared the 2, the Sanofi partnered and your own wholly owned CIC program. And I was just curious if this uncertainty starts to clear up, like what is sort of the way to assess value of your own 2 clinical stage programs? And then I have a follow-up. John Jacobs: Mayank, I apologize. So I just want to make sure we understood your questions. So first, I believe you were noting that we had received some feedback in the past on our CIC and flu programs. Obviously, we're not making further investment ourselves in those programs. We're looking to out-license those and partner those. And I believe you were asking us to compare and contrast that with some of the things that have been disclosed in the public domain from Moderna and others recently. Was that your question [indiscernible] any insight? Mayank Mamtani: And also the Sanofi data, we learned some in December. So there is, I think, a way to compare at least a high level, your CIC program with the Sanofi program. So I was just curious if that Sanofi program does go into Phase III, is there a way to ascribe value to the 2 programs, which I understand you're not investing, but are partnerable assets? John Jacobs: Got it. Well, what I can say about that, Mayank, is we were very pleased to see our partners advance both of those programs, 2 combination vaccines with their 2 flu vaccines, their leading high-dose flu vaccine, right, and Flublok and Fluzone High-Dose with our proven COVID vaccine. Very exciting. And there's been more recently -- and as you know, we can't and won't speak for our partners. But what we're excited to see are their comments in the public domain and their CFO was recently out on the road with analysts and investors, and they've publicly been speaking about the importance of these combination programs to their future as they start to contemplate the post-Dupixent Sanofi and how important that is. So I encourage everyone to take a look at those comments from Sanofi leadership in the public domain as they're getting ready for further leadership change, they've been quite direct about how important these assets are and how excited they are about it and have noted regulatory review, this is their words, not ours, expected in the '27, '28 time frame. So we're very excited about that. They're outstanding partners. They have tremendous capability in the vaccine space and a leadership position in flu globally, and we see a bright opportunity there. There's a pathway forward, we believe, and that we're encouraged by Moderna's progress with their flu vaccine. So what we're seeing there in the public domain, you can see and our investors can also see. So we're seeing a pathway forward there and ability to negotiate and work with the current administration. We're also hearing from the current administration that they believe in vaccines and want them to move forward. Obviously, some of the positions they've taken our industry and our scientific community may not agree with all the time, certainly. But there seems to be a pathway forward here, at least from what we can see together. So just making comments on what we see publicly, what our partners have said publicly, we couldn't be more excited about our future here and looking forward to next steps and hearing more from Sanofi. Mayank Mamtani: Very helpful color. And if I could ask a follow-up on your expected annualized run rate you want to be at ending this year. I know you mentioned you're at about $320 million ending 2025. So I want to understand target for year-end since it's a big step down '27 -- sorry, '26 to '27. And maybe just a bit more color on the new manufacturing site request from your partner, Sanofi, if any color you can give there more on time line of resolution there? John Jacobs: Thank you, Mayank. So I think I'll have Jim cover your questions about costs. I think very importantly, you heard in Jim's prepared comments, some non-GAAP description about the core costs for our company and then obligations we have that are trailing and the end stage of those trailing obligations on remaining APAs and tech transfer activities and things like that, that we're supporting our partner, Sanofi with. And that you can see very -- hopefully, very clearly in the provided slides and here in Jim's commentary, how those costs are anticipated to roll off towards the end of this year in a large part, those extra costs on those trailing obligations and that we then get closer to the core where we're operating our business. Jim, why don't you comment further on that for Mayank? James Kelly: Yes, certainly. Mayank, as you've watched the evolution of our cost structure, a couple of important points to think about in 2026. One in particular is that, a, we exit 2025 fourth quarter and an annualized rate that is consistent with the non-GAAP $325 million that we are guiding to in 2026. That said, when you -- while I'm not providing quarterly guidance, it is worth noting that it will be a bit front-end weighted for the following reasons. When you think about our preparations for the fall season and the type of manufacturing support and route to the fall, much of that work happens in the first and the second quarter of the year. So that's the first reason why you'll see a higher amount in the first part of the year. A second part is, as you might remember, we're supporting Sanofi on numerous R&D activities, including a post-marketing commitment, the majority of which will be front-end loaded into the year, a portion of which we're covering as well. So on that net of reimbursement basis, you'll see some incremental spending there as well. So therefore, the shape of our spend throughout the year towards our full year targets will be more front-end loaded for the reasons I just mentioned. And that is why as we look towards our ability to hit the appropriate both quarterization at the end of 2026 but also acknowledging that there'll be a drop-off in certain spend profiles as we complete activities, that's the shape of the business for 2026. So hopefully helpful on that front. John Jacobs: And Elaine, did you want to address the question about the tech transfer? Elaine O'Hara: Yes, absolutely, John. So thank you. Yes. So we -- as I mentioned earlier in one of the questions-and-answer sessions, we have multiple teams working very collaboratively, both with Novavax and Sanofi and one of those is actually a tech transfer team as well. And Sanofi made the decision to actually fully realize all of the tech transfer to a U.S. facility. And so as a result, that's just going to extend the time line for the tech transfer and take a little bit longer. That decision was recently made. All of their capability for the manufacture of Nuvaxovid will actually occur in the U.S. So again, we're supporting them and working with them to make that happen. Again, it doesn't affect, as Jim mentioned, our -- the health of Novavax from a cash perspective. And so I just wanted to give a little bit of additional information and context on that. John Jacobs: Jim, any further comments there? James Kelly: I would reiterate that, first of all, Sanofi, amazing partner. We've got the same conviction and confidence that we're working with the right partner, and we're going to help them do what they need to do to get all the technology transferred into their hands to manufacture effectively and have supply available for coming periods. So we don't see any impact on that. It's just simply working with the team on what I outlined as a subset of activities. So that's fine. And then I made a reference earlier about the milestone, $75 million. We'll come back to you regarding the implication and timing on that. It doesn't impact our cash runway. It doesn't impact, in our view, the likelihood of achievement. It's just simply working through some details with what we think is an excellent partner. Operator: Your next question comes from Pete Stavropoulos with Cantor Fitzgerald. Unknown Analyst: This is Sarah on for Pete. Congrats on the quarter progress. John Jacobs: Thanks, Sarah. Unknown Analyst: Question on Nuvaxovid. You've described 2025 as the transition and 2026 is the first commercial year for Nuvaxovid under Sanofi control. And so how much of that COVID 2026 uptake assumption depends on contracting wins versus physician patient-driven pull-through? And then additionally, can you just remind us how many MTAs are currently in place? John Jacobs: Good questions. I'll have Elaine comment a bit on the nature of contracting. We wouldn't be able to disclose for our partners the percentage or the wins or things like that. But certainly, contracting matters in the United States is the vast majority, over 90% in my recollection of COVID distributions in the United States have been through retail pharmacy. And that contracting begins the year before wraps up in sometime around second quarter the next year, and they're deep into that process right now, and it's very important. They were able to start that process this cycle for the first time because they had the BLA now in hand, the full -- all the tools, all the pieces in place at the end of last year, so they could start that full cycle negotiation with retail. So it absolutely matters in the U.S. marketplace, and they're in it from the beginning, and that's the first time for Nuvaxovid under BLA that we've been able to have our asset in the hands of a partner at that full cycle with all the pieces in place for them to work their knowledge and experience to begin to optimize over time, the penetration of the market for our asset. Elaine, anything to add to that? Elaine O'Hara: No, that's it, John. I mean, again, the cycle for Sanofi starts in November of the previous year. By the time they hit March, April time frame, those contracts should be wrapped up. I can't speak to the volume or the level of detail since they have full commercialization rights. So that is TBD yet, but we're very inspired by the conversations that we've had at our joint commercial committee that the 2026, 2027 season is going to be a full cycle season, again, based upon all of the components from a marketing perspective that they aim to put in place. So hopefully, that answers the question. John Jacobs: Yes. And the other question was about the number of MTAs. So we haven't disclosed all of the MTAs that might be signed. We're being very careful and selective. Like I said earlier, Sarah, in my prepared comments, since I joined the company in January of 2023, I've never seen this level of interest, but it's not surprising because Novavax historically, when they had first acquired the asset, brought it forward, right, through eventually R21 and a COVID vaccine. So those were the first assets that showed the world this adjuvant can make a difference. And then we transformed this company over the last 36 months to focus on out-licensing our technology and really making the world aware of that. And our R&D team was generating data to show that we have utility across multiple vaccine platforms, which was part of our comments today. And that Elaine, I brought Elaine in as our Chief Strategy Officer. She created a new capability here in Novavax to really start to negotiate these kind of things, reaching out to partners. And it's through the efforts of our employees here, Elaine and her team, Ruxandra and our R&D team and the concerted efforts and focused strategy that we've enabled the awareness of this amazing technology and help to enlighten others as to its potential. And then when they experiment with it themselves, most often, they're seeing the results and they're seeing it has the potential to unlock problems they might have been wrestling with for a while, unlocking value potentially in their portfolios. And then we see the actions from Sanofi. We see the actions from Pfizer. And under the new strategy, Pfizer was one of the first to be approached by Elaine and her team in this new construct post the Sanofi deal. That's turned into a deal that could, assuming successful execution by Pfizer, result in billions of dollars in future revenues and value for Novavax and all of our stakeholders. So there are many MTAs in place. We announced that we had existing partners ask for expansion or amendment of that MTA. Elaine, you may want to comment a little more. You just signed a new one in the last week with an oncology company. Elaine O'Hara: Correct, John. Yes. Actually, we've had some interesting weeks here in February with signing a new MTA with an innovative oncology company and then also an additional signature for an amendment for a large-cap pharma company to expand their initial MTA to cover another pathogen that they're interested in pursuing. So lots of interest. And again, we're delighted with that. Our goal is to accommodate our partners in every which way that we can from our research and development perspective to support all of the initiatives that we have with our partners at the moment. And so we're very excited about the future. Operator: Your next question comes from Chris LoBianco with TD Securities. Christopher LoBianco: Congrats on all the progress over the last few months. John Jacobs: Thank you, Chris. Christopher LoBianco: Can you provide any color on the specific characteristics or potential differentiating factors of Matrix that were most attractive to Pfizer? And then I had one follow-up question. John Jacobs: So we're -- Chris, just so my team could hear it, we had a little bit of trouble hearing the question. I believe you were asking, can we comment on the differentiating characteristics of Matrix that were attractive in particular to Pfizer? Is that -- did we hear you correctly on your question? Christopher LoBianco: Yes. John Jacobs: Yes. We won't be able to comment specifically on what Pfizer might have found attractive because Pfizer is keeping that confidential due to competitive reasons. But obviously, they saw significant value to sign such a meaningful potential deal with Novavax that's now on the books, and they're moving forward with their work. One of the 2 fields that they're allowed to explore with Matrix through the agreement has already been selected and they're contemplating the second. So -- but I think Ruxandra and Elaine could comment, maybe Elaine from a business perspective and Ruxandra from a scientific perspective, in general, why Matrix is such a powerful tool and why others in general, may be interested in it, Elaine. And then Ruxandra, please. Elaine O'Hara: Just very quickly, from a business perspective, I think Ruxandra said this in her commentary earlier on, Matrix has a lot of flexibility. The platform, the technological platform is very flexible, and it can support many vaccine platforms. I think that's very attractive. The whole nature of an adjuvant is that it can provide and enable a more targeted or specific or a broader immune response. And so with each one of those value propositions, what we -- when we have discussions with partners, obviously, they're interested in any or all of those. And that is largely the discussion that we have. And as I said earlier, they then take that back to their clinic to their preclinical situation of their clinic. And then that, as John mentioned, potentially helps them to either solve a problem or unlock additional value for their vaccine or their portfolio of vaccines. Rux? Ruxandra Draghia-Akli: Yes. Thank you, Elaine. Excellent point. On the top of what Elaine just mentioned, we might remember that in the clinical studies, we have generated significant amount of data showing that Matrix-M as an adjuvant is associated with a very favorable reactogenicity tolerability profile. So together with this broad type of immune response in combination with different vaccine platforms and different types of antigens being bacterial, being viral, now in our latest explorations in oncology, we are looking to actually capture and capitalize on all these characteristics, a broader immune response plus a tolerable profile. So I think that those might be some of the criteria that are serving as an impetus for potential partners to come to the table and start the conversation. Christopher LoBianco: That's great. That's very helpful. And then second question is, do you think there is more upside or downside risk for Nuvaxovid from the upcoming [indiscernible] 2026 ACIP meeting? And can you remind us if there is data that shows differentiation on long COVID and safety for Nuvaxovid relative to the mRNA COVID vaccines? John Jacobs: So I'll let Ruxandra comment on the long COVID question and the differentiating data. Regarding ACIP and upcoming interactions with the FDA and regulators and different decision-making bodies, we see -- we're optimistic about a pathway forward. Last year, the season rolled out and everyone was out at the same time, et cetera. We're anticipating the same thing to happen this year. But until it happens, you know what we know. So we can all see it in the public domain. There's a meeting now on the books. So that's good. And we'll pay attention to that. And as that unfolds, we'll roll with it. But we are doing everything we can to ensure that we are prepared to support Sanofi in their commercial efforts in the U.S. marketplace this year. So we're ready with supply for Sanofi. We understand the strains that are circulating, and we've been focused on that. Our team knows how to do that. Sanofi certainly is a global expert at doing that with their flu. We collaborate very closely with them. So we are ready. We are poised and what's beyond our control, we'll watch unfold together with you, and we'll go with the flow on that. But we're anticipating a pathway forward. We do not anticipate choice being completely removed from the American population on important tools like vaccines. But again, that's my personal opinion. That's our team's thought about it. We know what you know. We can watch it in the public domain. So let's see. But we do expect and anticipate optimistically a season to unfold this fall and are looking forward to seeing, assuming that smoothly goes this spring from the regulatory authorities, how well Sanofi can perform now in their first full cycle launch. Ruxandra Draghia-Akli: As far as your question around long COVID, epidemiological data published in high-level peer-review publication has actually pointed to the fact that vaccinated individuals have a lower risk of developing long COVID compared to unvaccinated individuals in different populations and geographies. And obviously, with any vaccinations, in particularly boosters are associated with this lower risk of long COVID per the published literature. So I don't know if that answers your questions, but at least whatever is out there as peer review data is showing this particular association. Operator: Your next question comes from Geoff Meacham with Citigroup. Unknown Analyst: This is Jarwei on for Jeff. Really exciting and encouraging to hear that you guys are expanding the pipeline opportunities beyond respiratory vaccines. Maybe just thinking about C. diff, shingles and RSV, what will inform timing for moving that into 2027? Could we -- could this possibly be more of a 2028 situation? And then also, could partnerships or potential partnerships for these programs influence expediency and selection on which one gets moved in the clinic first? And is that something you're exploring as well, partnerships that is? John Jacobs: Thank you for your question. And very importantly, your question focuses on one of the key elements of our R&D strategy and how R&D is supporting our efforts. Very importantly, the investments we're making in R&D are multiple and important to support primarily Matrix, that technology to expand the utility of Matrix to create new formulations of Matrix-M, such as dry powder, et cetera, and also working on the creation of new adjuvants based on the Matrix platform with the intention over time, should we succeed there of having a portfolio of adjuvants that are tailored and specific to target some very difficult to treat infectious diseases to go beyond infectious disease into oncology for specific types of oncologic conditions. So very -- that's where we're really focusing a lot. We have experts here on the scientific side in Sweden with Novavax that understand Matrix and for years, have worked with it and a lot of expertise in Rux's shop on that. Another key element, generating data and proof points that our business development team can utilize. And then third, but not last, that's important, we have some early-stage assets in development. The goal of that is to further -- to your point, Jarwei, is to further partnering opportunities and also to generate more proof points and data. So all along the way, and we're learning from each of these approaches. And combining that synergistically with our efforts on Matrix to further inform how we approach building this potential library of adjuvants, if you will, that we're working on. When it comes to expediency or timing, what we've said is as early as 2027, we could be in the [indiscernible] humans with one or more of these assets should we choose. We're not disclosing exactly where we are on time lines right now, but we feel confident in saying that at this point. Elaine, did you want to elaborate further? Elaine O'Hara: Thanks, John. I mean the only thing I would say is, a, we selected these antigens and these programs because we believe that they have a significant market opportunity, but also address unmet medical need. Each one of the programs has its own unique path forward from a preclinical perspective and also its unique opportunity in the marketplace as well. The way that we selected these programs was based upon competitive landscape, opportunity and other characteristics. And as John said, we will attempt and move into the clinic in 2027. That is our goal. And as we have data that's relevant to a potential partner, we will begin those discussions with those partners as they become available. That's the goal. John Jacobs: And Ruxandra, we're deeply into the preclinical work on all 3 of these programs, slightly different stage for each. We chose to share some information today on C. diff because it's obviously such a huge unmet need globally. There's no vaccine available. Others have -- importantly, Jarwei, others have tried and failed at least in their initial attempts to create a vaccine for C. diff, and we see companies going for that again now and trying. Our team was able to learn from there's a lot of data out there in the public domain and publications learn from those past attempts. And you heard some of the commentary from Ruxandra on how we're approaching this very differently from a multivalent antigen perspective, antigen versus toxin perspective, other things like that, that are very important. And of course, we have Matrix-M. And so we're very excited about what we're seeing. We're standing by our commentary that as early as '27, we could be in the clinic with one or more of these. And again, it's providing value to us in these behind-the-scenes discussions on business development. And the last point there, obviously, any management team, executive team working on a strategy like ours will always know more about where we are than we're allowed to share with everyone in the public domain. We won't make and cannot make promises about success on any of these endeavors. They have risk, they're challenging, but we're excited about what we're seeing on progress with potential partners what they're seeing in their own experiments and what we're learning from our R&D efforts, and we look forward to keep bringing you information as we can and as the story continues to unfold. Operator: Your next question comes from Alec Stranahan with Bank of America. Unknown Analyst: This is Matthew on for Alec. Maybe 2 from us. Can you just speak to the current agreements for Matrix-M that have been signed, whether those agreements also apply to sort of the portfolio of adjuvants you're thinking about developing going forward and sort of different formulations of Matrix-M? And then maybe on the pipeline as well. Curious if 1 of the 3 programs is sort of ahead of the others? And if they're all sort of similar stage, I guess, which one you would think about bringing forward? Is it dependent on developments in the therapeutic area, sort of updates there or something else? John Jacobs: Thank you for your question. I'll let Elaine comment on the current agreements that are signed regarding Matrix. Go ahead, Elaine. Elaine O'Hara: Thanks, John. Yes. Clearly, all signed agreements, all material transfer agreements that we have signed today focus exclusively on Matrix-M. So that's the answer to that question, sorry. And then, John, back to you. John Jacobs: No, you're right. And any new adjuvant, should we succeed in developing one or more additional adjuvants, that's our intent. That would be purely Novavax. And importantly, we have not exclusively out-licensed Matrix-M to any party. That's Novavax asset. And so we give licenses for particular indications and things like that to partners. So this would be -- should we succeed with one or more additional targeted adjuvants, that would be -- those would be ours, our IP. We can work with those, we can out-license those. We see that as a potential future engine for continued innovation and partnering opportunity, both within and our intention is to go beyond infectious disease in that regard. And you asked also about pipeline assets in that way. Ruxandra? Ruxandra Draghia-Akli: Yes. Thank you for the question. As far as the early pipeline assets, you might remember from our previous presentations and from my intervention that each and every one of them actually is addressing a different unmet medical need. For C. diff, there is no vaccine. For shingles, the issue was the reactogenicity that is associated with current vaccines. For RSV, it's a triple combination. So we are going and adding other antigens to that particular antigen of RSV. So each and everyone have their own complexities. We started these programs by designing a very rigorous target product profile that is based on where we are in the field and where we are from a business opportunity. That TPP is evolving as the ecosystem is evolving, it is a living document. And as we go along in our discovery and development efforts, we are always relating back to that TPP. If new data is created by somebody else, we are taking that into account, and we are asking the question, are we good enough, are we better, what do we need to do or what data should we develop in order to convince a partner and to convince ourselves that, that is a program that is worth pursuing. Operator: Your last question comes from Sean Lee with H.C. Wainwright. Xun Lee: Most of my questions have been answered, but I just have one more on the early pipeline. So it's for these 3 products that are in preclinical right now, can we expect to see any milestones this year regarding data disclosures? I mean, specifically, are you targeting any specific conferences where we can see some of the preclinical data on these? John Jacobs: Let's have Ruxandra go into a little more depth on the answer. But we're excited about what we're seeing. We're going to be very cautious about how much we share for competitive reasons. So for instance, in one scenario, if we think we have unlocked a potential pathway forward with an asset, I'm not saying that today, I'm saying that scenario, let's call it a hypothetical. We wouldn't want to share how we figured that out in the public domain, even though that might be exciting. So we're going to be cautious. Next steps, as we wrap up the work in the near term on our preclinical efforts, we could ready one or more of these assets. That's our intent for IND with the regulatory authorities. We would expect the potential of that to occur this year. And that's why we say as early as 2027 for -- to be in humans with one or more of these programs. So yes, we will continue, as we did today, begin to unveil first for C. diff here as an example, some of what we're learning and the progress we're making. We're going to remain cautious and a bit guarded on some of it because we want to be careful from a competitive standpoint. But we're making excellent progress. Our lean and careful investments are paying dividends internally from what we can see, and we're excited to continue to bring these forward with the intent of success with one or more of these down the road. So we'll keep you informed. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to John Jacobs for any closing remarks. John Jacobs: Just want to thank everyone for joining us today. I want to thank all of our investors who believe in Novavax, believe in our technology. I want to thank our investors for being patient with us as we converted this company and transformed it from a company focused on COVID alone with one asset and the remarkable effort of our employees to unwind the large global organization built to commercialize one asset and do so without hurting our capabilities while changing strategy and while starting to move forward and teach the world about the technology this company had and was sitting on and made one asset with and to then start to enlighten others about the potential of that technology and the effort and the time that takes -- and everyone likes to see things right away. Show me yesterday, why did do a deal in a day. But this took time to convert the company. It took time also to enlighten others and share data and generate data to show them how this product might work with their pipeline assets or technology platform, then they do their own experiments. We saw Pfizer, one of the first that we started with our new strategy come forward. We're telling everyone we've got a pipeline of potential partners behind that. We'll never promise anything until we deliver it, but we want you to know we're working really hard every day. Our employees are having fun. We're excited to be engaged deeply into this new strategy and really optimistic about the legacy we can leave on global public health and the value we can drive for all of our stakeholders. Thank you again for your patience, your belief in us and our technology. We're working really hard for you. We're going to work hard not to let you down and to keep growing this business. Thank you, everyone. Operator: This conference has now concluded. Thank you for attending today's presentation. You may now disconnect, and have a wonderful rest of your day.
P. Williams: Well, good morning, everyone, and welcome to Derwent London's 2025 Full Year Results Presentation. And before moving on to the results, you will see another news this morning and a strong set of a building in Whitfield Street, more to follow. Now the order of today's presentation is slightly different. As well as, you'll be hearing from Emily and Damian. While Nigel is not on the stage, he is, of course, here for some Q&A. Now turning to Slide 2. The group's business model and portfolio provide strong foundations on which to build on an exciting and successful future. Our portfolio is strategically positioned with 75% in the West End and 81% within a 10-minute walk of Elizabeth line station. These are London's best performing areas. It is high quality with significant embedded reversion potential, a diverse tenant base and robust vault. Flexibility has always been fundamental to our approach, and we look to continually adapt our portfolio to evolving market conditions to ensure that we are well positioned for future market evolution. We have an exciting West End focused development pipeline in some of the strongest submarkets, presenting a real opportunity to drive rents and, therefore, returns. Our schemes are designed to meet the full spectrum of occupier demand from the London commands, headquarter space, which serves our core customer base as well as furniture flex product, all delivered to our exacting standards and complemented with high-quality amenity. We also have good visibility on income growth. Our reversionary potential of GBP 70.9 million will come through into earnings as we continue to lease up and deliver the best phase of next phase of schemes. but we're not standing still. There is substantial opportunity ahead to create further value. Now turning over. 2025 was a solid year of execution. We completed asset management transactions with rental income of nearly GBP 60 million, a record year. And in the context of a low vacancy rate, we agreed over GBP 11 million of new lettings at rents 10% above ERV. In terms of disposals, we sold GBP 216 million in 2025 and 2026, we're off to a good start. Since the start of the year, we've exchanged contracts of GBP 140 million, including Whitfield Street announced today with a further GBP 140 million under offer, broadly in line with December book values. Proceeds will be redeployed into higher return opportunities, including selective developments, acquisitions and other accretive alternatives. Emily will provide more detail in this shortly. 2026 has started with strong momentum with GBP 1.5 million of new leases completed, and we're under offer with a further GBP 14.4 million, including all of the offices and network. In addition, there is GBP 4.4 million in negotiations. Slide 4. This momentum provides a momentum -- a springboard for growth. Our market outlook informs our immediate action plan, which is focused on accelerating returns through active portfolio management and disciplined capital allocation. We are now past the inflection point with the outlook characterized by 3 powerful drivers. Firstly, London, which is our market, we have an unrivaled expertise in demonstrating its enduring dominance as a European and -- on the European and global stage. Once again, it is proving its resilience and agility in adapting to change, reinforcing its position as Europe's undisputed business capital. Secondly, the ongoing strength of the occupational market, supported by high demand and very limited supply. You will hear more on this from Emily in due course, who'll provide further context on this. Finally, improved liquidity in the investment market driven by a return of capital flows both into London and into offices. Turnover is up with larger lot sizes now transaction. The combination of our proactive execution and positive market dynamic gives us the confidence to increase our 2026 ERV guidance for our portfolio to plus 4% to plus 7%. I will now hand over to Emily and Damian, who will take you through our immediate strategy and provide more detail on the financial outlook. Thank you. Emily Prideaux: Thank you, Paul. Looking now at our immediate priorities. Our near-term strategy is clear, firmly focused on returns, position the portfolio to capture the strongest rental growth and capital appreciation opportunities through active portfolio management and disciplined capital allocation with a clear focus on execution and total return on capital. Recycling will accelerate. We plan to dispose of up to GBP 1 billion over the next 3 years and at a faster pace than our historic run rate of GBP 200 million per annum. These disposals will be focused primarily on mature assets where the business plans have been delivered or where prospective returns are lower than alternative opportunities available to us. Capital redeployment will be disciplined and returns driven. We will systematically assess the relative merits of all options open to us at any one point in time. The foundations of our capital allocation framework will be built on maintaining a strong balance sheet and a net debt-to-EBITDA below 9.5x. Within that framework, we will consider share buybacks alongside selective development where we have confidence in strong returns and strategic acquisitions that support a pipeline for the next decade and contribute to long-term value creation. Overall, our focus is to proactively manage the portfolio to ensure an appropriate risk return profile that delivers both earnings growth and attractive total accounting returns. Damian will cover this in more detail shortly. So what does this look like in practice? HQ offices will remain our core business, where we continue to have strong conviction. We will also continue to deliver flex and do so at proportionate levels aligned to market demand and in a way that ensures sensible cost ratios and a simplified operational model that is portfolio rather than asset by asset led. As such, our overall flex offering will likely grow to circa 10% to 15% of the portfolio from the current circa 8%. Both our HQ and flex workspace are supported and enhanced by our DL member platform. Whether we're buying, selling or investing, we will do so within a disciplined risk return framework that balances income resilience and earnings growth with value creation. This may well involve the acquisition of core plus assets in the future as well as the development projects we are well known for. We will selectively develop those office schemes where we have confidence in the medium- to long-term returns. These include Holden House and Middlesex, where we are already on site as well as Greencoat & Gordon and 50 Baker Street, both due to start later this year. In addition, we will seek to drive value via strategic unlocking and alternative uses on sites, working alongside relevant partners to maximize returns. These include Blue Star House, Old Street Quarter and 230 Blackfriars Road, and we'll touch more on these later. Finally, we have an established brand and platform, and we believe there's opportunity to leverage this more effectively. This could take the form of development management fees, promotes, partnership structures or other arrangements that are returns accretive. I'll now hand over to Damian, who will provide more detail on the balance sheet as well as the outlook for earnings and total accounting return. Damian Wisniewski: Thank you, Em, and good morning, everyone. So taking a look at our returns outlook and earnings first. The 2 large recent projects at Network and 25 Baker Street are now essentially complete. Baker Street provides annualized rent on a net effective basis of about GBP 18 million a year or GBP 22 million headline. Based off ERV at the year-end, Network's annualized rent will be about GBP 11 million or GBP 13.7 million headline, and we expect rental income here to commence around the middle of the year. Our debt refinancing is complete for now. Our average interest rate increased in June '25, but is now expected to be largely stable through to 2031. Admin expenses were reduced in 2025, and we're targeting further cost savings to come. So with rental values growing and cost inflation easing, we now expect to see another period of earnings growth over the medium term. This feeds into our total accounting return outlook, too, also expected to benefit from improving development surpluses on our carefully chosen schemes and accelerated capital recycling. We will not lose our well-established financial discipline. That is based on low leverage, a focus on balancing value creation against interest cover and earnings and our 18th consecutive year of increased ordinary dividends. Now looking at the earnings outlook in more detail. We currently expect 2026 rental income from 25 Baker Street and Network to be about GBP 18 million higher than it was in '25. This will be supported by rent reviews and other new lettings across the portfolio. We've allowed for disposals of about GBP 400 million this year, but the earnings impact is small as the average IFRS rental yield is close to our marginal interest rate. West End projects, including Holden House and the refurbishment of Middlesex House, will, however, reduce earnings in the short term. There are also additional voids at Page Street, which is being marketed for sale and 50 Baker Street. We're targeting further cuts in admin costs this year. And after disposals and CapEx, we forecast our average debt to fall. However, the refinancing of the convertible bonds in June last year increased our weighted average interest rate by about 50 basis points. We're also expecting about GBP 6 million less interest to be capitalized in 2026 than in '25. Putting this all together, we therefore expect 2026 earnings to be about 42p to 44p a share in the first half, followed by 52p in the second half. That is 10% ahead of H2 '25. So overall, about 3% to 5% lower than in '25, but rising significantly in H2. 2027 should then see EPRA earnings step up. We estimate that about 5% to 10% growth from the 2025 level or about 15% above '26 levels. And this is as growing rents are captured and we capitalize more interest. And then by 2030, we see earnings rising very substantially. Our models indicate at least 25% to 30% of uplift as rental reversion is captured and income flows from completed projects at Holden House, 50 Baker Street and elsewhere. Now considering the total accounting return. The 3 main building blocks are shown on this chart: earnings, capital growth and development returns. These are now supplemented by a fourth, a renewed focus on accelerated disposals to provide further options to boost our returns. Earnings first and assuming investment yields in our sector remain stable, 3% or a little more based on NTA is a realistic level. As the NTA grows, so will earnings. Next, capital growth, where we believe 3% to 5% of NAV is a reasonable outlook, allowing for the rental growth we're now seeing, backed by stable investment yields and allowing for a typical 1% or so adjustment for CapEx and voids. The third aspect is the increasingly attractive development returns, now growing again after being squeezed over recent years. IRRs up to expected letting are now regularly hitting 10% or more for our current and future projects, but rental growth could push these further. Our analysis shows a positive development contribution every year since our first major scheme in 2010. The final element is to free up capital from the higher disposals mentioned earlier into an improving investment market. This could be for future value creation schemes as well as potential share buybacks should that be more attractive at the time. We've set a GBP 1 billion sales target over the next 3 years, which could provide up to about GBP 250 million of excess capital. That's after allowing for planned schemes and the acquisition of Old Street Quarter in late '27. So now moving back to our 2025 results and the financial highlights. We show a solid performance for 2025, the net tangible assets up to 3,225p per share and a 5% total accounting return. Gross and net rental income was slightly higher than 2024, but EPRA earnings were affected by lower surrender premiums and higher finance costs after the midyear refinancing. Note also that our trading profits are excluded from the definition of EPRA earnings. Our debt metrics were all very sound, helped by the disposals totaling GBP 216 million and a busy year of refinancing. Finally, the dividend, which has been increased again by 1.2% and remains well covered by EPRA earnings. Next, the 2.4% uplift in EPRA NTA over the year. After dividends, the group retained 25p per share from earnings, including 8p from disposal profits and other items. The trading profits all came from our 25 Baker Street scheme, the majority from the sale of 24 out of the 41 residential units at George Street. The revaluation surplus in 2025 was equivalent to 51p per share. Of this, 20p or about 40% came from development surpluses. These figures are after slightly higher-than-normal deductions for additional CapEx and voids in 2025, together about 40p per share. Now the next slide, some additional valuation data. As in 2024, our ERVs grew at about 4% with the West End outperforming. Valuation yields remained stable, helped by the rental growth outlook and moderating central bank rates and inflation. Our topped-up initial yield on an EPRA basis at the year-end was 5.1% and the true equivalent yield was 5.71%. The portfolio remains good value with average topped-up rents around GBP 65 per square foot. Now EPRA earnings. These are set out here with the 3 main categories: property, admin and finance. Gross rents were up by GBP 3.5 million. And after property costs and impairment, net rental income was slightly higher than 2024 too. However, surrender premiums were GBP 2.5 million lower this year. So overall, net property and other income was GBP 1.7 million down on 2024. As mentioned earlier, we focused on cost efficiencies again in '25 and admin expenses were down by GBP 2.4 million on an EPRA basis despite inflationary cost pressures. Net finance costs were up significantly in the second half of the year. This is mainly due to the GBP 175 million of convertible bonds, which had an IFRS rate of 2.3%, being refinanced in June with new 7-year bonds at 5.25%. This took our weighted average interest rate up by about 50 basis points over the year. Average debt was also GBP 110 million higher than in '24, though this was partly offset by GBP 2 million -- GBP 2.9 million more capitalized interest. The higher finance costs took EPRA profits down to 98.4p per share. But if we add back the trading profits, which are excluded from EPRA EPS, adjusted EPS was 102.1p. The next slide shows movements in gross rents. After a delayed completion date, 25 Baker Street contributed GBP 5.4 million in 2025 and the retail units at Soho Place, another GBP 0.9 million. Other lettings and asset management transactions added GBP 7.6 million. GBP 10.2 million of income was lost due to space taken back or becoming vacant. Like-for-like gross rents were up 2.4%, impacted by our EPRA vacancy rate increasing from 3.1% to 4.1% through the year. We incurred GBP 182 million of CapEx in 2025, almost half of which was at Network and 25 Baker Street. The ungeared IRR up to PC at Baker Street was 11.3%, with network expected to deliver between 8% and 9% and we'll update these figures later in the year. These both represent good returns after significant yield expansion through the life of each project, helped by disciplined cost control and rents almost 20% above original appraisal levels. CapEx in 2026 is expected to be 22% lower at about GBP 142 million. 50 Baker Street is not yet committed, but we do expect it to move ahead in the summer and are particularly optimistic about return prospects here. Emily will take you through these later. Next, the ERV bridge, which we're now showing on a net effective rent basis to help make earnings forecasting easier. The previous headline rent basis is also shown at the bottom of the chart. Total rental income reversion is now GBP 70.9 million after incentives allowed at 20% and with GBP 216 million of future CapEx. Note that the pure reversion on the right-hand side from reviews and expiries remains at GBP 15.9 million, but this figure is after reclassifying GBP 3.8 million of reversion into the major projects category. Now refinancing. And as noted earlier, we were busy in June, issuing new unsecured 7-year bonds and redeeming the convertibles. As noted, this caused our weighted average interest rate to rise, giving an average through the year in 2025 of 3.8%, up from 3.3% for the whole of 2024. We expect our spot rates to fall in March 2026 when we repay the 6.5% LMS bonds. This should keep the average for 2026 at around 3.8%, but we believe lower in the second half than in the first. Redeeming those LMS bonds will also mean that by the end of Q1, all of our debt will be unsecured. At the moment, we're not expecting to issue any more fixed rate debt in 2026, any funding needed most likely coming from bank facilities. However, it's good to know that other debt capital markets remain both liquid and competitive with margins looking increasingly attractive. Our debt position is summarized on the last slide with all debt ratios and covenants comfortable. Cash and undrawn facilities rising over the year to GBP 627 million. Fitch retained our A- senior unsecured rating last year since when our gearing has fallen. Our borrowings had a weighted average unexpired term of 4.2 years at year-end and net debt to EBITDA was reduced to 9x. We anticipate it falling further through 2026. Thank you. And now back to Emily. Emily Prideaux: Before moving to our operational activity, let me set the scene with an overview of the London office market, where we have good reason to be optimistic as we look ahead. Firstly, London itself, where we have the highest concentration of top universities worldwide, providing an unmatched talent base. It is Europe's unicorn capital and #1 VC investment as well as Europe's leading financial center. It also ranks third globally for AI venture capital investment behind only the Bay Area in New York in the U.S. and is Europe's biggest hub for generative AI. We recognize the ongoing debate on this topic, and it will, of course, change how people work. Overall, we do not believe AI will remove the need for high-quality offices, and we believe London is one of the global cities best positioned to benefit given its depth of talent, innovation and global connectivity. As with any fast-moving driver of change, we will stay close to these developments and be ready to adapt as the opportunity evolves. London's strength is also reflected in sector diverse office demand, underpinned by a broad knowledge-based economy and finance, technology and creative industries all in growth. This global city attracts both blue-chip corporates and high-growth occupiers, and its diversity makes it significantly more resilient through the cycles. London is where global businesses want to be. And the office occupier market fundamentals are strong. 2025 saw robust activity, 11.4 million square feet of take-up with over 3.5 million square foot under offer. Importantly, 80% of deals over 20,000 square foot were expansionary, signaling genuine business growth. Vacancy remains low and prime vacancy sub-2%. Looking ahead, we expect a significant supply punch, rental growth and lease events working in landlords saver with occupier renewals extending income and rent reviews now delivering good reversion. The occupational market is inflecting positively, and we're well positioned to benefit. And what are occupiers looking for? Real estate quality matters more than ever, buildings with a rival impact, rich amenity, flexibility and quality, be that retrofit or new build. Location and connectivity, very important, proximity to crossrail, transport more generally, talent and amenity. But critically, all that London has to offer is what makes it a city, which attracts domestic and European businesses and HQs. The scale and depth of industry and skill is unmatched in Europe. We understand these drivers. Our portfolio is built around them, and our forward-look strategy is designed to capture the value they create. Finally, turning to the investment market. Liquidity is now improving. Investment volumes in 2025 totaled GBP 7.1 billion, a 40% increase on the year previous. Yields have stabilized. The market has inflected and investor confidence is improving, driven by a strong occupier market and supply crunch, as we heard earlier. 2025 also saw the return of the large lot size transactions with double the numbers seen in the year before. This is a trend we're expecting to continue in 2026 as debt costs reduce, boosting overall levered returns. GBP 23.5 billion of equity is now targeting London, an 18% increase on 2024, and Knight Frank reported in a recent survey that offices are the most targeted sector by investors in 2026. Geopolitical events elsewhere are enhancing London's appeal and its position as global safe haven. All this means that we are expecting a further increase in turnover in 2026 to over GBP 10 billion, and this will contribute positively to our plans for disposals. Now to our own portfolio activity. We completed GBP 216 million of disposals in 2025, and we exchanged contracts for disposals totaling GBP 145 million in 2026 so far. In addition, we have GBP 135 million under offer and are in discussions on GBP 100 million. These sales support our target of GBP 1 billion of capital recycling into an improving investment market where proceeds can be more effectively redeployed elsewhere into higher return opportunities. In addition, we will continue to selectively hunt for value-creative opportunities to acquire, be that to support medium, long-term value through development or to support income in the nearer term. Turning to leasing performance. 2025 was a resilient year with GBP 11.3 million of new leases signed, around 10% ahead of ERV. As the chart shows, leasing activity across the standing portfolio has been broadly consistent with long-term averages for a number of years. Excluding pre-let, this highlights the strength of underlying demand for our space. And we've started '26 with strong momentum, GBP 14.4 million under offer, including all of the space at Network as well as the GBP 1.5 million transacted and a further GBP 4.4 million in negotiations. These figures support a strong year ahead for leasing activity. Turning to Slide 29 and asset management. '25 was a record year for asset management with transactions completed across GBP 59 million of income, almost 30% above our previous peak. More importantly, though, was the quality of what we achieved. Our focus was on capturing reversion, extending income and aligning lease profiles with our longer-term asset strategies. Through early and proactive engagement with occupiers, we were able to structure transactions that balance flexibility with greater income visibility while mitigating void risk and future capital expenditure. Rent reviews of GBP 37.4 million secured over 7% above previous rents, reflecting the strong rental growth across submarkets and renewals and regears with long-standing occupiers, extended lease lengths and deepened relationships. Transactions such as Adobe at White Collar Factory and Burberry at Horseferry House demonstrate the strength of our occupier partnerships and reflect the positives for us of occupiers taking the stay put option, while major rent reviews at Brunel and 80 Charlotte Street enabled us to capture good reversion. Overall, this was a year where active management translated directly into stronger income security and enhanced reversionary potential. And this will be an important part of business activity as we look ahead in this market. Moving to developments. At 25 Baker Street, which completed in August 2025, offices were 100% pre-let at 16.5% above appraisal ERV, generating headline rent of GBP 21.7 million and an ungeared IRR of 11.3%. And at Network W1, the offices are now fully under offer. Practical completion of the building is expected within the next week. Full details of the financials on this will be confirmed once transacted in coming weeks. We've maintained good returns on these schemes in spite of significant outward yield shift. Looking ahead, we have a focused and disciplined development pipeline, which remains a core part of our business model and driver of future returns. We're making good progress on site at Holden House and strip-out works have commenced at Greencoat & Gordon. Both of these schemes are in well-connected locations in submarkets with strong demand and limited supply with completions targeted in 2027 and 2028, respectively. We're also on site now with the comprehensive refurbishment of Middlesex House, where we're giving new life to this tactful 1930s Art Deco warehouse building in the heart of Fitzrovia. Together, these schemes, 2 of which are traditional refurbishments, represents a substantial value opportunity for the group with double-digit attractive expected returns. And importantly, this growth potential is already within the portfolio, driven by projects under our control, providing clear visibility over future earnings and value creation. At 50 Baker Street, we're due to commence an exciting new build development later this year. This is a scheme positioned in a submarket with very limited supply, great connectivity and strong growth prospects, which deliver all those things on the occupier wish list, amazing arrival and amenity, large floor plates, flexibility and quality design and architecture, of course. Our base appraisal shows strong returns with rental growth expected to enhance them further given the strength of the Marylebone occupier market as well as the product to be delivered. Alongside our near-term development pipeline, we also have over 1 million square foot where we are actively exploring alternative primarily living-led uses and strategic partnerships to maximize long-term value creation. At Blue Star House working with an operating partner, planning consent is in place for apart-hotel development scheme. At Old Street Quarter, we are working with related Ardent in a development management capacity for the time being to progress a mixed-use living-led campus. Importantly, the structure of this allows flexibility over delivery, including joint ventures, forward funding or indeed plot sales, allowing us to deploy capital selectively and efficiently. And at 230 Blackfriars Friday Road, early feasibility work indicates significant residential-led potential with scope to materially increase floor area. Together, these assets provide meaningful optionality to partner, develop directly or realize value through sales. So in summary, operationally, 2025 has been a strong year, accelerating capital recycling as liquidity improves, resilient leasing activity, record asset management activity, successful delivery and pre-letting of major developments and a disciplined pipeline with attractive expected returns. Now over to Paul, who will wrap up. P. Williams: Thank you very much indeed, Emily. Now to outlook on Page 35. As you heard, there is significant activity across the business. We are busy. GBP 140 million of disposals signed since the start of the year with a similar amount under offer and a further GBP 100 million in negotiations. The stage is set for 2026 to be a strong year for leasing. And we're on site of 3 really exciting projects, which we have forecast will deliver an average IRR in excess of 10%. We have a clear plan for the accretive redeployment of disposal proceeds as we seek to balance near-term income with value creation in the medium term. This includes potential share buybacks. London feels different. The fundamentals are good. The office cycle has really turned a corner. Rents are growing strongly. Investment liquidity has improved markedly with London offices being the most demand sector. There has been a notable pickup in activity. We're seeing more inquiries from potential occupiers and increasingly broad range of investors are knocking on our door. And this is the foundation of our ERV increase for 2026 to plus 4% to plus 7% and our confident financial outlook. Now a personal reflection. As you know, I've made a decision to retire after 38 years at Derwent. I've been with the business man and boy, and I'm proud of what we have achieved over that time. I'm excited for 2026 and beyond and that the business is well placed with a great team. Thank you. We're now going to take questions from the room and then from those who are joined remotely. P. Williams: Questions, please. Thomas Musson: It's Tom Musson at Berenberg. A question first on the perceived AI risk to tenants. The market is beginning to price some of this in recent share price moves. Interestingly, a lot more in the U.S. Would you expect property valuers to react here, perhaps assuming greater tenant covenant risk or changing assumptions around lease renewal probabilities? Just would be interested if any of this has been part of conversations you've had with them. Emily Prideaux: Yes. I think, firstly, one of the benefits we obviously have is how close we are to our occupiers and indeed other occupiers in the market. So any area of change like this will always stay close to. I think in terms of the property sector more specifically in the valuation point you read, there's 2 strands to the AI debate at the moment. One is the direct demand versus the indirect impact, if you like. To date, we're not seeing that reflected negatively by any means in the valuation piece. I think the covenant point is as with any of the other big tech booms we've seen over the cycles. There will obviously be winners and losers in that. And from our perspective, we always take that covenant risk piece very seriously. But on a more general piece in terms of the AI story, I think we feel, as I mentioned, that globally, I think London is somewhere that should really position themselves well for that. But it's something we're going to stay very close to as things evolve. Thomas Musson: Second one, you mentioned potential share buybacks in the event of being in a surplus capital position. At what point would you consider yourselves to be in a surplus capital position? Do we wait until you've cleared this year's CapEx requirement, for example, or some of next year's too? Just interested how you think about that. P. Williams: Look, we have a plan to sell something over GBP 1 billion over the next 3 years. We started off really well this year. We have got some investment going into the portfolio for really accretive developments. But as we build up those resources, I think we should have a good look at that and be open-minded. Damian, do you want to add a bit to that? Damian Wisniewski: Yes. Tom, it's a good question. I think let's get some disposals out of the way. We've made a good start to the year. Personally, I think we need to get sort of 200 plus under our belt before we can seriously look at what we do. We do have Old Street quarter coming up in probably late 2027. So we need to look at that in our forward funding plans as well. So I think the GBP 400 million this year is a good start. We've mentioned there could be up to GBP 250 million of excess capital over the 3 years. That doesn't mean to say we have to wait for 3 years. So I think we will look at this as we go, and we will see how things progress. I don't want to commit to a particular number today, but I hope you can see how we're thinking about this. Thomas Musson: That's helpful. Maybe if I could ask one last one, just on the residential sales at 25 Baker Street. I think at the half year, you'd exchanged on 23 of the 41 units today. I think you say you sold 24, so one more. What's the demand like right now for those? And are you having to meaningfully adjust price there to generate interest at this point? And should we address our trading profit expectations for the rest of the units? P. Williams: I think we started off really well with prices well above our underwrite and there's some very strong prices, particularly for the bigger units, GBP 3,700 a square foot. We've got a little one that's left. They will take a little bit longer time, but they're great flats in great location, but it will take a little bit longer. Damian, do you want to add to that? Damian Wisniewski: Yes. Just one other point to make is that the 2025 result included the cost of all the affordable housing. So from here on, it's essentially profit. Now the market has definitely got slower, and I'm pretty sure we'll see pricing coming off a bit. But we've got quite good headroom here. So confident that at some point, we will see a pickup. A lot of beds for sale. So if anyone is interested, please let us know. Adam Shapton: Adam Shapton at Green Street. I had to put my hand down then when Damian bed didn't want to look I was volunteering. Firstly, congratulations, Paul and Nigel, on retirement, let me say that. Before I get into questions. Just a clarification on the GBP 1 billion of disposals number. Is that in addition to what's already exchanged and under offer or... Damian Wisniewski: No, GBP 1 billion includes the figures that we've done this year. So GBP 1 billion over -- we would have done GBP 280 million, I think, as the deals get done. So that's a good start. So we're hoping that we're going to get something close to GBP 400 million this year. So that's the plan. Adam Shapton: And just in that context, if I may say 3 years sounds quite conservative to do another GBP 750 million. What's the limiting factor there? I mean you talked about improving market. You quoted Knight Frank on all the equity... Emily Prideaux: Don't view the GBP 1 billion as a cap. I think what we're looking to do is proactively dispose here mature assets where the business plan is delivered and where we think we can deploy other more accretive opportunities. So it's not a fixed number per se. And depending on the market and where we're at in terms of other opportunities that may move. Adam Shapton: So both the number and the time scale might conservative. Is that fair? P. Williams: We're seeing liquidity improving because obviously big assets are GBP 100-odd million today. Last year, I think they doubled GBP 100 million the year before we difficult. So I think as we see liquidity go up, and if we can get a strong price for those assets, we're going to be realistic and sensible. But I think we want to make sure when we do sell, we sell well and we sell at the right price with the balance sheet in good place. I want to make sure that we do it strategically. Richard and his team are well set up to do that. And I'd say we will accelerate disposals and we see a strong price for something and we can use the money more accretively, we would certainly do that. Adam Shapton: Great. Just 2 more. On the flex growth, Emily, you mentioned going from 8% to 10% to 15%. I think I'm right in saying the 8% is a mixture of F&F and third-party operators. Emily Prideaux: Yes. Adam Shapton: So what's the shape of that? Emily Prideaux: The growth from 8% to 15% is more around our portfolio and what expires within that time frame of a size and location where we think will naturally move to flex. So it's not proposing that we're going out shopping per se for an extra 7% of that stuff. It's more that we're looking at where the sub 10,000 square foot units coming back in the right submarkets and they will likely convert. Adam Shapton: Okay. But we should expect to be more your in-house as it were rather than leasing? P. Williams: We've got a number of refurbishments at the moment, which I think we're ideally placed for that sort of thing. Adam Shapton: Okay. And maybe somewhat related to that, on admin costs, you made some good progress. How should we think about a floor of where that could get to in today's money? Given your strategic ambitions, you want to sweat the platform more, where could the... Damian Wisniewski: I think our target for this year is another couple of million. I think at that stage, that feels like it's quite lean. There would have to be quite structural changes before we can go much lower than that. But that's a reasonable target for now. Callum Marley: Callum Marley from Kolytics. A couple of questions. Outlined the new strategy today with disposals and buybacks. But the stock has obviously been trading at a material discount now for a few years, and you've had a while to act on it. Why are you committing to this now? Emily Prideaux: I think in terms of the strategy, in terms of -- we're looking at all optionality here. So we're disposing, but then obviously focusing on the balance sheet. You've seen track record of development and investment where we're committed and where we want to commit. Obviously, looking at the dividend and as Damian touched on, which you can pick up on the share buybacks come as and when we reach that surplus. So it's looking at the whole picture and that optionality around that, keeping open-minded to that. Damian Wisniewski: I think also the key really is how the investment market is now opening up. we have had 2 years where it's been quite challenging to sell large lot sizes. And as a result, the leverage has crept up a bit. The balance sheet is still strong, but maintaining a strong balance sheet has always been one of our foremost requirements. we now have more options coming open to us as well. So -- and the other thing, of course, is maintaining earnings. And you've got the situation now where the IFRS yield on most of the things we're looking to sell is probably very close to our marginal interest rate. So the earnings impact of disposals is much less than it was, say, 3 or 4 years ago. So I hope that gives you some idea as to how... P. Williams: I think that's the point with the market opening up more liquidity, give more opportunity to sell and consider what we do with that money. So I think that the market equity has improved a lot. Callum Marley: Got it. And then the 25% earnings growth target, is that built on sustained rental growth? And if so, what's the number? Damian Wisniewski: The rental growth to 2030, essentially, what we're doing is we're building into our models some growing reversion from rental growth of around about 4% per annum. We've also got, I think, expecting increasingly attractive returns from projects like 50 Baker Street and Holden, where the gearing impact as well, it improves those returns still further. You factor that in, about half of the rental growth comes from those 2 projects and about half of it comes from the rest of the portfolio. Callum Marley: So 4% is the... Damian Wisniewski: So roughly 4% per annum is what we're putting in our models going forward, yes. Callum Marley: And if I could just ask on Page 22, just looking at the prime office rents, seem to be flat from 2015 to 2019. What makes you think that '25 to 2030 that is going to be 4% a year going forward? P. Williams: I think -- firstly, I think there's a pretty tight supply crunch and that demand is pretty good. People are growing. 80% of the deals last year with 20,000 square foot people were growing. Rents do need to increase in order to -- a small proportion of people's outgoing. So I think if people want to be in good locations, they need to pay the right rent for the right location. So I think it is time for landlord to earn a bit more money. So I think we feel pretty positive about it. Last few years, despite the difficult macroeconomics, we've been consistently letting at 10% above ERV. We have strong visibility about inspections and viewings and tenant demand. So I think we feel pretty positive about. London is a place to be. People want to be in town. Emi, do you want to add to that? Emily Prideaux: Yes. I think the 4%, if you look at the sort of big houses prospects over the next 5 years, that's probably pretty conservative. I think the supply crunch is a big driver at the moment. London has got a supply shortage that we haven't seen before. Part of our repositioning is making sure we're in the right place for that. But I think the 4%, we're pretty comfortable with from a market perspective. And this year, we're in a place where every submarket in London is now projecting growth, whereas before it has been much more spiky following COVID. So you're really seeing that evening out now in terms of a more lateral growth across the city. Damian Wisniewski: Rents have fallen behind other costs quite substantially over the last 5 years. They're now beginning to catch up, and we're seeing our rents growing now at a slightly faster rate than overall cost. But really, that's been squeezed quite a bit over the last 5 years. If you go back to the last big rental cycle, which was sort of 2012 onwards to 2015, our earnings pretty much doubled in that period. And I'm not forecasting a doubling, that would be nice. We'll come back next year, hopefully. But I think our 30% increase feels very realistic given that we are seeing really quite a shift in the dynamics and overdue, I think. Zachary Gauge: It's Zachary Gauge from UBS. A couple of questions from me. One is on the ERV growth conversion into capital growth during '25. Obviously, 4% ERV growth. I think at the portfolio level, you're only 0.8% on capital growth. Can you touch on why the value was -- aren't giving you the uplift when yields were effectively stable and why you're confident that going forward, that will convert into the 3% to 5% capital growth that you've guided to? And then the second one, sort of again, picking up on the share buyback point and capital allocation. I noticed that the net debt-to-EBITDA target seems to have shifted slightly from getting it below 9 at the end of this year to now sort of 9.5 going forward. Bearing that in mind and the capacity that gives you, should we sort of see the GBP 250 million of excess capital from the GBP 1 billion of disposals as the high watermark for buybacks? And would that then be sort of flexible depending on where you sit on the net debt-to-EBITDA ratio and obviously doing potentially more disposals than GBP 1 billion. P. Williams: So Damian, do you want to start with... Damian Wisniewski: I'll start with the second question. So the 9.5 isn't a target. We've currently got it down to 9, I'd prefer it to be lower than that. We're expecting it to be lower by the end of this year. So 9.5 is really where I think we see the upper limit over the next few years. Could there be a bit more available? Yes. I think we need to see how we go on this. We'll update you as we go. But the 9.5 is very much an target. On the valuation point, I think I mentioned earlier, we've got about 40p a share of additional CapEx and discounting for voids and the time effect of rental growth coming through. That did impact us in 2025. We've looked over the last 10, 15 years. And the average amount by which we see valuations impacted by CapEx and voids is roughly 1% per annum. Last year, it was more like 2%, 2.5%. We have been looking at a number of new schemes to try and grow rents. And I think that was one of the reasons you've seen a bit of a step-up in 2025. But we don't think that is a normal level, and we think it will come back down closer to its 1%. The only other point to make is that our 3% to 5% is on NTA -- and the -- obviously, the rental growth is on the gross asset value. So there's an impact there as well, which helps. Zachary Gauge: Sorry, on the GBP 250 million being the top end of buybacks and dependent on additional disposals? Damian Wisniewski: Not a top end at this stage. I mean let's wait and see. I think -- I don't think it's all going to come in one go either. I think we need to get the disposals underway, look at the capital allocation at the time, and we'll take it from there. But -- so 3 years isn't forever either. So let's see where we go. Emily Prideaux: I think it's going back to the plan we've talked about, Zach, in terms of looking at all of those -- the options available to us alongside one another. P. Williams: Paul, I think you had your hand up. Yes. Paul May: It's Paul May from Barclays. Just 3 questions, I think, for me. You regularly provide the ERV target, but I think through the presentation, I've noticed sort of welcomed increased focus on earnings and cash flow moving forward. Do you think you'll consider providing a like-for-like rental growth target per annum moving forward? I appreciate you said the 4%, but just sort of give some color there in terms of converting ERV growth into actual cash flow would be sort of welcome. Regarding the disposal of Whitfield Street, obviously, I understand Lone Star is a pretty high cost of capital enterprise. Do you have any indication as to what they're expecting on that site and why they can hit their sort of 20% plus IRR targets versus what you would have expected to achieve on that site? And then just on the 2030 targets, is it reasonable to assume that that's relatively back-end loaded. There will be a little bit of bumpiness between '27 and '29. And then as those schemes complete, that should come through into 2030? P. Williams: Well, just touching on Wakefield Street first. I mean, obviously, they will have a fairly -- probably a bit more aggressive view on rental growth. We're very happy with the price. I think a net initial of the price of 5%. [indiscernible] on the 5% is good. bit of vacancy coming up. It's a 20-year-old building. I can't really speak for them as to where they think their returns could be. They're probably reflecting the same thing we are as much as the West End is very tight, rents are growing and a very good location. So they're probably targeting pretty aggressive rental growth. But for us, we think recycling support and getting some more money into the portfolio, we can secure a strong price, which we did, and we're investing elsewhere. So I think it's all about their view about where rents might grow. We're not renowned for being overly aggressive on where we see rents growth. So I say we're delighted with the start of the year, how much sales we've done, how much we've got under offer. We wish them well with the purchase. I'm sure they'll be delighted with it some time. As I say, we've done -- we've made our money there. It's a 20-year-old building, and we've got plenty of other opportunities to spend the money. Do you want to talk about… Damian Wisniewski: Yes. First of all, on the like-for-like rent, it's an interesting idea. I think we'll certainly consider it. I mean the point to make here is that the rental growth grows the reversion and it takes time for that to be captured into earnings. And so you tend to get this cycle where initially, the like-for-like rents lag behind ERV growth. But at the end of the cycle, they can often outpace it. So we found -- in that period, we mentioned earlier that 5 years when rental growth was very low. For the first 2 or 3 years of that, our like-for-like rents were still growing nicely because they were based on previous reversion. So you get this slightly different timing impact coming on. We'll think about how we might guide to that going forward. In relation to the earnings, you are right. A lot of the uplift comes from 50 Baker Street and Holden House and others coming through probably in late '29, early '30. So it is quite a step-up in '30. We do think though that there will be some nice solid earnings growth in '28, '29, but it's really then a step up in '30. Paul May: Perfect. Sorry, last couple. One, coming back to the initial question on AI. Do you think your portfolio or your tenant base of smaller -- generally smaller tenants, smaller floor rates actually offer some protection in that AI world given it's probably larger entities that are cutting back on some of the graduate recruitment. P. Williams: Well, short answer, yes. I think very big banks, et cetera, who knows. I think one of London's great benefits is to buy a diverse space. Average -- I think average size of our lettings across our portfolio, about 15,000 square foot. I think that gives quite a lot of resilience with such a range of different occupiers. Emily, do you want to add to that? Emily Prideaux: I think that covers it most other than to say, obviously, the way we look at our portfolio generally and AI falls into this is to make sure we've got everything to meet that match demand. So the high growth at the lower end, probably in the fitted space growing up to the 50 Baker Street. So I think like any other, I think we'll make sure it's balanced in that way. Paul May: I am sorry, just final one linked to that. The 10% to 15% on flex, given that 15,000 square foot sort of average tenant mix, and that's probably skewed by a few large ones and then quite a few even smaller ones. Could flex become a significantly larger part of your portfolio than the 10% to 15%? Emily Prideaux: At the moment, we think the 15% is probably where it still makes sense from maintaining everything that we have to look at in terms of cost ratios, operational efficiencies and overall net-net returns in terms of extra CapEx and everything else that goes into it. So at the moment, that's where we think we will always continue to kind of mirror the market and make sure we're delivering what we believe the market is. Over the years of flex and all the headlines it's grabbed, it's never really moved much from the sort of 4% to 7% of the total market activity. So it feels -- we're looking at that on all the financial metrics, but also where we think the market is. So -- of course, it could change in the future and we'll adapt as we need to, but that's where we feel it's right at the moment. P. Williams: I think that's a good point as a percentage of the market. It's relatively small. We got a lower headlines and it's done well. But we also like our headquarters, nice long leases, helps our valuations. Thank you, Paul. Any other questions we've got from the room more? Do we have anyone online on telephone? Operator: First question from the phone comes from the line of Marc Mozzi from Bank of America. Marc Louis Mozzi: My first question is around how is the Board weighting M&A optionality as a way to boost shareholder returns and addressing the gaps that have been created by the recent senior departures. Emily Prideaux: I think it's a question around how -- was the question just bear with me that the -- how do we think about perspective of addressing succession matters. P. Williams: I mean, obviously, we're very focused on our business at the moment. And obviously, I've made a decision that I'm going to retire and there is a process going ahead with finding a successor. So the focus is on the business. There's nothing to report to say about M&A, particularly. Unless we misunderstood your question, Marc, it wasn't a great line. Marc Louis Mozzi: It was a question. My second question is around effectively given AI-driven derating of New York office stock prices, do you still view share buybacks as the right call in that environment? And the next one related to that is how confident are you in the long-term earnings and total return specifically target that you've provided through 2030? P. Williams: Well, I think firstly, it's always got to be a balance between buybacks and investment and all the rest of it. And obviously, it's got to be seen as an opportunity at the moment. Damian, do you want to add anything to that? Damian Wisniewski: Yes. I mean the principal things we're trying to do, we're trying to accelerate disposals to give us more options. The first thing we do is maintain a strong balance sheet. The second thing is we invest in our accretive returns for our schemes. After that, we have options. And the AI is one of the many factors we take into account in looking at investment decisions. And we're all trying to work out what it means short term, medium term and long term. For now, though, I think hopefully, our capital allocation outlook is clear, and we will keep our eyes and ears open to see how things move forward. But I'm not sure we can say much more at this stage. Marc Louis Mozzi: I just wanted to have your thought. And the final question for me is, how much disposals are you assuming in your 2030 target? Damian Wisniewski: 2030. So we're assuming about EUR 1 billion in the next 3 years and I think a couple of hundred million a year per annum after that. Is that right, Jennifer? Unknown Executive: Yes. Damian Wisniewski: Jennifer does all the modeling, so she knows. Marc Louis Mozzi: GBP 1.2 billion, GBP 1.3 billion? Damian Wisniewski: About GBP 1.3 billion, GBP 1.4 billion over the 5 years. P. Williams: We got one more. Operator: The next question comes from the line of Alex Kolsteren from Van Lanschot Kempen. Alex Kolsteren: Two questions on this presentation. So you mentioned EUR 2 million of cost savings target in 2026. What's the reasonable amount to assume for 2027 on top of that? Damian Wisniewski: Yes. So we took about GBP 2.4 million came off our EPRA cost in 2025. We're anticipating a similar level in 2026. I think our models assume inflation after that, but we will be looking to make this business as efficient as we possibly can. So anything we can do after that to reduce costs will be done. There isn't a specific cost target, I think, in the 2027 model at this stage, but that doesn't mean to say we won't look at further efficiencies. Alex Kolsteren: And then one more on the capitalized interest. On Slide 9, you say that the capitalized interest in 2027 is about GBP 8 million higher than in 2026. On Slide 51, where you break down your CapEx pipeline, the 2026 number is GBP 6 million and 2027 number is GBP 8 million. So where does the remaining GBP 6 million increase come from? Damian Wisniewski: Yes. I mean these figures in the back here are for essentially the committed schemes. If you look at the top half of the report. There is -- in the bottom, it says consented 50 Baker Street. That is not yet in the top half of the project because it's not been committed. When it does get committed, and we're assuming it will do, then it will go into the top half, and we'll show you the capitalized interest. So that figure in the outlook includes capitalized interest for 50 Baker Street, the appendix doesn't. Unknown Executive: There are 2 questions on the webcast. The first says, while you've mentioned the possibility of share buybacks, are you taking any other active steps to reduce the gap between the current share price and the net asset value? P. Williams: Well, we're hoping this presentation will help. I mean we're selling, we're letting. We think the market is improving. The fundamentals are good. So actively, we're looking at other options of whether buybacks or something similar. Emily? Emily Prideaux: That's exactly that. The plan you've heard today is laser-focused on shareholder returns and what we get and where our focus is in that regard. Unknown Executive: And then the last question is, within the 2030 guidance, does it take account of a potential share buyback? Damian Wisniewski: No. P. Williams: That's an easy answer. Thank you, everyone, for today. We're all around if anyone wants to have a chat afterwards, pick up the phone or obviously on tour as well. So thank you for your attending today. I know it's a busy week for everyone, and have a good day. Thank you very much.
Operator: Hello, and welcome to the Acushnet Company Fourth Quarter 2025 Earnings Call. My name is Josh, and I will be the moderator for today's call. [Operator Instructions] At this time, I'd like to introduce your host, Mr. Cameron Vollmuth, Director of Investor Relations. Cameron, you may proceed. Cameron Vollmuth: Good morning, everyone. Thank you for joining us today for Acushnet Holding Corp's Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining me this morning are David Maher, our President and Chief Executive Officer; and Sean Sullivan, our Chief Financial Officer. Before turning the call over to David, I would like to remind everyone that we will make forward-looking statements on the call today. These forward-looking statements are based on Acushnet's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations. For a list of factors that could cause actual results to differ, please see today's press release, the slides that accompany our presentation and our filings with the U.S. Securities and Exchange Commission. Throughout this discussion, we will make reference to non-GAAP financial measures, including items such as net sales on a constant currency basis and adjusted EBITDA. Explanations of how and why we use these measures and reconciliations of these items to the most directly comparable GAAP measures can be found in the schedules in today's press release, the slides that accompany this presentation and in our filings with the U.S. Securities and Exchange Commission. Please also note that references throughout this presentation to year-on-year net sales increases and decreases are on a constant currency basis, unless otherwise stated. As we feel this measurement best provides context as to the performance and trends of our business and when referring to year-to-date results or comparisons, we are referring to the 12-month period ended December 31, 2025, and the comparable 12-month period in 2024. With that, I'll turn the call over to David. David Maher: 2 Good morning, everyone. Cameron has been with our team for a while, and it is my pleasure to welcome him to his first quarterly earnings call. We appreciate your interest in Acushnet and look forward to sharing our 2025 results and future outlook today. As a starting point, we are pleased with our fourth quarter performance as our teams executed our year-end plans and did good work preparing for the 2026 season and several product launches. As Sean will outline, revenues were up 7% for the period, and we generated nice momentum in our operating segments. Turning to Slide 4. For the full year, Acushnet achieved net sales of $2.56 billion and adjusted EBITDA of $410 million in 2025, growth of 4% and 1.5%, respectively. These results were made possible, thanks to the talented and dedicated associates who make up Acushnet and our committed trade partners who are on the front lines wherever golf has played. There are several highlights within these operating results, led by the Titleist Golf Equipment segment, which grew 6% on the year as investments in product development, precision manufacturing and fitting paid dividends across our golf ball and golf club businesses. As you will note from our revenue growth, the company is benefiting from recent capacity expansion projects, which will continue with a focus on cast urethane golf ball production and custom golf club assembly. In 2025, New Pro V1 posted gains across all regions, contributing to a 4% increase in golf ball net sales on the year with EMEA, Japan and the U.S., our fastest-growing markets. We are pleased with increasing demand for our AIM or alignment integrated marking golf balls. And operationally, we continue to benefit from the expansion of our automated custom imprinting capabilities, which is driving efficiencies and reducing lead times. Within equipment, 2025 was a strong year for Titleist Golf Clubs, which grew more than 7%, led by the successful launch of new T-Series irons and steady growth in metals and Scotty Cameron putters. Our Vokey wedge franchise also posted strong results in year 2 of the SM10 product cycle. Ongoing investments in product development and our global club fitting network frame how we characterize the Titleist Golf Club opportunity. Acushnet gear business increased 6% on the year with especially strong increases by Titleist Gear in EMEA and the U.S. and growing momentum for Club Glove travel products. Now moving to FootJoy. We are pleased with the direction this business has pointed. Sales were down 1%, mainly due to reduced discounted sales versus last year. On the strength of products like Premiere and HyperFlex, we are seeing a favorable mix shift towards our premium high-performance footwear franchises. And the FJ mobile FitLab program is delivering a value-added fitting experience, which helps golfers select the best footwear performance and comfort option for their games. And growth in gloves and apparel added to FootJoy's momentum and improved profitability for the year. Rounding out our portfolio, we continue to generate strong growth with our shoes brand up 9% on the year, led by double-digit gains in the U.S. Titleist Apparel also delivered a promising year, led by growth in China and our business in Korea. As to Acushnet's regional performances, full year 2025 results affirm our previous commentary about the Titleist Equipment segment, posting gains in all major regions, led by the U.S. and EMEA and softer conditions in Japan and Korea, where our equipment gains have been offset by declines in the correcting apparel and footwear categories. Acushnet's strong financial performance in 2025 supported ongoing investment across our business and the company's commitment to returning capital to shareholders. For the year, dividend and share repurchases totaled $268 million, bringing our total return over the past 4 years to more than $1.1 billion. And furthering Acushnet's commitment to our shareholders, I am pleased to announce that our Board of Directors has approved an 8.5% increase to our quarterly dividend payout in 2026 to $0.255 per share. This marks the ninth consecutive annual dividend increase since the program was initiated in 2017. These actions reflect the Board's confidence in Acushnet's ability to execute and their positive outlook towards the company's leading positions within the structurally healthy golf industry. As you will note, the company remains focused on investing to position the company for future growth while also returning capital to shareholders as appropriate. Now looking ahead, we start by pointing to the game's global momentum with worldwide rounds projected to have increased about 2% in 2025 with growth in EMEA, the U.S. and Japan and a flat year in Korea. In the U.S., our largest market, the number of golfers again increased, contributing to this rounds of play momentum. The global golf industry, as defined by golf courses, teaching centers and golf retailers continues to be healthy with strong financials supporting ongoing investments as the industry adapts to meet ever-evolving golfer preferences. Within Acushnet, we are enthused by our new product pipelines and sustaining momentum our brands carry into 2026. As is customary in even numbered years, we successfully launched a comprehensive lineup of new Titleist golf balls in this first quarter, including Pro V1x Left Dash and new AVX, TourSoft and Velocity models. It's also a busy year for Titleist golf clubs with new Vokey SM11 wedges and a new lineup of Scotty Cameron mallet putters launching in Q1. Both products debuted on worldwide tours earlier this year and initial responses have met our very high expectations. Plans are well underway for our new driver launch in late June earlier than our customary Q3 timing. Titleist drivers are #1 on the PGA Tour, and we are enthused by the great work from our product development and operations teams to provide added flexibility around launch timing. We will share more details about this product on our May call. One of our key narratives in recent years has been our focused investments in golf equipment R&D, operational efficiencies and capacity expansion and point to these investments as drivers to our recent growth and confidence in our ability to deliver enhanced innovation, product development and best-in-class golfer experiences, core attributes to the long-term success of Titleist Golf Equipment. Acushnet's gear business is well positioned coming off a strong 2025, and we are planning for growth led by gains in the U.S. and EMEA. Within gear, we pursue exceptional performance and quality to differentiate our products with discerning core golfers. The FJ brand continues to move forward in 2026 as we leverage high-performance Premiere and Pro/SL franchises to strengthen our position as the #1 shoe in golf. And we continually evolve our outerwear and apparel offerings with a focus on our premium segments as we position FJ for the future and manage near-term tariff headwinds. As to our investments in 2026, in support of Acushnet's priorities and our longer-term growth opportunities, we will prioritize strategic capacity expansion and the build-out of our global fitting networks for golf equipment and footwear, expand our B2B and D2C capabilities to new regions and invest in the future of the Titleist Performance Institute, where demand for PPI's golf-specific health, fitness and swing expertise is outpacing our available capacity. Collectively, we expect these investments will support our future growth plans and enable operating leverage over the long term. In summary, we are optimistic about the structural health of the golf industry and are focused on expanding our momentum in the Titleist Golf Equipment segment, strengthening our gear and FJ wearables business and investing in key initiatives that we believe will pay dividends over the next several years. I have confidence in the Acushnet team and their ability to provide dedicated golfers with leading products and services as we seek to build long-term value for shareholders. Thanks for your attention this morning. I will now pass the call over to Sean. Sean Sullivan: Thank you, David. Good morning, everyone. Turning to our 2025 financial results. Fourth quarter net sales were up 7% when compared to the fourth quarter of 2024, primarily driven by higher net sales in Titleist Golf Equipment. Adjusted EBITDA was $9.8 million, lower than last year's fourth quarter of $12.4 million. Looking at our segments, Titleist Golf Equipment was up 10% in the quarter, largely due to higher sales volumes of our T-Series irons and SM10 wedges, partially offset by lower GT driver sales, which comped against last year's launch. FootJoy net sales grew 4.5% during the fourth quarter, driven by favorable mix shift and higher average selling prices in footwear. Golf Gear net sales decreased 5% in the fourth quarter. Overall, 2025 fourth quarter gross profit of $211 million was up $3 million compared to last year's fourth quarter. As a reminder, during last year's fourth quarter, we recognized a onetime benefit related to a PTO policy change that impacted gross profit by approximately $7 million. Gross profit for the full year was $1.2 billion, up 3% or $34 million, primarily resulting from higher sales volumes, higher average selling prices and favorable mix. Gross margin fell to 47.7%, down 60 basis points from last year, primarily related to incremental tariff costs of approximately $30 million. SG&A expense of $206 million in the quarter increased $13 million compared to the fourth quarter of 2024. Last year's SG&A expense included a onetime PTO policy change benefit of approximately $9 million. SG&A expense of $833 million for the full year increased $32 million or 4% from 2024. Excluding the $9 million onetime PTO policy change benefit, the $23 million increase was primarily related to higher employee expenses, including the support of our fitting initiatives, higher A&P expenses related to product launches and higher information technology-related expenses. Interest expense was up approximately $6 million for the full year due to a year-over-year increase in borrowings. Additionally, we recognized a $17 million charge from debt extinguishment related to our fourth quarter refinancing, which I will discuss in a moment. Our full year effective tax rate was 21.9%, up from 19.2% last year. The increase in ETR was primarily driven by changes in our jurisdictional mix of earnings and a reduced income tax benefit related to the U.S. deduction of foreign-derived intangible income. Moving to our balance sheet and cash flow highlights. We continue to maintain a strong balance sheet and cash flow profile, enabling us to invest back in the business while also returning capital to shareholders. In the fourth quarter of 2025, given attractive market conditions, we proactively strengthened our balance sheet by extending our revolving credit agreement out to 2030 and refinancing our senior notes into a 2033 maturity at a more favorable interest rate. Our net leverage ratio at the end of 2025 was 2.2x. Our inventory levels increased $33 million or about 6% from year-end 2024, primarily due to higher tariff costs as well as increased inventory to support the accelerated metals launch in Q2. Capital expenditures in 2025 were $74 million, in line with 2024. Free cash flow, which we define as cash flow from operations less CapEx, totaled $120 million in 2025. This was down from $170 million in 2024 due to the increased inventory levels, additional spend related to the ongoing implementation of our new ERP system and our 2025 voluntary retirement program. During 2025, we returned $268 million to shareholders, consisting of $56 million in cash dividends and $212 million in share repurchases or approximately 3.1 million shares. As of February 21, 2026, the remaining amount on our share repurchase authorization was approximately $241 million. Turning to our full year 2026 outlook. Full year net sales are projected to be between $2.625 billion and $2.675 billion on a reported basis. On a constant currency basis, our current expectation is that consolidated net sales will be up between 2.5% and 4.5% compared to 2025, with growth across all reportable segments as well as growth both domestically and internationally with strength in EMEA and Rest of World markets. Turning to tariffs. As we discussed previously, we expect approximately $70 million of tariff costs in 2026, reflecting the tariff environment in place prior to the Supreme Court's February 20 ruling. While the decision impacts certain tariff programs, the timing, implementation and durability of any changes remain uncertain. As a result, our 2026 financial guidance reflects the continued assumption of approximately $70 million of tariffs. As we gain greater clarity on the path forward, we will update you with any material changes to our outlook. We expect our full year 2026 adjusted EBITDA to be between $415 million and $435 million. At the midpoint, our adjusted EBITDA margin would be approximately 16%, flat with 2025. As we remain focused on driving sustainable long-term growth, we continue to invest in the business through a number of strategic initiatives, including expanding our global fitting network across our Titleist Golf Equipment and FootJoy segments, strengthening our global B2B and D2C capabilities and enhancing consumer engagement through the Titleist Performance Institute. In 2026, we will continue the implementation of our new global cloud-based ERP system, which we expect to enhance our customer service, supply chain and finance capabilities and support operating efficiencies across the business. As a result, we anticipate approximately $6 million of incremental operating expense in 2026 related to the implementation. Given these investments, we expect full year 2026 SG&A growth, excluding the incremental ERP expense, to be generally in line with our sales growth projections as we believe these initiatives position the company for sustained growth and operating leverage. Looking ahead, our capital allocation strategy remains unchanged. We continue to prioritize investing back in the business and returning capital to shareholders through our dividend and an opportunistic share repurchase program. From a financial policy standpoint, we remain focused on maintaining net leverage at or below 2.25x on average, while allowing for flexibility to account for seasonality and other business needs that may arise. We expect capital expenditures in 2026 to be approximately $95 million. This step-up primarily reflects investments in golf ball manufacturing capacity and increased club production throughout the world as we scale our facilities to support the continued demand for our products. We view $95 million in 2026 as a high watermark with capital spending expected to step down in the subsequent years. In addition, we expect to invest approximately $25 million in capitalized costs associated with our ERP implementation in 2026. Turning to free cash flow. We expect 2026 to improve meaningfully versus 2025 and normalize back towards recent run rates. This improvement reflects the absence of several onetime cash outflows incurred in 2025, which I highlighted earlier. Moving to calendarization. We expect reported first half 2026 net sales to be up mid- to high single digits compared to the first half of 2025, with growth primarily coming from Titleist Golf Equipment driven by the launch of new SM11 Vokey wedges and the acceleration of our new metals launch to June. We expect first half 2026 adjusted EBITDA to also increase mid- to high single digits year-over-year as increased sales resulting from new product launches more than offset the impact of higher tariff costs. From a quarterly perspective, we expect first half growth in both net sales and adjusted EBITDA to be heavily weighted towards the second quarter, again, driven by the Vokey wedge launch and the acceleration of our metals launch into June. We expect first quarter net sales to increase low single digits, primarily related to the strength in our Titleist Golf Equipment segment. In closing, as David mentioned, the golf industry is structurally sound. Our product portfolio is well positioned, and our performance in 2025 reflects strong results by our entire team. We remain focused on execution in 2026 despite continued economic uncertainty with tariffs while also making the necessary investments intended to continue to deliver long-term growth for all stakeholders. With that, I will now turn the call over to Cameron for Q&A. Cameron Vollmuth: Thanks, Sean. Operator, could we now open up the line for questions? Operator: [Operator Instructions] The first question comes from the line of Simeon Gutman with Morgan Stanley. Lauren Ng: This is Lauren Ng on for Simeon. First, we just wanted to get more color on the 2026 product calendar. I know you guys alluded to this earlier in the call. But can you comment on your innovation pipeline for the new driver and new wedge launches? David Maher: So as we often do, we'll point you in an even numbered year '26, 2 years back to 2024, that's the best like-for-like view of our timing and product pipeline. And that holds true really in golf balls and wedges and putters for this year, also across our gear and wearables business. What's different, and we did call it out, is that we've elected to accelerate the launch of our new driver into late June. Typically, that happens in early August. So more to follow in terms of timing and product details, et cetera, but we wanted to give you that visibility to let you know that the model will be a bit different in '26 solely because of the driver launch timing change. We haven't brought that story to our trade partners. They're aware of it, but we haven't brought the product story to our trade partners. So until we do that, we're going to keep that under wraps. Lauren Ng: That's helpful. And just a quick follow-up. If you could just give us any more color on your expectations for the U.S. market specifically in '26 and maybe how we should think about volume versus price for these categories. David Maher: Yes. I'll start and maybe Sean can get into volume, price. But U.S. market, we've said for a while, has been our healthiest and it really starts with a strong consumer base, right? Rounds of play in the U.S. over the last 5, 6 years are up 25% and really driven by, I think we said it 7 or 8 years in a row of golfer increases. So from a golfer base and a participation standpoint, very, very healthy. I might add also, and I've talked about this before, in the late 2016, '17, '18 period, the industry corrected. We saw a contraction of retailers, manufacturers. So the industry got lean and fit, at the end of the 20-teens, and then we've seen this pandemic-led surge the last 5, 6 years. So came in fit and then went on a bit of a growth birth. So we like the fundamentals, industry participants, whether it's golf courses or teaching centers or golf specialty retailers are financially sound. So structurally, the U.S. market is probably our healthiest around the world. But part 2 to that, it's also benefiting from a very, very strong golfer base consumer participation momentum that we've seen over the last handful of years. So -- and the final point I would add is just in terms of how we think about the market today. It's February. The market is from an inventory standpoint, where it should be. Inventories are full and vibrant in open markets and lean and almost dormant in closed markets. That will change here in the next 4, 6 weeks. But no, we're enthused about the U.S. market and really led by what's happening at the golfer base in the U.S. Sean Sullivan: And Lauren, maybe what I'd add just on a segment basis, really, the focus for you should be in the golf equipment, again, reiterating and reinforcing the 2-year product introduction cycle. So '26 is obviously not a Pro V1 launch year. Historically, we have seen flat to down volumes in the ball business. But if you look at where we're at versus 2 years ago, we feel very good about where the golf ball business is performing and delivering. And then on the club side, again, you see the strong growth we experienced in '25. But if we look at volumes versus 2024, we expect good growth from the club business with the metals launch in '26 versus '24. Operator: The next question comes from the line of Randy Konik with Jefferies. Randal Konik: I think, David, for you, you had a meaningfully more constructive tone around the FootJoy business. It seems like all the efforts around product architecture, the FitLab are really paying off. So kind of maybe walk us through a little deeper on where we are with the FootJoy business. It seems like people are moving towards the premium products. And then after that, can you give an update on Japan and Korea? I think you said Japan will be up this year. I think that's a change. Korea flat to an improvement from down. But that -- you talked about apparel and footwear still languishing a little bit in those markets. Maybe give us an update on where we go from here with those markets in those categories. David Maher: Yes. Great. Thanks, Randy. So starting with FootJoy, we noted a year or so ago that coming out of what was an 18, 24-month correction period in the footwear industry following the pandemic surge, right? We had a whole lot of demand and just the way that supply chain works, we chased that demand as an industry. Demand normalized yet supply kept running. So we had an inventory correction issue that we dealt with as an industry, we feel we got through it about a year or so ago. So what it meant for FootJoy and FootJoy has got a wonderful long history, over 100 years, been the #1 shoe in golf for over 75 years. So we continually lean into the high-performance heritage of that brand as we think about innovation in the future. And we said a while ago, we're going to be more focused on the bottom line than the top line, again, coming out of this correction period. The team has done a really nice job of that. I made the comment earlier that while sales were down slightly, it really is -- it was a commentary or a function of lower closeout reduced volume sales. So I've called out a handful of our products, whether it's Premiere, whether it's Traditions, whether it's HyperFlex or Pro/SL. We're really leaning into our premium performance products, and we're rationalizing the product line down at some lower price points and raising the floor, if you will, on some of the lower price points. So structurally, we like where we are. I haven't really commented about what's happening with apparel, but it's a similar story. And the team is doing a really good job. So I'm pleased with the direction and trend lines of the FootJoy business, again, moderating top line, slower top line, but a more accelerated bottom line. The caveat to that is, of course, tariffs. So that business, more than others, heavily burdened by tariffs. We're doing a good job mitigating, offsetting the best as best we can. And then the final piece is FitLab, right? We're -- we've benefited as a company with ball fitting and club fitting going back into the '90s. Footwear fitting has arrived in full force with footwear, both in the U.S. and around the world. So FitLab is just another -- is another -- I talk a lot about products and services. That's another service, that helps optimize our products and make sure golfers have the very best experience, whether it's from a performance standpoint or a fit standpoint. So that's, again, high level on FootJoy. Your comments, Randy, on Japan and Korea, maybe just some level setting. Both those markets, we had some nice growth in equipment in certainly balls and clubs in 2025. Gear, wearables, FootJoy softer businesses. We run a Korea, Asia specific apparel business, Titleist apparel over there. So we've been pleased with the equipment business in Japan and Korea, but wearables have been soft for us and the industry. I'll make a couple of comments about Japan as we look ahead. We do expect growth, again, similar led by equipment, maybe tempered expectations in gear and wearables. And similar to Japan, we -- really a similar story in Korea, where we're a little bit more bullish about equipment and are taking a tempered measured, conservative outlook vis-a-vis wearables and footwear. So -- but in terms of rounds of play and what's happening in those markets, if I look at Japan, up slightly, rounds up slightly, that's a positive last year, up about 10% versus 2019. Korea is a little bit of a different story, similar, about last year, up about 20%, 25% versus 2019. So healthy markets, equipment landscape similar in Asia as it is in the U.S., the key differentiator is really wearables. Footwear and apparel has been softer for the last couple of years, which leads to our tempered expectations in those segments. Randal Konik: Super helpful. Just last question. A lot of the commentary has come through around, I guess, pricing. So is your view that the -- we still are in a very firm pricing environment across all categories, it looks like, in particular, balls and clubs, it feels pretty good. The consumer is very much willing to pay higher prices for more innovation, et cetera? David Maher: Yes. We're careful, right? We've said this before. We're careful with pricing, but we're dealing with the realities of input cost and distribution costs and labor and all that, but not to mention tariffs. So as we think about pricing, we took action more notably with FootJoy and gear in the second half of '25. You'll see some pricing action in equipment in the first half of '26. Yes, our job is any time you take price, you got to work a little bit harder to show value and whether it's improved product or a better fitting experience. We don't take it lightly, but so far, so good in terms of how we've both mitigated higher cost and in -- within that had to pass along some of those costs. So we don't take it lightly, but again, so far, so good. And again, first half of '26, you'll see some equipment price increases across our lines really attached to new club products. And then on golf balls, it's going to be more a U.S.-Canada story around Pro V1, where rest of world, we took some pricing measures last year. So we're trying to be thoughtful and strategic. We look at it case by case. We look at it market by market. But so far, so good. But again, as I said, every time we take price, it compels us to work a little bit harder on the product side and the experience side to make sure we're showing value. Operator: The next question comes from the line of Joe Altobello with Raymond James. Joseph Altobello: First question on the quarter. I was not expecting 19% club growth. And based on your guidance, I'm not sure you were either. So maybe talk about what drove that upside? Was there a timing issue? And why didn't we see that flow through on the EBITDA line? Sean Sullivan: Yes, Randy, I'll take it, Sean. I'm sorry, Joe. So yes, no, I think we saw in the quarter top line, we saw better-than-expected performance across all segments. particularly in clubs, as you called out, just really great execution by the team, continued strong demand. I think David talked about the T-Series iron. So just really pleased with how that played out. So as it relates to the conversion rate, again, we had the impact of tariffs in Q4, as you know, was $15 million, the largest quarter of the year against the total of $30 million. So not particularly a surprise to us in terms of how the bottom line delivered relative to our expectations. Joseph Altobello: Okay. That's helpful. Maybe on the subject of tariffs, I think you mentioned this morning, $70 million total, so that's, call it, $40 million incremental. How much of that is IEPA? Sean Sullivan: That is all IEPA. The incremental $40 million is the IEPA tariff. So as I said in my prepared remarks, we're going to -- similar to the approach we took last year, we're going to let things settle in, and we'll update you as appropriate rather than trying to follow the towing and throwing on this topic. So that's the current situation. Joseph Altobello: Have you filed for a refund yet? Sean Sullivan: No, we have not. But we're obviously monitoring the market, obviously, talking daily with advisers and assessing our approach and the ability to get a refund for sure. So still early days. Operator: The next question comes from the line of Matthew Boss with JPMorgan. Amanda Douglas: It's Amanda Douglas on for Matt. So David, with the healthy golf industry backdrop, as you cited, could you speak to your top priorities into 2026 to capture additional market share within the equipment category? And specifically, any initial feedback you've received from channel partners on your new launches as we look ahead to the core selling season? David Maher: Yes. Amanda, so just in terms of how we think about growth and share, I'll really bring it back to really what our core principles are, and that is, number one, get the product right, get it as good as we can get it. We validate it through the pyramid. And then we really invest behind our fitting experience. So we're trying to bring to golfers great product, and a world-class fitting experience that helps them decide that what we're bringing to market is better than what's in their bag, and that's it. So no magic tricks up our sleeve beyond get the product right, get the golfer experience right. Within that, we work real closely with our trade partners to educate them, to partner with them to make sure our golfer connections are effective and working. So that's as much the long-standing proven playbook. Amanda, help me. Part 2 of your question was about what? Repeat that, please. Amanda Douglas: Just any feedback you've received from channel partners on your new product launches. David Maher: So I'll just level set. It's February in the golf industry. Most of the industry is still under cover of snow as we are here. But early days, we like. We've launched a whole series of golf balls as planned, as expected. We're pleased. Almost too early to say on wedges and putters. Those are just arriving in the market here now. So I don't have a lot of great color to talk about how new products have been received. But what I can say about the market is when the weather is okay, people are playing golf. And when it's not, they're not. So we had a little bit of some ice storms across the Southeast in January, as you'd expect, that slows things down. But it's January. But by and large, when weather is okay, people are playing golf and the game is alive and healthy. In terms of really getting a sense for the market and what's happening. We've always said first quarter is really about shipment in. Second quarter gives you a read on what's happening in the market, how the consumer is behaving and how they're responding to your products. So we tend to reserve our commentary or assessment until a little bit later in the year. But yes, no, for this time of the year, we like where we are with the exception of, again, we're under 3 feet of snow here in New England. Amanda Douglas: That's helpful. And Sean, just as a follow-up, maybe if you could speak to your overall expectations for gross margins in 2026, maybe relative to the 60 basis point decline in 2025? And any differences you see between front half and back half gross margin drivers? Sean Sullivan: Yes. Just to reiterate what I said in my prepared remarks, as we look at 2026, we're expecting gross margins to be relatively flat to 2025. So I think in the context of higher input costs and particularly in our Golf Equipment segment as well as the incremental tariff landscape that we've talked about and some of the pricing actions we've taken, we feel very good about the ability to deliver and hold margins flat year-over-year. As it relates to gross margin first half, second half, again, I would guide you to what we talked about in terms of the growth. So seemingly, given what I've talked about in terms of first half sales and EBITDA contribution, I'll leave it to you to model how that gross margin may impact. You're probably going to see slightly higher in the first half, and maybe less so in the back. But overall, on a full year basis, like I said, consistent with 2025. Operator: The next question comes from the line of Noah Zatzkin with KeyBanc Capital Markets. Noah Zatzkin: I guess just to kind of follow up on pricing and not only specific to you guys, but across the industry. What are you kind of seeing from competitors in terms of pricing? If you've seen it kind of broadly up, like have you, I guess, heard chatter or have a sense for how kind of retail partners are responding to that? And then kind of like within that framework, how do you think that positions you relative to some others? Meaning, are others kind of been more aggressive on pricing, similar? Just trying to understand kind of the pricing landscape. David Maher: Yes. So I guess, Noah, a couple of observations. One would be -- and I said this about Acushnet. I do think you could make this analogy to the total industry, and this is just from what we've seen. Again, the early pricing moves were gear and wearables just due to the life cycles of those segments. And we saw industry-wide that play out in the second half of 2025. You didn't see as much pricing action in equipment, balls and clubs in '25. So I think you're starting to see that now. So again, I think our profile and flow is similar to what you'll see in the industry. In terms of what we -- how we think about our positioning in all this, we're a premium positioned product, and we work hard to earn that position. And I know our competitors will as well. But by and large, yes, we are seeing price increases flow through retail. It's early, right? As I've said, it's early, it's February. But we are seeing some price increases flow through retail. I don't think anybody is surprised by that. We all saw that coming in as much as the fourth quarter. But in terms of how it stacks up and how the consumer responds, it really is -- it's going to take a few more months to get a read on how the consumer processes company A versus company B versus company C. But we do believe and feel pretty good about our position and our ability to take price. And I say that principally because of the belief we have in our products and the belief we have in the experience we can bring to golfers. So a little bit of more to follow in terms of how the market reacts, but that's common for this time of year. So I think that's the best we can frame it for you. Noah Zatzkin: No, that's really helpful. And you touched on this, I think, a little bit kind of as it relates to top line trends across different regions. But anything to call out in terms of maybe health of the sport across international markets? It's obviously early in the year, but any changes in how you're thinking about different markets? David Maher: Yes. I would just -- a good year for golf in 2025, right? U.S. was up, Canada, U.K., Mainland Europe, up, up, up, all good. So that's the first thing I'll point to. Many of those regions are now in their off-season. So again, I'll have a different answer 2, 3, 4 months from now, but they certainly come in with favorable positive trends. I will say we continue to be -- we see the consumer strongest in the U.S. That's not a surprise. We see durability -- the most durability across equipment, balls and clubs. And we've called out the watchouts of Korea and Japan, notably as it relates to really apparel in those spaces. But that's the regional view. But any time I can sit here in February and say rounds were up in most regions around the world, certainly in Western markets. That's terrific. And just to round out, Japan and Korea about flat last year. So didn't have bad years. They just didn't post the big growth in '25 that we saw elsewhere. Operator: The next question comes from the line of Doug Lane with Water Tower Research. Douglas Lane: Staying on around the golf. The resilience is impressive, another good year in the U.S. and elsewhere. But last year, if I remember right, the U.S. started out slowly and then it made it up -- more than made it up in the back half. So why was the difference between the first half and the second half last year in U.S. round of golf? David Maher: Doug, weather. Yes, really, that's simple. You had some tough weather. You had some tough weather in the Southeast that slowed things down, and that's just a fact of life in the golf business, Mother nature has her say. But that was the issue. We had a slow start due to weather, and then we saw weather normalize and nice to see the comeback in the U.S. market. Douglas Lane: And have you talked about who's playing the more rounds of golf? Is it more retirees? Is it more people in the South? Is it more amateur, teenagers? Really what's driving the increased rounds of golf, the persistent increased rounds of golf over the last several years? David Maher: Yes. So we point to -- we really point to the NGF, National Golf Foundation. They do a nice job, collecting data to help us understand the evolving golfer base. It's really coming from all angles, but I would say the avid is certainly playing and alive and well. But the 2 call-outs that, again, there call-outs that I'll pass along would be the fastest-growing segments over the last several years have been women and juniors. So they're certainly providing outsized contribution to the growth we've seen over the last handful of years. And just for context and just using some big round numbers, in 2019, there were about 800 million rounds of golf played worldwide. And that number is going to be just shy of $1 billion this year. So it's about a 23% increase. But in real-world terms, it's 180 million, 190 million more rounds of golf being played today. And as I say that, I'm always compelled to point to the PGAs and the PGA Club professional and the outsized role and contribution and importance of their work in taking care of the game and really growing the game. But that's -- hopefully, that answers your question. Douglas Lane: No, that's very helpful. And just one more, if I might. We read about and hear about the bifurcated consumer these days where the higher end continues to spend and the lower end seems to be a little squeezed. And you've got a pretty wide variety of products. You have low ticket, high ticket, consumables, durables. So how are you seeing consumer behavior here in your ecosystem? David Maher: I think we've talked a lot about it in terms of how our products are performing, but I will package your question to sort of point to our dedicated golfer, right? They're avid, they're passionate. They'll play if you can prove to them. If you can prove to them that you've got a better product, they're inclined to purchase it, and it's going to help them play better. So we like the construct and demographic that is this dedicated golfer we talk about. We characterize them as middle class plus. So they're a nice demographic. And we've said over time, they're recession-resistant. They're not recession-proof, but over cycles, we've seen they're committed and avid. So golf has a great consumer. You're right, we have a broad and vast portfolio of products in terms of varying price points. But by and large, we focus on premium performance, and that's where the bulk of our story is. That's where the bulk of our R&D efforts reside. That's where the bulk of our product line is constructed. So -- but I think the heart of your ask is this dedicated golfer, which the company sort of used as the sun to our solar system. And they're a strong cohort for sure. Operator: The next question comes from the line of JP Wollam with ROTH Capital Partners. John-Paul Wollam: If we could just start first on G&A. I think last time in November, we were maybe expecting to see some leverage there, just given you have the voluntary retirement program and kind of a good year or 18 months of prior investment. So just curious to see what kind of changed there. It sounds like G&A growth is expected kind of in line with revenue. So are there incremental? What kind of changed? Sean Sullivan: Yes, JP. So when I look at 2025 versus '24, I think if you normalize for the PTO in '24, you normalize for the ERP and some of the onetime things that I talked about, I think we have effectively delivered OpEx growth at less than the rate of sales. So I feel good about that in terms of '25. And I think as you -- as I talked about for OpEx in '26, again, we have some incremental expense as well, but overall, expect growth to be in line with sales. So again, we're making progress and delivering incremental benefits. And again, it's not a onetime unlock that's going to happen here. I think you're going to start to see that gradually over the coming years in terms of delivering operating leverage. John-Paul Wollam: Okay. Understood. And just one follow-up on tariffs. So understanding that it's obviously an extremely fluid situation. But if I think about kind of the -- what we maybe discussed as sort of the 4 levers to offsetting, pricing, vendor cost sharing, some G&A leverage. And then I think we talked about maybe being able to tighten some advertising and promotional expenses. And so really, the question is, as you think about the '26 guide, is there any tightening in terms of the advertising and promotional that if tariffs went away in the next 3 to 4 months, like you actually have an opportunity to invest more there and could see some top line upside? Is that -- how are you thinking about that? Sean Sullivan: Yes. I guess how I'm thinking about it is I feel really good about the guide, feel really good about the performance of the business, the ability to overcome the incrementality of the tariff landscape, albeit obviously seemingly changing. But now, we are continuing to invest in A&P. You'll see it in the filings. We increased A&P in '25, not significantly, but low single digits, and you've seen that the last couple of years. So we have incredible confidence in our Golf Equipment franchises in FootJoy. So we're going to continue to invest behind those. Certainly, given the -- as David said, it's early. It's February. But overall, we're not using this as an opportunity to pull back on A&P to support our long-term growth. So I think it's business as usual despite the tariff landscape. And again, we'll have to see how the year goes by, but we feel good about the guide in the context of all those. David Maher: Thanks, everybody. As always, we appreciate your time and interest this morning and look forward to getting back with you in a few months to provide updates on the quarter. Operator: Ladies and gentlemen, thank you for attending today's conference call. This now concludes the conference. Please enjoy the rest of your day.
Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Green Brick Partners Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Jeff Cox, Chief Financial Officer. Jeff, the floor is yours. Jeffery Cox: Good afternoon, and welcome to Green Brick Partners Earnings Call for the Fourth Quarter ended December 31, 2025. Following today's remarks, we will hold a Q&A session. As a reminder, this call is being recorded and will be available for playback. In addition, a presentation will accompany today's webcast, which is available on the company's Investor Relations website at investors.greenbrickpartners.com. On the call today is Jim Brickman, Co-Founder and Chief Executive Officer; Jed Dolson, President and Chief Operating Officer; and myself, Jeff Cox, Chief Financial Officer. Some of the information discussed on this call is forward-looking, including a discussion of the company's financial and operational expectations for 2026 and beyond. In yesterday's press release and SEC filings, the company detailed material risks that may cause its future results to differ from its expectations. The company's statements are as of today, February 26, 2026, and the company has no obligation to update any forward-looking statements it may make. The comments also include non-GAAP financial metrics. The reconciliation of these metrics and the other information required by Regulation G can be found in the earnings release that the company issued yesterday and in the aforementioned presentation. With that, I'll turn the call over to Jim. James Brickman: Thank you, Jeff. I am pleased to announce our fourth quarter results, particularly given that we achieved these results against the backdrop of ongoing and persistent affordability challenges faced by many consumers in this housing market. Our performance remained resilient despite eroding consumer confidence and an increasing supply of housing inventory. Our builders adapted quickly to a volatile housing market as we continue to balance price and pace to maximize returns in each of our communities. Net income attributable to Green Brick for the fourth quarter was $78 million or $1.78 per diluted share. We delivered 1,038 homes in the quarter, a 1.9% increase year-over-year and a record for any fourth quarter in company history. We also achieved 883 net orders, also a record for any fourth quarter. As Jed will discuss in more detail, driving our sales volume in Q4 required additional price concessions and other incentives, which caused our homebuilding gross margin to decline 490 basis points year-over-year and 170 basis points sequentially to 29.4%. The decline was due to higher incentives and changes in product mix. Still, our gross margins remain the highest public homebuilders. While the macroeconomic landscape presents headwinds for the entire industry in the short term, we believe the core strengths that have driven Green Brick's success over the past decade will enable us to continue to navigate any challenges with confidence and flexibility. As always, we will focus on maintaining operational excellence centered on our disciplined approach to land acquisition and development to position us for future growth. We are laser-focused on maintaining an investment-grade balance sheet to support our targeted expansion in high-volume markets. In 2026, we believe that our financial services platform will generate more pretax income than the interest cost on all of our debt. As Jed will discuss in more detail, we also continue to reduce construction cycle times. We believe we are well positioned to sustain our return metrics over the long term that rank among the very best in the industry, providing long-term value to our shareholders. We remain focused on growing our business, particularly in our Trophy brand. Trophy's growth in DFW in Austin, combined with our first open community in Houston during the spring of 2026 selling season, we believe presents significant opportunities for sustained growth over the next few years. This expansion allows us to continue to serve the critical first-time and move-up buyer segments while further diversifying our revenue base and strengthening our presence in key Texas markets. While the overall market conditions remain challenging due to macroeconomic and political uncertainty, we remain vigilant in monitoring and responding to shifts in buyer preferences. We believe that our experienced team and robust land pipeline and desirable infill and infill adjacent locations will continue to drive our success in the quarters to come. With that, I'll now turn it over to Jeff to provide more detail regarding our financial results. Jeffery Cox: Thank you, Jim. Given the challenging economic conditions and increased supply of housing inventory in our markets, discounts and incentives increased year-over-year as a percentage of residential unit revenue to 9.2% from 5.2%. Our average sales price of $530,000 was up 1.1% sequentially and down 3.1% year-over-year. Home closings revenue of $550 million declined 1.3% compared to the same period last year, and our homebuilding gross margins decreased 490 basis points year-over-year and 170 basis points sequentially to 29.4%. SG&A as a percentage of residential unit revenue for the fourth quarter was 10.6%, a decrease of 30 basis points year-over-year, driven primarily by lower personnel costs. Excluding SG&A from our wholly owned mortgage and title companies, our homebuilding SG&A for the fourth quarter was 10.1%. Net income attributable to Green Brick for the fourth quarter decreased 24.5% year-over-year to $78 million, and diluted earnings per share decreased 23% year-over-year to $1.78 per share. For the full year, deliveries increased 4.2% year-over-year to 3,943 homes, a record for any full year in company history. Our average sales price declined 3.1% to $530,000. We generated home closings revenue of $2.1 billion, an increase of 1% from 2024. Homebuilding gross margin for the year decreased 330 basis points to 30.5% Net income attributable to Green Brick decreased 18% to $313 million, and diluted earnings per share declined 16.3% to $7.07. Excluding the impact of the sale of Challenger, which occurred in the first quarter last year, the diluted earnings per share declined 14.2%. Net new home orders during the fourth quarter were up slightly year-over-year to 883 and down sequentially only 1.7%. For the full year, net new home orders increased 3.1% year-over-year to 3,795. Average active selling communities of 101 was down 5% year-over-year. Our sales pace for the fourth quarter increased marginally to 2.9 per month compared to 2.8 per month in the previous year. We started 884 new homes, which was down 14% year-over-year and 7% sequentially. Units under construction at the end of the quarter were approximately 2,048, down 12.5% year-over-year. We reduced starts in Q4 to better align with our sales pace to focus on balancing margin and pace. We will continue to monitor market conditions and seasonal trends and align our starts to our sales pace to appropriately manage our investment in spec inventory. Our backlog value at the end of the fourth quarter was $354 million, a decrease of 28.5% year-over-year due primarily to a higher proportion of quick move-in sales, including greater percentage of our sales being generated by Trophy that as a spec builder, typically has shorter times between contract execution and closing. Backlog ASP decreased 8.2% to $681,000 due to elevated discounts and incentives across all of our brands in addition to product mix. Trophy, our spec homebuilder, represented only 14% of our overall backlog value, but they accounted for nearly half of our closing volume. In Q4, we repurchased 359,000 shares of our common stock for approximately $23 million. And for the full year 2025, we repurchased 1.4 million shares for approximately $83 million. In December, the Board of Directors authorized a repurchase of up to $150 million of the company's outstanding common stock. This new authorization provides us with the ability to opportunistically return capital to our shareholders when we believe our stock is undervalued while continuing to invest in the long-term growth of the business. We recognize the heightened importance of liquidity in the current period of economic uncertainty and market volatility. We believe our investment-grade balance sheet and low financial leverage provide us with flexibility to navigate and adapt to evolving market conditions, ensuring we have capital available for strategic opportunities as they arise. At the end of the year, our net debt to total capital ratio decreased to 8.2% and our debt to total capital ratio decreased to 14.7%, among the best of our small and mid-cap public homebuilding peers. Excluding cash and debt from Green Brick Mortgage, our homebuilding debt and net homebuilding debt to total capital ratio at the end of the quarter was 12.8% and 6.3%, respectively. During Q4, we renewed our unsecured revolving credit facility, which extended the facility to December 2028 and provided a meaningful reduction in the interest rate. At the end of the quarter, we maintained a robust cash position of $155 million and total liquidity of $520 million. With $365 million undrawn on our homebuilding credit facilities, we believe we are well positioned to weather the challenging market conditions to opportunistically deploy capital to maximize shareholder returns and to accelerate growth as the housing market improves. With that, I'll now turn it over to Jed. Jed Dolson: Thank you, Jeff. We continue to see a challenging sales environment within all our consumer segments, which have been impacted by affordability challenges and a weakening job market. Our team responded well to the challenging market conditions as evidenced by our record fourth quarter sales volume and our low cancellation rate of 7.6% in Q4, which was an improvement from 7.8% in Q4 2024. We continue to have one of the lowest cancellation rates in the public homebuilding industry, and we believe it demonstrates the creditworthiness of our buyers, quality of our product and desirability of our communities. We continue to address the affordability challenges faced by consumers by providing our homebuyers with price concessions, interest rate buydowns and closing cost incentives. Incentives for net new orders during the fourth quarter increased to 10.2%, an increase of 380 bps year-over-year and 130 bps sequentially. Rate buydowns remain a necessary tool to drive traffic and sales especially with our quick move-in homes. With our superior infill and infill adjacent communities and industry-leading gross margins, we believe we are strategically positioned to adjust pricing as needed to meet market demand and maintain our sales pace. While we recognize the importance of preserving our margins, we also recognize that our industry-leading margins provide us with significant pricing flexibility to compete effectively in a volatile market. Green Brick Mortgage, our wholly owned mortgage company, closed and funded over 380 loans in the fourth quarter. The average FICO score was 746, and the average debt-to-income ratio was 40%, consistent with previous quarters. Green Brick Mortgage began serving our Austin communities in Q1 of this year. We expect to complete the rollout of Green Brick Mortgage to all DFW communities by the end of the first quarter of 2026. To Houston when our first community there opens for sale during the spring 2026 selling season and to Atlanta by the middle part of this year. As Green Brick Mortgage continues to expand its service to most of our communities, we anticipate by year-end, this capture rate will range from 75% to 85%, typical of captive mortgage companies. We continue to reduce our construction cycle times, which were down 20 days from a year ago to 130 days. Trophy's average cycle time in DFW was under 90 days, the lowest in their history. Labor availability remains relatively stable across all of our markets. We recognize the concerns surrounding tariffs and continue to work closely with our vendors and suppliers to mitigate any potential impact. While we believe tariffs will have a minimal impact on earnings next year, we are still assessing the Supreme Court's ruling against the Trump administration's tariffs and the administration's potential response to the ruling. As we navigate through various macro challenges, we are carefully recalibrating our capital allocation plan to align both our long-term growth objectives and to respond to changing market conditions. During the quarter, we spent $36 million on land and lot acquisition and excluding cost share reimbursements, $90 million on land development. This brings spend for 2025 to $267 million for land acquisition and $323 million for land development, respectively. Many of our land development projects involve special financing districts that provide reimbursement for public infrastructure costs. As work is completed, we are able to recoup a portion of these costs, which reduces our net development spend. We believe our superior land position provides a competitive advantage that will be the foundation for strong growth in subsequent years. Given the strength of our existing land and lot pipeline, we remain patient and selective with future land opportunities without compromising the ability to grow our business in the near and intermediate term. As noted in our earnings release and 10-K, we changed the definition of lots controlled to lots under contract, which includes all land or lot parcels that we have a contractual right to acquire pursuant to a fully executed option contract or purchase and sale agreement. We previously referred to lots controlled, which included only lots past feasibility studies for which we did not hold title but had contractual rights to acquire. Under the new definition, our total lots owned and under contract at the end of the year increased by 10% year-over-year to approximately 48,800, of which 37,000 lots were owned on our balance sheet and approximately 11,800 lots were under contract. Trophy comprises approximately 70% of our total lots owned and under contract. Excluding approximately 25,000 lots in long-term master planned communities, our lot supply is approximately 6 years. With that, I'll turn it over to Jim for closing remarks. James Brickman: Thank you, Jed. In short, we remain optimistic about our long-term prospects, and we believe we are well positioned to continue to produce strong results. We believe our strategic land position, high-quality and diverse product offerings that appeal to multiple segments of the homebuyer market and our investment-grade balance sheet will lay the path to future growth and industry-leading returns for our shareholders. Being consistent matters, we are very pleased that we had no turnover at the divisional president level in 2025. So we entered 2026 with experienced, hard-working managers that have worked for us a very long time. I also want to thank the entire Green Brick team for their passion and dedication to delivering exceptional results in the face of a challenging market. This concludes our prepared remarks, and we will now open the line for questions. Operator: [Operator Instructions] Your first question comes from Rohit Seth with B. Riley Securities. Rohit Seth: Jeff, just on Q2, can you -- last quarter, you broke out the gross margin decline between buydowns and mix. Can you give us a sense of the puts and takes on the gross margin and the drivers there? Jeffery Cox: Yes. We looked at the mix ratio. And I would say that while there's certainly some mix components there, most of it is really just driven through higher incentives and discounts. We're seeing compression really kind of across the board and in all of our regions. In some cases, we've got a couple of anomalies within some of our smaller builders, but that's mostly due to community mix more so than anything else. Rohit Seth: Okay. Where are you guys buying down rates to at this point? Jeffery Cox: So we're buying... Jed Dolson: 4.99% with 321s on our entry level. Rohit Seth: Okay. So it's about the same where you were in the prior quarter? You said just in the 5%. James Brickman: Yes. This is Jim Brickman. So rates ran down, I guess, just a little bit today. The went sub-6% for the first time in a long time. And basically, every 0.25 point is about in the buy down 1 point in incentive cost to us. So it will be interesting to see if rates go down, whether we'll be able to harvest any more margin from having less incentives or not. Rohit Seth: Okay. Just on your costs, it looks like sequentially, the cost per home went up a few points. Can you just give us a sense of is that coming in direct costs, land costs? James Brickman: Jed, why don't you talking about direct costs? Jed Dolson: Yes. We're seeing direct costs continue to go down. We are -- as we cycle out of older legacy communities, our new lot prices are higher. Jeff may have a percentage he can share on that. But as far as direct go, they continue to go down. Jeffery Cox: Yes. On the lot costs they are relatively stable, looking year-over-year, whether for the full year or quarter-over-quarter, but maybe $1,000 or $2,000 a lot. No big movement there. The biggest thing that you're seeing, Rohit, is the increase in our selling and closing costs, which still ran through cost of sales at the end of last year. That's really the biggest driver showing the increase in that number. We've touched on this a little bit in previous calls, but starting later this year, we'll start doing segment reporting as the mortgage company becomes a more material part of our business. And as we do that, those selling and closing costs will become contra revenue as opposed to cost of sales. James Brickman: Yes. Let me add to that. We have very low debt. So our debt is capitalized into all of our inventory and our land is very low because our debt is very low. one of the other differentiators for us versus many peers is that because we don't lot bank, our lots are not increasing in cost based upon the lot banking cost of capital. And we think that's going to be an advantage year after year. Rohit Seth: Interesting. Okay. And if I could squeeze one in. Do you mind commenting on how the spring selling season has been going on traffic or orders? Any color would be helpful. James Brickman: Yes, I can give you a little color. We usually don't talk month-to-month. Anybody that was in Texas in January knows that we had one of the worst weather events really in our history. So it's really hard to bench sales January to February because January, we were basically out of business for what, 10 days, Jed? Jed Dolson: Yes, 7 to 10 days. James Brickman: Which was almost 1/3 of the month. That said, February looks to be off to a good start for us, and we're really quite encouraged. Operator: Your next question comes from the line of Alex Rygiel with Texas Capital. Alexander Rygiel: Can you talk a little bit about your inventory level as well as the broader inventory level across your markets? Jed Dolson: Yes. This is Jed. I can answer that, Alex. We are seeing across all of our brands a really a very high desire for finished specs. So we are carrying higher inventory levels, especially on the spec and finished spec side that we did. And that goes all the way from our $250,000 price point to our $1.2 million price point. Jeffery Cox: And Alex, this is Jeff. I'll just add on to that, that at the end of the year, we were carrying roughly 5 finished specs per community. Half of those belong to Trophy. But when you look at their sales pace, in particular based on what Jim just referred to with February sales, it only equates about a month to maybe 1.5 months supply. Jed Dolson: Of finished inventory. Jeffery Cox: Correct. Jed Dolson: Yes. Alexander Rygiel: And then as it relates to sort of broader inventory in your geographies across your competitors? Jed Dolson: We think we're keeping pace or maybe -- I'd say we're middle of the pack. There's some of our competitors that are carrying more finished inventory than us. There's some that are carrying a little bit less. But typically, as Jeff mentioned, everybody is carrying at least 1 month of finished specs on the ground, 1 month of sales of finished specs. Alexander Rygiel: That's helpful. And then any directional guidance on community count growth in 2026? Jeffery Cox: Yes. This is Jeff. We ticked down a little bit this year in 2025 versus where we were in 2024, and we've been aggressively adding to our lot pipeline, as you know. We don't usually give guidance on community count because it can take us somewhere between 18 to 24 months to bring new deals to market. But certainly, our goal is to continue to increase our community count by the end of this year. James Brickman: Yes. One of the things that's a little difficult for analysts or really investors to get a grip on with Green Brick is that as Trophy becomes a bigger part of the business as it does quarter-to-quarter to quarter, Trophy sales pace is double, at least Southgate's, which is our high-end builders sales pace. So we really don't need community count to grow to have a significant growth in either top line or unit growth. Jed Dolson: I would just add that it's -- as Jeff mentioned, it's a little hard to predict what our community count will be at the end of the year, but we can see 2 to 3 years out that we will have meaningful acceleration in community count. James Brickman: Yes, we have a number of active couple of communities that will be coming on stream. Alexander Rygiel: And then lastly, it kind of sounded as if your commentary would suggest that your spend on land in 2026 will be down from 2025. Is that fair? Jeffery Cox: This is Jeff, Alex. We haven't disclosed specific spending amounts for this year yet. We wanted to get through the spring selling season before we gave any kind of guidance on that. But given the increase in lot supply that you've seen over the last couple of years, we do anticipate that land spend will be higher this year, but we're not ready to give a specific number yet. Jed Dolson: And Alex, this is Jed. I would mention that we are adding a lot of horizontal development dollars to previous year's land acquisition with the goal of getting our community count up much higher in the coming years. Operator: Your next question comes from the line of Ryan Gilbert with BTIG. Ryan Gilbert: First question is on deliveries, and I guess, the trajectory of deliveries in 2026. I've generally thought about delivery growth kind of tracking growth in starts or homes under construction, and we've seen certainly outperformance this quarter, but then also the past few quarters as well. I'm just wondering if that relationship between delivery growth and starts should -- we should think about that reasserting itself in 2026? Or if you think you could still have deliveries outpace starts and homes under construction here? Jeffery Cox: This is Jeff. I think that you've seen us pull back on starts here, in particular, in Q4 as we try to rightsize our inventory. And our goal is to make sure that we're starting roughly the same number of homes that we sell each period. But given kind of the prior comment on increasing community count here towards the end of the year, certainly, we would expect to see an increase in starts. We may not necessarily benefit from all the deliveries of those starts depending on when we get those in the ground this year. But certainly, in the future years, we're looking to grow community count and closings. Ryan Gilbert: Okay. Got it. And then I wanted to ask about spec strategy as well. It sounds like as Trophy Signature continues to grow, your spec mix should also continue to increase. We've heard from some of your competitors about shifting back to build-to-order sales. And I'm just wondering how you're thinking about specs versus build-to-order in 2026. James Brickman: To expand on this, but really, at Trophy, we're seeing really great success in that buyer profile that wants a house, they want the certainty of a mortgage rate. They have an immediate need, and we're finding really a great number of buyers that are out there that want that product at that price and can move in quickly. Jed? Jed Dolson: Yes. I think we, as an industry, are doing a very good job of putting the product on the ground that the consumer wants with the right packages. And we've seen that even go into our -- we've seen the spec desire even go into our $600,000, $700,000 even or $1 million price point. So we are going to continue to put a lot of specs on the ground because that's what we think the buyer is telling us that they desire. On paper, theoretically, it sounds great that some of our competitors are wanting to be more build job oriented. We have yet to see that in any of our marketplaces really play out other than, say, at the $1 million-plus price point. James Brickman: Yes. Let me chime on one other point that I think is important to understand, and that is that, first of all, we never want to give up any incentive that we don't have to give up. But when you're making a 29% or a 30% margin, demand is very elastic, meaning that an incentive, you can really harvest an incremental an incremental amount of buyers out there. So we can pull levers if we ever want to on specs that really -- they will impact our profitability. But when you're making 29% or 30% margins and you take a 2% or 3% hit, it's not the same as when you're making a 15% margin. We haven't had to do that, but we can view our spec inventory a lot differently than I think some of our low-margin peers do. Operator: Your next question comes from the line of Jay McCanless with Citizens. Jay McCanless: So the first one I had, could you talk about what type of pricing power you had during the quarter and maybe what you've seen into the spring? What percentage of your communities were you able to raise prices? Jed Dolson: Yes, sure. This is Jed. I can take that. Very few communities have we've been able to raise prices. So the good news is we're seeing that the quantity of buyers are a lot stronger in the spring so far. We have been able to raise prices in some communities. But by and large, we are still, as an industry, working through inventory. We're still competing with big publics and big privates that are still trying to make their business plan and not shrink units dramatically. So it's still a competitive landscape out there. James Brickman: Yes. I think one of the other differentiators in our company, particularly some of our peers is our quality of our backlog. And when we sell a spec -- when we sell a home is much better. We only had about a 7% cancellation rate. So people that buy our specs close. Jay McCanless: Great. So -- and thank you for the comments on traffic, Jed. Is that both foot traffic, web traffic, all the above? What are you seeing on those? Jed Dolson: Yes. We're seeing it on all of the above. So February weather has been good in the regions that we operate in. We're not in the Northeast. So we missed out on that big storm. But the -- yes, so February has been off to a record start. Jay McCanless: That's great. Okay. So the second question I had, -- and thank you for the commentary you gave around build-to-order. But I was just wondering, when you look at new deals that are coming to market and maybe some stuff that's being retraded, are you all seeing some better pricing on land in the markets you all want to acquire land? Or how is that trending for new deal activity from a pricing perspective? James Brickman: This is Jim. On land that we don't want or lots that we don't want, we're seeing weak demand and lower prices. on land that produces high margins that we do want. Prices have been very sticky. We expect them to remain very sticky because for the very reasons that those type of properties can produce high margins at much lower risk. So it's a tale of 2 cities right now. The inferior locations, there's lots of trading going on, but we really have no interest in those deals. Jay McCanless: Okay. And then just my last question, just asking on incentives, and thank you for the color on backlog where you talked about Trophy only being 14% of the backlog. If you look at that other 86%, I guess, how -- what is the incentive load on that now versus maybe where it was a year ago? And essentially, what I'm asking is for those higher priced maybe to-be-built, a little more customization homes, are you having to throw in more incentives on those right now? Or is the all-in incentive load pretty similar to where it was at this point last year? Jed Dolson: Yes. I -- this is Jed. I'll answer that, and then Jeff can add some numbers to it. So we are having to -- on, say, $1 million-plus build job, we're having to give higher design center monies than we were a year ago. On a $600,000, $700,000 house, we've mentioned that we're shifting the buyers are more interested in the finished specs than the build to orders for those. So we are having to do closing cost incentives, rate buydowns, things we weren't having to do a year ago. Jeffery Cox: Yes. This is Jeff. So I'll just add that when we looked at incentives on closings during the quarter, we were 9.2%, up from 5.2% a year ago. And looking at incentives on new orders during the quarter, they did tick up a little bit to 10.2%. But so far, we've, again, had a tremendous month of February here. If we can pull back on incentives and maintain momentum, we'll certainly take a look at doing that. Operator: That concludes our question-and-answer session. I will now turn the conference back over to Jim Brickman for closing comments. James Brickman: Thank you for participating in our call today. If anyone has any questions, we're available to enhance what we discussed today and just give us a call. We appreciate your interest in our company. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good day, and welcome to the Tecnoglass, Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Blake Warren of Investor Relations. Please go ahead, sir. Unknown Executive: Thank you for joining us for Tecnoglass Fourth Quarter and Full Year 2025 Conference Call. A copy of the slide presentation to accompany this call may be obtained on the Investors' section of Tecnoglass website. Our speakers for today's call are Chief Executive Officer, Jose Manuel Daes; Chief Operating Officer, Chris Daes; and Chief Financial Officer, Santiago Giraldo. . I'd like to remind everyone that matters discussed in this call, except for historical information, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding future financial performance, future growth and future acquisitions. These statements are based on Tecnoglass' current expectations or beliefs and are subject to uncertainty and changes in circumstances. Actual results may vary in a material nature from those expressed or implied by the statements herein due to changes in economic, business, competitive and/or regulatory factors and other risks and uncertainties affecting the operation of Tecnoglass' business. These risks, uncertainties and contingencies are indicated from time to time in Tecnoglass' filings with the Securities and Exchange Commission. The information discussed during the call is presented in light of such risks. Further, investors should keep in mind that Tecnoglass' financial results in any particular period may not be indicative of future results. Tecnoglass is under no obligation to and expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise. I will now turn the call over to Jose Manuel, beginning on Slide #4. Jose Daes: Thank you, Blake, and thank you, everyone, for participating on today's call. We are pleased to report another year of strong performance for 2025, our record revenues of $984 million reflect the strength across our businesses and our consistent ability to gain market share and capitalize on demand for our differentiated offerings. These results are a testament to the dedication of our team and the durability of the competitive advantages we have built over many years. Our single family residential business delivered yet another record year with revenues growing to an all-time high of $403 million. Growth was driven by our expanding dealer network, geographic diversification into new markets, a strong pricing execution, and the momentum in our vinyl product line. Our multifamily and commercial businesses was similarly strong with revenues growing to $580 million on robust demand for our high-performance products in high-end residential and luxury lodging projects. From an operational standpoint, I am particularly proud of our team's ability to maintain our industry-leading margin profile through a unique challenging year. This reflects our consistent pricing discipline and significant cost control measures. These actions more than offset the impact of tariffs and increased raw material costs supporting a stable gross margin for the year. We also continue to ramp up our vinyl windows product portfolio and diversified our manufacturing footprint through the Continental Glass System acquisition, both of which help us expand our presence into different markets and diversify our operational platform. This robust operational performance, along with our disciplined working capital management translated directly into strong cash generation. Cash flow from operations of $136 million for the full year allowed us to return substantial value to our shareholders through dividends and our share repurchase program. To that end, we repurchased $118 million in shares during the year, including $88 million in the fourth quarter alone. We announced today the Board has expanded our share repurchase authorization by $100 million, reflecting the confidence in our continued cash flow generation capabilities, the strength of our balance sheet and our commitment to delivering superior returns to shareholders. In summary, 2025 was a year that demonstrated the durability and adaptability of our business model. We grew revenue to nearly $1 billion, maintained our gross margin profile in the face of significant external headwinds, diversified our manufacturing and product platform and returned substantial capital to shareholders. Our performance, along with our record backlog positions us well for another year of record revenue and value creation in 2026. I will now turn the call over to Chris to provide additional operating highlights. Christian Daes: Thank you, Jose Manuel. Moving to Slide #5 and 6. We maintain a sharp focus on operational execution throughout 2025. Our overall performance through a dynamic macroeconomic environment reflects the durability of our differentiated platform and the dedication of our team to delivering best-in-class products and service to our customers. In 2025, we delivered double-digit revenue growth in our multifamily and commercial business driven by continued strong performance in our key markets and incremental contribution from our Continental Glass System asset acquisition completed at the beginning of the year. Continental continues to integrate smoothly into our operation, enhancing our capabilities in high-end architectural glass and glazing while providing us with a diversified manufacturing presence in Florida. Activity remains healthy across our commercial markets, given our expansion into new markets and ability to gain market share, which is reflected in our double-digit revenue growth expectations for 2026. The strength of our activity is also reflected directly in yet another backlog record number, which closed the year up 16% to a record $1.3 billion. Our book-to-bill ratio of 1.1x in the fourth quarter extended our track record to 20 consecutive quarters above 1.1x. Our project cancellation rate is near 0 given our late-stage installation profile and our backlog has demonstrated consistent sequential growth every quarter since 2021. I will also reiterate a key point that the composition of our backlog has shifted more towards high-end, large-sized projects recently, which tend to be less sensitive to higher interest rates and overall affordability constraints. Moving to Slide #7. Our single-family residential business achieved record full year revenues of $403 million compared to $372 million in 2024. The year-over-year improvement reflects dealership growth, geographic expansion and ongoing contributions from our vinyl products. Despite challenging macro conditions, we were encouraged to see orders received during the fourth quarter grow by double digits year-over-year with additional momentum into the new year as January orders outperformed the prior 2 months, giving us confidence heading into 2026. Over the course of 2025, our dealer base expanded considerably, driven largely by expansion into new geographies beyond our traditional core markets. Our Los Angeles showroom is expected to open in the first quarter of this year, adding to our existing showrooms in Florida, South Carolina, New York, Texas and Arizona and serving as a hub for our legacy light aluminum line in the Southwest. Our vinyl expansion continues to progress well with robust quoting activity validating the significant market opportunity ahead. Across all product lines, our quality, efficient lead times and superior service and competitive pricing continues to be key difference makers in attracting and retaining dealers. Turning to Slide #8. The broader market backdrop as we enter 2026 gives us additional confidence in our long-term trajectory. Total U.S. construction spending is expected to grow approximately 1% this year with residential spending projected to increase approximately 2% as affordability conditions improve. Contractor sentiment has moved back into expansion territory with the National Remodeling Conditions Index at 54.5 and the backlog component strengthened meaningfully to 70.4 in the first quarter of 2026 from 54.6 in the fourth quarter of 2025, a leading indicator that aligns well with what we are seeing in our own order activity. From a regional perspective, the South Atlantic, Mid-Atlantic and West South Central census divisions where our business is more concentrated are projected to be among the strongest performing regions for residential construction spending in 2026. This geographic alignment between our platform and the market expected to outperform underpins our growth outlook for 2026. Additionally, we continue to expect that market share gains in the new geographies and product segments will allow us to outperform market growth in years to come. I will now turn the call over to Santiago to discuss our financial results and full year outlook. Santiago Giraldo: Thank you, Christian. Turning to the drivers of revenue on Slide #10. Total revenues for the fourth quarter increased 2.4% year-over-year to $245.3 million. The growth was driven by positive momentum in our multifamily and commercial business. This was partially offset by a modest decline in single-family residential, which saw pricing and share gains that we had a very challenging prior year comparison. Full year revenues increased 10.5% to a record $983.6 million. The full year growth came from both our multifamily and commercial and single-family residential businesses, reflecting strong execution on our record backlog, healthy conditions in our core Southeast high-end commercial portfolio, geographic expansion and continued traction in our vinyl product line. Looking at the profit drivers on Slide #11. Full year adjusted EBITDA reached $291.3 million, representing a margin of 29.6% compared to 31% in the prior year. On a full year basis, gross margin increased slightly to 42.8% compared to 42.7% in the prior year. The essentially stable full year gross margin despite challenging macroeconomic factors during the second half reflects stronger pricing and operating leverage that more than offset the impact of tariffs and higher raw material costs, a strengthening Colombian peso and higher salary expenses throughout the year. Full year SG&A as a percentage of revenue was approximately 20% compared to 17.2% in the prior year, mainly due to the tariffs paid during 2025, which increased our selling expenses year-over-year. Full year performance was stronger in the first half given different macro headwinds that started toward the middle of the year. Accordingly, adjusted EBITDA for the fourth quarter 2025 was $62.2 million, representing an adjusted EBITDA margin of 25.4% compared to $79.2 million or 33.1% in the prior year quarter. Consistent with the dynamics we highlighted on our last earnings call, the fourth quarter carried the full weight of the cost headwinds and stronger local currency that intensified through the second half of the year. Fourth quarter gross margin was 40% compared to 44.5% gross margin in the prior year quarter. The year-over-year change in gross margin was driven by 3 key factors: first, an unfavorable revenue mix with a higher proportion of installation revenues, which reached a record high during the fourth quarter; second, near all-time high U.S. aluminum costs, which continued their steep climb throughout the fourth quarter and significantly impacted our raw material costs; and third, a significant revaluation of the Colombian peso, which strengthened approximately 9.5% year-over-year in the quarter, creating an unfavorable effect on our margins. These headwinds were partially offset by stronger pricing flowing through from the adjustments we implemented earlier in the year. SG&A for the fourth quarter was 21.8% of revenue compared to 16.4% of revenue in the prior year quarter. The increase primarily reflected aluminum and reciprocal tariff expenses on stand-alone component sales, higher personnel expense from annual salary adjustments and stronger Colombian peso during the period and higher transportation and commission expenses associated with revenue growth. We provide a closer look at the primary headwinds that impacted our margins in the second half of 2025 on Slide #12, namely aluminum and FX, which continued to move sharply following our last earnings call. With respect to aluminum, it is important to distinguish between the 2 separate dynamics. The $25 million tariff impact we communicated earlier in the year was fully offset through our pricing actions. The more significant headwind was the sharp escalation in underlying aluminum cost independent of tariffs. Global aluminum spot rates spiked higher. And on top of that, U.S. Midwest aluminum premiums more than doubled during the year, creating industry-wide margin pressure that accelerated materially in the second half of the year. Separately, we faced aluminum and reciprocal tariffs on stand-alone component sales, which we have proactively addressed through targeted mitigation actions, including pass-through pricing on standalone glass and aluminum products and securing U.S. aluminum supply to mitigate tariff headwinds. As cost mitigation offsets our pricing adjustments implemented earlier in the year partially offset a portion of the higher aluminum cost in the fourth quarter. Looking ahead, our continued expansion into vinyl windows and eventual normalization of input costs or potential future pricing adjustments to reduce the impact of aluminum cost as a percentage of sales over time. We continue to evaluate incremental pricing actions as warranted by market conditions, but have not embedded this assumption within our guidance scenarios and could represent potential upside to our outlook. Looking at foreign exchange dynamics, the Colombian peso appreciated approximately 12% during full year 2025, moving from COP 4,308 to COP 3,791 per dollar. Given the approximately 20% to 25% of our costs are peso denominated, this appreciation made our Colombian cost base more expensive and pressure margins, compounded by salary adjustments in Colombia during the year. To partially mitigate this exposure, we hedged a portion of our Colombian peso exposure during 2025 and will continue to be opportunistic in executing hedges in 2026 above our current guidance assumptions, creating potential upside to guidance. Now examining our strong cash flow and balance sheet on Slide #13. We generated $135.8 million in operating cash flow for the full year 2025, driven by effective working capital management and solid underlying profitability. Capital expenditures of $89 million included scheduled payments on previous investments as well as expenditures related to the Continental Glass Systems acquisition. Our balance sheet remains solid with liquidity of approximately $465 million at year-end, including a cash position of approximately $100.9 million and $365 million of availability under our revolving credit facility and bilateral lines of credit. In September, we refinanced our senior secured credit facility, expanding capacity to $500 million, reducing spreads by 25 basis points and extending the maturity to 2030. We have no significant debt maturities until year-end 2030. With net debt to LTM adjusted EBITDA of 0.24x, we maintain a conservative leverage profile that provides significant financial flexibility to continue investing in growth initiatives and returning capital to shareholders. On Slide #14, our strong track record of generating returns above the broader industry continues to validate our disciplined capital allocation approach. Over the past 3 years, our strategic investments in operational excellence and capacity expansion have consistently delivered superior returns for our shareholders, driven by our industry-leading profitability, vertically integrated platform and significant improvements to working capital. These strengths continue to generate sustainable cash flow and shareholder value while preserving financial flexibility to pursue additional growth opportunities. We're also pleased to have returned substantial capital to shareholders through share repurchases and dividends during the year. During 2025, we repurchased $118 million in shares, including $87.6 million in the fourth quarter alone, partially funding that activity through a draw on our revolving credit facility, reflecting our conviction in the intrinsic value of the business. In total, we returned approximately $146 million to shareholders through repurchases and dividends. Given the Board's confidence in our continued cash flow generation capabilities, prudent balance sheet management and commitment to delivering superior returns to shareholders, they approved an expansion on our share repurchase authorization to $250 million in total, resulting in approximately $110 million of remaining repurchasing power. In addition to the expansion of the buyback program, our Board also approved the redomiciliation of the company from the Cayman Islands into the U.S.. Subject to shareholder approval, which will be sought within the next couple of months, the company would now be both headquartered and domiciled in the U.S., continuing our long-term strategy to become even more U.S.-centric as we become a larger company with a complete nationwide footprint. The redomicile into the U.S. will help us achieve tax efficiencies from a corporate level perspective as well as to facilitate dividend distributions to shareholders. Now moving to our outlook on Slide 16. Our full year 2025 performance demonstrated the strength of our business in a toughening macro environment into year-end that has continued into early 2026. Based on the visibility provided by our residential order book and multiyear backlog, we are introducing our full year 2026 outlook for revenues to be in the range of $1.06 billion to $1.13 billion, representing growth of approximately 11% at the midpoint of the range. Additionally, we're introducing our adjusted EBITDA outlook in the range of $265 million to $305 million. Our high-end outlook assumes continued downward trends in interest rates benefiting mortgage rates and improved affordability, a more favorable interest rate environment supporting a broader acceleration in project invoicing. The high-end outlook assumes continued market share gains and strong execution in new geographies and vinyl as well as full backlog execution without significant project delays. At the top end, we expect aluminum input costs to soften approximately 10% by the middle of the year versus year-end 2025 levels and the Colombian peso to trend toward COP 4,000 per dollar, which is essentially stable year-over-year. The top of the range also assumes annual salary adjustments in Colombia that are offset by favorable operating leverage and efficiency gains. The low end of our range contemplates a more challenging environment in which the Fed does not cut rates during the year, constraining residential invoicing momentum with high single-digit revenue growth driven primarily by backlog execution, market share gains and flattish single-family revenues. Under this scenario, we also assume a more gradual expansion in new geographies and vinyl and potential timing shift in certain commercial projects into 2027. The low scenario further assumes stable aluminum input costs versus year-end 2025 and the Colombian peso remaining below COL 3,800 per dollar with annual salary adjustments in Colombia not being fully offset by operating leverage. As mentioned earlier, our guidance range establishes a baseline that excludes several potential upside levers. Specifically, our outlook does not factor in additional pricing actions or opportunistic hedging strategies that we are actively evaluating to further protect margins. From a seasonal perspective, we expect the first quarter of the year to be softer as some of the aforementioned headwinds remain in place currently and the level of orders started picking up earlier this year with actual invoicing expected to take place within the second quarter and beyond. Both assumptions also bake in an incremental amount of installation revenue, in line with our previous discussions around the shift in backlog composition geared to larger projects in which we do both supply the windows and perform installation. Under both scenarios, we expect another year of strong free cash flow generation. Working capital should continue to be a source of cash as we further penetrate residential markets, though this will be partially offset by longer cash conversion cycles in our growing installation business. Capital expenditures are projected to be in the range of $60 million to $75 million, which includes maintenance CapEx at approximately 1% of revenues and the remainder for planned investments in efficiency initiatives. As previously disclosed, in 2025, we initiated a feasibility study for a new state-of-the-art largely automated facility in the U.S. If we decide to move forward with the project and the diligence process is completely favorably, our 2026 investment related to this would be limited to an estimated of $20 million to $25 million for the land acquisition only. This potential land purchase is not included in our current 2026 capital expenditure guidance and remains subject to a final investment decision and the ongoing assessment of demand trends and overall market conditions. Beyond the land purchase, we do not expect significant additional capital deployment on this initiative in 2026 as we complete equipment testing and continue to monitor demand trends. In conclusion, our fourth quarter and full year 2025 results demonstrate our ability to deliver strong results in a dynamic environment. We are leveraging our competitive advantages, including our vertically integrated manufacturing platform, our expanding geographic footprint and our diversified and growing product portfolio to gain share and drive long-term value for our shareholders. With a record backlog, a growing national presence in single-family residential, a strengthened balance sheet and multiple growth initiatives advancing, we entered 2026 with strong momentum. These advantages are structural and durable. Our share gains and geographic expansion are on track, and we remain confident in our ability to continue outperforming the market for years to come. With that, we will be happy to answer your questions. Operator, please open the line for questions. Operator: [Operator Instructions] And the first question today will come from Sam Darkatsh with Raymond James. Sam Darkatsh: So I'm just going to ask some clarification or quantification questions, Santiago. Apologies for this. You mentioned that the first quarter was softer. Can you give us a sense, generally speaking, of sales, gross margin, EBITDA type of thing that we should be expecting for the first quarter, knowing that 2/3 of it is done at this point? Santiago Giraldo: More or less in line with Q4. That's what we would expect. Remember that in Q1, you also have a couple of weeks of scheduled maintenance shutdown. So you have a shorter quarter in line with Q4 when we shut down at the end of the year. So it would be more or less in line with that. Sam Darkatsh: Got you. And then within the '26 framework at the low end and the high end, what are your expectations for gross margins, general and administrative and then also tariffs? Santiago Giraldo: On tariffs, just the ongoing tariffs on stand-alone product, we continue to supply aluminum from the U.S. by being able to mitigate that impact. On the gross margin from the low to the high end, you have a 200 basis points of difference, from high 30s to low 40s, depending on where we are. And obviously, the main impact would be the input cost as it relates to raw materials, the FX. As you saw in the presentation, we are providing different scenarios that outline what the assumptions would be on either case. SG&A, we expect it to go down in terms of percentage of our sales based on the fact that we will not incur aluminum tariffs as we did in 2025. But obviously, on a nominal basis, when we're growing 11% at the midpoint, you have some variable expenses related to transportation and commissions and salary adjustments that increase the nominal base. But as a percentage of sales, the idea is that we should be slightly lower. Operator: The next question will come from Rohit Seth with B. Riley. Rohit Seth: Santiago, can you talk a little bit about the pricing actions that you have not yet implemented? What products are on? And when do you expect to put those price levels out? Jose Daes: Well, this is Jose Manuel. We have to wait and see the reaction of the total market in order to raise our prices. We would like to raise the prices. Obviously, we have done it in all the new jobs, but in residential, our competition is struggling. So they have not raised their prices in order to gain market share, and we have not raised them not to let them take the market that we do have. So we'll have to wait and see. Rohit Seth: Okay. And just a follow-up on the vinyl and your new product lines. Can you just quantify how much of the new product lines you achieved in 2025 and what you're expecting to see in 2026? Santiago Giraldo: Our base case shows that we ended up with vinyl roughly around $10 million for the year. We expect that to increase at least 2.5, 3x for 2026. We feel that there is upside to that base case and the cadence of sales will dictate how much we're able to ramp that up at the end of the year. As we had discussed in previous calls, the main issue was not having the full availability of the products, which we feel good about at this point in time. The dealer base has increased over 20% year-over-year. A lot of that is vinyl dealers. So in essence, the seed has been planted to execute and grow that a few times over year-over-year. Rohit Seth: Understood. And so the certification of those products is done. You have the full product line set up and ready to go? Santiago Giraldo: Yes, that is the case. It's just a matter of executing on sales now. Operator: The next question will come from Tim Wojs with Baird. Timothy Wojs: Maybe just kind of first question. I guess, would you expect to see the U.S. commercial revenue accelerate in '26? I think it grew 11% in '25, but your backlog has clearly been up more than that over the past few years. So should we start to see those growth rates emerge as that backlog starts to convert in a bigger way in '26? Jose Daes: Yes, sir. Commercial is going to grow in '26 and '27 because not only we have a big backlog in Florida mostly, but we are expanding our reach into other markets by our installer GM&P. So we expect to -- the commercial side to keep growing at a very big pace, double digits or more. Timothy Wojs: Okay. And I guess when you're -- if you're thinking about kind of the backlog and the pipeline, I mean, has anything -- I know the market is choppy, but has anything changed there? I mean, do you guys still expect to see some pretty good backlog growth in '26 as well? Jose Daes: Yes. Yes, for sure. We see a lot of commercial activity in the Northeast that wasn't seen before. And now we are landing jobs in Texas, Utah, Colorado, and we expect with our new brand in California to get a lot of traction there, too. Timothy Wojs: Okay. Okay. Great. And then Santiago, just what is the residential assumption for revenue at the midpoint of the guide? I think they did, what, $403 million this year? Santiago Giraldo: We ended up $403 million. What we're expecting is on the kind of legacy Florida business to be up low single digits. And then the rest of the growth coming from vinyl and non-Florida opportunities. And we expect that, obviously, altogether to equate to a double-digit growth year-over-year as well. So both segments, we are projecting to grow double digits and on the resi side, coming more from geographical expansion in vinyl. Operator: The next question will come from Julio Romero with Sidoti & Company. Julio Romero: Thanks for the vinyl breakout earlier of about $10 million in '25. I think you said about 2.5 to 3x of that expected in '26. Kind of same question, but for the showrooms, your 5 showrooms, soon to be 6 in the first quarter. Just help us level set the contribution there. And is that separate from the vinyl contribution expected? How would you have us think about that? Jose Daes: Yes, yes, because the showrooms not only have the new vinyl lines, but they have the new legacy line and many new products that we are -- we developed last year, like, for example, the garage door. We have a garage door now, but it was only for impact, hurricane impact in Florida. Now we developed the garage door nationwide, and we expect that to ramp up a lot. And also we have a new few doors and windows that have had, I mean, tremendous success with our clients. They love it. And I think we're going to grow double digits, but we hope it's going to be a lot in the high double digits. Julio Romero: And I guess just to rephrase that a little bit, I guess I'm just asking how much incremental aside from the $10 million in vinyl came from the showrooms in '25 and how much kind of separate from that is '26 that doesn't overlap? Santiago Giraldo: On the showrooms, remember that, that's both commercial and residential, right? So if we wanted to kind of break that out on the resi side for the showroom revenues, we ended up at about $10 million, and we're expecting to do $30 million to $35 million this year. So again, that segment of the business in line with the answer to Tim's question earlier is what is going to drive the single-family residential growth. Both vinyl and non-Florida resi are expected to grow 2.5, 3x this year. Julio Romero: Very helpful. And I guess you also mentioned that on the new plant that you're evaluating, you're also looking at new opportunities such as Buy America projects and a quick turnaround. I was just hoping you could dive into that a little bit for us. Christian Daes: Well, we are in the stage. This is Christian. We are going to be testing the new technology in Colombia first and make sure that we can reach a level of automation enough, so we require the least amount of people to work. I mean we don't want to have another place with 9,000 employees. We want to have 1,500 or the most 2,000 and be able to first deliver faster, also make about the same amount of money because there will be some savings on transportation and the tariffs and all that. And it will be to have also a good thing to have in the states. But obviously, this is not going to take care -- take place this year because we're going to be testing at the end of the year, all the technology. So it will be a decision that we'll make by February or March of next year of what to build in the U.S. and how to build it. We are close to buying the land. But it's also important for us to -- I mean, to our products to be Buy American. And another thing is that regardless of the product being manufactured in Colombia, almost all raw materials come from the U.S. So we are a Buy American company anyways. Julio Romero: Yes, absolutely. And I think maybe just to look at Christian, for another angle is just when I hear Buy America projects, I think about like federally funded infrastructure projects or something of that nature. So could your window products potentially participate in projects such as those? Christian Daes: Well, they used to be able to participate with the free trade agreement that we had in place because all the materials were manufactured in the U.S., but not anymore. So with the new plant, if we build it next year, that will be an advantage that we will have to be able to do federal buildings, too. So we're trying to keep growing and our idea is to double our sales in the next 3 to 5 years. And you know that we don't -- we're not doing this only for the money, but because it's our life, and we love what we do. And we've been doing it for over 40 years. So this is the way to go. Operator: The next question will come from Jean Veliz with D.A. Davidson. Jean Paul Ramirez: I apologize perhaps repeating some of the things you mentioned. But could you just kind of like walk me through with some of the cadence of the nonresidential -- the commercial and single-family kind of work that you'll be doing through first half and then second half compared with 2025. I guess what I'm getting to is I'm wondering, is there -- as you're expanding into Northern Florida and some of perhaps dynamic changes that it's occurring in your commercial side, is that influencing how you move to the backlog? Santiago Giraldo: So let me rephrase and make sure I'm getting your question right. In terms of cadence of revenues, the way that we're projecting this is that each sequential quarter is going to be incremental revenues as we move through the year. As we said earlier, the first quarter is expected to be kind of more or less in line with Q4. And then sequentially, both because of the backlog visibility that we have and the geographical penetration and the vinyl ramp-up, we're expecting revenues both in the single-family residential and the commercial segments to go higher as we move through the year. So it's going to be backloaded based on those assumptions. Jean Paul Ramirez: Okay. Appreciate that. And then just thinking about the impact of aluminum, is that under your assumption, does that alleviate then in the second half? Or is there a sequential taper coming off your 1Q guidance? Santiago Giraldo: No. I mean if you look at the presentation that we put together and what we discussed here is that there's 2 scenarios. On the downside, we're assuming stable pricing in line with what you saw at the end of last year, which is kind of more or less what we're seeing today. If you're looking at the upside, we're assuming that aluminum prices taper off and we get a benefit in the second half of the year because as of now, we're almost 2 months into this and aluminum prices remain elevated. Jean Paul Ramirez: Makes sense. And just on the vinyl, is there a space for a bigger upside as you have more and more products available, and you mentioned that there is better bundles that you -- and better opportunities when you sell these different products that have vinyl in them. Can we look -- is the 3x -- yes, is the 3x just the top? Or is there more of an upside that you could grow from there on that vinyl? Jose Daes: 3x is the minimum we expect. We are very conservative on that side. If everything falls into place, we expect to do -- let's assume that this year, we were selling around $1 million a month. We expect from the second half of the year to do 5x, $5 million a month. And we believe that we're going to do -- that's going to ramp up next year to do at least $10 million. That's what we expect. But we'll have to see. But $30 million is a conservative estimate. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Jose Manuel Daes for any closing remarks. Jose Daes: Well, thank you, everyone, for participating on today's call. And in spite of all that is happening in the market, in spite of the tariffs, in spite of the aluminum going up, in spite of the devaluation of the dollar, we have done very well. The company is going to keep striving. We have a lot of plans of growth for '26, '27 and '28. And we're going to make our clients happy and our investors more than happy. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Chemed Corporation Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Holley Schmidt, Assistant Controller. Please go ahead. Holley Schmidt: Good morning. Our conference call this morning will review the financial results for the fourth quarter of 2025 ended December 31, 2025. Before we begin, let me remind you of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 apply to this conference call. During the course of this call, the company will make various remarks concerning management's expectations, predictions, plans and prospects that constitute forward-looking statements. Actual results may differ materially from these -- from those projected by these forward-looking statements as a result of a variety of factors, including those identified in the company's news release of February 25 and in various other filings with the SEC. You are cautioned that any forward-looking statements reflect management's current view only and that the company undertakes no obligation to revise or update such statements in the future. In addition, management may also discuss non-GAAP operating performance results during today's call, including earnings before interest, taxes, depreciation and amortization or EBITDA and adjusted EBITDA. A reconciliation of these non-GAAP results is provided in the company's press release dated February 25, which is available on the company's website at chemed.com. I would now like to introduce our speakers for today, Kevin McNamara, President and Chief Executive Officer of Chemed Corporation; Mike Witzeman, Chief Financial Officer of Chemed; and Joel Wherley, President and Chief Executive Officer of Chemed's VITAS Healthcare Corporation subsidiary. I will now turn the call over to Kevin McNamara. Kevin McNamara: Thank you, Holley. Good morning. Welcome to Chemed Corporation's Fourth Quarter 2025 Conference Call. I will begin with highlights for the quarter, then Mike and Joel will follow up with additional details. I will then open the call for questions. The fourth quarter of 2025 fell short of our expectations for both subsidiaries. We will touch on the circumstances that led to these results, but more importantly, we will discuss what's being done to improve these results for 2026 and beyond. VITAS continues to execute the strategies required to fully mitigate potential Florida Medicare Cap billing limitations for the government's fiscal 2026. Admissions at VITAS during the quarter totaled 17,419, which equates to a 6% improvement from the same period of 2024. An important metric that we've been tracking related to Florida admissions is the percentage of total admissions that come from hospitals. Our analysis indicates that an appropriate balance for sustained long-term stability in the Florida patient base, given the current mix of referral sources is that between 42% and 45% of total admissions come from hospitals. During our Community Access program, this ratio dipped below the preferred range for a sustained period. In the fourth quarter of 2025, this ratio was 44.8%, which represents a high watermark during the post-pandemic period. The continued emphasis on short-term hospital-based admissions had 2 main impacts on the results for the fourth quarter of 2025. The first impact is that the Florida Medicare Cap position in the fourth quarter improved by almost $25 million in 2025 -- compared to 2025. It is important to remember that our fourth quarter is the first quarter of the government fiscal year. The year-over-year improvement gives management even more confidence that the Florida Medicare Cap problem of 2025 is behind us. The second impact is that due to the overwhelming success of garnering elevated short-stay patient admissions, our revenue growth and EBITDA margin were lower than anticipated. Ultimately, the percentage of total admissions that come from hospitals was higher than we originally budgeted in both the third and fourth quarters of 2025, resulting in this muted revenue growth and EBITDA margin. In mid-January 2026, VITAS management responded to the improved Florida Medicare Cap position by instructing operating personnel to begin the process of refocusing admissions to a more balanced approach between hospital admissions and preadmission -- other preadmission locations. That process is underway. In the guidance that Mike will discuss further, we have anticipated that the more balanced approach will start being reflected in the financial results mainly in the second half of the year. All patients are short-term patients for the first 30 days after admission regardless of their pre-admission location. As a result, refocusing the admission patterns will result in revenue growth and EBITDA margin building over the course of 2026. Finally, in December, we were granted a certificate of need to begin operating in Manatee County, Florida. Manatee County is in Western Florida between Hillsborough and Sarasota. Approximately 3,000 Medicare patients received hospice care in Manatee County during the government's fiscal 2024, which is the most recently published government information. Manatee represents another significant opportunity for VITAS in 2026 and beyond. Now let's turn to Roto-Rooter. Roto-Rooter revenue declined 3.7% in the fourth quarter of 2025 compared to the same period of 2024. Branch commercial revenue increased 1.6% compared to the fourth quarter of 2024. We continue to add commercial business managers to select branches during the quarter. Branches with commercial business managers had percentage revenue increases, 10% more than those without them. Roto-Rooter management intends to continue and expand this program in 2026. branch residential revenue declined 3.1%. Total leads were flat in the fourth quarter of 2025 compared to the same period of 2024. As discussed in the past few quarters, the trend of increasing paid leads offset by declining natural leads continues. During the fourth quarter, paid leads increased 9.4% compared to the same quarter of 2024. The decline in natural leads essentially offset the increase in paid leads. Roto-Rooter management has contracted with a new third-party search engine optimization provider in late December. The new provider does not provide services to any of our private equity competitors. Additionally, they focus on understanding and responding to the underlying code used by internet search engines to develop their search algorithms. We believe that these 2 factors will give us the ability to more positively impact our natural search results in 2026. Write-offs related mainly to our water restoration business increasingly became an issue over the course of 2025. In the fourth quarter of 2025, implicit price concessions and credit memos increased at Roto-Rooter by $4 million or 57% compared to the fourth quarter of 2024. A similar increase in write-offs was seen in the third quarter of 2025. The company has put into place modifications to the billing and collection support functions. Collection experience began to improve in early 2026, and we anticipate improvement to accelerate through the course of the year. Our guidance reflects management's belief that 2026 is expected to be a transition year for both VITAS and Roto-Rooter. VITAS's financial results are expected to build over the course of the year as we rebalance our patient mix. We are very confident that Florida Medicare Cap limitations in 2025 is fully behind us. The demographic makeup of the U.S. population, along with the addition of new territories in Florida, provides VITAS with significant growth opportunities over the next several years. Roto-Rooter continues to deal with a difficult operating environment. However, we have initiatives in place that I believe can lead to modest growth, mainly coming in the back half of 2026. We anticipate continued improvement in overall leads based on the past few quarters of paid lead generation improvement plus the impact of the new search engine optimization company. Improved overall leads should lead to modest organic growth in 2026. The addition of more commercial sales resources is anticipated to further improve organic growth. As Mike will discuss further, improvements we are working out with respect to water restoration billing and collections should provide $4 million to $6 million tailwind in 2026. We believe these improvements, along with an aggressive program to find and reacquire franchises in desirable territories, gives us confidence that we can meet or exceed our 2026 guidance. We believe that the difficult operating environment is temporary, and there has not been any impairment in their underlying long-term growth outlook for Roto-Rooter. With that, I would like to turn this teleconference over to Mike. Michael Witzeman: Thanks, Kevin. VITAS' net revenue was $418.8 million in the fourth quarter of 2025, which is an increase of 1.9% when compared to the prior year period. This revenue increase is comprised primarily of a 1.3% increase in days of care, and a geographically weighted average Medicare reimbursement rate increase of approximately 2.2%. The acuity mix shift negatively impacted revenue growth, 143 basis points in the quarter when compared to the prior year revenue and level of care mix. The combination of Medicare Cap and other contra revenue changes negatively impacted revenue growth by approximately 20 basis points. A $2.4 million Medicare Cap billing limitation was accrued in the fourth quarter of 2025. There was no Medicare Cap billing limitation accrued for our Florida program in the fourth quarter of 2025. Average revenue per patient day in the fourth quarter of 2025 was $208.01, which is 86 basis points above the prior year period. During the quarter, high acuity days of care were 2.2% of total days of care, a decline of 32 basis points when compared to the prior year quarter. Adjusted EBITDA, excluding Medicare Cap, totaled $91.6 million in the quarter, which is a decline of 1.7% when compared to the prior year period. Adjusted EBITDA on -- the adjusted EBITDA margin in the quarter, excluding Medicare Cap, was 21.7%, which is 79 basis points below the prior year period. The lower EBITDA margin in the quarter reflects the impact of admitting more hospital-based short-stay patients. Now let's turn to Roto-Rooter. Roto-Rooter branch residential revenue in the quarter totaled $155.6 million, a decrease of 3.1% from the prior year period. This aggregate residential revenue change consisted of plumbing increasing 6.3%, excavation essentially flat offset by water restoration declining 10.3% and drain cleaning declining 3.2%. As Kevin mentioned, water restoration write-offs also referred to as implicit price concessions and credit memos have been increasing over the course of 2025. Historically, total write-offs have been slightly below 3% of gross revenue. There was an uptick to the mid-3% range in the first half of '25. We then experienced a significant jump in the second half of 2025 to over 4.5%. As a result of those increases, total write-offs increased $11 million in fiscal 2025 compared to 2024. Primarily through the use of artificial intelligence, many insurance companies have increased their scrutiny of every line item on every job we bill. This has led to the higher write-off percentage. Roto-Rooter management also believes that it has led to a reluctance to bill for certain water restoration services at the branch level. As the scrutiny on collections has increased over the year, billing employees in some branches have reduced their billings per job to help ensure a higher collection rate. This was the biggest factor that led to the 10.3% decline in residential water restoration revenue in the fourth quarter of '25. In response to this issue, Roto-Rooter is taking steps to improve its documentation through better use of technology. They have also undertaken a project to centralize water restoration billing and collections. Billing and collections were historically performed at each branch. This led to some inconsistent practices across the company. Centralizing these processes is expected to create more concentrated expertise and result in better billing and collection results. The financial impact is expected to be seen mostly in the second half of the year as these improvements take hold. Additionally, during the transition period, we expect some duplication of costs and investment in technology which will cause some marginal headwinds in the first half of the year. Roto-Rooter branch commercial revenue in the quarter totaled $55.2 million, an increase of 1.6% from the prior year period. This aggregate commercial revenue change consisted of excavation increasing 10.9%, drain cleaning increasing 2%, plumbing essentially flat between years, offset by a 20% decline in water restoration. The water restoration decline is a symptom mainly of the increased insurance scrutiny previously discussed. Roto-Rooter management believes that our commercial business continues to represent a significant opportunity for growth in 2026 and beyond. Commercial customers generally use our services more often than residential customers, they also have direct access to our local managers and thus generally do not search for us over the internet. In response to the commercial business opportunity, Roto-Rooter management hired commercial business managers at select branches during 2025. The preliminary results in the branches with commercial business managers are encouraging. As a result, Roto-Rooter continues to add commercial business managers in early 2026. It is a roughly 45-day process to get these positions trained and productive, which also may cause some marginal drag in the first half of '26. Adjusted EBITDA at Roto-Rooter in the fourth quarter of 2025 totaled $47.5 million, a decrease of 21.1% compared to the prior year quarter. The adjusted EBITDA margin in the quarter was 21.5%. The fourth quarter adjusted EBITDA margin represents a 477 basis point decline in the fourth quarter from the fourth quarter of 2024. The decline in EBITDA margin was caused by higher marketing costs and higher water restoration write-offs. During the quarter, we repurchased 400,000 shares of Chemed stock at an average price of $436.39. These purchases were funded by the free cash flow generated by both VITAS and Roto-Rooter since the beginning of the program, we returned over $2.9 billion to shareholders through repurchases at an average cost of approximately $167 per share. Now let's turn to the 2026 guidance. VITAS revenue prior to Medicare Cap is estimated to increase 5.5% to 6.5% when compared to 2025. Average daily census is estimated to increase 3.5% to 4%. Full year EBITDA margin prior to Medicare Cap is estimated to be 17.5% to 18%. Medicare Cap billing limitations are estimated to be $9.5 million in calendar 2026 compared to $27.2 million in calendar 2025. The estimate for 2026 is in line with our historical run rate prior to 2025 and includes no limitations related to our Florida combined program. Roto-Rooter is forecasted to achieve full year 2026 revenue growth of 3% to 3.5%. Roto-Rooter's adjusted EBITDA margin for 2026 is expected to be 22.5% to 23%. We believe this forecast is achievable based on anticipated improved lead volume in 2026, improved billing and collections in our water restoration service line and a lift in our commercial business through a commercial focused sales force. Based on the above full year 2026 earnings per diluted share, excluding noncash expense for stock options, tax benefit from stock option exercises, costs related to litigation and other discrete items, is estimated to be in the range of $23.25 to $24.25. This compares to full year 2025 adjusted earnings per diluted share of $21.55. The 2026 guidance assumes an effective corporate tax rate on adjusted earnings of 24.5% and a diluted share count of 13.9 million shares. It's important to note that the 2026 earnings trajectory is weighted towards the second half of the year. We estimate 55% of the consolidated adjusted net income and consolidated adjusted EBITDA prior to Medicare Cap is projected to be generated in the second half of the year. I will now turn the call over to Joel. Joel Wherley: Thanks, Mike. In the fourth quarter of 2025, our average daily census was 22,462 patients, an increase of 1.3%. In the quarter, hospital directed admissions increased 9.9%, home-based patient admissions increased 4.1%, assisted living facility admissions increased 5.6% and nursing home admissions declined 8.7% when compared to the prior year period. Our average length of stay in the quarter was 115.1 days. This compares to 105.5 days in the fourth quarter of 2024. Our median length of stay was 17 days in the fourth quarter of 2025, 1 day less than the median in the fourth quarter of 2024. As Kevin discussed above, we have very successfully transitioned our admission pattern towards more hospital directed admissions in our Florida combined program. To add some context to that success, at the end of the fourth quarter of 2025, that Medicare cap billing limitation was less than $2 million. As of the end of January '26, we have no billing limitation in our Florida combined program. This success has allowed us to begin the process of balancing the admission patterns to a better mix of hospital-based admissions and other preadmission locations. It's important to remember that hospital-based admissions generally provide for shorter-stay patients than other preadmission locations, admitting more short-stay patients results in ADC pressure in lower margins, as previously mentioned. However, in the first roughly 30 days of any patients stay with us, the economics are the same for us regardless of their pre-admission location. Only when a patient exceeds that 30 days do we see the more positive financial impacts. Balancing the mix of admissions will lead to accelerated revenue growth and improved EBITDA margins as the year progresses. In December 2025, we were notified that we received the new CON to operate in Manatee County, Florida. As Kevin mentioned, this represents another opportunity for significant growth over the next few years. This is the fourth CON awarded to VITAS over the past 2 years. The previous awards in Pinellas, Marion and Pasco Counties have met or exceeded our expectations. Currently, Marion and Pasco are admitting between 40 and 50 first-time Medicare patients per month. In just its second full month of operation, Pinellas admitted 28 first-time Medicare patients. We will continue to aggressively pursue CON opportunities in Florida in the territories in which we do not currently operate. Now that we believe the Florida Medicare cap issue is behind us, we are focused on returning VITAS to a more normal, sustainable organic growth pattern. We will look to achieve higher overall growth through the pursuit of new starts, not only in Florida but other CON states as well. We also continue to evaluate strategic acquisitions to add to VITAS' overall growth. With that, I'll turn it back to Kevin. Kevin McNamara: Thank you, Joel. I will now open this teleconference to questions. Operator: [Operator Instructions] Our first question comes from the line of Joanna Gajuk of Bank of America. Joanna Gajuk: So I guess, first, a couple of questions on the Roto business. So thanks for the details around, I guess, different issues, I guess, happening at the Roto-Rooter. But I guess just to summarize because I think you tried to address a couple of these things. What gives you confidence you can actually grow revenues 3% or so in '26 after revenues were pretty much flat in '25. Kevin McNamara: Well, let me start, Joanna. And this is -- I'll start with from 20,000 feet. We revised guidance in -- at the end of the second quarter of last year. And we talked at that time -- there were struggles at Roto-Rooter. The problem at VITAS was we were on our way to running a Medicare cap liability of Florida, we announced that we were going to have to make changes to push our mix of hospital-based admissions and community access to a different level, okay? So we make those adjustments to that point. And actually, from our perspective, from our calculations at the end of the third quarter, we were basically right at our guidance. I mean it might have been a little below what analysts were predicting. But that's -- the difference was only seasonality. We were at our level. The fourth quarter was $0.70 per share miss, okay? Massive, big problem. And raises questions like, okay, you've given guidance. How are you going to -- how are you going to reach those numbers, okay? Now to answer your question, let's start with Roto-Rooter, okay? Roto-Rooter, as we've said, has been going through a transition, okay? The transition -- the most significant transition is going from a majority of free leads that is from natural search to paid leads, okay? And Google is a smart company. They say, why should we give paying customers free leads? And they've been very successful in engineering their algorithms to yield that, that has a negative effect on us as far as number one -- answer your question on sales, has an effect of reducing our natural search leads, okay? As we mentioned at the end of the fourth quarter, we look back in the quarter, and we said, okay, we have an improvement there. Our paid leads have increased almost 10%. Unfortunately, natural leads are down almost the equivalent number. So our -- so our total leads were flat. If you look at our sales, we would expect sales to be relatively flat in that case and then making improvements growing to the following year. Well, we had a problem, as we said, with water restoration. And it was an overhang from the first half of the year. Again, we were -- we had various decentralized billing practices, insurance companies kind of sharpen their pencil, and basically, during the course of the year, increasingly, we weren't collecting at the same rate we were expecting that dramatically goes right to profitability and sales, okay? We believe that has normalized, as Mike said, not to the 2024 level or 2023 level, but certainly better than the 2025 level. So when we talk about growth, to the extent that we -- the way I look at the Roto-Rooter numbers, I look at, okay, what's going on with paid search and natural. The paid search is growing nicely. Last 3 quarters, almost 10% per quarter, okay? It comes at a cost. We're paying $94 lead compared to previously 0 on a lot of those leads, but that's still a good business as long as it's stable and growing, that's fine. We look at our natural leads, okay? Why are the natural leads -- why were they so negatively affected last year? As we've said in the past, the most -- the place that most people get their natural leads from is what's known as the map section of Google, okay. In October of 2024, Roto-Rooter was showing up on the maps nationwide 72% of the time, okay? Within a few months, that fell to a low of 24% of the time, okay? Massive change in visibility as known in the industry. And accordingly, leads were falling -- leads were falling, sales are falling. Tough time for Roto-Rooter. Looking ahead to 2026, what do we see? Well, we see a business that, on the paid lead side, continues to improve. We see on the -- let's focus on the visibility, okay? Our visibility, both through some of the internal changes we made and the use of our -- basically AI-centric natural search for our visibility up to about 35%, up from 24%. So that -- to answer your question, that gives me some confidence in saying, yes, as long as those -- we don't have to -- just have to continue those improved rates for growth in Roto-Rooter on the revenue side. I mean there's nothing that has changed in the nature of and quality of the service mark of Roto-Rooter. And then you add one thing Mike mentioned -- again, it's not that surprising given the difficulty of home services, it seems like the availability of repurchases of other franchises is speeding up, which has given Mike enough confidence that included that in his remarks. Again, those issues give me a lot of confidence that Roto-Rooter sales are going to be higher this year than the previous year. Now I was just going to say the other point is, you got to remember that I think it's an important one. When you talk about overall strength of the business. As we've talked about the VITAS with the, call it, preloading of Medicare Cap cushion in Florida, that's so significant. Just order of magnitude, we're at about a $28 million better position in cap cushion sitting right now. But right now, I'd say it's probably higher, that's probably more like $35 million. Okay. So the question is, can we -- will VITAS be able to grow census to take advantage of that cushion. And as we said during the prepared remarks, they're doing that, probably beyond our expectations. So in sort of a sense that lower margin and lower sales we saw in the fourth quarter was basically just lending, it was -- we were borrowing from last quarter to see profits and revenue that we're going to see in this year. So all of -- those are some of the basic points of what I see happening to what looks like on paper, a very bad miss in the fourth quarter. And just let me -- just in terms of dollars and cents, the $0.70 miss, probably about 33% was that -- was associated with VITAS's getting more a higher percentage of their admits being short stay rather than long stay. So -- and that's not something I see as a good thing. That was something ultimately they were trying to do and just we're a little more successful at it than initially anticipated. With regard to -- on the Roto-Rooter side, the lion's share of the miss was associated with the water restoration situation, which we've talked about and there's every indication that's being ameliorated somewhat. And the rest of Roto-Rooter, it's largely the marketing costs, the increased marketing costs that comes from getting that 10% increase in paid leads. So it's not a good situation. Again, it shows -- it's one where we went a long period of time with always exceeding analyst estimates. And we can't kid ourselves, a $0.70 per share miss is not to be trifled with. It's big and it's causing a lot of change, a lot of renewed emphasis on important matters here at the company and both subsidiaries. Mike, anything to add? Michael Witzeman: Just to summarize, particularly for Roto-Rooter, Joanna, I would characterize our confidence in the 3% to 3.5% revenue growth in '26 based on 3 specific things. As Kevin mentioned, some things we've done to change the lead trajectory, hopefully, to provide some organic growth, but modest organic growth is built in. The increase in commercial sales force will also lead to some more modest organic growth. And then as we've talked about, the water restoration write-offs, we've estimated that of the $11 million that the increase of write-offs of $11 million, we're going to recover maybe half of that this year. So that's a $5.5 million tailwind. So I would say those are the 3 very key components of how we get to the 3% to 3.5%. Joanna Gajuk: Great. And if I may, on the margin, so for the segment, obviously, things impact the margins and you gave us the guidance for '26. But on the last call, when you kind of were talking about targeting longer term, I guess you were talking about '26, maybe the margins should be closer to 24%, but clearly, they will not be there, but then you also said like longer term, this business should get 25%, 26% margin. So are those still -- those targets -- are those targets still on the table? Or sort of like we have to think about the business differently. Michael Witzeman: I think that -- the answer to that question depends on how quickly Roto-Rooter gets back to a more normalized top line growth path. If they get to somewhere 5% or north revenue growth, I think the 24% to 25% is still achievable. We -- I don't anticipate the marketing costs to improve dramatically. And so we need to really to drive top line and get some leverage based on that revenue growth to offset the marketing costs. So yes, I believe it's achievable. But the path isn't as clear maybe as it had been in the past because of the marketing, the additional marketing spend. The other thing I would just mention, and I think it's obvious, Joanna, to you, you followed us long enough. We are not too far away from where our margins were pre-pandemic. So the 24% to 25% that we've talked about is higher than in the historical Roto-Rooter margins. So we're right now pretty close to what the pre-pandemic margin is. It's just we need to drive some top line and get some leverage from that. Operator: Our next question comes from the line of Brian Tanquilut of Jefferies. Brian Tanquilut: As I think about VITAS first, right? So I know on the -- in previous calls, you've given some insight into what you thought growth would be in the top line. And obviously, in the guidance that you formally gave last night, it's below that range that you previously provided. So just curious -- what is the delta there? And then how do we think about the progression of VITAS's revenues and EBITDA over the course of the year? Michael Witzeman: Yes, sure. So the -- from a top line perspective, and this also will, I guess, dovetail into your second question about the time line. We're sitting right now with a patient mix that for the second half of the year, we -- of '25. We really emphasized the short-stay preadmission locations, mainly hospitals. As you well know, long-stay patients are the ones that generally provide for more revenue growth and EBITDA margin growth. And so we're sitting today with a patient mix that has let us moderate, not moderate, eliminate the Florida Medicare Cap issue. So now we need to refocus the admission pattern. By doing that, we will get back to the normalized growth rate that we think is somewhere in the 7% to 9% top line area. We'll get there. It's just going to take -- it's going to build during the year because every patient, essentially, when you first admit them in the first 30 to 45 days or short-stay patients, they are negative margin for us for a period of time. They'll become long-stay patients over time. But in the first quarter, we're going to continue to have a very elevated number of short-stay patients regardless of the preadmission location. So it builds over the course of the year. That's why in '26, the revenue is a little bit below our targeted range. And the cadence of how it goes quarter-to-quarter, the first quarter is going to be muted from a revenue and perspective and then start to grow and normalize in the second through fourth quarter. Kevin McNamara: And let me just add one thing. When you're talking about revenue at VITAS, you're talking about ADC. If VITAS is able to grow ADC, they will grow their revenue. And to the extent that they have the ability -- a much larger ability in Florida to go out and seek longer-stay patients. That's -- longer stay patients is how you grow ADC essentially. It takes 10 short-stay patients to have the same contribution as 1 medium stay patient as far as going to your ADC number. But I think what you'll find is that VITAS is already well on its way. This isn't speculation with VITAS. They're well on their way to growing that average daily census in Florida and beyond. Brian Tanquilut: That makes sense. And then maybe, Kevin, since I have you, shifting gears to Roto-Rooter. This is a business that used to be very stable and predictable. One question we're getting asked a lot by investors is, is there a structural change or structural impairment that has happened, whether it's VITAS or Roto as an asset or the plumbing industry as a whole. So I'm just curious how you're thinking about the cleanliness or the smoothness of the trajectory for Roto going forward because it feels like every quarter, we're bumping up against some speed bumps that are of different nature. So just curious how you're thinking about how ... Kevin McNamara: Certainly in the last seven quarters, that's the case what you're describing. We can't get away with it. Yes, certainly, that's the case. Now what has been going on during this period? I mean I would say that the 2 major issues, let's start with private equity, introduction of private equity money and practices into the -- into our sector, okay, had an immediate effect on us. We hired our branch managers with a promise of great riches, that has stopped. And they -- several of them have seen trees don't grow to heaven and they've come back to our employee. The biggest impact aside from just existing and offering services at below cost on the plumbing side. They have disrupted the paid search model. We are paying more per lead than we did 2 years ago. But it is -- keep in mind, we paid the same amount in the last 3 quarters. So it is not -- it hasn't continued to go up. And we're winning that battle. Last 3 quarters, we've gotten a 10% increase in each of the last 3 quarters. So I consider the threat of private equity largely diminished at this point, okay? And I'm speaking to the overall -- saying has there been something changed in the plumbing industry? I think private equity came in and they said, look, they have a different investment horizon. We're in a marathon, they're in a sprint. They want to build the top line and flip it. That's a tough competitor, okay? And also, as I said, I'm going back, I'm repeating myself, but they're basically HVAC companies that said, we're very happy with paying $124 per lead, okay? And a lead on a job that they'll say they'll clean any drain for $90, okay? And the reason they're happy doing that is they view as that becomes a long-term customer for their HVAC services. I mean that's a tough competitor, if you're in the plumbing side. Roto-Rooter has dealt with that. I mean I just -- I'm kind of spinning off here into a different discussion, but I think that of the 2 major things that Roto-Rooter has been dealing with the last 7 quarters, private equity, definitely one of them. I don't see that as a long-term problem for Roto-Rooter at this point, okay? One that is a problem. We're still going on in the transition. We are going through a transition where Google -- we used to get in excess of 55% of our leads on the natural search. Somebody just finds Roto-Rooter in the Google, ignoring the sponsored ads. That has totally flipped. We're out of way to almost -- just over 40% of our leads come on the natural side. And I think there's a firming up in that market -- in that percentage, just again by some of the things that Roto-Rooter is doing, having to do with fighting back on visibility. But to answer your question, is that a significant -- is Google going away? No. That is a change in the business. But as Mike says, it's a change that kind of leads us more back to pre-pandemic numbers as far as sales growth and margin, which wasn't at the worst of all worlds, okay? So what I would say to your clients that say what has happened to the plumbing industry? I would say private equity has come in, disrupted everything, but they're seeing that it's tough to give away the service -- to provide the service at a loss. They're not growing. Companies have stopped buying our competitors. It's just -- the problem is diminishing rather than increasing. Google, we can't kid ourselves. Google is -- we're dependent on Google. We deal with them. we hope we can keep just having slight improvements in it. But the thing that has changed is we've gone from a business where the leads were predominantly free, and now they're predominantly we're paying them out. Now let me go back and say, there's nothing wrong with the leads, they're very profitable. The business is a good business paying -- getting leads to paid ads. It just has a negative comparison to getting them for free. So no, I would say that we got to Roto-Rooter, good cash flow, strong growth on the excavation and water restoration side. The water restoration has been a real black eye for us for the last 3 quarters, but it's something we've looked to put behind us. Not by wishful thinking, by the way, by centralizing billing and using our technology to make sure that the support for every bill is almost redundant. I mean just -- that's how you get past the AI sensors as it were and ultimately get paid. So no, I don't have any long-term concerns on Roto-Rooter at this point, to be honest with you. Michael Witzeman: Brian, the only thing I would add is from an industry perspective, there's been a lot of talk and a lot of things published that the trade, including the plumbing industry are pretty resistant to the changes that are coming from artificial intelligence and those sorts of things. So we definitely believe that plumbing the industry itself has not -- it has not and is not going to have major changes in the viability of the industry as a whole. I think, I mean, honestly, just to the point of your question, 2026 is the year that Chemed management and Roto-Rooter management show or don't show, but we believe will show the ability to manage that and get back to a more profitable, more sustainable level of growth for Roto-Rooter itself. Kevin McNamara: Well, let's put this way. It comes down to leads. This past quarter -- as bad as this past quarter was, our total leads were flat, okay, total leads were flat. Unfortunately, I say just -- there was a shift between paid and unpaid. But leads were flat, okay? And from those leads, we're increasingly improving our ancillary services, that is excavation and water restoration. So if you say, how does Roto-Rooter continue to grow? It's by having the leads be a little better than flat, continue to grow the ancillary services. And our goal for Roto-Rooter historically has not been double digit growth, okay? It's not been 30% margins. It's been growth on the top line of 7% to 8% with 24%, 25% margins depending on the seasonality in the quarter. And from that, with that cash flow, that has achieved over, let's say, prior to this year, over the previous 21 years, that is with the years in which we owned both VITAS and Roto-Rooter. They grew their net income at 11% per annum compounded. I mean that -- and they did that with just the basic blocking and tackling and benefit of good cash flow. So we get a lot of questions. I mean I can talk about this all day because we're going to talk about it all day. People are going to say, "Is there something significantly wrong with Roto-Rooter?" No, they're going through a difficult period. They're paying for leads that they used to get for free if you want like a one-sentence capsule commentary. Operator: Our next question comes from the line of Ben Hendrix of RBC Capital Markets. Benjamin Hendrix: Just starting with VITAS. I appreciate all the commentary about Florida Cap and the dynamics in the fourth quarter. I appreciate that you have a little bit more visibility on the -- not having a capital liability in that state, but we're getting a lot of questions on how we square that with some of the -- with the broader higher level cap stat that we're seeing, specifically the greater than 10% cushion coming down over the last couple of years and also an increase in the 0 to 10% cushion bucket and the liability buckets. Can you kind of help us think about the cap more broadly, how we think those stats might evolve kind of given the dynamics that we're seeing in Florida? And then also just a little detail on are we at cap risk in other markets. Kevin McNamara: I'm going to turn it over to Joel. And let me start by saying, keep in mind, in Florida where we have a down position, I want to end the year with a small percentage. I want to monetize as much of that cap room that we created as possible. We don't want to cut it -- we don't want to cut it too close. We want to be -- but I just feel in Florida, we have more control over our destiny than any other state. So I would -- whenever we talk about cap buckets and whatnot, I personally look at it, Florida and everywhere else. But Joel, why don't you give..? Michael Witzeman: Let me start with just sort of the specific metrics you were talking about then, and then we'll let Joel talk about the color commentary around it. But in '26, we see again, $9.5 million, which is pretty consistent with where we've been for the 5 or so years before 2025. That's comprised of California, mainly, California is by far the largest. But because of some of the things we learned in Florida -- the cap liability in California, actually, Joel and his team did some of the same things to help improve California. So California has actually gotten a little bit better. I don't think we're in a position or we don't think it's going to ever go to 0, but in a very manageable position right now, but there's always -- there always has been and there probably always will be some of our smaller programs that bounce in and out of cap based on they're so small and the cap calculation is so sensitive that if in a smaller program, if we lose IPU relationship in 1 hospital, it can have a temporary impact that, that particular program jumps into cap for a short period of time. And that's what you're seeing is the capital liability in total has not changed. But it's a couple of short -- small programs that we think are currently projected to be in cap, but it's 50-50 and they're very small liabilities. But that's why you see -- the number of programs look like it's going up, but the dollar amount isn't because it's just small programs that from time to time do this, and they always have for the entire time that we've owned VITAS. Kevin McNamara: Joel, to give your opinion. I don't want to color it. Are you that concerned with non-California or Florida cap? Joel Wherley: I am not and primarily for this reason. We are utilizing all of the very effective strategies that we have lifted up within the Florida CCN in every single potential cap market we have out there. Now if you look at fourth quarter specifically, that's the first quarter of the Medicare Cap year. So you have full revenue, but you -- the fleet is wiped clean on admissions, so you are starting over on a new year. We always see some of the small programs dip into cap in that first quarter of the Medicare Cap year. We have no additional concerns about major programs out there that will we expect a Medicare Cap billing limitation for '26 that we have not seen previously. And to Mike's point, we've made very good progress in the state of California with our historical programs that have been in Medicare Cap. And we've talked previously about why that happens in California. But the short answer to that, Ben, is that no, we have no additional concerns specific to cap and in fact, we're very happy with the progress we're making and our ability to minimize that billing limitation in CCNs outside of Florida. And as we indicated, with no billing limitation within the Florida CCN. Benjamin Hendrix: I appreciate the color. Just a quick one on Roto-Rooter. We also have a lot of questions on kind of how we model this, the marginal -- the margin impact on the paid search mix versus the natural search mix specifically that $90-some-odd per lead number that you've thrown out there, kind of how does that look on like on a conversion adjusted basis? Assuming some of those leads don't quite convert or there's no follow-through, is there a set that we can think of in terms of the conversion adjusted dollars per lead on a paid search? Kevin McNamara: Sure. So as you mentioned, we paid roughly $90 per lead, and that hasn't changed over the last few quarters historically and then continuing today, it takes between 1.5 to 2 leads to convert to a paying job. So you're looking at $150 to $180 customer acquisition cost for a paying job on the jobs we do from a pay-the-lead standpoint. And that's, I think, roughly 60% to 65% of our leads are paid at the moment. Operator: Thank you. This concludes the question-and-answer session. I would now like to turn it back to Kevin McNamara for closing remarks. Kevin McNamara: Well, my remarks are limited to the fact that we had a tough quarter, but there is, at least on this side of the line, abundant confidence that the guidance we make is guidance we can -- is we want to hit. We know that it's bad enough to have bad results, but it's even worse to miss guidance. And so to the extent that the guidance that's out there, we are very confident. But based on our results in the most recent quarters, I can see why reasonable investors might say, okay, forget last year, but how are they even going to make this year? I was going to say that when you combine some of the trends we've talked about and insight, again, we're more confident now than we are on the normal guidance to be honest with you. But with that, I would just like to thank everyone for your attention, and we'll be back 3 months from today. Thank you. Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.
Operator: Good morning, and welcome to the CIBC First Quarter quarterly results conference call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Geoff Weiss, Senior Vice President, Investor Relations. Please go ahead, Geoff. Geoffrey Weiss: Thank you, and good morning. We will begin this morning's call with opening remarks from Harry Culham, our President and Chief Executive Officer; followed by Rob Sedran, our Chief Financial Officer; and Frank Guse, our Chief Risk Officer. Also on the call today are a number of our group heads including Christian Exshaw, Capital Markets, Kevin Lee, U.S. region, Hratch Panossian, Personal and Banking, Canada and Susan Rimmer, Commercial Banking and Wealth Management, Canada. They're all available to take questions following the prepared remarks. As noted on Slide 1 of our investor presentation our comments may contain forward-looking statements, which involve assumptions and having inherent risks and uncertainties. Actual results may differ materially. I would also remind listeners that the bank uses non-GAAP financial measures to arrive at adjusted results. Management measures performance on reported and adjusted basis and considers both to be useful in assessing underlying business performance. With that, I will now turn the call over to Harry. Harry Culham: Thank you, Geoff, and good morning, everyone. We are pleased to start the fiscal year on strong footing with exceptional first quarter results. Our performance was driven by our team's collective focus on accelerating our proven client-focused strategy and unlocking further value through disciplined execution. Before I comment on our quarter 1 results, I want to offer some perspective on how our clients are managing through today's dynamic environment. We are staying close to them as they navigate a fluid operating backdrop with heightened focus on trade developments and geopolitical tensions. For my conversations with CEOs and industry leaders over the past few months, clients are generally managing near-term uncertainty well and remain optimistic about the longer-term. Our roots as the Bank of Commerce are very relevant today. Our bank was formed in 1867 to help capital flow to businesses that we're building our nation. Today, we stand ready to help our clients advance their agendas, including key infrastructure initiatives. We have a long history of being a trusted partner to the businesses and families we serve, and we remain focused on helping them grow in 2026 and beyond. Now turning to our quarter 1 results. On a reported basis, earnings per share of $3.21 were up 47% from the prior year and included income tax recoveries, which we have treated as an item of note. The remainder of my comments will focus on adjusted results. We reported adjusted earnings per share of $2.76, which were up 25% from the prior year, driven by a robust top line. Revenues of $8.4 billion were up 15% from the prior year. Importantly, our revenue growth is well diversified with record revenues across each of business units. Expenses were up 12% from the prior year. We delivered operating leverage of 3.6%, marking the tenth consecutive quarter in which we delivered positive operating leverage. Our critically remains resilient. Provisions for credit losses this quarter were largely aligned with our expectations. We continue to proactively stress test our portfolio for a wide range of scenarios to ensure our bank can navigate all market conditions. We are well prepared should we see a downturn in the environment while also being well positioned to grow with our clients. Our return on equity was 17.4% this quarter on the foundation of a robust 13.4% CET1 ratio. We returned roughly 78% of earnings to shareholders in the first quarter in the form of dividends and 8 million common share buybacks. These results reflect our unwavering commitment to delivering sustainable value for our shareholders and maintaining a solid foundation for future growth. Let me provide some highlights across each of our 4 strategic priorities that underscore the momentum we've achieved across our bank. Our first strategic priority is to grow our mass affluent and private wealth franchise. Across our managed mass affluent offering, we are connecting clients with dedicated advisers to help them achieve their goals. However, simple or complex. It's clear that this approach is working. Managed clients in Personal Banking are generating roughly 4x the revenue of an unmanaged client with Net Promoter Scores that continue to hit all-time highs. Within the past year, qualified clients in our managed offering grew by 6%, helping deliver money and balance growth of 12%. And from here, we are prioritizing client acquisition and growth with key client segments. We are also unlocking efficiencies to scale adviser capacity with mass affluent clients per adviser up 7% from the prior year. Our second strategic priority is to expand our digital-first personal banking capabilities. 48% of our retail products sold during the first quarter were through digital channels. That's up 5% from the prior year. As we implement continued enhancements through digital, we're putting more power in the hands of clients to deepen their relationships with our bank. We're also equipping our advisers with digital tools to create efficiencies for them, enabling them to spend more time with clients. Our third strategic priority is to deliver connectivity and differentiation to our clients. We built a highly connected culture that drives steady referral business across the bank, supported by an innovative suite of products designed to deepen relationships with our client base. Record revenues in Canadian Commercial Banking this quarter were fueled by single-digit volume growth on both sides by high single-digit volume growth on both sides of the balance sheet, robust margin expansion and strong connectivity across our teams. That collaborative momentum is also fostering greater cross-business engagement. This quarter, our Capital Markets platform captured elevated volume from client-driven demand, complemented by healthy referral activity from our Commercial and Wealth businesses. Earlier this month, we confirmed our role as a partner of the Defense Security and Resilience Bank Development Corp Group. As new opportunities emerge in Canada's key sectors, we are ready to work alongside our clients and industry leaders. Our fourth strategic priority is to enable, simplify and protect our bank by investing in technology, data and AI to drive operational excellence and further modernize our bank. We frame AI value through 3 pillars: revenue growth through better client experiences, operational efficiency and risk mitigation. These pillars guide where we invest and how we prioritize use cases. From a revenue perspective, these capabilities are enabling us to engage clients more intelligently, bringing the right insight adviser offer at the right moment. We're also using AI to accelerate and improve the consistency of credit decisions, supporting growth while maintaining discipline. On efficiency, we're simplifying our bank by reducing manual and repetitive work, so our teams can focus on higher-value activities. This includes automation, faster issue resolution and meaningful productivity improvements for our technology teams. And from a risk perspective, AI is helping protect our bank by strengthening fraud prevention, credit monitoring and AML functions. We've deployed these capabilities with governance built in from the start, ensuring transparency, control and regulatory alignment. Culturally, we see AI as an opportunity to rethink how work gets done, not just to automate existing processes. Our teams are encouraged to challenge legacy workflows, supported by training and clear policies for responsible AIUs. Having every CIBC team member doing this will propel us forward not just today, but also with future upcoming technologies. Rather than leading with a single enterprise value number, we focus on what is observable and repeatable such as scaled adoption, operational outcomes and improved risk performance. Over time, these benefits flow through to revenue, efficiency and returns in a disciplined and sustainable way. In closing, the positive momentum across our bank continues to build. We're focused on accelerating our execution in 2026 to drive robust, well-diversified growth by proactively preparing for uncertainty and staying close to our clients, we are well equipped to successfully navigate evolving market environments. And with that, I'll now turn it over to Rob for a deeper look at our financial results. Over to you, Rob. Robert Sedran: Thank you, Harry, and good morning, everyone. Let's start with 3 takeaways. First, the year is off to a strong start with another record earnings quarter and an ROE that was well above our current medium-term target. Second, the strong and broad-based revenue growth and solidly positive operating leverage reinforce our confidence in our strategy and demonstrate our focus on disciplined execution. And third, helped by strong reported earnings, our CET1 ratio edged higher even as we accelerated our capital return strategy by repurchasing 8 million shares during the quarter. Please turn to Slide 8. For the first quarter of 2026, earnings per share were $3.21 and included income tax recoveries, which we have treated as an item of note. Absent that, our effective tax rate was in line with expectations. On an adjusted basis, EPS was $2.76, up 25% from a year ago. Adjusted ROE was 17.4%, up 210 basis points from the same quarter last year. Let's move on to a detailed review of our performance. I'm on Slide 9. Adjusted net income of $2.7 billion increased 23% and pre-provision earnings were up a strong 19%. Revenues benefited from balance sheet growth, improving net interest margins and higher fee income. We continue to manage expenses prudently relative to revenues, delivering 360 basis points of operating leverage. Impaired losses were within our guidance range. Frank will discuss credit in his remarks. Please turn to Slide 10. Excluding trading, net interest income was up 13%, with continued balance sheet growth and expanding margins. All bank margin ex trading was up 17 basis points from the prior year and 6 basis points sequentially due to a combination of higher deposits, business mix and improved product margins. Those same factors drove Canadian P&C NIM of 300 basis points, which was up 10 basis points sequentially. In the U.S. segment, NIM of 401 basis points was up 17 points from the prior quarter due to continued strength in deposits, which was partially seasonally driven. After accounting for the seasonal drag on margin, we often see in Q2, we maintain our expectation of a stable to gradual positive bias on our net interest margins over time. Slide 11 highlights fee revenue trends. Noninterest income of $4.1 billion was up 18% with growth across payments, institutional, trading and consumer fees. Market-related fees also increased 18%, helped by constructive markets with particularly strong growth in trading, underwriting and advisory and mutual fund fees. Transaction-related fees were up 10% driven mainly by higher credit and FX fees. Slide 12 highlights our expense performance. Expenses were up 12%, driven by increased business activity, revenue-linked costs and technology investments across our bank. These expenses were paced relative to the robust revenue growth, and so we once again delivered positive operating leverage. Slide 13 highlights the consistent strength of our balance sheet. Our CET1 ratio at the end of the quarter was 13.4%, up 5 basis points from the prior quarter. We delivered strong organic capital generation, helped by strong reported earnings, partially offset by an increase in risk-weighted assets and the accelerated share buybacks. As a reminder, and as we disclosed last quarter, we will see a roughly 30 basis point benefit to our CET1 ratio in Q2 related to a reduction in operational risk weights. Our liquidity position is very strong with an average LCR of 133%. Starting on Slide 14. With Canadian Personal and Business Banking, we highlight our strategic business unit results. Adjusted net income growth of 25% and pre-provision earnings growth of 19% were revenue-driven. Revenues were up 13%, helped by margin expansion, loan growth and higher fee-based revenue. Net interest margin was up 34 basis points year-over-year and 9 basis points sequentially. We continue to see tangible results from our focus on deep and profitable client relationships, selective balance sheet deployment and disciplined pricing decisions. Expenses were up 7%, mainly due to higher spending on technology and other strategic initiatives and higher employee-related compensation. On Slide 15, we show Canadian Commercial Banking and Wealth Management, where net income and pre-provision pretax earnings were up 9% and 16% from a year ago. Revenues were up 13% from last year. Commercial Banking revenues were up 9%, driven by volume growth and margin expansion. Commercial loan and deposit volumes were up 7% and 8%, respectively, from a year ago. Wealth Management revenue growth of 16% was driven by higher average fee-based assets and increased client activity driving higher commissions. AUA and AUM were up 14% and 15%, respectively, compared with Q1 of '25. Turning to U.S. Commercial Banking and Wealth Management on Slide 16. Net income was up 19% from the prior year, mainly due to lower loan loss provisions and pretax -- pre-provision pretax earnings that increased 7%. Revenues were up 6% from last year. Net interest income was up 10% from improved loan and deposit growth and wider deposit margins. Fee income growth was impacted by lower annual performance fees in our Asset Management business. Expenses were also up 6% due to higher employee compensation, including costs related to severance and strategic initiatives. Turning to Slide 17 and our Capital Markets segment. Net income was up 42% and revenues were up 28% year-over-year. Global Markets revenue saw growth across most products. Investment Banking benefited from higher underwriting and advisory activity and Corporate and Transaction Banking revenues were up due to volume growth and higher fees. Slide 18 reflects the results of Corporate and Other, which was a net loss of $100 million compared with a net loss of $60 million in the prior year with both revenues and expenses influenced by some unusual items this quarter. In closing, we generated strong revenue growth, delivered positive operating leverage, returned significant amounts of capital to shareholders and strengthened our balance sheet. A strong start to the year. With that, I'll turn it over to Frank. Frank Guse: Thank you, Rob, and good morning, everyone. Through the first quarter of 2026, our credit portfolio performance has remained aligned with our expectations given the fluid operating environment. Mid ongoing tariff-related headwinds and negotiations, we remain vigilant and proactive in managing our credit portfolios to address both expected and unexpected changes. Our increases in allowances over the past 12 months and show a strong coverage against the economic environment, and we maintain a high level of confidence in the overall quality and stability of our credit portfolio. Turning to Slide 22. Our total provision for credit losses was $568 million in Q1, down from $605 million last quarter. Our allowance coverage remains robust at 79 basis points. Our performing provision was $48 million this quarter, reflecting the impact of credit migration and the evolving economic environment. Our provision on impaired loans was $520 million, up $23 million quarter-over-quarter. Higher provisions in our Canadian and U.S. Commercial Banking segments were partially offset by lower provisions in Capital Markets and Canadian Personal and Business Banking. Turning to Slide 23. In Q1, impaired provisions moved slightly higher with the impaired loss rate at 35 basis points. Impaired provisions in Canadian Personal and Business Banking and Capital Markets were down this quarter. Canadian Commercial Banking impaired was up in Q1, driven by losses across unrelated sectors. The losses in this portfolio are attributable to a small number of impairments, and the overall portfolio remains strong, and we do not expect losses to remain elevated to this degree through the balance of the year. Impaired provisions in U.S. Commercial Banking were up in Q1, but remained lower compared to the same period last year. Slide 24 summarizes our gross impaired loans and formations. Our gross impaired loan ratio was 64 basis points, up 3 basis points quarter-over-quarter. New formations were down in Q1, with a decrease in business and government loans, partially offset by an increase in consumer loans. While the impaired loan ratio on mortgages increased modestly this quarter, given continued softness in the housing market, our loan-to-value ratio for the mortgage book remains strong at 57% for the overall book and 68% on impaired balances. Overall, we do not expect material loss -- material increases in losses within our mortgage portfolio. Slide 25 outlines the 90-plus day delinquency rates and net write-offs of our Canadian consumer portfolios. The 90-plus day delinquencies in our Canadian consumer portfolios increased quarter-over-quarter primarily reflecting the current macroeconomic backdrop. Our consumer net write-off ratio increased modestly, mainly driven by the credit card portfolio, which continues to be affected by elevated unemployment and ongoing economic uncertainty. While we closely monitor evolving economic conditions, we remain confident in the overall strength and stability of these portfolios, which are aligned with our client-driven strategies. In closing, while impaired loan losses were slightly higher in Q1, our credit performance remains stable and resilient, reflecting our prudent risk management and disciplined portfolio oversight. We will continue to foster strong client engagement and proactively assess our portfolios, ensuring they remain robust amid the evolving market conditions. Our strong allowance levels continue to provide prudent coverage for changing economic conditions. And notwithstanding the higher impairments in our Commercial Banking portfolios this quarter, we remain comfortable with our full year guidance. I will now ask the operator to open the line as we welcome your questions. Operator: [Operator Instructions] Our first question comes from Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: I guess maybe first question for you, Harry or Rob. When we look at sort of the margin expansion that occurred this quarter and just the overall profitability, I think the ROE at 17.4%, appreciating, we can't run rate 1Q as the go-forward ROE profile. But just talk to us as we think about over the medium term, like why commerce, even with the 13.5% or higher CET1 should not earn somewhere between a 16% to 17% ROE and if the capital ratios were to decline, maybe even better. Like what would be the argument against that statement? Harry Culham: Ebrahim, nice to hear from you. I'll kick it off and maybe I'll pass it over to Rob in a moment. But the first thing I'd say is that our strategy has been consistent, and we believe we have unique competitive advantages that really position us well to deliver profitable growth. We target the right client segments where we can deepen relationships and be meaningful to our clients. We have the right product focus. If you think about deposits, investments, transaction accounts across each of our businesses, we have the right technology. As I mentioned earlier, we've invested in AI-enabled technology and perhaps you'll hear from Hratch later around what he's doing in the retail space because it's excellent. And we have the right culture, our team members are focused on delivering the entire connected bank to our clients. And so we're very confident in our ROE trajectory and that journey that we're on. And maybe, Rob, if you want to quantify some of the drivers, that would be great. Robert Sedran: Yes. Thanks, Harry, and Ebrahim, last quarter, we guided for the full year that we'd be above 15%. And I would -- obviously, the year is off to a very strong start. We're less worried about a specific target, though we do acknowledge the need to refresh our target. But as I said last quarter, when we talked about '26, once we cross 15%, it's not like it was mission accomplished for us. As Harry said, we think we've got the right strategy, the right investments, the right technology and the right people to drive what we think is a premium ROE, right? So we expect to continue to move this higher. And it's based on, to your point, the current level of buyback, the current capital levels, we're not doing anything particularly unnatural to get there. But I do want to maybe just stop for a second and talk about how we get there matters to us. Like we talk a lot about disciplined execution. The other word we use a lot around here is the word balance, right? And so when we think about where ROE is, we also think about it in the context of earnings per share growth. We're not over-rotating to ROE at the expense of earnings growth. Like there's a lot of unnatural things you can do to try to get your ROE higher in the short-term. That balance to us means over time, we can get both the earnings growth and the ROE expansion. And it's something that we've been doing rather successfully over the last little while. So our focus is on controlling what we can control and keep doing what we've been doing. We think that means the ROE is going to continue to move higher over time. Ebrahim Poonawala: Understood. And maybe, I guess, question for Hratch. I mean we've not seen this play out in the Canadian banks as much, but there's been obviously a lot of concern around AI, AI disruption risk. Perhaps you spent a lot of time around just the consumer franchise thinking about this. One, talk to us kind of your perspective on how you think about the opportunity versus the disruption risk for consumer deposits and banking and then maybe just your strategy as you kind of leading the business? Hratch Panossian: Yes. Thank you, Ebrahim. Thanks for the question. And look, I think the short answer is we think it's an opportunity as with any other technology, the way we look at it is how do we adopt the available technologies that are emerging in order to further our business strategy. And keying off a bit of what Rob was saying, right, our business strategy in retail is to continue to generate value for all of our stakeholders. That's how we believe the balance is achieved. And you're seeing that in the results, like I will say, very proud of what the team has delivered once again at 13%. Growth is there, top market revenue growth. But at the same time, after several years, we're inching back to the 30% ROE level. And I think that's because of everything that we've done in the business and we'll continue to do. So on the AI front, it does support our strategy. As we've talked about before, we've been very, very focused on where we're trying to grow and create differentiation. In the retail business, there's 3 priorities for us, lead in every day banking solutions for all of our clients, lead in investments and advice in the mass affluent segment and continue to drive the efficiency and simplification of our business, which benefits both our team and how easy it is for them to do their work as well as the shareholders through the efficiency. And we've been using, frankly, AI. You saw Harry's slide at the enterprise level. We've been using AI across all 3 of those things. But maybe one example I can give you, which I think is a good one that cuts across all of them is our Cortex platform that was referenced on the slide before. And the reason I think this is a good one, it actually highlights that AI itself and a lot of the attention there is right now on models and LLMs and some of our peers talk a lot about that. But the differentiation isn't really in the models. It's about how you build your business processes and change your business model to actually leverage what AI can do. And some of that is built on years of foundational investments. So Cortex is built on foundational investments in the quality of our data that we've made for many years. Foundational investments in our eCRM platform, which cuts across all of our channels, whether it's the front line and the branches, the contact centers or digital, foundational investments in our martech stack as well as many others. And now what AI allows us to do is to use some traditional, I'll call it, machine learning models to begin with in Cortex to allow us to understand on a personalized level, what clients need, get that to the right place, whether that's the digital channel or our advisers to be actioned and start leveraging even LLMs on top of that to help our advisers prepare for that conversation. And over time, even having a conversational interfaces to bring that LLM interface to clients directly. And we're also building Agentic flows on top of that to start processing things in the back end for our clients. And so when you put all of that together, we focused Cortex particularly. We launched at the end of last fiscal. This quarter, we focused particularly on the savings side and deposits. And what we're seeing is that 44% conversion rate uplift that you see there. That's relative to controls if we didn't follow the personalized approach that Cortex allows us to do. And that's just the beginning. We're going to rise from there. And again, if you look at the impact of that in units for the first quarter in the products that we applied the Cortex use cases to about 10% of unit sales actually came out of Cortex results. Operator: Our next question comes from the line of Matthew Lee with Canaccord Genuity. Matthew Lee: I know, Rob, you gave some color on NIM, but I just want to maybe understand how much the quarter-over-quarter expansion in Q1 was seasonality versus some of the deposit portfolio benefits and other? And then how much of a reversion should we expect throughout the year? Robert Sedran: Matthew, it's Rob. So I've often spoken in the past about the margin in 3 main buckets, right? There's the hedging and positioning, the so-called tractoring strategy, there's business mix and then there's the product margin, which kind of reflects the competitive environment. And I would say this quarter, the margin uplift has been about 1/3, 1/3, 1/3 roughly in those 3 categories. The hedges work, they do what they're going to do. The tractoring strategy will continue to roll on as we've discussed in the past. Mix was positive and both from a deposit volume perspective and a deposit mix perspective. So a little bit more noninterest-sensitive deposit, a little bit less term product and this deposit volumes were strong as they often are, particularly in the commercial businesses. Now in terms of going forward, often what we see -- and you saw it last year in Q2 as well, where we had a sequential downtick in net interest margin. There's some seasonality to it. I mean checking accounts tend to go down a little bit. Credit card balances tend to go down a little bit, Those commercial balances roll off, again, just seasonally as some of the -- some of our commercial clients are using funds for whether it's bonus payments, tax payment, restocking inventory, all kinds of reasons. So last year, we saw a slight downtick in Q2 as well. It wouldn't surprise me if that happened again this Q2. But the overall margin story otherwise continues to be that stable to gradual increase that we've been guiding to over time. Matthew Lee: Okay. So when we say stable NIM, it's kind of stable from the Q1 levels? Robert Sedran: Yes. Like I said, beyond factoring in potential seasonality in Q2 where it might give back a basis point or 2. The story beyond that is to continue to move stable to gradually higher. Operator: Our next question comes from the line of John Aiken with Jefferies. John Aiken: Frank, when I take a look at the 90-plus day delinquency rates in the Canadian portfolio, I understand that your confidence in terms of your own portfolio, your credit adjudication and everything else like that. But when I look at the upward trend in these numbers, how concerned should we be? Do you think that we're at or near a peak in terms of these levels? Do we think they may actually inflate a little bit more? And what do you think the impact could be in terms of your broader portfolio? Frank Guse: Yes. Thank you, John, for the question. I do believe there is also some seasonality in those numbers, say, in particular, if you look into the credit cards that usually tend to be a little higher in the Q1 pattern given the seasonal patterns there. But overall, I would say those numbers actually fairly well reflect our expectations against the ongoing macroeconomic backdrop. So that is why we do feel very confident with our guidance given because that would be included in those expectations. And I mean, we are seeing still some ongoing, I would say, softness in the economy. We have seen unemployment going up, going down a little bit, but having to a certain extent, plateaued. We do have the USMCA negotiations coming our way. So there's some uncertainty still ahead of us. But I'm not overly concerned with those numbers. We have the right strategies underneath both from a business perspective and from a risk management perspective to manage those portfolios very proactively. And as I said at the beginning, those broadly expect -- reflect our expectations that we had going into the quarter as well. John Aiken: And if I could, Rob, you to make some commentary about service in Caribbean, where it actually does look like the gross impaired loans are heading in the right direction. Is there anything you can comment about that region? Robert Sedran: No. I mean they are headed. As you said, there is a little bit of a trend there, but nothing really to call out. Operator: Our next question comes from the line of Doug Young with Desjardins Capital Markets. Doug Young: Just wanted to go back to Harry. I think you said 10 consecutive quarters of positive operating leverage. Just looking at your expense ratio, it's improved quite a bit. Maybe can you unpack a little bit about what you're benefiting from maybe Harry or Rob, what could throw a wrench into this? And then Hratch, maybe if you can kind of tag in, like it looks like you brought your expense ratio down in Canadian Personal and Small Business Banking quite a bit. Like how do we think about it going forward? Robert Sedran: Doug, It's Rob. Maybe I'll get started. And we -- the revenue visibility has been pretty good for us over the last little while. And so we've taken the opportunity to advance some spending that otherwise might have happened later this year or even next year to bring it forward a little bit and invest in future growth, right? So aside of the fact that revenue-linked expenses have also been rising, we've been managing that revenue to expense gap fairly well. And that's just how we think about our expense outlook. We do like to have that positive operating leverage. We're not going to -- we target it every quarter. We're not saying we're going to deliver it every quarter. It's nice to have a 10-quarter winning streak for sure, and we intend to continue it. But we do target on an annual basis. And with the environment that we've had, our expense in terms of absolute dollar or absolute percentage has been a little on the higher side, but it's been conscious and intentional spending to advance the priorities of the bank. So when we look forward, if revenue were to slow from here, we're confident that we have the levers to pull back some of that spending to maintain that operating leverage gap. Maybe I'll hand it over to Hratch for the second part of your question. Hratch Panossian: Yes, sure. Thanks, Doug. Look, it's an area of focus for us, right? We talk about the bank-wide operating leverage. But as you see in the trend, the same applies in the retail business. So our approach has been all along to try to grow our revenues in that 7% to 10% plus range that we've targeted and we've exceeded that and to generate positive operating leverage on top of that. And how do we do that? It's focusing on scaling the businesses where we already are carrying some of the expenses on and we've done a good job of doing that as we scale and take advantage of a lot of the investments we've made over the last while. But even without the revenue side, I think the expense side is something that we've been very sharply focused on. And we're applying the same approach in retail as we do elsewhere in the bank. We have to continue investing in the business. And what you do over time is you create a flywheel of you make the investments and a lot of the investments are also driving efficiency on the cost side and time of our team side. And that allows you to increase productivity, and that makes more room for us to invest in, so we can continue investing while keeping expenses more modest. And so I think for the rest of this year as well, you will see over the years, some of our expense growth moderate without our investment levels going down, actually continuing to increase. And part of it is we could talk about AI here as well and automation, but I think there's a lot of opportunity for us over time. If I touch just on our front line, who is a big part of the resources that we have at our disposal. We set a goal a couple of years ago to try to get to 1 million hours saved for the front line through automation and some of the new use cases and they're now Gen AI as well, and we reached that goal this year, a year ahead of schedule. We've now looked at multiples of that going forward to create more hours for our team, as Harry referenced in his remarks to spend time with clients. And so we're seeing the number of meetings with clients, the number of hours with clients each adviser is spending or each front line person is spending go up. We're doing the same thing with several use cases in our contact centers, where AI is allowing us to either divert calls, take calls through our AI voice bot that we've highlighted in the results or when a human has to pick up the phone. We've got some workflows in the back end that are leveraging AI that also help them. And I think there's efficiency there. And then there's the back end. We're looking at a lot of our processing of products, whether it's origination or servicing as I spoke about before. And I think what the Agentic workflows you can create today allow you to do is to create far more automation, which is good for everybody. It's good for clients. It's good for our team, not having to handle some of those exceptions and it's good for the shareholder and it's good for operational resilience, frankly, from a regulatory perspective. So I think all of that creates opportunity to continue generating positive operating leverage, which we will continue to focus on and to continue getting that mix ratio to a better and better place. And obviously, ROE continuing to trend to the 30% level it is now and higher. Doug Young: So just one follow-up for us. Like where do you think you can take that expense ratio? Hratch Panossian: I think, look, in the long-term at this point, I'll say directionally, we'd like to see it trend downwards. And we've talked about the business, and we think the potential of our franchise is to continue to grow above market, which we have been doing and continue to take the profitability metrics, whether that would be the mix ratio or the ROE to a premium level relative to the peer group. So I think we've got some room to go. Operator: Our next question comes from the line of Mario Mendonca with TD Securities. Mario Mendonca: Maybe this is for Rob. Could you help me interpret Slide 33. Is it a -- I'm talking about the interest rate environment where you show us the roll on and the roll-off rates? Is it as simple to suggesting that this chart will not change. If everything were static, that the margin expansion continues through to 2026, the end of '26 and even maybe in the first half of '27, and those 2 lines cross and it comes to an end. Is it really that simple? Robert Sedran: Well, Mario, yes, I mean, listen, when you think about the part of the margin expansion story that has been related to the balance sheet positioning, I mean, yes, it pretty much is that simple. By the time we get into middle of '27, you can see those lines start to intersect and it becomes more of a neutral. And that's based on the current forward curve, right? But based on the current forward curve, you can see that benefit start to slowly migrate towards neutral in '27. Now the other things that have been driving the margin, whether it's business mix and the focus on what we're doing in the retail bank to focus on bringing the money in like the deposit side, all of those things should continue to benefit the net interest margin beyond that period. But the structural benefit we've been seeing does start to roll off in '27. Mario Mendonca: It sounds like a little bit of a softball, but why is it that -- why has CIBC led the group in the last, say, 2 years, maybe 18 months in margin? I obviously compare all bank margin CIBC to the peers. And the gap is significant. I know you don't sit there worrying about what Royal is doing, but why would that margin be so much greater, the margin expansion be so much greater for CIBC than peers? Robert Sedran: Well, I'll try to handle softball notwithstanding. I'll try to handle it in a way that speaks more about what CIBC is doing rather than what others might be doing. We do manage for margin stability as best we can over time, which means that this benefit from the higher interest rates is bleeding in slowly. I can't speak to what the others have done or didn't do. But that benefit has been rolling in over time. And you've heard Hratch speak repeatedly on these calls about how we're looking at the mortgage business and how we're looking at our business mix generally in retail and where we're focused, those transaction accounts, the credit card businesses, the checking and savings accounts being more of a focus than say, the mortgage business has been helping the margin. And particularly in a period where mortgages haven't been growing very rapidly, it's been NII accretive as well. So for us, it comes down to executing on that treasury strategy of maintaining margin stability over time. And then the business strategies have been focused in the right areas, and we're going to continue to focus that way. Mario Mendonca: Last softball question, and I'll stop. We're still seeing this very, very strong growth in the financial institutions like the business and government lending. When you talk about what is CIBC up to there? And the reason I'm being so direct in asking the question is -- this is -- this pattern is familiar to me. Not for CIBC necessarily, but it's familiar to me in the Canadian banks where a particular lending loan category grows much stronger than peers. And 2 years later, we're all talking about what went wrong. So maybe just talk about where this financial institutions group growth is coming from? And how do you get comfortable this isn't going to be a sad story 2 years now? Christian Exshaw: Mario, this is Christian. So let me, I would say, try to unpack this. And I thought we actually spoke about it on last call. So if you look at that line item, we actually grew dramatically, I would say, in the second half of last year. And what we're trying to do now, as I said on last call, is to moderate this growth. So whilst the growth year-over-year is substantial, if you were to look at it on a quarter-over-quarter spot basis, then that growth is moderated to roughly 2%, which is in line with what I said, which was high single digit by the end of this fiscal. This is a business we're very comfortable with. It leads to a number of other products that we can market with those clients. We discussed the business consistently with our colleagues in risk management, just to make sure that as you said, we don't have any issues going forward. We're not in the storage business, we are in the moving business. So there's a lot of velocity in some of these books. So we're very comfortable with the risk. But I'll probably pass on to Frank, if Frank has anything else to add. Frank Guse: Yes. Thank you for the question. And as Christian said, I mean, we do feel comfortable with the books. We have the right guardrails in place. We have the right strategies in place on how we think about the various businesses that actually fit in our financial institutions line and we don't have any material concerns on that business. And as Christian said, we do see the growth moderating. Operator: Our next question comes from the line of Sohrab Movahedi with BMO Capital Markets. Sohrab Movahedi: Okay. Rob, Harry, I mean, I heard you balanced, disciplined, profitable growth. I just wanted to look at our Hratch's business and Christian's business. I mean they are giving you similar ROEs have over the last, let's say, 5 quarters you're allocating more or less similar equity to each one of these businesses and earnings are within 10% of each other. So is this what balanced growth looks like? Is the capital markets can be as big as Canadian Personal Business Banking? Robert Sedran: Sohrab, it's Rob. I mean I would think of it a little bit more as over time, that balance will appear. As we think about the market environment we've been in, capital markets is doing quite well. and the environment is constructive. We're taking advantage of businesses that we've been building for many, many years that are ultimately being done well within risk appetite and well within all of our just business mix appetite. So when we think about -- I don't see a world -- or certainly, it's not our goal to have the world you just described happen. We think more each of our businesses can grow and over time at roughly the same rate. I mean, even the capital markets business, when we talk about the long-term targets for it, it's a 7% to 10% earnings growth kind of business, the same thing we target for the bank, the same thing we target for the retail bank. So I think there's a bit of a cyclical benefit or cyclical tailwind for us right now in the capital markets. But over time, we would expect that to normalize and see our businesses growing more in balance with each other. So when we talk balance, it's more in terms of growth rate rather than size. Sohrab Movahedi: Okay. And so if Christian could continue to give you good ROE, is there a finite on the capital that you're willing to allocate to him? Or is he open for business for as much capital as he needs? Harry Culham: Sohrab, It's Harry. I would say that the answer to the last question is no. We are -- we take a very balanced approach to where we allocate our capital. And when it comes to capital allocation, really, our approach is anchored in our client-focused strategy. This is all about our clients. So we're directing resources where we've seen strong client demand and, of course, long-term value creation. And that's what we're seeing right now. Obviously, this is a very interesting business capital markets as we speak in this cycle. And we believe that we are very well positioned to service our clients as we move through this cycle. We are delivering capital markets products, I might remind you Sohrab to the entire organization. So our commercial bank, our wealth clients , our retail clients all have the benefit of capital market solutions. So this is a very well diversified business within capital markets as part of the diversified bank that we run. Sohrab Movahedi: Yes. I wasn't debating you on it, Harry. I mean it looks like it's doing well. It's been a source of stability. I mean there's great track record over there. So I'm just curious as to why it couldn't be a bigger part of the bank but on a consistent basis. But that was my question. Operator: Our last question comes from the line of Gabriel Dechaine with National Bank Financial. Gabriel Dechaine: I just want to revisit that margin discussion in a slightly different angle here. For a while now, you've been guiding to something, I forget the language exactly stable to positive bias or upward bias, whatever it is. And you've been exceeding your guidance. And I'm just wondering, what's -- what drivers are doing better than you expected? Is it the mix that's shifted a lot more favorably? Is it the shape of the yield curve that's been a positive surprise. Just to give a sense of why you keep outperforming our expectation on that -- in that area? Robert Sedran: Gabe, It's Rob. So it does come down, I think, largely to mix and product margin as well. When we think part of mix is client preference, right? Like if mortgages were growing more rapidly in the industry, our mortgages will be growing more rapidly, that's positive for net interest income. It's not necessarily positive for NIM, right? And so when we think about client preference for -- at one point, it was client preference for GIC was a bit of a margin headwind. Some of that is rolling off, and now it's becoming more of a margin tailwind like that mix is something that can fluctuate over time. What doesn't fluctuate is where our focus is and what our strategy is and offering solutions to clients as opposed to a product level strategy, but clients often choose different things in that strategy. So with the mix evolving in a positive way, the margin has been doing better. And the other part that we can never really forecast is the competitive set and product level margins have been relatively stable, where we often in our guidance, assume there's going to be a little bit of price competition or a little bit of margin compression sometimes from some of the margins that we see in the market. So the hedging strategy has been doing what we exactly we thought it would do. The mix and the product margins are behaving well and in line with what our strategy is. But we don't always guide to exactly what clients are going to do because we never are positive on that going into a quarter. Overall, though, controlling what we can control, as I've said before, is what gives us the constructive view on margins. So we do think it's going to continue to migrate higher over time based on the things that we're doing. Gabriel Dechaine: And how important is the combination of slow mortgage growth plus the competitive dynamic based on that one graph in your slide, looks like the new inflows or renewals are still contributing to wider spreads. Hratch Panossian: Yes. Thanks, Gabriel. I'll jump in. It's Hratch here. So it's been a factor, but the mix is a much bigger factor than the inflow outflow differential, if you will. So if you look at over the last year, that differential between inflows and outflows had been, call it, a couple of basis points a quarter to the PBB margin positive. It is getting a little bit more muted. I would expect going forward, it's still a positive. We're still seeing, as you see on the chart, a bit of a differential there, maybe not as big as it was. And so for the next several quarters, I would still expect in the order of a basis point a quarter help from that. But the bigger factor is, as Rob said, the mortgages growth versus cards growth. And we've seen muted market on the mortgage side, right? We were expecting sort of mid- to low single digits this year, and that would have been part of our guidance and the market has been a bit slower than that. Now it's more low single-digit growth on mortgages. And we continue to do really well in our cards franchise, both because of our co-brand portfolio as well as our premium travel portfolio and some of our new everyday rewards cards. And so I think if that mix continues, that will be a bigger factor than the mortgage repricing. Gabriel Dechaine: The revolvers or proportion of revolving balances is increasing as well. Is that kind of a... Hratch Panossian: It is. We've seen utilizations are not up that significantly, but we are seeing interest earning balances and the reward balance is growing at a healthy pace, obviously, in a responsible way from a risk perspective. We have been very prudent on the card portfolio. We've actually taken some actions going back 1 year, 1.5 years ago to tighten up a bit, and I think you're seeing that in the results of our charge-offs and cards versus some of the peers. Operator: There are no further questions at this time. I would now like to turn the meeting over to Harry. Harry Culham: Thank you, operator, and thank you all for joining us this morning. I wanted to reiterate 3 key messages, which I hope resonated with you all today. One, we're delivering robust profitable growth. We continue to demonstrate that our ability to outperform is sustainable through different market environments. Two, we're focused on accelerating our execution. The cumulative effect of delivering strategic progress each quarter is significantly improving our capabilities across the bank. And three, we are well positioned to continue delivering high-quality financial results. We have a strong balance sheet and deep client relationships to continue growing organically. We are excited for the many opportunities ahead across each of our businesses. And before I close, I wanted to thank the entire CIBC team for putting our clients first each and every day. Thank you, everyone, and have a good morning. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to Millrose Properties Fourth Quarter and Full Year 2025 Earnings Results Conference Call. [Operator Instructions] I will now turn the call over to Jesse Ross, Millrose Head of Financial Planning and Analysis. Jesse, you may begin your conference. Jesse Ross: Good morning, and thank you for joining us. With us today to discuss Millrose Properties Fourth Quarter and Full year 2025 results are Darren Richman, our Chief Executive Officer and President; Robert Nitkin, our Chief Operating Officer; Garett Rosenblum, our Chief Financial Officer; and Steven Hensley, our Senior Market Risk Analyst. Before we begin, I'd like to remind everyone that today's call may include forward-looking statements and references to non-GAAP financial measures. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. Please refer to our fourth quarter and full year 2025 earnings release and investor presentation, both available on our website under the Investor Relations heading for a discussion of these matters and a reconciliation of non-GAAP measures. With that, I'll turn the call over to Darren. Darren Richman: Thank you, Jesse, and good morning, everyone. I'm pleased to discuss our results for the fourth quarter and full year 2025, our first year as a public company. For years, we have seen a clear opportunity in a housing market defined by persistent undersupply and builders seeking greater balance sheet efficiency. Even as the industry faced meaningful headwinds, affordability challenges, elevated rates and macro uncertainty, the structural need for housing capital remained unchanged. If anything, the industry shift towards capital efficiency has only accelerated and Millrose was designed for exactly this moment. Our permanent capital model provides builders with just-in-time homesite delivery system. We acquire and fund development under option agreements, builders take down homesites on a predetermined schedule and our shareholders receive predictable recurring income underpinned by U.S. housing demand. That income is not tied to home prices, land values or the pace of home sales. We generate contractual monthly option payments that spend multiyear contracts and are owed regardless of market conditions. We do not speculate on land appreciation, take entitlement risk or participate in homebuilding margins. Our capital is structurally insulated from the cyclicality of our builders' operating businesses. That is a fundamental distinction from every other land-based real estate business in the public markets today, and it is the foundation on which 2025 was built. 2025 was a defining year for Millrose. Despite a cautious homebuilding environment, we were embraced across the industry with a reception that exceeded even our own expectations, validating both the concept and our team's execution. Our investment balance outside the foundational Lennar master program agreement finished the year at approximately $2.4 billion, surpassing the $2.2 billion stretch target we had previously discussed. That outperformance reflects something important. Builders weren't just willing to work with us. They sought us out, both initiating new relationships and deepening existing ones. In a year when builders were exercising appropriate caution on an activity level, Millrose was aggressively taking share and pioneering new use cases for land banking capital. That is a direct reflection of what we offer, an experienced trusted partner with deep operational and technological integration, the ability to transact rapidly and at scale and a national team that understands the homebuilding business from the ground up. That accelerating pace of adoption translated directly to financial outperformance. We had previously provided a year-end run rate AFFO guidance range of $0.74 to $0.76 per share. Our 4Q AFFO came in at the top end of that range at $0.76, but the growth we delivered over the course of the quarter puts our normalized year-end run rate at $0.77, ahead of where we expected to be. We also demonstrated the uniquely cash-generative capital recycling nature of our business model with $3.4 billion of net homesite sale proceeds generated in 2025. Beyond the financial implications of that liquidity, we're proud of the real-world impact embedded in this number. Over the course of 2025, we delivered more than 31,000 homesites to builders across the country, projects with an average home selling price of approximately 20% below the national average for newly built single-family homes. Housing affordability remains one of the defining challenges facing the American housing market, driven in large part by the scarcity of entitled, well-located land. What we do isn't just financially compelling, it is genuinely additive to the housing supply where it is needed most. Looking ahead, we enter 2026 with a pipeline that gives us real confidence in our growth trajectory. Based on the transaction volume we demonstrated in 2025 and the depth of our current opportunity set, our base case expectation is that we can grow invested capital outside the Lennar master program agreement by an additional $2 billion, bringing total invested capital to approximately $10.5 billion, with over 40% of that balance outside the foundational Lennar relationship. That would represent a meaningful milestone in the diversification of our platform. I want to be transparent about how we think about funding that expansion because growth for its own sake has never been part of our objective. We remain committed to a conservative leverage policy with a current target of 33% debt to cap, and we will not issue equity below book value, which currently stands at $35.28 per share. On that basis, we can point with confidence today to funding approximately half of that $2 billion demand increase through existing debt capacity. We expect to deploy that $1 billion in invested capital growth by approximately midyear, exiting Q2 2026 with a quarterly AFFO per share run rate in the range of $0.78 to $0.80 a share. For the second half of that pipeline, we are being highly selective by design, concentrating capital toward the strongest counterparties, the most durable structures and the best located underlying properties. The opportunity set exceeds what we can fund today, and that is a position of strength, not a constraint. The equity optionality we retain is upside for existing shareholders, not a bottleneck to our business. On a valuation, our current AFFO multiple implies a meaningful discount to the competitive set of REITs, a gap we believe is difficult to justify given our lower leverage, our contractual income structure with high-quality counterparties and the projected 10% annual AFFO per share growth implied by our $2 billion growth expectation as described on Page 14 of our earnings presentation. Here, we've laid out an illustrative bridge from our current AFFO run rate to year-end 2026. At the low end, deploying $1 billion of net new capital at current yields would drive more than 7% growth in AFFO per share. Executing on this $2 billion opportunity set we see in front of us, funded with a prudent mix of debt and equity consistent with our stated leverage targets implies a 10% growth in AFFO per share. We believe that this valuation discount to our peers reflects the market still getting comfortable with a business model that is genuinely new to the public markets, and that is a fair and reasonable dynamic. But one we expect to resolve itself as we continue to demonstrate consistent execution. We operated through a challenging homebuilding environment in 2025 without a single builder terminating or threatening to terminate an option agreement. As that track record compounds, we expect investor confidence and our valuation to follow. We are optimistic that a re-rating is coming and that we will be able to raise equity above book value in 2026, which would allow us to fully capture the pipeline in front of us. Finally, the macro backdrop entering 2026 is the most constructive that we have seen since our spin-off. In many markets, the supply and demand imbalance that weighed on builder activity through much of 2025 is showing early signs of rebalancing. Lower housing starts have begun to work through excess inventory and moderating mortgage rates are supporting a gradual return of buyer demand. Against that backdrop, land values have proven remarkably resilient. According to a recent survey from John Burns Research and Consulting, one of the most respected voices in the residential housing market, land prices remain stable through 2025 and continue to increase in many markets. For Millrose, that is an important data point. It affirms the unique character of our entitled homesite assets, irreplaceable non depreciating perpetual options on U.S. home values and confirms that our portfolio is well positioned as the market continues to recover. 2025 proved the model. 2026 is where we intend to begin showing its full potential. We believe we have the platform, the pipeline, the partnerships and the track record, and we are just getting started. With that, I'll turn the call over to Rob. Robert Nitkin: Thank you, Darren. I want to spend a few minutes on what it actually takes to operate this platform at the scale we've described because the numbers deserve context. As of year-end, Millrose manages approximately 142,000 homesites across 933 communities in 30 states serving 15 distinct counterparties, 9 of which rank among the top 25 homebuilders in the country. During 2025, we deployed $5.5 billion in new land acquisitions and development funding and received $3.4 billion in takedown proceeds. Transaction volume of this magnitude is made possible by significant operational infrastructure working in sync with a large and experienced team. Every homesite takedown we process is a real estate transaction, not just a wire transfer or a ledger entry. As Darren mentioned, in 2025, we executed over 31,000 of those closings, each involving title work, deed transfer and state-specific closing requirements on a schedule that cannot slip because builders are running construction time lines that depend on us. What makes that reliability possible is our technology, a platform that gives builders real-time lot selection capability with every selection triggering automated portfolio updates, title tracking and closing workflows. But technology alone does include real estate transactions. Equally important is an experienced team of underwriters, servicers and asset managers with deep multiyear operating relationships with our builder partners and the willingness to pick up the phone and work through any time-sensitive request or transaction nuance. Growth amidst this volume of activity required the same level of discipline on the deployment side, expanding from one counterparty to 15 required demonstrating both homesite delivery reliability and new deal underwriting capacity, the ability to evaluate, diligence and close with high volume on externally driven deadlines. Our proprietary data set and underwriting tools built from years of transacting across every market we operate in allow our underwriting team to rapidly form a view on new opportunities before passing to our real estate diligence teams for legal and development review. These tools also provide real-time signals on local market dynamics, and you'll hear more on what we're currently seeing from Steven Hensley in a moment. Combined with close coordination between our underwriters and builder partner land teams, our diligence is both rapid and rigorous. That speed of execution alongside the unique reliability and permanence of our capital is a competitive advantage builders notice and consistently cite. Every new builder relationship benefits from our track record of efficient execution at scale, first with Lennar and now with 14 additional partners as well as the institutional credibility our team built at Kennedy Lewis in the years before Millrose launched. That combination of platform history and team pedigree that creates a level of credibility that cannot easily or quickly be replicated. We also bring to these relationships market insights and intelligence from our operations across 30 states that most individual builders simply don't have access to. We believe sharing that perspective makes us a more valuable partner and deepens relationships. The expanding share of wallet Darren referenced isn't just a financial outcome. It's a reflection of the compounding spirit of partnership we are committed to building across the industry. I also want to elaborate on our cross-termination pooling structures present on 96% of our portfolio by investment balance because pooling is more than a negotiated legal protection. It is, first and foremost, a relationship-defining mechanism. When a builder agrees to a pool, they are self-identifying as a partner seeking capital efficiency, not risk mitigation, and that distinction matters. These are builders who understand our model, embrace the off-balance sheet structure and are committed to a long-term programmatic relationship. It is worth being clear ride about what pooling does and does not do. It does not prevent a builder from walking away from an option contract. What it does is raise the cost of doing so, creating a meaningful economic disincentive that protects the integrity of the relationship without eliminating the builder's optionality. That balance is intentional and is part of what makes pooling a durable alignment tool rather than a blunt legal instrument. Beyond that initial alignment function, pooling is also a live risk management discipline. We maintain a real-time pooling analysis that tracks every pool by geography, duration and risk exposure as communities advance through their life cycle. Enabled by our technology platform, we monitor shifts in each pool's risk profile continuously, directly informing go-forward deal allocation. This active management is what keeps pools meaningful of over time, and it is a capacity that we believe is genuinely difficult to replicate without the scale and systems we have built. Looking ahead, the opportunity in front of Millrose is both substantial and highly actionable. Our pipeline is deeper, more diversified and more geographically balanced than at any point since launch. We are seeing increased engagement from existing partners and meaningful interest from new builders looking to shift more of their land strategy into off-balance sheet structures. As Darren described, we are being selective, but the pipeline gives us the luxury of that selectivity, and we are confident in the quality of what we are choosing to pursue. To fully capture this opportunity, we continue to build incremental capital and liquidity to enhance balance sheet flexibility and reinforce confidence for our counterparties. We are currently working with our bank group on additional floating rate debt capacity, both to diversify our fixed rate bond structure and to better match the floating rate nature of a portion of our option payment income. 2025 was the year we built and stress tested the infrastructure of this platform, the technology, the team, the processes and the capital relationships required to scale across the industry. That foundation is now firmly in place. With a pipeline that reflects deepening builder engagement and an improving broader market, we enter 2026 with a conviction in a further expanded accretive growth opportunity for Millrose and our shareholders. With that, I'll turn it over to Steven to share what we're seeing across our markets and why we're optimistic about the macro landscape ahead. Steven Hensley: Thank you, Rob. As we enter 2026, we're seeing encouraging signals that the spring selling season could look more like a normal healthy market. And I want to walk you through both the macro picture and what our proprietary data is telling us on the ground. At the macro level, a resilient consumer and broader economic stability provides near-term optimism for steady demand. Affordability is also moving in the right direction, supported by arising incomes, moderating home prices and lower interest rates, creating a constructive backdrop heading into the spring. These are not dramatic reversals, but they are consistent, reinforcing trends and that consistency matters. Operationally, the signals are similarly positive. Homebuilders demonstrated strong discipline through the second half of 2025, proactively reducing starts to align with demand and working down standing inventory. They've also made meaningful progress lowering construction costs, easing margin pressure and improving cycle times, giving them greater agility to respond across a range of demand scenarios to the spring. The shift toward more to-be-built sales and fewer spec homes is keeping inventory in check while supporting healthier margins. Taken together, the industry enters the spring selling season on solid footing and better position than it was 12 months ago. Turning to our proprietary MSA monitoring system. The data reinforces a mixed but improving landscape with some important distinctions by market. Last summer, we highlighted a handful of markets undergoing recalibration, particularly certain secondary coastal markets in Florida and parts of Texas. In Florida, inventory levels moderated meaningfully through the back half of the year with months of supply now below year ago levels in most markets. That is a notable improvement and reflects the builder discipline I just described playing out in real time. Texas continues to work through elevated supply and affordability challenges. We expect that normalization to remain a 2026 story and our underwriting reflects that patience. Las Vegas is another market where our model is signaling caution. Softer sales activity in the second half has led to rising supply pressure, and we are monitoring it closely. Conversely, we are seeing clear and broad-based strength across most of the Southeast. [ Charlotte ] remains one of the top-performing markets in our coverage, supported by strong employment growth and relatively tight supply. Our model is also picking up notable performance in several smaller Southeast markets, including Greenville, Columbia, Charleston and Myrtle Beach, where solid job growth, low supply and comparatively affordable housing are creating healthy, durable demand. These are not flash in the pan dynamics. They reflect structural demographic and employment trends that we expect to persist. Overall, we believe these signals point toward a more typical spring selling season and reinforce our positive long-term view of the housing market. The geographic diversity of our portfolio, spanning 30 states and 933 communities means we are not dependent on a single market's performance. We are well positioned to benefit from the markets that are strengthening now, while our underwriting discipline protects us in the markets that are still normalizing. With that, I'll hand the call over to Garett to walk through our financial performance. Garett Rosenblum: Thank you, Steven, and good morning, everyone. I'm pleased to walk you through our fourth quarter and full year 2025 financial results, which continue to demonstrate the cash-generating power of our business model and the direct translation of capital deployment into shareholder returns. For the fourth quarter, we reported net income of $122.2 million or $0.74 per share, driven by $179.5 million in option fees and $10 million in development loan income. For the full year, we reported net income of $404.8 million or $2.44 per share, our first fiscal year as a public company and one that delivered on every financial commitment we made at the outset. Fourth quarter adjusted funds from operations came in at $0.76 per share at the high end of our guidance range of $0.74 to $0.76 per share. But as Darren noted, the invested capital growth we delivered over the course of the quarter puts our normalized year-end run rate at $0.77 per share, ahead of where we expected to be. This outperformance reflects exactly what our model is designed to do. Every dollar deployed in other agreements at average yields of approximately 11% against the cost of debt of 6.3% drives directly accretive AFFO growth and expanding dividend capacity. That spread and our ability to sustain and grow it is the engine of our earnings trajectory. Book value per share at year-end stood at $35.28. For full year context, interest expense was $91.8 million, income tax expense was $20.5 million and management fee expense totaled $87.8 million. As a reminder, our management fee is calculated transparently at a fixed rate of 1.25% of gross tangible assets. Turning to the balance sheet. We ended the year with total assets of approximately $9.3 billion and total debt of $2.1 billion, resulting in a debt-to-capitalization ratio of approximately 26%, well inside our stated maximum of 33%. That headroom is intentional. It gives us meaningful capacity to fund the next phase of growth without compromising the conservative financial posture that underpins our investment-grade counterparty relationships and our dividend reliability. We ended the year with approximately $1.3 billion in total liquidity, providing ample capacity to support our investment pipeline. And as Rob noted, we are working with our banking partners to further expand that capacity, and we expect to deploy approximately $1 billion in additional invested capital by midyear, exiting Q2 2026 with an expected quarterly AFFO run rate of $0.78 to $0.80 per share. Our dividend performance reflects the quality and consistency of our earnings. For the fourth quarter, we paid a dividend of $124.5 million or $0.75 per share, an 8.4% annualized yield on equity, roughly 80 basis points higher than our first quarter dividend. That progression over the course of a single year is a direct result of the accretive deployment of capital and other agreements, exactly the strategy we outlined when we became a public company. Millrose remains committed to distributing 100% of AFFO to shareholders, and we expect that commitment to compound meaningfully as our invested capital base continues to grow. With that, I'll turn the call back to Darren. Darren Richman: Thanks, Garrett. I want to leave you with a few thoughts before we open the line. 2025 was not an easy year for the homebuilding industry, and that is precisely what made it such a meaningful proof point for Millrose. We operated through affordability headwinds, elevated rates and a cautious builder environment without a single option agreement terminated or even threatened. Our contractual income held, our capital recycled, our platform grew. That is not a coincidence. It is the design of this business working exactly as intended. What gives me the most confidence entering 2026 is not just the pipeline in front of us, but the flywheel nature of what we are building. Every community we deliver, every builder relationship we deepen and every dollar of capital we recycle adds to the platform that becomes harder to replicate and more valuable to the industry over time. We are still early in that process, and that is an exciting place to be. To the team, the execution you delivered in our first year as a public company was exceptional, and it did not go unnoticed. To our homebuilder partners, your trust is the foundation of everything we do, and we do not take it lightly. And to our shareholders, we are committed to earning your confidence every quarter, not by telling you what this platform can be, but by showing you. Operator, let's open the line up for questions. Operator: [Operator Instructions] Your first question comes from the line of Julien Blouin with Goldman Sachs. Julien Blouin: Well, congrats on the strong quarter team. Just given the strong pace of deployment and the clear demand from homebuilders, I was wondering, as you start to come up against your internally set leverage cap, would you be comfortable going above that leverage cap for a brief time until your shares sort of reach book value, especially given your confidence that as you continue to execute your business plan, equity markets will eventually sort of catch up? Darren Richman: Julien, that's a good question. This is Darren. Thank you. Thanks for your time today. Look, we're going to adhere to the -- we don't want to hem ourselves in too much on the leverage target. In the context of maybe something strategic, we might push it. In the ordinary course, we're really going to kind of adhere to that target. There may be circumstances where we might change that for some period, but that really is the threshold goal. And let's -- for those people who are kind of new to the story, the reason why we set it at that conservative level is these are still volatile assets. And the reality is that we cycle through about 1/3 of our balance sheet every year in the ordinary course. And having that visibility and that cash in the ordinary course to be able to pay down our debt or neutralize the debt with cash on the balance sheet is just a very important asset for this company. So to answer your question, there may be circumstances where for a brief period, we feel comfortable and we have line of sight to take it beyond 33%. But the long-term goal has really been purposefully set at 33% for the reasons I just cited. Julien Blouin: That makes a lot of sense. You also mentioned in your opening remarks how you distinguish yourself from every other land-based real estate business in the public markets. And I think Rob was mentioning how the current AFFO multiple discount is sort of difficult to justify. I'm just curious, in your own internal conversations, how do you view -- or who do you view as your most relevant comps? Why do you view them as your most relevant comps? And then how do you view your current valuation relative to that comp set? Darren Richman: I think you've given me the easy question. This is some meat all the question for you, Rob, to answer. Robert Nitkin: Yes. Thank you, Julien. I mean people just ask us a lot, particularly for a somewhat new business model in the public forum with this homeside option purchase platform, who are your comp set? And how should we value you? And it's not our job to debate the academics of our price AFFO multiple. But we did think after our first full year of results now that we have more proof points, just to point out some of the differences versus the various REITs out there. And you and others have heard us say out loud that we think ourselves more of a triple net or infrastructure-related equity REIT, which is what we believe. But what's new this quarter -- what's new this quarter is that we have just more proof points in terms of both our AFFO growth per share that we've demonstrated and that we're projecting in the forward scenario, really afforded by just the math of our accretive spread investing, right, the yields we're able to invest at versus our cost of capital. Pointing out the low leverage, achieving those yields and those growth targets with the leverage that we have right now that as we were just talking about is pretty much below any other REIT, at least in our eyes in the industry, which we feel good about. And honestly, that was a lot of what we are so excited about thinking back before we even launched Millrose, why we were so excited to bring this business model into the public forum was to show the power of the yield, the growth and therefore, the total return that we afford our shareholders with low leverage. And on top of that, lastly, I would just say it's worth pointing out that while we have low duration, and that's another slightly differentiating item, you may say positive or negative from other REITs, we view it as a pure positive in that from a credit and risk management perspective, we're constantly refreshing the basis to contemporary market conditions and evaluating new assets that are sort of refilling our portfolio from a risk perspective. But at the same time, we've signed up to these repeatable operationally integrated relationships with our builders' counterparties. So it's not as if we have a brand-new cost of origination on each individual deal. Our origination is not episodic. It's a self-refreshing relationship with these builders, which, again, from both a credit and origination perspective, we think is the best of both worlds. So that's what we wanted to point out. Darren Richman: Yes. And I might add to that, obviously, to everything Rob just said. But to add to it, these are mission-critical assets as we talked about. Not only are they mission-critical, but these are the exact assets that are in scarce supply. Having land that's already entitled, approved for development, is the gating item to why we don't see more growth in volume. And so we're financing those assets that are in short of supply. And then the other items I'd add is we're doing this against the backdrop of a housing shortage. And maybe lastly, I'd add that these assets don't require any capital enhancement from like a CapEx perspective to refresh. And so this is all contractually related. So I think when you put all these pieces together, plus the growth that we laid out in this report that even if we achieve just $1 billion of in the ground, that's almost an 8% growth in AFFO on top of the already strong dividend that we're achieving. So when you kind of put all this together, it creates what we think is a very unique package of baseline dividend plus growth that to us -- look, we're students of the market, we're obviously talking our book, but to us, should result in a much higher multiple. And we do think we'll get there. This is still a young company. We're a year into it, and we're continuing to show proof points. So we do think, ultimately, we will trampoline ahead from a valuation perspective. Operator: Your next question comes from the line of Eric Wolfe with Citi. Eric Wolfe: You talked about $1 billion of new capital deployment by the middle of the year. How much visibility do you have towards that incremental $1 billion at this point? Is it based on deals you've already sourced and signed? And would those be new relationships or sort of continued growth among your current 15 counterparties? Darren Richman: Yes. And I'll start, Eric. This is Darren, and Rob will jump in. We've talked about this in the past with these forward flow relationships that we have where the industry is really starting to coalesce around rather than homebuilders looking at discrete parcels and trying to get them land bank and financed to entering into more programmatic relationships where they'll come to us and say, we need $1 billion of buying power or $500 million of buying power. And so we've talked about that. That totals about $9 billion across roughly 10 different counterparties, those forward flow relationships. We're going to naturally cycle through about $3 billion of our land portfolio in the next year that will need to be replaced. So some of that $9 billion will go into replacing those assets. And then -- and so the point is we have a lot of visibility and a lot of confidence around it. Some of those deals ultimately fall away because, obviously, our due diligence process will kick out deals that we don't want to be financing. So as we kind of distill down that forward flow quantum, we feel very comfortable with the guidance that we put out. And we want to be very thoughtful about guidance we give to make sure that we can achieve that. Robert Nitkin: Yes. And I might just add, as you know, Eric, there's also built into our existing $2.4 billion of other agreements and investment balance, the future development funding commitments that we've already signed up for, and we're including in that $1 billion projection. And so that will do a decent amount of the work for us. And so you asked the question, does that require any new counterparties. Based on the existing baked-in development funding projections, even net of homesite takedowns as well as that the aggregate of those $9 billion forward flow relationships Darren alluded to, if you said we weren't going to add another counterparty next year, which I don't think is true, I would still feel pretty confident about that number. Eric Wolfe: That's helpful. And then you also mentioned that you are working with your banking partners to access floating rate debt to hedge out your -- not hedge out, but just to hedge your floating rate option exposure. I guess what percentage of your net invested capital at this point is sort of floating versus fixed? And I guess, given expectations that Fed will cut multiple times next year, is it becoming more of a sort of popular agreement with homebuilders to try to do more floating rate type deals? Robert Nitkin: Yes. I would use -- it's not perfectly precise in this way, but I would use the proxy that our Lennar master program agreement rate is fixed, which is true and subject to resets on forward deals as has been publicly disclosed. And our other agreements bucket is vast majority floating subject to a floor. So while there's not infinite downside of rate cuts, there is some volatility, and that's the reason that our existing credit agreement, use of that with the floating rate mitigates any movement there, and we made the comments that you alluded to on additional floating rate debt. And then that's been -- I would add, that has not -- there hasn't been a change in fixed versus floating in these agreements since any recent rate cut cycles or anything like that. That's been the nature of the structure of these other agreements since before we launched Millrose, I would say. Eric Wolfe: Got it. Maybe just to be illustrative, like the 11% you're signing today, I guess, what would be like the floor on that? Just to help me understand sort of like how low that could go if rates came down meaningfully on that. Robert Nitkin: Yes, floor is probably between 50 and 200 basis points below sort of where that rate is. Operator: Your next question comes from the line of Craig Kucera with Lucid Capital Markets. Craig Kucera: I see you added 2 counterparties this quarter. Were they the primary driver of the $690 million funded this quarter from third parties? Or are you seeing additional demand from your existing counterparties? Robert Nitkin: No. So it was 3 additional counterparties went from 12 to 15 this quarter, and the majority of the growth was from existing counterparties. And so the addition of new counterparties, we started to do initial deals with them and those initial deals with those incremental 3 counterparties were not the majority, but we've now brought them onto our platform. We onboarded them. We've negotiated docs with them, and it's our expectation that they'll continue to grow as we get more operationally integrated as a partner. Craig Kucera: Okay. Great. And just given your commentary on sort of the $2 billion of guidance, I guess, is it fair to say that we should think about that as being more or less in the bag? And when we think back to last year, you came out and were looking to close $1 billion when you first spun out of Lennar. We saw stretch targets throughout the year. Is that a potential just given the demand in the market? Darren Richman: This is Darren. It's a tough question to answer. We're not looking to sandbag anything. This is kind of our best assessment at this point in time, given the deal flow that's ahead of us and also given the need to raise additional capital. I'll remind you, last year, the volume was enhanced through M&A. And while we're aware of discussions that are out there from an M&A perspective, those are always difficult to model. And so none of that would be included in our forecast. So this really is our best estimate here and now. And I'll acknowledge one other thing that month-to-month, quarter-to-quarter, it's not -- it won't be a straight line in terms of that volume filling in, but we feel very confident given the pipeline and given the relationships that we will meet that year-end target of $2 billion. Craig Kucera: Okay. That's helpful. In the press release, you made have mentioned that you're delivering homesites to builders at an average sales price of 20% below the national average for new homes, which are predominantly Lennar homes just given that they've been closing the vast majority. But as you look at the third-party agreements you've entered into, is there any way to give us a sense from a budgeting perspective, whether or not those are more entry-level homes, maybe similar to Lennar or higher-priced homes? Or is that too difficult at this point? Darren Richman: Yes. I don't -- we're not going to go that deep into the guts of the operation at this point. Craig Kucera: Okay. Fair enough. Just one more for me. You made it clear that you want to issue equity below book, and you've got a debt target of 33%. You mentioned earlier, you might go a little above that. But given that the market is going to do what it does with your common stock, it would seem you could issue preferred that would be accretive to what you can deploy capital at. Is that a potential source of capital for you? Or do you view that as just more expensive debt? Darren Richman: It's not our preference to do that. As you would imagine, we're -- we ourselves are investors. We come from the credit landscape. We're very familiar with those type of products as well as converts and other arrangements that are equity-like. The goal here is really to keep the capital structure as clean as possible and as transparent as possible. Would we entertain them potentially, but that's not our plan right now. Operator: [Operator Instructions] I will turn the call back over to Darren Richman, CEO and President, for closing remarks. Darren Richman: Yes. I'd like to thank everybody again for joining us this morning. We're around if people have follow-up questions. Just in closing, really what we're looking for is durable fundamental growth, not short-term glitter. We're looking to continue to build new relationships and develop new use cases for land banking capital. We're very excited about the prospects for the business, where we are today and the reception we continue to get from our existing clients and new clients as well. So I want to thank everybody. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Welcome to Grupo Aval's Fourth Quarter 2025 Consolidated Results Conference Call. My name is Regina, and I will be your operator for today's call. Grupo Aval Acciones y Valores S.A., Grupo Aval is an issuer of securities in Colombia and in the United States SEC. As such, it is subject to compliance with securities regulation in Colombia and applicable U.S. securities regulation. Grupo Aval is also subject to the inspection and supervision of the Superintendency of Finance as holding company of the Aval Financial conglomerate. The consolidated financial information included in this document is presented in accordance with IFRS as currently issued by the IASB. Unconsolidated financial information of our subsidiaries and the Colombian banking system are presented in accordance with Colombian IFRS, as reported, the Superintendency of Finance. Details of the calculations of non-IFRS measures such as ROAA and ROAE, among others, are explained when required in this report. On November 27, 2025, Banco de Bogota's subsidiary, Multi Financial Holding, Inc. MFG, entered into a share purchase agreement with BAC International Corporation, BIC, a subsidiary of BAC Holding International Corp. for the disposal of 99.57% of the issued and outstanding shares of Multi Financial Group, Inc. MFG, the parent company of Multibank Inc. For comparability purposes only, we have prepared and present supplemental unaudited pro forma financial information for the periods prior to 4Q '25, which reflects the reclassification of the operations relating to MFG as noncurrent assets and liabilities held for sale and discontinued operations. This supplemental unaudited pro forma financial information does not intend to represent and should not be considered indicative of the results of operations or financial position that would have been achieved had the transaction occurred on the dates assumed nor is it intended to project our results of operations or financial position for any future period or date. The pro forma financial information is unaudited and the completion of the external audit for the year ended December 31, 2025, may result in adjustments to the unaudited pro forma financial information presented herein. This report includes forward-looking statements. In some cases, you can identify these forward-looking statements by words such as may, will, should, expects, plans, anticipates, believes, estimates, predicts, potential, or continue or the negative of these and other comparable words. Actual results and events may differ materially from those anticipated herein as a consequence of changes in general, economic, and business conditions, changes in interest and currency rates, and other risks described from time to time in our filings with the Registro Nacional de Valores y Emisores and the SEC. Recipients of this document are responsible for the assessment and use of the information provided herein. Matters described in this presentation and our knowledge of them may change extensively and materially over time, but we expressly disclaim any obligation to review, update, or correct the information provided in this report, including any forward-looking statements, and do not intend to provide any update for such material developments prior to our next earnings report. The financial statements of Grupo Aval Acciones y Valores S.A. in accordance with Colombian regulations must be filed with the market and with the Superintendency of Finance with the opinion of an external auditor. At the time of this quarterly call, this process is still ongoing. The content of this document and the figures included herein are intended to provide a summary of the subjects discussed rather than a comprehensive description. When applicable in this document, we refer to billions as thousands of millions. [Operator Instructions] I will now turn the call over to Ms. Maria Lorena Gutierrez Botero, Chief Executive Officer. Ms. Maria Lorena Gutierrez Botero, you may begin. Maria Gutierrez Botero: Thank you. Good morning, and thank you for joining Grupo Aval's fourth quarter and full year 2025 earnings call. I'm so sorry, but I have a little flu, oh, a terrible flu, but I'm trying to -- that you can understand me. I am joined today by Diego Solano, our Chief Financial Officer; Camilo Perez, Chief Economist at Banco de Bogota; Paula Duran, Corporate Vice President of Sustainability and Strategic Project. I would like to start by highlighting the positive evolution of our results during 2025, despite the challenging and volatile local and global environment. We reached COP 1.7 trillion in net income during 2025, a 70% increase compared to the previous year and more than twice that of 2023. This improvement was primarily driven by stronger contributions from our banking business and a record performance year by Porvenir. Since our last call, we completed important milestones in line with our strategic focus to strengthen our strategic priorities. First, we completed the merger of our trust company. Second, we reached an agreement to acquire Banco Itau's Colombian retail business. Third, we reached an agreement to divest MFG. And fourth, Corfi has successfully completed transaction that will grow in business in the short-term. On January 2, 2026, we successfully merged our fiduciary businesses from Fiduciaria Bogota, Fiduciaria de Occidente, and Fiduciaria Popular into Aval Fiduciaria. This transaction consolidates our trust services into a single strong entity, enhancing our value proposition for existing and new customers and generating operational efficiencies. We expect this to result in an increase of our market share in trust fee income and AUMs and improve the profitability of this business. On December 23, 2025, Banco de Bogota announced the acquisition of Banco Itau with the banking business in Colombia and Panama. This move reinforces Banco de Bogota's focus on the affluent segment, enhances the quality of our client needs and strengthens our competitive positioning in Colombia. The acquisition is expected to add around 267,000 clients with USD 6.5 trillion in loans and USD 4.1 trillion in deposits. The deal excludes Itau's corporate banking and is pending regulatory approval. On November 27, Banco de Bogota announced that it has reached an agreement to sell MFG, a Panamanian bank to [ CAB ], that is the Central American Bank. This unit has delivered modest results since its acquisition in 2020 and require a large scale to achieve the desired performance. The divestment of MFG strengthens Banco de Bogota's position to pursue a stronger growth in its core market and reallocate capital towards businesses with a stronger strategic alignment and long-term potential. The sale process for this operation is expected to close over the following months, following regulatory approvals in Panama. This quarter, Multi Financial Group's balance sheet and P&L have been classified as discontinued operations. Corfi announced 2 major acquisitions. The first one, Corfi announced agreement to participate with a 51% stake in Sencia, the concessionaire of the 20 -- 29 sorry, year public-private partnership for the renovation, construction, and operation and maintenance of Bogota Nemesio Camacho Stadium complex. Sencia will develop a USD 2.4 trillion project, includes a new 50,000-seat stadium, cultural and commercial components, public space development, and mobility solutions. In the energy and gas sector, Promigas signed an agreement to acquire 100% of Zelestra's renewable energy generation platform, reinforcing its transformation into a multi-energy platform with operations in Colombia, Chile, and Peru. This transaction has a portfolio of more than 19 solar and storage projects totaling 1.4 gigawatts of contracted capacity and over 2.1 gigawatts under development, supporting diversification of nonregulated businesses and stable long-term contracted revenues, subject to project approvals in Colombia and Peru. Regarding results from continued operation for the quarter, positive trends continued to consolidate during the quarter. Our risk-adjusted NIM on loans for the quarter stood at 3.34%, the highest level in 3 years, while our cost of risk continued its positive trend. Return on average equity came in slightly below our initial expectations, mainly due to a weaker-than-expected NIM on investments triggered by volatile local and international capital markets and the onetime effects related to the MFG sale agreement, which Diego will explain in detail. I will now pass on to Paula, who will go over our sustainability achievements for the year. Paula? Paula Duran: Thank you, Maria Lorena. Good morning, everyone. In the fourth quarter, we closed an extraordinary year for sustainability, further consolidating our ESG strategy. One profitability is built by integrating strong financial performance, measurable social impact, and responsible environmental management. Our framework is structured around 3 pillars: Returns with purpose, opportunities for all, and environmental value. Under our first pillar, returns with purpose, we continue to scale sustainable finance. Our sustainable loan portfolio reached COP 44.9 trillion, including COP 36.2 trillion in social lending and COP 8.7 trillion in green lending. Social lending included targeted credit lines for senior citizens, housing, women entrepreneurs, coffee growers, and micro businesses. Green lending supported renewable energy, infrastructure, sustainable mobility and water management projects, among others. In our investment portfolio, Maria Lorena already mentioned our agreement with Zelestra that reinforces our commitment to clean energy. We also received important external recognitions. In the S&P Corporate Sustainability Assessment, we achieved a historic score of 81 out of 100 and were included in the S&P Sustainability EU. Additionally, Banco de Bogota, Equity Colombia, Banco de Occidente and Villas were also included in the EU, demonstrating the consistency and consolidation of our sustainability strategy across the group. In the MSCI assessment, we improved our rating to BBB, driven by stronger social impact metrics and enhanced responsible investment practice. On our second pillar, opportunities for all, this pillar focuses on generating inclusive growth and shared value. We calculated the total economic value generated and distributed, which reached COP 41 trillion in 2025. In this value distributed to more than 31,000 suppliers that received COP 11 trillion, our 67,500 employees also earned COP 3.8 trillion. We also paid COP 3.4 trillion in taxes and generated COP 13 trillion in returns for our clients. Additionally, we invested COP 70 billion in voluntary social programs, benefiting more than 2 million people, focusing on community infrastructure, education and research, socioeconomic development, and the promotion of culture, art and sports. Through Mision La Guajira, the most significant private sector social initiative in Colombia, we fulfilled our commitment, benefiting more than 21,500 people across 80 communities with potable water, electricity, and connectivity. The program also included financial education initiatives and supported over 1,500 value artisans fostering sustainable live schools. We also supported the VAMOS Finances scholarship program exceeding our fundraising goals and reaching COP 1.1 billion, benefiting more than 1,200 students. For our third pillar, environmental balance, we joined the partnership for Carbon Accounting Financials, CAF, committing to measuring the contributions associated with our financial activities. We also launched our nature strategy aligned with the NSE and began a pilot implementation with one of our entities. At the group level, we also achieved tangible equal efficiency improvements. Energy consumption reduced by 9.6%, renewable energy use increased to 38%, water consumption reduced by 2%, and waste generation decreased by 9%. In summary, we closed 2025 with meaningful progress across all 3 pillars, reinforcing our position as the Aval that drives support and transform the group. We continue to generate opportunities for more sustainable development and create long-term value for our shareholders and all stakeholders. Thank you. Maria Gutierrez Botero: Thank you, Paula. Now moving to the macro environment. A lot has happened since our last call that has changed our expectation for 2026. A massive and technical increase in minimum wages has triggered a substantial increase in inflation expectations and has a strong terms from the Central Bank to control inflation expectations. These recent events add to the increase in real interest rate expectations that result from growing concerns on the current administration's fiscal discipline. As a result, since our last call, we have raised 200 basis points our expectation on 2026 inflation and 350 basis points year-end 2026 Central Bank intervention rate, changing the improvement trends we previously anticipated. 2025 was characterized by elevated global uncertainty. The year was marked by abrupt changes in U.S. economic policy, increased trade tensions and greater economic fragmentation. Despite these challenges, global growth proved resilient, reaching an estimated of 3.3%, supported by a second half recovery, higher investment, and accelerated adoption of artificial intelligence technologies. In Colombia, economic activity remained resilient. GDP growth closed at 2.6% for 2025, driven primarily by household consumption and public spending. However, the GDP outlook remains challenging. Investment level stand at historical low levels and the country's fiscal deficit is among the largest globally, despite interest savings achieved through the government's liability management strategy. Household consumptions and government spending alone cannot sustain structural economic growth if investment remains absent and the government continues to crowd out the private sector. Inflation closed the year at 5.1%, remaining above the Central Bank's target range. Furthermore, inflationary pressures derived from -- derived from the 23.7% increase in the minimum wage led to the beginning of a new restrictive cycle in monetary policy as evidenced by 100 basis points increase in the Central Bank rate in January. Moving on to the exchange rate. The weaker U.S. dollar and the heavy dollar inflows from remittances and the national government liability management strategies led to 14.8% appreciation of the Colombian peso relative to the U.S. dollar. Camilo will now elaborate on our economic outlook. Camilo? Camilo Perez Alvarez: Thank you, Maria Lorena. Good morning. The Colombian economy grew by 2.6% in 2025, below the consensus estimate and that of technical staff of the Central Bank. The surprise came from investment results with gross fixed capital formation growing only 1.3%. The weak growth in investment was offset by the divestment of machinery and equipment, which registered an annual increase of 9% due to the needs faced by businesses to meet higher domestic demand. Meanwhile, investment in housing, infrastructure, and intellectual property contracted annually. As a result, Colombia ended 2025 with an investment rate of 16.6% of GDP, the lowest level so far this century. Ultimately, high levels of uncertainty, elevated interest rates due to persistent inflation and large fiscal deficits have led the country to face a complex investment landscape with the financial mining and energy construction and communication sectors being the most impacted. Conversely, the economy found supporting household and public sector spending. On the household side, higher income from wages, remittances, government transfers, coffee exports, and tourism led to an acceleration in private consumption growth from 1.6% in 2024 to 3.6% in 2025. The growth in goods expenditures surpassed that of services. As a result, sectors such as commerce, lodging, food, transportation, recreation, and services in general continued their upward trend. In manufacturing, while growth was observed in line with the increased household demand for goods, the appreciation of the peso reduced the competitiveness of local production. Meanwhile, amid the suspension of the fiscal rule and the higher budget execution, public spending increased from 0.6% growth in 2024 to 7.1% in 2025, the highest rate since 2021. Also public spending boosted local activity, it was financed with increased debt, leading to a widening of the primary fiscal deficit. Thus the fiscal stimulus appears unsustainable and ultimately display the private sector in an example of carrying out. In the external sector, lower national competitiveness explained by the appreciation of the Colombian peso against the dollar and higher labor hiring costs led to exports moderating the growth rate from 3.2% in 2024 to 1.8% in 2025. By 2026, amid more adverse financial conditions, weakening private consumption, a more challenging fiscal situation and high uncertainty surrounding the elections, the Colombian economy is projected to moderate its growth rate to 2.4%. Turning to prices. Inflation ended 2025 at 5.1%, virtually unchanged from 2024. Here, inflation improvements in rents and regulated prices were offset by increased pressure of food, goods, and services different from rents. At this point, higher labor costs resulting from the significant minimum wage increase, the reduction in working hours and the approval of labor reform weighed on inflation on goods and services. Meanwhile, high household and government spending limited the scope of improvement in inflation. By 2026, the minimum wage increase of over 23%, which in real terms was the highest in history, will lead to a resurgence of inflation. Specifically, inflation is expected to end 2026 at around 6.2%. The impact on inflation is also greater, thanks to the appreciation of the Colombian peso and its effect on the prices of inputs as well as the policy of reducing gasoline prices and the lower indexation based on rents. On the fiscal front, the government closed 2025 with the highest primary fiscal deficit, which excludes interest payments since the crisis of the 1990s and the pandemic. The government addressed the high spending pressures with active debt issuance using alternative mechanisms such as the direct sale of debt to an important investment fund and so of short and long-term debt during the year. Calculations by our economic research team indicate that the Ministry of Finance issued more than COP 110 billion of treasury bonds in 2025 when the stipulated limit was COP 95 billion. For 2026, no major changes are anticipated on the fiscal front. In fact, the deficit could exceed 7% of GDP, given the absence of the fiscal rule and, again, considering high spending and weak revenues. With this scenario where inflation is rebounding and the fiscal situation remains vulnerable, the Central Bank would consolidate an upward trend in interest rates. Our economic research team expects the benchmark interest rate to rise from 9.25% at the end of the year-end of 2025 to 11.25% by mid-2026, a level at which it would remain for at least the remainder of the year. The risks are tilted upwards. With a scenario of higher domestic interest rates, a weak dollar globally due to the United States trade policies and expectations of lower rates from the Federal Reserve, the exchange rate closed 2025 at COP 3,780 per dollar, 50% lower than at the end of 2024. However, in the second half of the year, the downward trend in the exchange rate intensified due to the government sale of dollars. In the second half of the year, the government sold more than $7 billion, an amount not seen since the pandemic. In 2026, the Colombian peso is expected to continue finding support from the wider interest rate differential, the international outlook and the nation's ample dollar availability. However, the election results will be crucial. Currently, the exchange rate is expected to remain below COP 4,000 per dollar throughout the year. Regarding the dynamics of dollar flows in the Colombian economy, it is important to note that for the first time in history, remittances surpassed oil exports as the primary source of dollars of the economy. This further consolidated diversification of the export basket. Finally, the legislative and presidential elections to be held in the first half of 2026 will define the country's economic future. It is too early to draw conclusions about the election results, but the central scenario is based on the expectation that Colombia will have a more fiscally disciplined government, which will reduce uncertainty and promote investment and in general, will make public policy decisions based on technical criteria that boost economic growth. Thank you. Back to you, Maria Lorena. Maria Gutierrez Botero: Thank you, Camilo. Turning to our financial results. 2025 was a transition year. In the banking segment, gross loans ended the year at COP 190.1 trillion, increasing by 4.8% compared to 2024. Profitability improved meaningfully, supported by a sharp decline in funding costs that expanded the spread between loan yields and funding costs by 41 basis points. Cost of risk improved from 2.3% to 1.9%, reflecting a stronger consumer portfolio performance and disciplined underwriting. Expense growth remained below the increase in the minimum wage, improving efficiency metrics. As a result, return on equity in the banking sector reached double digits. Banco Popular, Banco AV Villas returned to the profitability and Banco de Bogota, Banco de Occidente continue improving the results. Despite a weak market results at year-end, Porvenir delivered its strongest annual performance to date. Assets under management reached USD 271.2 trillion, an increase -- sorry, an increase 14.9% and ROAE reached 21.2%. Corfi worked throughout the year to lay the foundation for a new growth cycle driven by portfolio rotation and entry into high potential sectors. Deleveraging efforts and decline in rates led to a 16% reduction in funding costs, reflecting lower debt levels and more favorable interest rates. Finally, operational efficiencies continued to materialize following the exit from financial services. Now I would like to pass the call to Diego, who will give details of our results. Diego? Diego Saravia: Thank you, Maria Lorena. I will start on Pages 11 and 12 with a few charts showing the growth rate and quality of our loan portfolio relative to the rest of the Colombian banking system. For comparability reasons, these are unconsolidated figures under Colombian IFRS as published by the Superintendency of Finance. Starting on Page 11. During 2025, loans for the banking system grew 2.1% in real terms with mortgages growing 6.3%, consumer loans 1.48%, commercial loans 0.7%, all in real terms. During 2025, we continue to focus on profitable growth. We focused on local currency commercial loans in segments other than large corporates and on personal loans and credit cards and consumer lending. Peso-denominated commercial loan market share remained unchanged at 26.3%. We are selective in large corporate commercial lending given the aggressive pricing competition present throughout the year, where we lost 204 basis points. However, we gained 131 basis points of market share in local currency-denominated commercial loans other than large corporates. We gained market share in products and segments where we were underweighted such as factoring, where we gained 543 basis points to 24.2% and government loans where we gained 219 basis points to 23%. Regarding our dollar-denominated commercial loans where we have historically been overweighted, we reduced our market share by 356 basis points to 35.3%. In addition, in peso terms, the balances of dollar-denominated commercial loans were negatively impacted by the 14.8% appreciation of the Colombian peso over the year. As a result of the above, our market share for commercial loans fell 37 basis points. Consumer loans, we focused on diversifying our portfolio towards higher yielding and short-term loans, reducing our concentration in payroll lending. We gained 138 basis points of market share on personal loans to 21.5%. The Itau consumer business acquisition will take us to market weight. To strengthen our credit card business where we lost 132 basis points to 17.4%, we launched the [indiscernible] and other initiatives. All of this while maintaining our leadership position in payroll lending where we have 42.2% market share. Overall, our market share for consumer loans closed at 28.9% with a 53 basis points decrease. Moving on to mortgages. We continue gaining market share with 117 basis points increase throughout the year. As a result of the above mentioned, we closed our market share in total loans at 25%, 28 basis points lower than in 2024. On Page 12, loan quality for both the system and Aval banks showed an improvement during the year across all categories. Our banks continue to exhibit better loan quality portfolio than the system in all categories. I will now move to the consolidated results of Grupo Aval under IFRS. As mentioned by Maria Lorena, Banco Bogota entered into a share purchase agreement to sell MFG of Romanian bank. As a result, in December 2025, we classified this operation as noncurrent assets and liabilities held for sale and discontinued operations. For reason of comparison with previously reported periods, we're showing retrospectively on this call pro forma balances and ratios, classifying MFG as noncurrent assets and liabilities held for sale and discontinued operations. On Page 13, we present assets and loans. Assets grew 6.4% year-on-year and 1.5% for the quarter to COP 349 trillion. Fixed income investments, which account for 15.8% of our assets reached COP 5.2 trillion, growing 21.2% year-on-year and decreasing 0.2% over the quarter. Gross loans, which account for 54.7% of our assets reached COP 190.9 trillion, growing 46% year-on-year and 1.5% over the quarter. Growth metrics were affected by a 4.2% depreciation of the Colombian peso during the quarter and 14.8% over the year. Peso-denominated loans that now account for 91.3% of gross loans grew 6.8% year-on-year and 1.7% during the quarter. Commercial loans expanded by 1.9% year-on-year and 1.1% over the quarter. Peso-denominated commercial loans that account for 84.7% of gross loans grew 5.5% year-on-year and 1.4% during the quarter. Dollar-denominated commercial loans, which accounts for 15.3% of commercial loans grew 0.4% in dollar terms year-on-year and 3.9% during the quarter. In peso terms, our dollar-denominated loans contracted 14.5% year-on-year and 0.5% quarter-on-quarter. Consumer loans grew 4.7% year-on-year and 1.2% during the quarter. Personal loans grew 12% year-on-year and 5% during the quarter. Credit cards contracted 1.5% year-on-year and increased 2.9% during the quarter. Our loans grew 0.6% year-on-year and 1.1% during the quarter. Payroll loans increased 3.2% year-on-year and decreased 0.9% during the quarter. Mortgages grew 19.6% year-on-year and 3.9% during the quarter. On Page 14, we present the evolution of funding and deposits. Total funding increased 8.7% year-on-year and 1.4% in the quarter. The bank borrowings grew 28% year-on-year, in line with the expansion of our trading investment portfolio, as mentioned before, and account for 8.2% of total funding. Deposits that account for around 3/4 of our funding grew 11.2% year-on-year and 3.6% quarter-on-quarter. Our deposit to net loan ratio closed at 113%. On Page 15, we present the evolution of our total capitalization, our attributable shareholders' equity and the capital adequacy ratio of our banks. Our total equity increased 0.3% over the quarter and 4.8% year-on-year, while our attributable equity increased 0.2% over the quarter and 5.7% year-on-year. Total solvency and Tier 1 ratios evidence a relative stability in most of our banks. On Page 16, we present NIM, our net interest margin. Net interest income reached COP 9.3 trillion for the year, increasing 17.4% compared to 2024. Total NIM for the year increased 28 basis points to 3.78% in 2025. Our consolidated NIM on loans expanded by 28 basis points year-on-year to 4.71%, while NIM on investments decreased by 8 basis points to 0.82%. NIM on loans incorporates an 84% year-on-year expansion of NIM on retail loans to 6.33% and an 18 basis points year-on-year contraction in NIM on commercial loans to 3.5%. Focusing on our banking segment, the total NIM of our banking segment expanded 8 basis points over the year to 4.47% due to the same dynamics that affected our consolidated net interest margin. NIM on loans was 5.24%, increasing 9 basis points year-on-year. This incorporates a 69 basis points year-on-year increase in NIM on retail loans to 6.9% and a 39 basis points year-on-year decrease in NIM on commercial loans to 4.02%. Quarterly NIM was negatively impacted by adverse capital market performance, driven by a 3.48% negative NIM on investments. In contrast, NIM on loans for the quarter reached 5.05%, 48 basis points higher than the previous quarter and the best result in 12 quarters. As discussed by Maria Lorena, the recent shift in the monetary cycle in response to recent government decisions will act as a headwind for NIM over the next quarters. The development of our financial diversification strategic pillar continues to pay off. We have diversified our funding sources towards less sensitive non maturing deposits, including deposits from individuals and cash management linked deposits. Our banks lowered maturities and repricing gaps and actively implemented interest rate hedging strategies. On Page 17, we present our yield on loans, cost of funds spreads. On a consolidated basis, the average yield on loans for the year decreased 126 basis points to 12.06%, while the annual average 3-month IDR decreased 158 basis points to 9.4%. Consolidated cost of deposits decreased 148 basis points during the year to 6.63%, while our cost of funds decreased 141 basis points to 6.8%. On Pages 18 through 20, we present several portfolio quality ratios -- starting on Page 18. Loan portfolio quality ratios continued to improve during the quarter. PDL metrics continue to improve in all categories. 30-day PDL formation for the year reached COP 4.2 trillion, 32.8% lower than for 2024. 30-day PDLs were 4.37%, a 98 basis points improvement over 12 months and 37 basis points over the quarter. 90-day PDLs were 3.29%, a 77 basis points improvement over 12 months and 11 basis points improvement over the quarter. Commercial loans 30-day PDLs were 3.84%, a 101 improvement year-on-year and 38 basis points improvement quarter-on-quarter. 90-day PDLs were 3.48%, a 91 basis points improvement over the year and 19 basis points over the quarter. Consumer 30-day PDLs improved 117 basis points year-on-year and 16 basis points over the quarter to 4.67%. 90-day PDLs improved 63 basis points year-on-year and 5 basis points during the quarter to 2.79%. Mortgage 30-day PDLs and 90-day PDLs improved 8 basis points and 10 basis points, respectively, over the quarter to 6.18% and 3.75%, respectively. Finally, the ratio of charge-offs to average 90-day PDLs for 2025 was 0.82x. On Page 19. The share of our portfolio classified as Stage 1 grew to 89.8%, while Stage 3 decreased for a 6-month consecutive quarter -- consecutive quarter to 5.7%, driven by improvements in our consumer portfolio. Coverage measured as allowances for Stages 2 and 3 as a percentage of Stages 2 and 3 was 33.6%, decreasing 545 basis points relative to a year earlier due to improvement in the mix. On Page 20, in 2025, cost of risk net of recoveries fell 38 basis points to 1.9%, in line with our expectations for the year. For consumer loans, cost of risk net of recoveries improved 157 basis points to 4.2%. This includes a 449 basis points improvement in personal loans to 8.4%. For commercial loans, cost of risk net of recoveries was 0.7%. During the fourth quarter of 2025, cost of risk net of recoveries fell 27 basis points to 1.7%, the lowest in 12 quarters, driven by a decrease both in commercial and consumer portfolios of 36 basis points to 0.6% and 23 basis points to 3.8%, respectively. On Page 21, we present net fees and other income. Annual gross fee income grew 6.8%, while net fee increased 5.3%, quarterly gross and net fee income increased 8.5% and 9.6% year-on-year. In terms of annual gross fees, pension and trust fees grew 9.1% and 14.9%, boosted by performance-based management fees that followed the positive returns of the financial markets throughout the year. Our annual income from the nonfinancial sector was 84% of that recorded in 2024, mainly due to a lower contribution from the infrastructure sector. Quarterly income was affected by a lower income from the energy and gas sector and the infrastructure sector as well. This was partially offset by income from hotels. Finally, at the bottom of the page, the annual increase in the operating income is mainly driven by a COP 605 billion improvement in derivatives and FX gains. Hedging strategies relative to the nonfinancial sector are registered under foreign exchange gains and account for COP 863 billion yearly improvement. During the quarter, one of Promigas transportation pipelines measured as fair value reverted to the company's PP&E and implied a onetime fair value recognition of COP 303 billion. This effect was registered under net income from other financial instruments mandatory at fair value to P&L. This positive effect was offset by a onetime remeasurement of the deferred tax liabilities to COP 359 billion. Net-net, the transaction had a COP 56 billion negative effect on net income and COP 12 billion negative effect on our attributable net income. On Page 22, we present some efficiency ratios. Cost to assets remained flat at 2.6% Annual cost to income improved 101 basis points to 52.2% over the quarter. On a quarterly basis, it reached 54.9%, 550 basis points lower than a year earlier. Annual expenses grew 9.6% during the year. General and admin expenses grew 9.4% year-on-year. Personnel expenses grew 6.9% year-on-year, well below the 9.5% increase in Colombia's minimum wage. Finally, on Page 23, we present our net income and profitability ratios. Attributable net income from continued operations for the quarter was COP 474 million, 57.5% higher than the same quarter of the previous year. Total attributable net income for the year reached COP 1.72 trillion or COP 72.5 per share, increasing close to 70% compared to the previous year. Our annual return on average assets was 1% and our average annual return on average equity was 9.6%, 28 basis points and 366 basis points above 2024, respectively. In terms of discontinued operations, the results contributed by MFG's operations as all attributable net income adding COP 18 billion. To wrap up, we are updating our guidance to reflect changes in the macro environment impacting our business. We expect loan growth in the 10% area with commercial loans growing at 7% and retail loans growing at 14%. Total NIM in the 4.3% area with NIM on loans in the 4.7% area. Our NIM of the banking segment in the 5.1% area with NIM on loans in the 5.4% area. Cost of risk net of recoveries in the 2% area, cost to assets in the 2.8% area. Income from the nonfinancial sector, 1.3x that of 2025. Our fee income ratio in the 21% area. And finally, we expect a 2026 return on average equity to be in the 10.5% area. This guidance does not incorporate the recently announced wealth tax, which we estimate will have an impact on our ROE of 1 percentage point area. Back to you, Maria Lorena. Maria Gutierrez Botero: Okay. Thank you, Diego. Before moving into questions and answers, I would like to share some final thoughts of Colombia and Grupo Aval in 2026. We expect 2026 to continue to be challenging in Colombia given the effects of political volatility and electoral uncertainty. Economic conditions are expected to remain challenging, both locally and globally. We expect GDP growth to remain moderate in 2026 and a restrictive monetary environment. The massive minimum wage increase will put pressure on our cost base that of our customers. Inflation will remain above the Central Bank's target range, which implies a return to a higher for longer interest rate environment. Despite this backdrop, we strongly believe that we should remain focused in our strategy and improving our business and abstain from echoing uncertainty. The financial sector will continue to be a pillar of trust and investment. We expect to continue growing our financial business and invest through core fee in the nonfinancial sector in the region during 2026. As a result, we expect to continue strengthening our core business, supported on an expansion of risk-adjusted NIM on loans, commercial and operational effectiveness and a stronger fee generation. In 2026, we will continue delivering new and innovative products. In addition, during this year, we expect to see increases in efficiencies from shared services and IT integration initiatives and strengthening a client-center unified corporate culture. So we are now open for questions. Operator: [Operator Instructions] Our first question will come from the line of Daniel Mora with CrediCorp Capital. Daniel Mora: I have a couple of questions. The first one is regarding the new tax for companies. I would like to know what did you understand for liquid equity as it says that it is gross equity minus debt for the tax? So I would like to understand how it will be applied for Bank of Aval, you already mentioned a 1% point for the consolidated ROE, but I would like to understand what will be the impact across Bank of Aval? That will be the first question. And the second one is also on regulatory issues and regarding taxes, considering the previous economic emergency decree was put on hold, what is the effective tax rate that you are using in your numbers? Are you considering the 15% tax surcharge or paying, for example, deferred taxes? Diego Saravia: Okay. I'll try to answer you, of course. I can't be a tax adviser here for you, but our understanding of how the network tax works is similar to what we've done -- we've experienced in the past, and it is subtracting from the tax base, the equity tax base of the bank or the company, its tax acquisition price of the shares it holds in its taxable balance sheet. That's the way it is expected to work, and it is similar to what has been in the past, the kind of language that we've seen in what has come up to date is basically the same that we saw in 2014. Regarding what happens to the group, yes, attributable should be something in the order of magnitude of 1 percentage point. And if you think that the attributable net -- the attributable equity of Grupo Aval is roughly 55%, 60% of the consolidated group. If you add what our group will be contributing to the tax in that sense would be almost twice of what we do attributable to our shareholders. Regarding how we calculate our tax in our guidance. The number comes out something similar to 35%. That is a combination of the taxes that we have to pay for our financial companies that have a surcharge in our numbers of 5% and then the taxes that other companies pay less those that have some exceptions. So... Maria Gutierrez Botero: But it means that is without the economic emergency... Diego Saravia: Exactly. Maria Gutierrez Botero: For the situation that we have before that. Diego Saravia: Exactly. That is what we expect on our base. And as I mentioned, the equity tax would add up to that around 5 percentage points if you were to make our calculation based on marginal tax. Operator: Our next question will come from the line of Brian Flores with Citibank. Brian Flores: Can you provide an update on the guidance you provided in the third quarter regarding loan growth, cost of risk, and ROE? I think it would be very useful. And then just to confirm, basically, you're saying your base case is no change in the tax rate, right? You're basically saying we have no surcharge and we have no wealth tax. That is the base case implied in the guidance, right? Diego Saravia: Yes. The 10.5%, you're right, the 10.5% basically takes taxes as well, not the taxes from the emergency, and that's why we are guiding into an additional effect that we could have from the wealth tax. Regarding our guidance, we have slightly reduced our guidance on growth. And regarding ROE, there is an implied 150 basis points reduction in guidance and ROE compared to our last call. Brian Flores: Okay. So just to confirm here, you were, if I'm not mistaken, guiding for a range of 12% to 12.5%. We're basically going to 11% or close to 11%. Is this... Diego Saravia: Just restating, we are in the 10.5% area guiding. Last time we were in the 12% area with an upward bias at that point. Brian Flores: Okay. If I may, you basically are explaining that you are seeing no changes in the tax rate, slightly lower loan growth. So which is the driver here on the reduction? Is it -- I know you're liability sensitive or not as asset sensitive as other banks, so it could be the NIM? Or do you think this is more related to cost of risk? Because you mentioned efficiencies should be better in 2026 and onwards from what I understood. Diego Saravia: Yes. It's a combination of several things. One and the main driver is a better mix of our loan portfolio that is also helping us to cope with the kind of behavior of the Central Bank rate that will imply a relatively better NIM year-on-year. There could be a reduction if you take the numbers that we had for the fourth quarter that was the best quarter in NIM, as I mentioned. However, year-on-year that there's an improvement. There's other things that are going to happen, and it is we expect Porvenir to have a better performance than what we had guided before, basically for 2 reasons. One, higher minimum wage implies higher fees from contributions from our customers. And then a higher interest rate environment is positive for Porvenir. On top of that, we have the other inorganic discussions that Maria Lorena pointed out that we expect to help us. We expect to see our mix improve. You've seen that throughout the past years, we've been moving towards retail to the retail segment. We've been working strongly on improving that organically and organically. That also improves our performance. And actually, when we compare our cost of risk, there is no change in cost of risk. The other area that -- where we could see a substantial improvement is NIM coming from investments. In general terms, we've seen volatility in this year, and there's been points in time as was fourth quarter where NIM on investments was negative on our results. Brian Flores: Super clear. I am very sorry to insist here. Just that I don't understand because if you're assuming no change in cost of risk and you're assuming a better mix and what I understood is a stable NIM, but then you're mentioning basically the reduction on ROE is of 100 bps year-over-year in the guidance. Is this only coming directly from a reduction in your expectations of loan growth, which I assume they were around 8% in the last call? Diego Saravia: Yes. I have to correct myself. I just pulled out our guidance last time. We have actually a slight pickup on retail. And we also have, as I mentioned before, when you look at our effective tax rate, we're also building in a higher tax rate for this year. Operator: [Operator Instructions] There are no further questions at this time. Ms. Maria Lorena Gutierrez Botero, I turn the call back over to you. Maria Gutierrez Botero: I just want to say thank you for being here with us and see you in 3 months. Bye. Operator: Thank you, ladies and gentlemen. This concludes today's conference. Thank you for joining. You may now disconnect.
Operator: Hello, and welcome to the TORM Full Year 2025 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Jacob Meldgaard, CEO. You may begin. Jacob Meldgaard: Thank you, and welcome to everyone joining us here today. This morning, we released our annual report for 2025, and we are satisfied with the results, which, once again, reflect our strong execution across the business. However, before I now turn to the results, I want to spend a little time talking about TORM and the foundation that enables these results and consistently differentiates TORM in the market. I want to talk about the key pillars of our business that have placed us in a strong position to date and that we believe will continue to do so in the future. We are immensely proud of what we have achieved here at TORM. Our ownership model and culture provides us with a clarity of purpose that streamlines our actions across the business. We are focused each and every day on staying one step ahead of other fleets to make the most of every opportunity. We believe our ability to deliver on this ambition for our shareholders is a distinct competitive advantage. Underpinning our strategic focus is the platform you will know as One TORM. We believe this is a point of difference that sets us apart. The model was originally built around a spot-oriented strategy to unite the business and accelerate decision-making and response time. It enables us to use real-time data and insights to share our deep expertise at the core of the business at a moment's notice. We are not complacent. Since its inception, we have continuously refined this model using the latest technology, advanced analytics and proprietary data at our disposal to ensure we remain as alert and responsive as we possibly can be. In short, we can identify and capture attractive trading opportunities even in the most challenging markets, and perhaps I should say, especially in challenging markets, exactly the type of markets which now characterize the shipping industry even as we see comparatively fewer headwinds here into 2026. For our shareholders, this approach offers a very clear advantage. We believe an industry benchmark for unrivaled consistency, strategic optionality and financial discipline that you can see once again in our numbers. And here, please turn to Slide #4. In here and on the next 2 slides, we show the key figures for the quarter and the full year. As always, I'll start with the quarterly numbers to give you a clear picture of how the business is developing. In Q4, TCE came in at USD 251 million, slightly above Q3, supported by firm freight rates throughout the quarter. This strong performance resulted in a net profit of USD 87 million, which enables us to declare a dividend of $0.70 per share, once again demonstrating our higher earnings translate directly into higher shareholder returns. During the quarter, we were active in the S&P market. We added 2 2016-built LR2s and 6 MR vessels built between 2014 and '18, while divesting 1 older 2008-built LR2. Several of the vessels were delivered before year-end, bringing our fleet to 93 vessels. And after completing the remaining deliveries at the start of 2026, our fleet comprises 95 vessels. Importantly, our investments were exceptionally well timed. Based on current broker valuations, the vessels we acquired have already been appreciated by a double-digit U.S. dollar amount. This reflects not only the quality of the assets and our disciplined approach to capital allocation, but also a market that continuously turned more positive, supporting higher asset values across the product tanker space. Now turning to Slide 5, we show the full year numbers. These are strong results. A year ago, our TCE guidance was USD 650 million to USD 950 million, and we closed the year towards the high end with USD 910 million. While not matching the all-time high in 2024, it remains a very satisfactory outcome. Freight rates strengthened from the first to the second half of the year and ended at attractive levels. In this environment, TORM achieved fleet-wide rates of USD 28,703 per day, which we are very pleased with and which again demonstrates our ability to outperform the broader market. Net profit for the year totaled USD 286 million, of which USD 212 million is being returned to shareholders. With that overview in place, let us take a step back and look at the broader market dynamics that shape the environment we operate in. And here, please turn to the next slide to Slide 7. And after a softer, but still historically strong 2025, product tanker freight rates have now returned to the average levels that were seen in the 2022 to 2024 market. Underlying demand for product tankers has remained steady, and the recent uplift in rates has been driven primarily by developments elsewhere in the tanker complex. The crude market has moved into territory that, while not unprecedented, is extremely rare. VLCC spot rates have surged to the USD 200,000 per day range, a unique and record-breaking level, and with charterers reportedly fixing 1-year deals above USD 110,000 per day. This strength is spilling over into the rest of the market, first into Suezmax and Aframax and then further into clean product tankers. If this momentum continues, we are potentially looking at a very interesting rate environment. At the same time, sanctions in the dirty Aframax segment have tightened vessel availability, triggering a large shift of LR2s from clean to dirty trade. This reduction in clean LR2 supply has further supported product tanker earnings. After several years of partial decoupling between segments, the product tanker market is once again being carried by the broader strength in crude. VLCCs, as mentioned in particular, continue to benefit from increased OPEC production, renewed stock building demand from China, heightened geopolitical tensions involving Venezuela and Iran and further consolidation in the segment. All these factors together have created one of the strongest cross-segment market backdrops we have seen in years. Please turn to Slide 8. And here, let's have a look at the product tanker demand side. Seaborne volumes of clean petroleum products have been trending upwards in recent months. However, the overall impact of the Red Sea rerouting has been largely neutral due to lower trade volumes and a partial return to Red Sea transits. Trade volumes from the Middle East and Asia to Europe have started the year at 30% below pre-disruption levels, which is largely a result of lower flows from India amid introduction of an EU ban on imports of oil products derived from Russian crude. At the same time, an increasing number of vessels have resumed transiting the Red Sea with an, on average, 40% of the clean petroleum product volumes on the Middle East, Asia to Europe route traveling via the Red Sea in 2025. This is up from under 10% in 2024. As a result, we see limited downside risk from a potential full normalization of the Red Sea transit as much of this effect has already been unwound and instead, a likely rebound in clean petroleum trade volumes after the normalization of the transit would increase ton-miles. This is reinforced by the closure of 5% of the refining capacity in Northwest Europe last year, which is driving higher import needs for middle distillates. Additional support comes from sustained strength in crude tanker rates, which limits the crude tanker cannibalization and also from rising clean product ton-miles driven by refinery closures on the U.S. West Coast. Kindly turn to Slide 9. Let's turn to now the supply dynamics. Newbuilding deliveries have increased here in 2025, but this has not translated into effective growth in the fleet trading clean products. In fact, since the start of 2024, nominal product tanker fleet capacity is up by 8%, yet the capacity actually trading clean today is 1% lower than it was at the beginning of 2024. This disconnect is primarily due to sanctions in the Aframax segment, which had incentivized a significant shift of LR2 vessels into duty trades. To illustrate this point, compared to the start of 2025, currently, there are 20 fewer LR2 vessels transporting clean petroleum products and, at the same time, 65 newbuildings have been delivered to the LR2 fleet during the same period. The scale of the sanctions is notable. 1 in 4 vessels in the combined Aframax LR2 segment is currently under U.S., EU or U.K. sanctions. This comes on top of the fact that the order book is already balanced by the high share of overage vessels in this segment. Next slide, please, Slide 10. And here, let me just elaborate a little on vessel sanctions. So most sanctioned vessels were added to the list last year. So in 2025 alone, more than 200 Aframax and LR2 vessels were sanctioned. This is 3.5x the number of newbuilding deliveries in the segment in 2025, and it is equivalent to almost the entire combined newbuilding program for a 3-year period from 2025 to 2027. With 60% of these now sanctioned vessels being older than 20 years, their likelihood of returning to the mainstream market even if sanctions were lifted appears to be limited. And now turn to Slide 11, please. Geopolitical developments continue to be a major driver of market dynamics. And in fact, the list of different geopolitical drivers has only gotten longer in the past 4 years. The growing number of policy interventions and geopolitical flash points increases uncertainty and associated inefficiencies. Beyond the policies directly affecting product tankers, developments in the crude tanker market such as a potential tightening of sanctions against Iran, rising OPEC production are also indirectly supportive for product tanker demand. We sincerely hope for a ceasefire between Ukraine and Russia. However, we see the likelihood of trade returning to pre-war levels as very low or nonexistent in the foreseeable future given the EU's clear determination to tighten sanctions. The EU ban on Russian crude oil and oil products has been by far the most significant sanction against Russia in terms of ton-miles. And the new 20th sanction package the EU is working on is potentially adding a full maritime services ban to it, pausing an even larger share of Russian oil flows into the shadow fleet. This would likely further increase the inefficiencies of the fleet trading Russian oil. Please turn to the next slide, Slide 12. And in summary, the key geopolitical forces continue to shape this year's market. While a potential normalization of Red Sea transit is unlikely to weigh on the market, the EU's ban on Russian oil will continue to underpin longer trading distances. On the demand side, ongoing shifts in global refining capacity continue to support ton-mile expansion. On the tonnage supply side, the increase in newbuilding deliveries will be balanced by a growing pool of scrapping candidates and reduced participation from sanctioned vessels, factors that will influence overall tonnage availability and market equilibrium. Against this backdrop, I'm confident that TORM is well positioned to navigate an environment marked by uncertainty and supported by our solid capital structure, strong operational leverage and our fully integrated platform. So with that, I'll now hand it over to you, Kim, who will take us through the numbers. Kim Balle: Thank you, Jacob. Now please turn to Slide 14, and let me walk you through some of the drivers behind our performance this quarter and for the full year. Starting with the market backdrop. The product tanker market stayed strong throughout the fourth quarter, and that supported another solid result for us. For Q4, we delivered TCE of USD 251 million, which translated into EBITDA of USD 156 million and net profit of USD 87 million. Across the fleet, our average TCE came in at USD 30,658 per day. Breaking that down, our LR2 earned above USD 35,000, LR1s were above $31,000 and MRs were just under USD 29,000 per day. For the long-range vessels, these numbers were actually a bit better than we indicated in our Q3 coverage, reflecting continued strong markets, helped in part by very firm crude tanker rates. For the full year, we delivered TCE of USD 910 million, EBITDA of USD 571 million and net profit of USD 286 million. These are solid numbers. As expected, earnings moderated from the exceptional levels of last year, but they remain robust and importantly, very much in line with the guidance we shared in November. And turning to shareholder returns. With a strong Q4, earnings per share reached $0.88, and the Board has declared a dividend of $0.70 per share, bringing total dividends for the year to USD 2.12 per share. We continue to believe that our capital return framework strikes the right balance, clear, disciplined and supported by robust cash earnings generation. And with that overview in place, let us move to Slide 15, where we break down the earnings in more details and talk through the underlying drivers. Slide 15 shows our quarterly revenue progression since Q4 2024. With this quarter's results, we see a meaningful uptick building on the positive trajectory in freight rates and earnings we delivered over recent quarters. It's a clear indication of the favorable market environment we are operating in. For the quarter, we delivered TCE of USD 251 million and EBITDA of USD 156 million, making our strongest quarterly performance this year. The underlying uplift is driven by firm freight rates supported by solid fundamentals and a positive spillover from the crude tanker segment, as mentioned. Given our operational leverage, we were well positioned to benefit from what we already see as very attractive freight rates. Please turn to Slide 16. Here, we show the quarterly development in net profit and the key share-related metrics. For the fourth quarter, earnings per share came in at $0.88. Our approach to shareholder returns remain clear, disciplined and consistent. We continue to distribute excess liquidity on a quarterly basis while maintaining a prudent financial buffer to safeguard the balance sheet. For Q4, this has resulted in a declared dividend of $0.70 per share, corresponding to a payout ratio of 82%. This is fully aligned with our free cash flow and debt -- after debt repayments and reflects both the strength of our earnings and our ongoing commitment to responsible capital allocation. And now please turn to Slide 17. As shown on this slide, broker valuations for our fleet stood at USD 3.2 billion at year-end. This reflects a continued positive sentiment in the market and results in an NAV increase to USD 2.6 billion. Importantly to note, average broker valuations for the fleet increased by 4.2% during the quarter, driven primarily by higher valuations for our LR2 vessels, which saw the strongest appreciation. This uplift further underscores the improving market backdrop and the quality of our asset base. In the recent quarter -- or sorry, in the central chart, you can see our net interest-bearing debt, which now stands at USD 848 million, corresponding to 29.4% in net LTV. The increase reflects the vessels acquired during the quarter, which naturally required incremental funding. Importantly, even with this investment-driven uptick, our leverage ratio remains within the range that we have maintained over recent quarters, typically between 25% to 30%, underscoring the strength of our conservative capital structure. This stable leverage -- sorry, this stable level continues to provide us with ample financial flexibility to pursue value-accretive opportunities while safeguarding balance sheet resilience across market cycles. On the right, you can see our debt maturity profile. We have USD 135 million in borrowings maturing over the next 12 months, excluding lease terminations that have already been refinanced. Beyond that, only modest amounts fall due in the following years. Overall, our solid balance sheet gives us sustainable financial flexibility to navigate current market conditions with confidence and to pursue value-creating opportunities as they emerge. Now please turn to Slide 18. This time, we have added a new slide to show what is actually -- what it actually means for the value creation when we consistently achieve rates above the market average. The MR segment is our largest exposure and a segment where competitors also have meaningful scale, making it the most representative benchmark for the product tanker market. We could, of course, perform a similar comparison for LR2 vessels. However, the benchmarking becomes less robust as many of our peers operate only a relative small LR2 fleet, limiting the comparability and statistical relevance for such an analysis. That said, based on the data available, a comparable calculation for the LR2 segment would probably show the same picture. As shown on Slide 24 in the appendix, we compare the rates we achieved with those of our peer group. Quarter after quarter and year after year, we have consistently delivered rates well above the peer average and in most quarters, even market-leading. This performance is a direct outcome of the One TORM that Jacob discussed and which continues to differentiate us in the market. But on this slide, when we take the analysis a step further by quantifying what that actually means, then, holding everything else equal, we calculate the premium TCE by taking our spot TCE relative to the peer average, multiplying it by our operating base and comparing that figure directly with our dividend in each quarter from 2022 to 2025. This provides a clear transparent view of the tangible financial value created by outperforming the market. Two examples illustrate the impact. In 2022, we returned USD 381 million in dividends. Our premium TCE was USD 38 million, around 10% of the total dividends paid. And in 2025, based on the first 3 quarters, the premium reached USD 49 million compared to our full year dividend of $212 million, that represents 23% of the total. So the message is clear. Our strong rates have a material and measurable impact on our dividends returned to our shareholders. Across that period, which includes different market conditions, we have returned USD 1.6 billion in cash dividends. And our analysis show that premium earnings from the MR fleet accounted for roughly 15% of the total dividends paid over the past 4 years. And now please turn to Slide 20 for the outlook. We're stepping into 2026 from a clear position of strength and solid momentum across our business. In Q1, we have already secured 70% of our earnings days at an attractive average TCE of USD 34,926 per day. This strong coverage provides a robust foundation for the year and reflects the positive traction we are seeing across all vessel segments. With the coverage already locked in and the encouraging market outlook ahead, we expect TCE earnings of USD 850 million to USD 1.25 billion and EBITDA of USD 500 million to USD 900 million. Both ranges are based on our midpoint internal forecast, after which we apply a defined range to reflect the uncertainty associated with the full year outlook and the potential volatility in the market conditions as the year progresses. And we are entering the year with confidence and real momentum behind us. And with this, I will conclude my remarks and hand it back to the operator. Operator: [Operator Instructions] Your first question comes from Frode Morkedal with Clarksons Securities. Frode Morkedal: First question I have is on the EBITDA guidance or the revenue guidance. If you could, I'm curious about what type of spot rate assumption you made there? Of course, I understand there's a lot of moving parts in this type of guidance, but let's say, LR2, MR rates in the high end, what are -- what's the implied rate, if you can share that? Kim Balle: Frode, I can tell you about our methodology that we use when calculating our guidance for the year. So we take the coverage, the fixed days we have already made for Q1, and then we apply the unfixed days for the rest of the year with the forward curve that we see in the market for the remainder of that period. And then you get to a midpoint. And from that midpoint of TCE, you then deduct our normal cost and get to an EBITDA. And depending on where the freight rates are, we stress that with an interval. And as they are higher right now, you will see, compared to last year, that the interval is slightly higher than we had a year ago. That is due to both what I just said, the higher rates, freight rates, but also more earning days, of course. So that's the methodology behind. So we are basically building it on what we have achieved already and then the markets. Frode Morkedal: Right. So is it just FFA market or time charter rates that you're looking at or... Kim Balle: It's forward freight rates. Frode Morkedal: And can you just say like the midpoint, is that -- roughly is that curve today when you made the guidance? Kim Balle: It's around $30,400 across the fleet. Frode Morkedal: Right. Okay. That's a good reference point. So yes, but just I wanted to discuss how you see the strength in the crude market impacting the products? Clearly, you talked about the switching. I'm curious to know if you think there's more to go there? I have noticed that crude Aframaxes are still trading with quite a significant differential to LR2 spot rates. So yes, curious to hear your views. Jacob Meldgaard: Yes. Obviously, time will tell. But I think clearly, the strength that we are seeing across the crude segments is first and foremost, having a direct one-to-one impact on the behavior of the LR2 fleet and LR2 owners. So the incentive currently to switch from being participating as an LR2 in the CPP market and potentially moving into the crude market is a little depend on whether you are in the Western hemisphere or the Eastern hemisphere. But just as an example, as you point to in the Western hemisphere, there's a clear financial incentive to switch over. I think we will see more of that as we showed in the graph. There is basically fewer vessels that are available due to the sanctions regime imposed, especially by the U.K. and EU, but also by OFAC. So that means that the compliant requirements for our customers, whether it's in CPP or in dirty trade, is serviced by fewer vessels, fewer assets. And that is pushing rates higher as we speak. We see term rates rising, and they are not to the extreme volatility that we see in the VLCC segment, but still significantly higher for a 1-year charter today than what it was at the beginning of the year. And I think this trend, let's see how it plays out, but I think it is here to stay. So we're quite optimistic in the earning power in the segments, to be honest. Frode Morkedal: I agree. I guess the acquisition you made, I think it was 8 ships, right, in Q4. That was a pretty good timing. I think we discussed it last time, but maybe you could just discuss how you thought about the investment case at the time. Clearly, it's been a -- was a good idea to buy these ships. And secondly, what's your view now at this point in time of further opportunities to acquire ships? Jacob Meldgaard: Yes. So I think it's like this, that we did -- when we had the conversation, I think also on this call in Q4, I think we illustrated that we are looking at it quite methodically and just saying what is the sweet spot in terms of our expectation of the free cash flow that we can generate from an asset and where is the asset [indiscernible]. And what we identified was these pockets of that we could buy some LR2s and we did some here actually towards sort of mid-December bought a couple of ships. And clearly, today, the price of these assets and one of them is actually only delivering tomorrow is already up by 20%. So if you isolate it out and just say, yes, that's good timing. But the backdrop of that is, of course, also that now when we had to sort of do our own thinking around potential other acquisitions, clearly, with assets rising like this, it gets harder to make the next acquisition. So I think we were fortunate about the timing on these 8 ships. We actually had hoped, to be very honest, to have upped the end a little on that in terms of number of assets, but they were simply not available at that point in time at attractive prices. So I think we just had to regroup a little. Asset prices are moving quite fast, and we just have to regroup and make sure we still follow our methodology and not get carried away. But I'm optimistic that we can maybe identify a few, let's say, some other deals that sort of fits the bill on our return requirements. Kim Balle: Frode, may I just -- I need to answer your question. You started a bit more precise than what we did, just so it's clear how we do it on the guidance. I just didn't have them in my head, but I have the numbers here. So if you take Q1, we had covered 8,177 days with $34,208. Then we take the uncovered days, that's 25,691 at $30,371. And then you do the math from there. Then you come to a total number of days, operating days and average TCE. And then you get to a TCE and you stress that. Frode Morkedal: Right. That's good. So on the stress test, do you have like a percentage plus/minus or... Kim Balle: That's -- we derived it a few years ago, but the way we use it is plus/minus TCE, and it depends on how much the stress depends on what the actual TCE level is. The lower it is, the lower the stress is, the higher it is, the higher the stress is. So it depends on where you are on the actual TCE levels. Operator: Your next question comes from [ Clement Mullins ] with Value Investors Edge. Clement Mullin: I wanted to start by following up on Frode's question on Afras and LR2s. Could you talk a bit about the portion of your LR2 fleet that traded dirty throughout the quarter? And secondly, on the LR1 side, have you seen an increase in the proportion of vessels trading dirty over the past few months? Jacob Meldgaard: Yes. Thanks for those very precise ones. So I'll start from the back end of this. So we have not really seen that the dirty market has affected the LR1s in our fleet and in our case. And when we look at our vessels and on the spot, we basically have 10% to 20% of our LR2s trading spot dirty. And then we've got another 10% that is on term charter dirty. Clement Mullin: That's helpful. And you continue to outperform peers on the MR side with your chartering team doing an excellent job. Could you talk a bit about what portion of your administrative expenses is attributable to the chartering team versus kind of the corporate side? Any color you could provide would be really helpful. Jacob Meldgaard: Yes. So we actually don't account like that. We -- as I tried to illustrate also in the beginning, on the One TORM platform, we believe that it's not actually the chartering team that is the secret sauce. It is actually the power of -- that you have in an organization ranging from the employees who bought a ship to the people doing the accounting and operations, technical. And of course, also, as you point to, the chartering team, but their success is not an isolated thing that has to do with their ability, it's the whole structure. So we don't -- I don't have an answer. I don't know the number. It's not the way we think about... Operator: There are no further questions at this time. I'll turn the call to Jacob Meldgaard for closing remarks. Jacob Meldgaard: Yes. Thank you very much, everyone, for listening in on the annual report 2021 for -- 2025, obviously, for TORM. Thank you very much for listening in, and have a great day. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.