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Gerardo Lapati: Good morning, everyone, and thank you for joining Alsea's Fourth Quarter and Full Year 2025 Earnings Video Conference. Today, you will hear from Christian Gurría, our Chief Financial Officer; and Federico Rodríguez, our Chief Financial Officer. Christian will walk us through our operating performance and strategic progress, while Federico will provide a detailed review of our financial results and capital allocation. Before we begin, I would like to remind you that some of our comments today contain forward-looking statements based on our current expectations. Actual results may differ materially. Today's discussion should be considered alongside the disclaimers included in our earnings release and our most recent filings with the Bolsa Mexicana de Valores. The company undertakes no obligation to update these statements. Unless otherwise specified, all figures discussed today are presented on a pre-IFRS 16 basis. With that, I will now turn the call over to Christian for his opening remarks. Christian Gurría: Thank you, everyone, and good morning, and thank you very much for joining us today. I will begin with an overview of our performance for the fourth quarter and full year 2025, highlighting key operating trends across regions and brands as well as our progress in digital transformation, expansion and ESG initiatives. Federico will then walk you through the financial results in more detail. Before going into the quarterly figures, I would like to briefly step back and reflect on how our strategic priorities throughout 2025 are shaping our business today. Despite a challenging start of the year, we responded with targeted operational and portfolio initiatives that led to a gradual improvement in performance as the year progressed. Throughout 2025, we focused on strengthening traffic and innovation to keep our brands remaining relevant and top of mind for our consumers. At the same time, we adopted a more selective and disciplined approach to growth, directing capital towards formats and initiatives with consistently strong returns. This included strengthening our portfolio through the incorporation of brands such as Chipotle and Raising Canes into the Alsea family, fully aligned with our long-term objectives, the right brands in the right geographies and the right stores, prioritizing quality over quantity. In parallel, we simplify our portfolio through the divestment of noncore assets in South America and Europe. This is part of our core strategy going forward as we will continue with this simplification as we are aiming to have a healthier and more profitable portfolio. The aforementioned is enabling us to concentrate resources on markets and brands with a stronger growth potential, translating into meaningful improvements in efficiency and profitability. Finally, we sharpened our approach to capital allocation and cash generation, optimizing CapEx and reinforcing our financial structure. With that context, let me now turn to our fourth quarter performance. In the fourth quarter, total sales increased by 0.5% year-over-year. reaching MXN 21.7 billion or 12%, excluding foreign exchange effects. Same-store sales grew 3.3% during the quarter, reflecting improving trends across several markets. EBITDA increased 2.9% year-over-year to MXN 3.7 billion with a margin of 16.8%, representing a 40 basis point expansion versus last year. Same-store sales grew 3.3% during the quarter, reflecting improving trends across several markets. The results reflected disciplined execution, improving operating leverage and the benefits of portfolio optimization efforts. Turning on brand performance. At Starbucks Alsea, same-store sales increased 2.9% in the quarter. In Mexico, same-store sales grew 2.6% with prior quarters and reflecting a stable demand and consistent performance. In Europe, same-store sales declined 0.3%, primarily due to continued pressure in France, partially offset by solid performance in Spain. In South America, same-store sales increased 8.8%, driven by Argentina. Excluding Argentina, same-store sales grew 1.1%, supported by strength in Colombia and gradual recovery in Chile. Domino's Pizza Alsea delivered a 5.2% increase in same-store sales. In Mexico, same-store sales grew 6.3%, supported by innovation such as 'croissant' Pizza, driving value and innovation. Also, we launched and expanded delivery capabilities through a strategic aggregator in Mexico. In Spain, same-store sales increased 3.3%, reflecting effective promotional execution. And in Colombia, same-store sales rose 9.6%, demonstrating a strong and consistent performance through the year. At Burger King, same-store sales, excluding Argentina declined 3.9%. In Mexico, same-store sales decreased 4.8%, reflecting continued pressure on the brand despite gradual operational improvements during the year. The full-service restaurant segment delivered same-store sales growth of 3% in the quarter. In Mexico, same-store sales increased by 3.8% supported by value propositions such as Menu del Dia, Tres Para Mi in Chili's and Paradiso Italiano in Italiannis. In Spain, same-store sales grew 1.9% alongside the continued portfolio optimization, including the sale of TGI Fridays. In South America, same-store sales increased 2.8% alongside the sale of Chili's and P.F. Chang's restaurants in Chile. Our expansion strategy continues to be guided by a clear focus on quality, returns and capital efficiency. During the fourth quarter, we opened 55 new stores, bringing total openings in 2025 to 169 units, 127 of them being corporate and 42 franchises, below our initial expectations. This reflects a deliberate shift towards fewer higher-quality investments, prioritizing locations and formats with a stronger return profiles. Remodeling and the renovation of our existing portfolio remain as a key priority across regions as store refreshes continue to deliver attractive returns through improved customer experience, higher productivity and faster payback periods. Overall, our expansion approach in 2025 reflects disciplined capital allocation and a clear focus on long-term value creation. Our digital platforms remain a key growth driver for Alsea. By the end of the quarter, loyalty sales increased 13.4% to MXN 8.2 billion, representing 30.6% of total sales and 36.6 million orders. We surpassed 8.2 million loyalty active customers and users across our brands, confirming the strength of our digital engagement. In addition, during the quarter, Domino's implemented full service through an agreement with a known aggregator. This initiative significantly expanded delivery coverage by more than doubling the number of available drivers per store, improving service levels during peak hours without incremental costs. During the quarter, we continue advancing on our ESG agenda as a core pillar of our long-term strategy, fully aligned with capital allocation and risk management. In Europe, we completed our first round of sustainable financing for EUR 273 million, linked to targets for emission reductions, strengthening supplier assessment base on ESG criteria and improving food waste management. This progress enabled a second ESG-linked financing tranche up to MXN 550 million through 2029. Additionally, in Mexico, we further aligned our strategy by securing a sustainability-linked loan of MXN 10.5 billion tied to KPIs focused on emissions intensity and waste reduction. In Mexico, during the months of October and November, [Indiscernible] movement raised more than MXN 50 million as part of its annual fundraising initiative. These efforts were reflected in our continued inclusion in the Dow Jones Sustainability Index in 2025, scoring 18 percentage points above the global sector average and ranking within the top 10% of the industry. For Alsea, ESG is embedded in how we allocate capital, manage risk and create long-term value. With that, I will now turn the call to Federico to review our financial performance. Thank you. Federico Rodríguez Rovira: Thank you, Christian. Good morning, everyone. In the fourth quarter, sales increased 0.5% year-over-year, supported by sustained consumer preference for our brands and effective commercial strategies. Excluding foreign exchange effects, sales increased 12%. In Mexico, the sales increased 7.9% to MXN 12.5 billion. In Europe, sales declined 1.2% in peso terms, while increasing 5% in euros and in South America, the sales declined largely due to currency effects. The EBITDA increased 2.9% year-over-year with a 40 basis points margin expansion, driven by stable food cost, disciplined execution and improved labor efficiencies. In Mexico, the adjusted EBITDA increased 17.1% year-over-year, primarily due to an increase in same-store sales of 3.1%, following a strong recovery in November and December, while the portfolio optimization and improved labor efficiencies helped offset higher wage cost. In Europe, adjusted EBITDA was 18.7% higher year-over-year, driven by a 1.7% increase in same-store sales, lower food cost and disciplined labor cost management. In South America, the adjusted EBITDA declined by 22.9%, largely due to the depreciation of the Argentine peso relative to the Mexican peso. This impact was partially mitigated by robust consumer demand in Colombia and stable market conditions in Chile, although Argentina continued to experience a more challenging operating environment. The net income for the quarter increased 32% year-over-year to MXN 812 million, reflecting a continued though less pronounced positive noncash foreign exchange effect related to U.S. dollar-denominated debt. As we have mentioned previous quarters, this impact is nonrecurring. Following the refinancing of the obligations, we have now achieved a natural hedge, and this revaluation will no longer affect the P&L going forward. CapEx for the full year totaled MXN 5.1 billion. Of this amount, 75% was allocated to store development, including the opening of 127 new corporate units, remodelings and equipment replacement, while 25% was directed to strategic projects, including the Guadalajara distribution center, technology upgrades and process improvements. As of December 31, 2025, the pre-IFRS 16 gross debt increased by MXN 0.9 billion year-over-year, reaching MXN 34 billion. The company's net debt, not counting the impact of IFRS 16 was MXN 28.3 billion, which is MXN 1.7 billion more than it was at the same time last year. The bank loans are allocated towards selling the minority stake in the European operations as well as addressing short-term debt requirements for working capital and capital expenditure needs. Consolidated net debt reached MXN 45.2 billion, including lease liabilities. At the end of the quarter, 58% of the debt was long term with 77% denominated in Mexican pesos and 22% in euros. We remain focused on maintaining a healthy capital structure supported by prudent financial management. At the end of the quarter, the cash position stood at MXN 5.7 billion. Turning to financial ratios. The total debt to post-IFRS 16 EBITDA ratio closed the quarter at 2.8x and the net debt-to-EBITDA ratio stood at 2.5x. Our full year results were broadly in line with the guidance we provided and subsequently updated during 2025. Same-store sales revenue growth, EBITDA and leverage all finished within expected ranges. We will provide more detail regarding the guidance for 2026 during Alsea Day on March 18 in New York City. This will be a great opportunity to invite everyone to our event and connect with you. With that, we will now open the call for questions. Please, operator. Operator: [Operator Instructions] The first question is from Mr. Thiago Bortoluci from Goldman Sachs. Thiago Bortoluci: I have 2 questions somehow related to free cash flow, right? When I try to see what you delivered in 2025 versus what is implied in your managerial guidance, right, what I see was that your EBITDA grew at the high end of your low single-digit expectations. CapEx came below the $6 billion you were initially expecting, but your pre-IFRS leverage was a touch ahead of the 2.8x that you were guiding, right, which makes me think that somehow your free cash flow generation was a little bit softer than initially expected. If this is true, I just like to understand where the mess is coming from? And what is the plan to attack this going forward? I guess the refinancing is part of the story, but also want to hear on the operating level, right? And then the second part of the question that is related to CapEx. I appreciate the focus, and I'm pretty sure everyone in this call appreciate your focus on portfolio and a more rational growth going forward. It would be great if you could share how you're seeing the incremental ROIC of the new cohort of stores under this new balance between growth and profitability on the capital allocation. Federico Rodríguez Rovira: Well, I will start with the first question regarding the cash burn. Yes, it's correct what you just said, Thiago. The main driver for the cash burn was worse working capital than expected at the beginning of 2025, mainly driven by a reduction in the expected EBITDA. As you know, we had to change the initial guidance we announced at March. But that was offset with a diminished CapEx. In 2026, the story will be completely different. You will have the expectations in the Alsea Day by mid-March. But the management is totally focused on the free cash flow generation with some initiatives you have just mentioned one, the refinancing, you know what is going to be the annual savings regarding this in the line of $25 million and additionally, the operating leverage from same-store sales. As you know, we will have a low to mid-single digit regarding same-store sales guidance for each one of the brands and will be to the consolidated figures and a more rationalized CapEx. This is one of the key drivers, Thiago. Obviously, we knew that we were failing at free cash flow generation. We have heard around the pushback you have launched to the management, to the administration during the last years. So we are totally focused there. So we'll rationalize the CapEx with less openings. Obviously, we had one one-off because of the distribution center of Guadalajara, but we do not have any kind of pressure to open more stores. As I have said a lot of times in the past, 95% of Alsea is in the same-store sales in the comparable stores. So that is the place where we have to put all the efforts because it is more relevant to have 1% increase in the traffic in the different brands because that is the key part where you have all the operating leverage. And in some of the cases, maybe have a reduction of around 30 new stores from the initial guidance, that does not make any kind of hurt. And it is not only for this year, but maybe for the future. We do not want to conquer the world regarding openings. We want to have a more rationalized CapEx for the future. And this is aligned with what you have just asked regarding free cash flow generation. I don't know, Christian, if you want to deep dive regarding the openings and the closure that we had in 2025? Christian Gurría: Yes. As Federico mentioned and we have mentioned in previous calls, our strategy is more about quality than quantity. As Federico mentioned, really our focus right now is on capitalizing on our existing assets. We have almost 5,000 stores in our portfolio between franchisee and company-owned stores. And we have a clear strategy on how we can improve the profitability of those stores. There are 3 levers that we are working on. The first is the remodeling and investing on our existing portfolio, which has the best returns and the customer responds in a very positive way to that and keeps our brands at the right level to deliver the right experience. And the second one is to make sure we have the best operators in the market. So we are -- we have always focused in Alsea in having the best operators, but we are having now a very intentional drive into elevating our operators in the stores. And the third level is, I would say, innovation. Innovation is clearly driving our -- the traffic to our stores. We have a very good example is what we are doing with 'croissant' Pizza, in Domino's Pizza in Mexico. This was originally born in Spain with extraordinary results. We brought it to Mexico and more than double the expectations that we had, and that's why you see a very strong quarter in 2025, particularly with Domino's. So these are the levers that we are moving. Of course, we will continue with our commitment to open the right stores. But it's important to mention the right stores in the right geographies and with the right brands which, as I always say, sometimes we have to close stores to have a healthier portfolio as we have done. Nevertheless, most of the stores that we closed, either in this number, you can see divestments as we did with TGI Friday's and Chili's and P.F. Chang's in Chile. But likewise, most of the stores that we closed were -- had an aging of average 15 years. So the market has changed, the neighborhoods, the trade areas have changed. So it's part of this healthier portfolio optimization. Operator: Our next question is from Mr. Antonio Hernandez from Actinver. Antonio Hernandez: Congrats on your results. Just a quick one regarding South America. I mean you already mentioned Argentina is struggling a little bit there and different countries overall. Just wanted to get a sense on how you're seeing performance so far this year and expectations for the year. Christian Gurría: Well, we are seeing very similar trends to November and December. with a positive trend on same-store sales. And one of the best news is the tailwinds we are having in terms of our dollarized raw materials. We have seen FX is helping us with the dollarized raw materials. And we have also positive news in terms of the price of beef and the price of chicken, which is having a positive trend to what we were seeing in the previous year. And also another positive effect is that we expect a reduction of coffee prices in the second half of 2026. So on wine side, we are seeing a very similar trend to the last months of the year, which we see a shift on what we were seeing in previous months. And on the other hand, different strategies around raw materials on one side, the FX and on the other side, some of the different synergies we have worked on the previous months are paying off now. So in these terms, we should see better margins in the following -- across the year and a steady recovery on same-store sales. Federico Rodríguez Rovira: And I would say, Antonio, if I may add a little bit more color on -- particularly, I would say on the 3 big markets of South America. We've been doing a great job in Colombia. It's been kind of consistent. That's something that continues, I would say, towards the beginning of the year. The same, I would say, it's happening with Argentina and Chile. If I would say, '25 was a tough year for those 2 markets for 2 particular, let's say, reasons and different reasons, both. I think we are seeing also at the end of last year, a bit of a recovery. And that is, I would say, also transitioning towards the beginning of the year. So I would say we're more kind of cautiously optimistic. And I would say, together to what Christian mentioned about kind of some of the tailwinds should be a better year for this market. Operator: Our next question is from Ms. Renata Cabral from Citi. Renata Fonseca Cabral Sturani: My first one is regarding Starbucks in Mexico. So what is the current approach for same-store sales improvement during the year? We are seeing a very good improvement over the operations of in Mexico, it seems more towards Dominos so far and it's understandable considering the economic situation. But it seems there's an opportunity also for improvement in the. So if you can shed some light in the strategies for the year ahead, it would be really helpful. The second one is a follow-up regarding margins and a more long-term perspective. Of course, you have mentioned about the rationalization of the portfolio. And my question is related also if you see other important levers that can improve margins in the regions for instance, supply chain or optimization of, let's say, it would be really helpful to know a little bit more about that. Christian Gurría: Thank you, Renata. Regarding Starbucks in Mexico, we had -- in 2025, we struggle at the beginning of the year as with many other brands. But starting the second half of the year, we were able to read and what was going on with the market and the different trends from -- and what the customer was looking forward. So we adjusted our strategies to -- first of all, we've clearly seen that Starbucks in Mexico is a loved brand. And clearly, innovation is driving a lot of traffic to our stores, both innovation in terms of product, but also innovation in terms of market. of merchandising. During Q4, we launched -- we brought to Mexico the Barista, the Crystal Barista, which was, as you may be aware, extraordinary success in Asia, then in the U.S. And then it came to Mexico and it was really driving a lot of transactions. So we also -- in this case, we also shifted the way we manage our promotional approach to the brand making sure we could elevate the customer -- the experience of the customer. So to give you a more concrete answer, we are focusing on renewing our stores in a very intentional way. Just to give you some data in 2026 in Mexico, we're going to have more store renovations than openings in the case of Starbucks. So we really understand what the customer is looking forward. And the second part is innovation in terms of product and understanding that we are a love brand in Mexico and people are looking forward. We just recently launched in '26 a bear that hugs the cup. And it's really -- they flew out of the shelves. So we have more and more surprises that I cannot share coming particularly for the World Cup. And also in terms of experience, we are introducing a strategy around elevating the experience in the stores by implementing wooden trays and stainless steel cutlery for here [serve ware]. Again, creating the right environment and the right and the best experience for the customer. And in terms of operational impact, as I mentioned before, we are very much focused on our -- on having the best operators and making sure they can impact positively their business during -- as we move forward. But this is more or less regarding the strategy that we are focusing. Federico Rodríguez Rovira: And regarding the second question around margins for the future, is too soon. Obviously, we are seeing positive impact. But I would say that we're expecting a positive trend regarding EBITDA margin expansion for 2026 as long as we are facing, as Christian has just mentioned, and you know it, some macro tailwinds like a stronger peso. Remember that each peso appreciation or devaluation is around 30 basis points in the total EBITDA margin. And additionally, this is supporting the raw materials, the gross margin. We can move the mix in a positive way in the different business units. But remember, we want to attract more traffic to our stores. We are not in the rush to increase on an artificial way the margin. We want to have a strong customer base into the same-store sales. And obviously, we have a lot of levers. You were asking around this. Obviously, the stronger peso is some macro reason, but we have some internal indulgent reasons such as the optimization of the portfolio. We have not finished. You know that we are analyzing some of the units, mainly in Americas to see what we are doing with them. We cannot disclose any more facts around this. I know there are a lot of news into the press, but that's all that we can say. We need to respect and being really disciplined around that we have a bunch of collaborators into the different business units that we are analyzing. And we are doing this in an everyday basis because obviously, while we are selling some of the business units, such as the 2 casual dining brands that we sold in Chile in the third quarter, we are looking for new Tier 1 brands such as Raising Canes and Chipotle. That would be one of the first lever. The second one, we have a bunch of opportunities regarding productivity, I would say, in America, not only in Mexico, but in South America, too, especially because not this year, but in the future, we are facing a journey reduction of 8 towers in 4 years in Mexico. So we need to move forward and be in advance of the rest of the competitors. And I think that with 5,000 stores all around the world with a stronger environment such as the European one, we have a lot of ideas to increase productivity and have expansion margins into the total EBITDA while we offset these impacts. And additionally, we have ideas regarding simplifying the support center in Europe, in Mexico, in Colombia. I think that we need to consolidate a lot of things that we have not executed in the last 10 years, and we'll be doing that during 2026. But as I always say, it is more relevant to have a strong same-store sales because in the bottom, you can have a lot of savings. It's a bunch of money. But in the long term, we are more worried around comparable stores, around new openings instead of only executing saving costs in the bottom. Renata Fonseca Cabral Sturani: And if I may, a follow-up maybe for Christian about potential impacts from the situation we are seeing happening in Jalisco since Sunday. It would be great to have some color. Christian Gurría: Of course. Renata, as a precautionary measure, we had to close some of our stores in the region during Monday -- Sunday and Monday, obviously, prioritizing the safety and security of our partners, our collaborators, our team members and also our customers. But by Tuesday morning, 100% of our stores were reopened. We are back to business as usual. Obviously, we are seeing in particular cities kind of a steady return of consumption, people being confident to get out there and going back to their lives. And delivery was clearly one of the channels highly and positively impacted by this as people were staying home. But we are clearly seeing across the week, people going back to their routines and our business recovering in a steady way. It's also important to mention that we have -- none of our stores were damaged -- none of our stores in the region were damaged or targeted and our supply chain was never disrupted. We have some blockades, but our supply chain was fully operational and never disrupted. Operator: Our next question is from Mr. Ulises Argote from Santander. Ulises Argote Bolio: So the question that I had was kind of a follow-up on those earlier comments that you were making on the quality over quantity approach to the portfolio. You mentioned there in the remarks, and I think this has been kind of an ongoing discussion of focusing on store remodelings across regions as a part of the strategy. So I was wondering maybe if you could provide there some color on how this will be broken down in 2026 across the regions? Maybe if we can get some color on format. But I think more importantly, if you could comment on the sales lift and the improvements you are seeing from the remodel locations. And then I have another one, but I'll do it afterwards. Christian Gurría: Thank you for your question. Let me start by answering we have -- in the case of the foodservice restaurant segment or casual dining or in the case of Starbucks, what we've seen is that you have -- when we remodel the stores, our same-store sales in the case of Starbucks grow from 6% to 13%. This is where we are -- what we've seen and experienced in a very consistent way. And in the case of the casual dining segment, clearly because the customer spends more time in our stores, in our restaurants, the uplift we've seen in same-store sales can go from 10% even we have cases where we are around 25% to 30% increase in same-store sales. This is driven, first of all, not only because of the look and feel of the store improves, but in many cases, as we know how the store and the customer uses the store, these renovations normally are adapted to the reality of how our customers use the store. So -- and in any other cases, we add additional seating or we add a terrace or we do some optimization in terms of the type of the mix of furniture we have in the stores. So the reality is that that's why we are prioritizing these remodelings. Also, it's important that when we choose to remodel a store, there are different reasons, either because the store has the look and feel of the store and the conditions of the store are not up to the expectations, our expectations and the guest expectations or different strategies around market penetration, in some case, the competitive landscape. So there are different reasons why we go and decide which stores to remodel. And to your first part of the question on if we have -- what is the breakdown? In the case -- the information I can share with you is, for example, in casual dining is 3:1, 1 opening, 3 remodelings Starbucks is around 1.4. And in Domino's Pizza, the impact is less important when you remodel a store due to the way the business model works. But when the stores that we have an important dine-in traffic, those are the stores where we put the resources, just to give you some examples. Federico Rodríguez Rovira: Yes. And additionally, to Christian's answer, when we are performing a remodeling in the full service or the Starbucks stores. Usually, we tend to see an incremental traffic of around 5% to 10%. Obviously, this depends in some of the cases of casual dining, you have to increase the terrace, for example, to have more capacity. But each time you are changing the look and feel of the store, you are increasing the traffic, and that is completely linked to the same-store sales increase that we are highlighting as a target, not only for this year, but in the long term. And regarding the... Christian Gurría: If I may also one important component is how our team members feel. Honestly, every time we remodel the store, they are always super proud. They are happy to see the store being in the best shape, and I'm proud to be part of that store. Federico Rodríguez Rovira: And for the long-term CapEx allocation regarding the 3 main pillars that we have into the portfolio, I would say that 60% is completely linked to Starbucks Coffee, 20% to Domino's Pizza and 20% to the full-service restaurants units, Ulises. Ulises Argote Bolio: Perfect. Very clear. So if I understood correctly, these initiatives are a bit more focused on Mexico, but also kind of cross region more selective. Is that a correct assumption to make? Christian Gurría: It's across all our geographies, Ulises. Same is happening and going on in Spain, in South America, Portugal, France, et cetera. Everywhere. Ulises Argote Bolio: Okay. Super clear. And the other question that I had was maybe if we could get some thoughts there or some -- or you share some insights of how you're positioning, let's say, to capitalize from the World Cup? Maybe any type of initiatives that you're taking? Any color that we could get there, that would be very much appreciated. Federico Rodríguez Rovira: For sure. We have no doubt that the 3 brands that will be most benefited by the World Cup incremental traffic are Domino's Pizza, Starbucks and Chili's. As you know, Chili's has been the preferred concept and brand for people to go and watch sports, all types of sports for many, many years. So in the case of Chili's, we are doing very important investments in technology in terms of screens, sound and also a very, very fun campaign. As you know, there will be 3 stadiums in Mexico, Monterrey, Guadalajara and Mexico City. And we are having a campaign Chili's is your -- is the fourth stadium. So we are already out there with the campaign. We have -- we have a strong partnership with some strategic partners as Heineken, and we are doing a lot of things together with them. So we have important expectations of what -- how Chili's is going to be benefited by this. As you know, only you can fit all 85,000 to 100,000 people in the stadium, the rest, well, Chili's for sure is an extraordinary option to watch the games and with a great happening. In the case of Starbucks, obviously, the traffic, the incremental traffic that we're going to have in different airports in hotels, and we have a very good market share of stores and penetration in Mexico and Guadalajara and Monterrey and some adjacent cities and airports that are going to be activated for the World Cup, so for sure. And we have fun initiatives coming also for the customers to drive this traffic. And obviously, Domino's Pizza watching games at home. It's going to be super powerful and Domino's Pizza and the games and the World Cup have always been linked and be together as football. So those for sure are going to be the 3 brands that are most benefit. We have a lot of surprises. We are already planning additional initiatives that we are reviewing as we speak. So for sure, we are going to be able to capitalize this very special event. Christian Gurría: But remember, Ulises, this is a one-off. Operator: Our next question is from Mr. Froy Mendez from JPMorgan. Fernando Froylan Mendez Solther: Can you hear me well? Christian Gurría: Yes, we can. Fernando Froylan Mendez Solther: Federico, if we were to assume that the FX didn't move from current levels, would your comments regarding the better margins into 2026 would still hold? And in that sense, what is your expectation? I know you'll have your guidance in the Alsea Day, but how much of the margin expansion that you're seeing depends on having better pricing or, let's say, less promotional activity in the key brands? And I will have a second question, if I may. Federico Rodríguez Rovira: Sorry for being so repetitive. But obviously, this is a tailwind. Each peso should be around 30 basis points. Remember, that maybe that implies that around 60 basis points during the first quarter year-over-year. In the remaining months, the weight and the comparison is not that much. But as I said before, obviously, we have closed January, I have the figures. They are positive. We are expanding margins. But I want to be cautious because, obviously, the events from Guadalajara, even while we only shut down 300 stores during 1 day, obviously, I'm not having the total performance regarding traffic in those stores. So as all the years, we have some different events, positive negatives, and I want to be really cautious at this point, with January completed, we have expanded the margin. But I don't know what is happening in the rest of the year. Obviously, we have positive events such as the World Cup. We'll tell you the expansion of margins that we're thinking. But again, we want to increase the traffic in each one of the stores, each one of the brands. That is the main objective. I prefer to sacrifice some of the margin if I'm increasing -- I'm going to make stories, but 3 points in same-store sales in Chili's, Domino's Pizza, that is more money, and that is a more strong customer base for the future. Sorry for the ambiguous answer, Froy, but I don't want to take in advance with only 1 month closed at this point. Fernando Froylan Mendez Solther: Excellent. And my second question, maybe more for Christian. We hear about this CapEx rationalization, the effort to diverse some of the probably nonperforming brands. But at the same time, we see new brands coming into the portfolio, Cane's, Chipotle with obviously not needle-moving CapEx, but I'm sure it will take time away from management. I'm not sure also how much synergies there are in their supply chain and their sourcing of raw materials with the rest of the brands. So how should we think about when we see a lot of the long-term CapEx that you mentioned focused on Starbucks, Domino's and full service with also these like small opportunities that you still are trying to tap? And isn't that a little bit distracted at some point for management? Christian Gurría: Thank you, Froy. Several answers to different views, different points. First of all, fortunately, as you know, in Alsea, 36 years around, we are able to really develop our team members and to have a lot of internal talent that allows us to really being able to bring these brands and do not distract the rest of the organization. As you know, we -- the way we are organized now is via -- before we have these country managers, which were managing the different brands that we had in each region. And then in the past months, we have moved into a brand manager that manages -- we have a brand manager for Domino's Pizza or a Managing Director, a Managing Director for Starbucks Alsea for Domino's Pizza Alsea for BK Alsea, a Managing Director for Food Service in Mexico and a Managing Director for Food Service in Europe. That allows us to really focus first of all, make sure all best practices, learnings, one single direction and strategy to keep the brand directors or managing directors focusing on their own brands. And likewise, we have created a new brand division, let's call it like that, where we have a team solely and fully and only dedicated to these 2 new brands. So there is really no distraction of the management. We were able to have a very strong Managing Director, which was part of our C-suite team for many, many years, Pablo de Brito, which now he is running -- he was the Commercial Director for Alsea and now he's the Head of with a very clear and independent structure for both brands. In terms of synergies, obviously, there are synergies. We clearly have synergies. We have been working in the past 6 months to make sure we have -- we are ready to -- around all the product sourcing, protein produce. There are things that are proprietary to the brands that we will import as we do with the rest of our brands coming from the U.S. But the reality is that there are a lot of synergies. It's -- our Alsea muscle allows us to do this kind of plug-and-play approach when we bring these new brands. So clearly, there are important synergies in these terms. So in the case of supply chain and management, really, there is no -- actually, it adds on to what we already have. Then another point you made is about the CapEx. The reality is that the way we -- the obligations we have with both brands intensive non-CapEx-intensive approach. We are going to open 2 new -- 2 Raising Cane's stores this year at the end of the fourth quarter and 3 to 4 Chipotle stores also during 2020 -- in the second half of 2026. So -- and once we see how we do, which we are very, very optimistic and positive of how these brands are going to add value and being accretive to the Alsea portfolio, we will sit down and define -- we know more or less what's the white space or the market holding capacity for both brands. We're going to share a little bit more about that during our Alsea Day. But the reality is that we are very optimistic that by first divesting and at the same time, bringing the right brands and the brands of the future in the portfolio, we have a very strong portfolio of brands in the future. Operator: Our next question is from Mr. Bob Ford from Bank of America. Robert Ford: I'm inspired by your Raising Cane's cups, so I'll bite. Can you guys discuss the magnitude of the opportunity you see for the brand in Mexico? And how do you think about replicating the authenticity of the celebrity and influencer engagement that Cane's enjoys in the U.S.? And when you think about the unit economics, how would you compare that with your best practice or properties in Mexico? Christian Gurría: As you can see, we are excited to bringing Raising Cane's into the family. In Mexico, we see a huge opportunity in Mexico for Raising Cane's. And let me tell you why. First of all, chicken is the #1 protein consumed and the fastest-growing protein in Mexico. This is clearly a fact. The second one is for decades, there has been only one player in the chicken market in Mexico in the organized segment for decades. So the white space and what we are seeing is huge. It's super important. The other -- the roasted chicken industry is hold by the moms and pops. And then you have this organized chain that has been there for decades. So the reality is that we see a lot of white space. And also Raising Cane's is not only an amazing and Tier 1 brand, it also aligns to our full Alsea strategy. So on that -- and we will give you more light in terms of the market holding capacity that we see and our development plan during the Alsea Day in March 18. The second question you answered, which I love this question because I truly believe that the way Raising Cane's communicates and resonates between the community for us, clearly, community is going to be a key success factor for the success of the brand and bringing this you know exactly what I'm talking about when I mentioned local teams, but at the same time, important celebrities, but at the same time, the college basketball team or the community schools team. We are already working with Raising Cane's to bring this same effect to Mexico. We are planning to have even the same agency. So the reality is that we are working very close together holding hands. Of course, we are going to take advantage of these assets in terms of influencers, celebrities that they have, but also the local influencers, the local community, the local celebrities are going to play a very important role for us to be successful. So I believe I have answered your 2 questions. Robert Ford: And the last one was about unit economics. Federico Rodríguez Rovira: Regarding the economics, I can take that question, Bob. Obviously, we cannot disclose the terms of the agreement we have signed with Raising Cane's. But the EBITDA margins at a 4-wall level are pretty similar with Starbucks or Domino's Pizza and the same for the royalty fee and opening fee that we will be paying. It is relevant to consider that even while we are really excited about the opening of Raising Cane's and Chipotle for 2026, we will be opening, as we have commented in the past, only 5 stores. We do not want to have a terrific contribution. We need to open the first store, and let's see what is happening if we are achieving the EBITDA margins, the profitability that we model in the months before. Robert Ford: Great. And then just one other question, and that is France. I mean it's -- what are the next steps for you in France? And do you see any opportunities to either reduce some of the expenses or drive revenue? Christian Gurría: Of course. Well, France, we have not seen the expected recovery that we had. There has been some recovery. We are at 85% of our sales, pre-boycott sales in October 2023. There was additional pressure, a slight pressure in the summer. So our objective remains to fully restore the transactions that we had pre-boycott. We have a very strong strategy around how to turn this around in terms of resources, in terms of store renovations, additional things that are part of this plan that we are working on. To your point around efficiencies, yes, we have done already the restructuring that we needed to do in terms of management, in terms of synergies with our operations in Europe. So we will see, for sure, better margins and better EBITDA as we move through the year. But our priority and our focus is to recover this 15% of traffic that we have not recovered yet. So we have a clear strong focus on this, and it's one of our priorities for 2026. Operator: Our next question is from Mr. Pedro Perrone from UPS Unknown Analyst: We have a quick question from our side based on same-store sales trends in the first quarter, especially for Mexico and for Europe. If you could give us some color about these trends and especially connecting to top line, that would be very helpful. Federico Rodríguez Rovira: I would say, to be clear, Mexico, Europe and South America, the trend is pretty similar to the one we have in the months of December and November. So no news, good news. As I said before, it is in the target that we have set for 2026 from low to mid-single digit depending on the maturity of the brand and the region. So that's the answer, Pedro. Operator: Our next question is from Mr. Ben Theurer from Barclays. Rahi Parikh: This is Rahi on for Ben. Just the first one, I know Bob mentioned a bit on -- with the EU. But is there any other challenges we should be aware of for the EU that would impede recovery? And then another one I thought would be interesting is to look at GLP-1. Have you seen any impact on consumption from GLP-1 in Europe? And when do you think you would see some impact in Mexico, if any? And have you have any formulation changes in the EU in regards to GLP-1? That's it for us. Christian Gurría: Let me get your second question first, we have not -- really, we have not seen any particular effect on GLP-1. Nevertheless, as you have seen in previous months, protein is becoming a very important element in the market. So in the case of Starbucks, we are fully in the game with different protein being an important priority in terms of beverage and our food program is moving towards that. And so what I would answer to that, we are observing. We are observing it. We are acting around that. We are trying to be ahead of the curve. But we don't see -- it's too early. I would say it's too early. But so far, we have not seen anything relevant. Obviously, the U.S. is the one kind of driving this trend. And we are watching, we are talking with our franchisors, what are they seeing -- but the reality is that we were already ahead of the curve with protein drinks in Starbucks and our food program is moving in a way towards that, not fully, but it's part of the strategy. So more or less that. And the rest of the brands, really not really. We are watching, but -- and that's it. We are observing what's going on. Rahi Parikh: I just want to follow up for that answer. It was for the EU as well, right? So no impact as well. Christian Gurría: Exactly. Neither in the European Union or in Mexico or Latin America, we are seeing these types of effects. What we -- I can tell you to add a little bit of color to that is that it's more now protein, it's more like trendy and innovation more than linked to GLP-1 or any of its effects, I would say, positive or negative. Federico Rodríguez Rovira: Yes. I'm complementing the answer. France is less than 2% of the total revenues contribution for Alsea. In Europe, we are present in Iberia, Spain and Portugal. I would say that is the most relevant contribution for Europe. The trend is positive. We are expanding margin, increasing the same-store sales coming from traffic in the main brands such as Domino's, Starbucks and the full-service formats that we hold in there. And even while in France, we're still at around 85% of the traffic that we had in 2023 is less relevant, but we still see the opportunity in there to open more stores. We will be struggling during 2026 to see if in 2027, we can return to the path of growth. Operator: That was the last question. I will now hand over to Mr. Christian Gurría for final comments. Christian Gurría: First of all, thank you all very much for your questions and for your interest in Alsea. And really thank you very much. 2025 reinforced the resilience of our business and the strength of our portfolio. We entered 2026 with a clear focus, a stronger financial position and a disciplined approach to profitable growth. We look forward to continue the dialogue with you in the coming months. But most of all, we're really looking forward to see you all in New York. We are preparing a very -- the team is doing an amazing job to prepare a very good event there, and we are really looking forward to see you there. And thank you again. Operator: Alsea would like to thank you for participating in today's video conference. You may now disconnect.
Operator: Good day, and welcome to the AvePoint, Inc. Fourth Quarter and Full Year 2025 Earnings Call. All participants will be in listen-only mode. To ask a question, please press star then 0 on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to James Arestia, Vice President, Investor Relations. Please go ahead. James Arestia: Thank you, operator. Good afternoon, and welcome to AvePoint, Inc.'s fourth quarter and full year 2025 earnings call. With me on the call this afternoon are Tianyi Jiang, Chief Executive Officer, and James Caci, Chief Financial Officer. After preliminary remarks, we will open the call for a question-and-answer session. Please note that this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations. We encourage you to review the safe harbor statements contained in our press release for a more complete description. All material in the webcast is the sole property and copyright of AvePoint, Inc., with all rights reserved. Please note this presentation describes certain non-GAAP measures, including non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income, and non-GAAP operating margin, which are not measures prepared in accordance with U.S. GAAP. The non-GAAP measures are presented in this presentation, as we believe they provide investors with a means of understanding how management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to, financial measures prepared in accordance with U.S. GAAP. A reconciliation of these measures to the most directly comparable GAAP financial measures is available in our fourth quarter and full year 2025 earnings press release as well as our updated investor presentation and financial tables, all of which are available on our Investor Relations website. With that, let me turn the call over to Tianyi. Tianyi Jiang: Thank you, James. And thank you to everyone joining us on the call today. Our fourth quarter results are a strong conclusion to an outstanding year. Our leading position in mission-critical data management, coupled with market demand for data protection in the AI era, enabled us to accelerate revenue growth, deliver our eleventh straight quarter of double-digit growth in net new ARR, and achieve double-digit GAAP operating margins. Very few software companies can point to comparable levels of organic growth, GAAP profitability, and strong cash flow generation. And even fewer sit at a critical intersection of data protection and security. And, importantly, we see healthy demand from companies spanning every size, vertical, and region of the world, validating our conviction in a large and growing market for secure, automated, and AI-ready data governance and resilience solutions. This broad-based customer demand is not surprising, as it is clear that AI has transformed the speed, scale, and stakes of data security and governance for companies everywhere. Organizations no longer view data governance as simple back-office hygiene; it has become the prerequisite for AI and agentic AI adoption. And our customers and partners continue to tell us the same thing: before they can deploy AI at scale, they need one company that can secure, govern, and operationalize their data with confidence. In fact, I just met with one of our financial services customers who in Q4 replaced patchwork tools and a vendor they had for over 20 years with AvePoint, Inc. Our platform now secures, governs, and guarantees data recovery for nearly 100,000 employees who drive $25,000,000,000 in annual revenue. That is not a workflow that gets agented away. It is the trust layer that makes enterprise AI possible in the first place. With stories like these, I will focus today on the durability of our value, and share why, despite speculation about the future of enterprise software in the context of agentic AI, AvePoint, Inc. will capitalize on the AI data protection opportunity in 2026 and the years ahead. But first, I want to remind you of three long-standing trends that you have heard us discuss for years: the relentless growth of data, the complexity of systems, and the severe consequences of poor data management. These challenges existed long before AI, but have only accelerated in recent years as data now spans cloud platforms, on-premise systems, third-party tools, and AI-driven workflows. AvePoint, Inc. brings order to this chaos. We ensure that data is reliable, governed, and secure, and we have done this for more than two decades for thousands of customers. While AI is a powerful tool, enterprise-grade software remains essential for managing complex environments and ensuring regulatory compliance. And if your AI relies on inconsistent or poorly governed data, it becomes a liability rather than an asset. The AvePoint, Inc. Confidence Platform is the solution to this challenge. Specifically, it is our platform architecture, which determines how effectively organizations can discover, govern, protect, and recover data across distributed multi-cloud environments. That not only makes us unique today, but provides a durable competitive moat. To start, our platform serves as a foundational layer within any data protection framework, acting as the control plane for policy management and real-time remediation, and the connectivity tissue for enterprise security operations. By maintaining a robust API framework and interoperability across hybrid cloud environments, we enforce strict identity verification and least-privileged access at the data layer, and immediately remediate any potential breach or policy violation. This approach was crucial for one of our largest consumer packaged goods customers, who faced significant challenges around ransomware threats, intellectual property protection, and data access compliance before launching Copilot. Using our platform as the core of their data protection strategy, we cleaned up their ROT data, deployed data resiliency across their 13,000 global employees, and implemented granular access controls. By starting at the data layer and utilizing our policy management and real-time remediation capabilities, they now have safe, secure, and compliant data they can trust to power their business. Our solutions also ensured that proper, provable access controls are in place for Copilot and other agents. We can solve challenges like this for thousands of companies because of our platform's ability to define all of their unstructured data and then visualize how its attributes, including sensitivity, intent, and lineage, evolve in real time. This contextual data, which is housed with us and which you heard Anthropic discuss on Tuesday as a critical input to their goal of transforming knowledge work, provides AvePoint, Inc. an enormous competitive advantage because our customers rely on us to govern the data in real time. Customers today know that proper data governance requires more than logs or snapshots; it requires a live context that our platform provides, that AI cannot deliver on its own, and that traditional static databases miss. And it was this technological differentiation that led a large construction company to become a new AvePoint, Inc. customer in Q4. They were recovering from a major cyber incident and preparing for broader AI adoption, but their core issue was not simply storage or cleanup; it was a lack of real-time context into how sensitive data was evolving and being accessed across their environment. By deploying our unified platform, with live visibility and control across unstructured data, they were able to reduce access sprawl and saved up to $1,300,000, improve data quality, and, most importantly, govern risk as they emerged. With AvePoint, Inc. as their strategic partner and restored confidence in their data foundation, they are now positioned to safely expand protection across their cloud and Azure workloads. Our platform is the result of decades of innovation and refinement, and today features a layered, interoperable architecture built for scale. It also functions as a governance and control layer for agentic AI, providing the trusted data foundation that agents need to act safely and effectively in the AI era. This includes a business logic layer, which defines the security and operational rules required by the customer; an elastic, scaling data abstraction layer, which allows the platform to meet massive data surges without performance degradation; and AI-specific remediation, which leverages proprietary algorithms to identify threats designed to bypass AI guardrails. We have always aimed for our innovation to keep up with the larger technological changes taking place. Today, as agents proliferate, the missing layer is not more AI. It is governance and operational oversight for AI. That is exactly why we built our sixth command center, AgentPulse, which provides unified visibility, governance, and operational oversight for agentic AI. AvePoint, Inc. customers can now inventory agents across their digital estate, surface usage, risk, and cost signals, monitor performance drift, and ultimately take action when needed. As companies scale their agentic AI deployments, AgentPulse becomes the operational cockpit that ensures safety, compliance, and measurable value. And lastly, building on AgentPulse, our new agentic AI governance and data protection features that we announced earlier this month provide customers with better insights about agent security posture and the ability to correct security problems directly in the Confidence Platform, helping them use agentic AI tools safely and efficiently. In short, no other platform combines modularity with tailored functionality to manage critical data in real time across cloud vendors. This was also validated by Gartner, which referenced AvePoint, Inc. in their latest research on how to build a strategy for M365 Copilot and agentic AI in 2026. And as we continue to introduce extensions to existing cloud services and to new applications, the Confidence Platform will further consolidate point solutions to drive a faster ROI, which in turn only deepens our competitive advantage. Our conviction in our platform differentiation is not to suggest that every enterprise software company is immune to disruption from AI. In fact, it is quite the opposite. We believe every company, regardless of industry, will be impacted by AI. But those that use AI to drive innovation as their core competency will be successful in delivering durable growth in the years ahead. And, specific to software, we believe the winners will offer the market two things: a true platform offering that provides pricing flexibility and ultimately leans on consumption-based and cost-saving-focused licenses, and end-to-end vertical organic integration ranging from development to go-to-market to best-in-class cloud ops and security to continuous enhancements and improvements. We are mindful of this with every strategic decision we make, and we will further differentiate ourselves by leveraging our domain expertise, our extensive partnerships, and our global scale and distribution to solidify our leadership position in the responsible and effective deployment of AI across all enterprises. As technology evolves, we are enhancing our go-to-market strategy to prioritize bundle offerings, building on last year's successful launch of our Control and Resilience packages. These bundles deliver comprehensive, outcome-based solutions addressing data cleanup, lifecycle management, governance, storage optimization, and protection, which customers and partners prefer over fragmented tools. And while we have historically licensed by seat count, we anticipate moving towards a hybrid model that incorporates capacity-based and data volume pricing, especially as AI enhances productivity but retains user-driven workflows. In Q4 and throughout 2025, we proved that AvePoint, Inc. is built for this moment, and our belief in the long-term market opportunity has only strengthened. As organizations modernize their processes and workflows, the need for a secure, governed, and resilient data foundation that transforms enterprise data into a secure, high-quality signal for AI only becomes structurally more important. That is what our platform delivers, making us the trusted long-term partner for our customers. We have said before that our ambition is big, reaching $1,000,000,000 ARR by 2029. But it is grounded in operational discipline, durable market demand, and a platform strategy that is only becoming more relevant as AI adoption grows. And while questions about market cycles or technological disruption will come and go, our conviction in the durability of the market opportunity and our ability to capture it has never been stronger. I want to thank the entire AvePoint, Inc. team for their tireless efforts in making 2025 an exceptional year of execution and continued growth. And we are excited for an even stronger 2026. Thank you again for joining us today. I will now turn it over to James. James Caci: Thanks, Tianyi, and good afternoon, everyone. Thanks for joining us today. Coming into 2025, our outlook reflected two central themes: first, the growing customer demand to prepare, secure, and optimize their critical data, and second, the ongoing improvement in our ability to efficiently deliver on that demand. These themes gave us the confidence to continue investing in support of our strategic priorities and our 2029 goal of $1,000,000,000 in ARR while remaining committed to delivering ongoing top-line growth and margin expansion. As we recap our fourth quarter and full-year results today, we are proud that they validate and demonstrate our ability to execute on our commitments to shareholders. Q4 had a number of highlights, including acceleration of our revenue growth, our eleventh straight quarter of double-digit growth in net new ARR, substantial expansion of both GAAP and non-GAAP operating margins, and our continued success selling the AvePoint, Inc. Confidence Platform to large enterprises, reflected in the record number of $100,000 and $250,000 ARR customers added. We are particularly proud of these accomplishments in light of the two goals we set at our first Investor Day three years ago. Namely, that by 2025, we would deliver GAAP operating profitability, and we would be a Rule of 40 company. And while we delivered GAAP profitability in 2024, a year ahead of schedule, we delivered on both of these commitments in 2025, with a Rule of 46 and a GAAP operating margin of 7.9% for the year. These accomplishments have only strengthened our conviction in the market opportunity and our ability to execute, and we have even better visibility into the growth vectors that will propel us toward our $1,000,000,000 ARR target for 2029. As Tianyi mentioned, there are very few software companies that have our organic growth profile, scaling operating margins and GAAP profitability, material cash flow generation, and healthy SaaS KPIs. And this exceptional financial position, coupled with the competitive differentiation that Tianyi discussed, are why we will continue to balance strategic growth investments in our go-to-market capacity and innovation pipeline with a continued commitment to driving operating leverage across the business. So, let us turn to our results. Total revenues for the fourth quarter were $114,700,000, up 29% year over year and comfortably above the high end of our guidance. On a constant currency basis, total revenues grew 25% year over year, a meaningful acceleration from Q3. SaaS continues to drive our business, with Q4 revenue of $88,900,000 growing 37% year over year. The strong customer demand for SaaS is also reflected in our revenue mix, as it represents 78% of total Q4 revenues, surpassing last quarter's record, and on a constant currency basis, Q4 SaaS revenues grew 33% year over year. Services revenue of $14,600,000 represented 13% of total revenues and grew 20% year over year, while term license and support revenues grew 7% year over year and represented 9% of Q4 revenues compared to 11% a year ago. And lastly, maintenance revenue of approximately $981,000 represented 1% of total revenues and continued its expected decline. As a result, 87% of our Q4 revenues were recurring. Looking at our geographical performance, we were pleased that each region delivered a strong close to the year. In North America, total revenue growth accelerated to 25% year over year, driven by SaaS revenue growth of 34%. In EMEA, total revenue growth accelerated to 39% year over year, driven by SaaS revenue growth of 44%, and in APAC, total revenues grew 23% year over year, driven by SaaS revenue growth of 32% and service revenue growth of 25%. On a constant currency basis, EMEA SaaS revenues increased 33% while total revenues increased 28%, and for APAC, SaaS revenues increased 31% on a constant currency basis while total revenues increased 22%. We were pleased to see the same strength and balance when looking at ARR. In Q4, North America ARR grew 20%, EMEA ARR grew 32%, and APAC ARR grew 34%. Taken together, we ended the year with total ARR of $416,800,000, representing year-over-year growth of 27%, or 26% after adjusting for FX. As a result, net new ARR in Q4 was $26,800,000, once again surpassing last quarter's record and representing growth of 48% year over year. Lastly, as of the end of Q4, 57% of our total ARR came through the channel, compared to 55% a year ago. Our success at the enterprise level has been consistent for many years, but it was especially notable across our large customer cohorts in Q4. We ended the year with 820 customers with ARR of over $100,000, a year-over-year increase of 24%. This record growth also represented the addition of 64 such customers in Q4, easily surpassing last quarter's record of 41. In addition, we ended the quarter with 298 customers with ARR of over $250,000. As we added 28 such customers in Q4 and 73 for the year, both of which were records. Lastly, we now have more than 100 customers with ARR of over $500,000, as well as 31 customers with ARR of more than $1,000,000. Taken together, these results demonstrate that we are meeting the demands of organizations looking for single-platform vendors that can address multiple strategic use cases. Turning now to our customer retention rates. Adjusted for the impact of FX, our Q4 gross retention rate was 88% and our Q4 net retention rate was 110%, both of which were in line with Q3. I want to remind you that GRR factors in account-level churn, customer downsell, and our migration products, which have naturally lower renewal rates. This quarter, migration served as a two-point headwind to GRR. So, excluding it, GRR would have been 90%. I also want to point out that in Q3 and Q4, we did see a higher migration contribution than in prior years due to increased customer modernization efforts around AI deployment. While we believe this positions us to potentially cater to additional use cases outside of migration for these customers, this dynamic could put modest pressure on GRR in 2026. On a reported basis, Q4 GRR was 88% and Q4 NRR was 111%, with GRR in line with the prior year and NRR representing a one-point improvement. Turning back to the income statement, gross profit for Q4 was $85,100,000, representing a gross margin of 74.2% compared to 75.5% a year ago. The year-over-year gross margin decline is primarily the result of a higher mix of services revenue this year and the lower relative gross margins on those revenues. Moving down the income statement, Q4 operating expenses totaled $62,200,000, or 54% of revenues, compared to $52,800,000, or 59% of revenues, a year ago. As a result, Q4 non-GAAP operating income was $22,900,000, with our 20% operating margin, representing year-over-year expansion of more than 370 basis points. Sales productivity was a key driver of the increase, as this metric improved every quarter over the course of 2025 and was our highest ever in Q4. These improvements, along with our growing channel contribution, continue to drive down our sales and marketing expense as a percentage of revenues, which was 31% for Q4 and 32% for the year. To remind you, our long-term target for this is 30%. Turning to the balance sheet and cash flow statement, we ended the year with $481,000,000 in cash, cash equivalents, and short-term investments. And for the year, cash generated from operations was $85,300,000, or a 20% margin, while free cash flow was $81,600,000, or a 19% margin. I also want to call out our remaining performance obligation growing 36% year over year, which crossed the half-billion-dollar mark in Q4, to $508,100,000. The ongoing strength of this metric reflects the longer-term commitments that customers are making, and they are investing in our platform as a foundational layer for governing, protecting, and operationalizing data as they scale AI across the business. Lastly, we repurchased 1,700,000 shares in the fourth quarter for approximately $22,400,000. Before I turn to our guidance, I will briefly recap our full year 2025 results. Total revenues of $419,500,000 represented 27% reported growth and 25% constant currency growth, both of which were an acceleration from 2024. SaaS revenues grew 38% year over year to $319,200,000 and represented 76% of total revenues, compared to 70% in 2024 and 59% in 2023. As mentioned, total ARR as of December 31 was $416,800,000, representing growth of 27% or 26% when adjusted for FX. As a result, net new ARR for the full year was a record $89,800,000, representing record growth of 44%. This compares to net new ARR in 2024 of $62,500,000, which grew 25% over 2023. Full-year non-GAAP operating income was $79,200,000, or an operating margin of 18.9%, compared to $47,600,000 in 2024, or a margin of 14.4%. GAAP operating income for the year was $33,000,000, with GAAP operating margins expanding 570 basis points year over year to 7.9%. This expansion was driven by the improvements I discussed earlier, as well as our management of stock-based compensation expense, which is now less than 10% of our revenues, and which we expect will further decrease as a percentage of revenue in 2026. During 2025, we repurchased 3,400,000 shares for approximately $50,000,000, and through the close of trading last week, we have repurchased another 2,800,000 shares year to date, for another $33,500,000. Share buybacks remain a key pillar of our capital allocation philosophy, and we intend to remain active and opportunistic in the open market, reflecting our belief in the underlying strength of our business and commitment to driving shareholder value. And lastly, on a Rule of 40 basis, which for AvePoint, Inc. is the sum of ARR growth and non-GAAP operating margin, as I mentioned earlier, we finished 2025 at a Rule of 46. This compares to a Rule of 38 for 2024 and a Rule of 31 for 2023. Turning now to our guidance. For the first quarter, we expect total revenues of $115,000,000 to $117,000,000, or growth of 25% at the midpoint. And on a constant currency basis, we expect revenue growth of 20% at the midpoint. We expect non-GAAP operating income of $19,500,000 to $20,500,000. And for the full year, we expect total ARR of $525,100,000 to $531,100,000, or growth of 27% at the midpoint. On an FX-adjusted basis, we expect total ARR growth of 26% at the midpoint. We expect total revenues of $509,400,000 to $517,400,000, or growth of 22% at the midpoint, and on a constant currency basis, we expect revenue growth of 20% at the midpoint. And lastly, we expect full-year non-GAAP operating income of $92,600,000 to $96,600,000. Finally, on a Rule of 40 basis, the midpoint of our initial full-year guidance is a 45. Before we open it up for Q&A, I want to provide some additional color into our guidance and how we are thinking about Q1 and the year. First, our guidance philosophy remains unchanged. We want to responsibly set expectations that are consistent with the demand trends we are currently seeing. Second, our FX-adjusted ARR guidance for the year is 26% growth, in line with 2025. I also want to remind you that our 2025 ARR included $2,800,000 in Q1 from our acquisition of Identik. Adjusting for this, our guidance for FX-adjusted ARR growth represents an acceleration over 2025. Third, the delta between our guidance for ARR and revenue growth is driven by two factors: our services business, which is excluded from ARR and which we expect to grow at a slower rate than in 2025, and our term license revenue, where we expect growth to be roughly flat versus 2025 and thus we will realize less upfront revenue in 2026. Lastly, with regard to margins, we expect that 2026 will be an investment year, specifically focused on strengthening our go-to-market strategy through meaningful increases in marketing spend. I want to reiterate that there is no change to our long-term target of 25% to 30% non-GAAP operating margins, while reminding you of our prior commentary that the margin trajectory between now and 2029 will not be perfectly linear. And, importantly, as I mentioned, we expect that stock-based compensation will further decline as a percentage of revenues in 2026 and thus GAAP operating margins will, in fact, expand this year. In summary, we are proud of our fourth quarter and full year 2025 results, which are a testament to the execution of our teams and the growing demand for our platform offering. As we look ahead, our conviction in the market opportunity and our ability to capitalize on it has only grown, and we are excited for another strong year. Thanks for joining us today. And with that, we would be happy to take your questions. Operator? Operator: We will now open for questions. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. To assemble our roster, the first question comes from Joseph Gallo with Jefferies. Please go ahead. Joseph Gallo: Hey, guys. Thanks for the question. James, I want to follow up with something you said at the very end. It was a really, really impressive constant currency ARR guide, and constant currency always makes my head spin a little bit, but I believe it is an acceleration of new constant currency dollar growth versus what you saw this year. So just if you could unpack a little bit more of the visibility, confidence, and any specific product drivers into that guide? James Caci: Yeah. Thanks, Joe. And you are spot on. I mean, sometimes it does get a little confusing with FX, so definitely appreciate that complexity when we talk about that. But you are right. We are looking at an acceleration in terms of our guidance compared to last year, and so we are excited about that. We are seeing that really across the board. I think one of the things you have probably noticed is that we have this consistent kind of growth across all three regions, and that has been very helpful in terms of really that balance—our approach—whether it is our regions, or even our customer segments and even our verticals. And so we see that same demand moving forward, we see nice pipeline building across all of those metrics, and so that kind of gives us that confidence to see into the future and look at that ARR guidance and feel good that we are going to be able to deliver on that acceleration. Joseph Gallo: Awesome. No, that is really clear and helpful. And then maybe, as a follow-up, Tianyi, you spent a lot of time talking about AI on the call, and it has certainly been a buzz for the past few years, but you have not necessarily seen that excitement materialize into revenue for cybersecurity vendors. Are you seeing that now, or is that still more of a longer-term gradual driver? Tianyi Jiang: Yeah. We are seeing enterprises actually all have AI projects and realizations around efficiency, especially easier workloads like coding, customer support, marketing content generation. On the Microsoft side, a lot of folks are conflating the Copilot adoption as synonymous with AI adoption. That is not the case. We actually see companies deploying AI in various forms, whereas the broader Copilot usage tends to lag behind, even for firms that are fully licensed. We see that this is due to more of the lack of enterprise data readiness, which tends to yield suboptimal experience for rolling out Copilot. And also, this is part of change management. It is tough for a business user to try several times and have some suboptimal output due to lack of high-quality data and some of the inaccuracies. So this led to some trust issues. But these are the exact kinds of problems we address for our customers and partners. So we do see tremendous demand in that regard. Joseph Gallo: Awesome. Nice job, guys. Thank you. James Caci: Thanks, Joe. Operator: The next question comes from S. Kirk Materne with Evercore ISI. Please go ahead. Chirag Ved: Hey. This is Chirag on for S. Kirk Materne. Congrats on the quarter, and thanks for taking my question. Tianyi, in your prepared remarks, you touched on developing a hybrid pricing strategy over time that balances seats and usage. Can you speak to where in the platform you might see the opportunity for this over time and any early feedback from partners and customers? Tianyi Jiang: Thank you. Yeah, thank you for that question. So today, we already have capacity-based licensing across products like migration, and also IaaS and PaaS data protection and governance. So we have extended very much into the compute infrastructure, not only just productivity workloads—that is, Office Cloud and Google Workspace—but the compute side, which is Azure, GCP, and AWS. So there, it is actually natural for customers to think about consumption-based licensing, and this is also how hyperscalers think about it as well. It is a blend of seat versus consumption-based. We also see in the age of agentic AI, where there are more sophisticated agents being deployed, these agents are actually fully licensed. From a software perspective, from a licensing perspective, it looks like a virtual employee. So you have agents that have an email account, that have a CRM login, that also have access to cloud storage access and accounts. So from that perspective, there is also that seat count conversation. But overall, we are very much focused on working with customers regardless of the structure to ensure that they are able to maximize their investment to drive customer value. So, so far, we have not seen overall seat count reduction in a major way because there is a combination of consumption and also this virtual AI licensing—agent licensing. So we will continue to evaluate and look at work to be done, not just the people doing it. So this is where the IaaS and PaaS expansion, with that consumption meaning, will be a bigger piece of our business going forward. Chirag Ved: Sounds good. And if I could just squeeze in one more on that line of thought. AI governance clearly remains a strategic focus. So as we look into 2026, how early are we in terms of customers meaningfully monetizing agent governance, and what are some of the leading indicators that you are seeing that signal that AI-driven use cases are becoming a more material ARR driver rather than AI-readiness spending? Tianyi Jiang: That is a great question. I think the buzzword of the year is AI, agentic, governance. So you have seen—Microsoft released their agent governance capabilities. We actually announced our capabilities at the same time, AgentPulse, which covers multi-cloud, and particularly we are looking at agentic not only governance from a risk exposure perspective, access control, but also the cost. We hear a lot of customers talking about, “Hey, we have got an agent running 24 by 7, and all of a sudden it is racking up, you know, a $100,000 bill.” So that cost thing is real. And we are actively working with our partners and customers to monitor and rein in that agent aspect of it. So we already see the beginning of revenue generation from that type of need, but that is definitely something that is very much in demand. There is a ton of experimentation with agentic AI, as you would expect. So the risk and control and cost are very much top of mind for our customers. Chirag Ved: Perfect. Thanks so much. Operator: The next question comes from Rudy Kessinger with D.A. Davidson. Please go ahead. Rudy Kessinger: Hey, thanks for taking my questions. Congrats on the quarter and the strong guide here. James, I appreciate the callout of the inorganic contribution to net new ARR in Q1 last year. I guess, are there any further parameters you could give us to help kind of think about the sequential pacing of net new ARR throughout the year and specifically in Q1? James Caci: Yes. Thanks, Rudy. Good question. So, you know, I would say we are probably going to be fairly consistent with what we said in the past on this topic. As you know, we do not guide today to quarterly ARR. But what we have historically seen is that Q1 is generally a step down, and it is usually our lowest quarter in terms of ARR, sequentially from Q4. And then we would see a pickup in Q2, and then the second half of the year is generally stronger than that first half of the year. And so I think we are going to see that same kind of play out—exactly similar to what we have seen in the past. So I would not expect any change there. And then you are right that we do have that little bit of callout from last year; we added that $2,800,000 in Q1 last year. So as we think about this year, obviously, we are not going to have that incremental. But, again, we feel really good about where we are going to land for Q1 and really the year, and feel good about that overall guidance. Rudy Kessinger: Got it. And then I know you called out you saw higher migration contribution in 2025, and we can see the modernization ARR growth really accelerate—it was close to 40% year over year. Your 2026 ARR guide—does that assume that you continue to see growth in that modernization ARR? Does it moderate a bit, or what does it assume? Because that reacceleration growth in that modernization suite is quite the acceleration from the past few years. So I am curious just what your guide assumes on that front. Tianyi Jiang: Sure. We do see higher demand for migration. So we want to articulate that migration is effectively data movement. Data will never stop moving between different cloud providers, between on-prem legacy to modern workloads in the cloud. You have acquisitions, so that will continue to happen. That is a very important aspect of our tip-of-the-spear approach to engage partners and customers early. And you have seen since we have gone public, we have actually given much of the service revenue opportunities on modernization, data integration, migration to our partners, but that also leaves tremendous value for us to engage our partners and customers to buy our product. And after that, we have the day-two solutions around governance, around data protection, ransomware detection, and recovery—of course, now with license control, cost control. So we will continue to see this modernization to be a core part of our platform as a way to engage and expand our footprint. It does—James will talk a bit about the GRR headwind. There are two factors. When the migration project is over, what we have in day-two solutions—if the ARR is less than a migration project license piece, it will lead to a perceived GRR decline. And that is the vast majority of the cases. Very few cases where, after migration projects are over, we do not have a day-two solution running in the customer environment. James Caci: Yeah. The only thing I would add to that, because I think you did a good job, Tianyi, of summarizing that, would be maybe to come back to your question, Rudy, about our expectations for next year. I think we would expect to see the similar kind of growth next year where, again, we would expect this to be—as Tianyi kind of alluded to—continue to be top of mind for our customers and be part of their strategy. So, again, we would expect this to continue to grow. I think, as a percentage of our overall ARR, it steps up a little bit. And so we are mindful of that when we think about our GRR, which is why you have probably heard us talking about all the GRR initiatives we have had over the past year or so. And we are continuing to work on those. So we believe that with some of those initiatives, we are naturally seeing some pickup in terms of GRR, which will offset any headwind coming from migration in GRR. We did want to point it out as just to—that is what we are seeing, and, obviously, those are the dynamics. Rudy Kessinger: Great. Thank you, guys. James Caci: Thanks, Rudy. Operator: The next question comes from Jason Ader with William Blair. Please go ahead. Jason Ader: Yes. Good afternoon, guys. For James, just wanted to talk briefly about free cash flow. Looks like it was down a little bit on a dollars basis this year. I think you had initially expected it to be up a bit. Maybe just talk about what is happening there, and then maybe just give us some guidelines for 2026 on free cash flow. James Caci: Sure. Yeah. I am glad you brought it up, Jason. So, you know, I think maybe two things to call out. One is that in 2025, we did have, at the beginning of the year, some what I would call one-time tax payments that needed to be made, and so that definitely brought down some of the free cash flow that we would have otherwise anticipated. And that was to the tune of about $7,000,000. I think we talked about that in Q1. So that is one factor. The second factor is we did have a very strong Q4, and we did have a number of opportunities that were actually invoiced in Q4 of this year, and last year they were actually invoiced in Q3 and collected in Q4. And so those opportunities remained outstanding at the end of this year, and a couple of those had to do with our public sector customers. And so we understand the challenges there. So that also had an impact on our free cash flow because in 2024 those would have been collected, and in 2025 they were still receivables at the end of the year. So that had a little bit of a timing issue. And so, again, I do not think there is a challenge or a problem or a concern. And, again, when we think about 2026, I think our free cash flow is still going to be above what we would consider our non-GAAP operating income. So I think that trend would continue, and we would expect to see that in 2026. Jason Ader: Okay. But also fair to say that the term biz being a little bit lighter in 2026 in the mix impacts your free cash flow because you do not get the cash upfront—I mean, I am sorry—because you get the cash upfront on the term license, and if that is going to be a little bit smaller in the mix, then that will have a headwind to free cash flow. Correct? James Caci: Well, let me just dive into that a little bit because it is worthwhile. So when we think about that term license, remember, that is only the revenue recognition. That customer is the same as a SaaS customer where we are billing upfront. So it is the same dynamic. It is the same ARR. It is the same billing structure. It is just the revenue recognition on the term is more upfront as opposed to ratably over the course of the contract. So cash flow is unchanged, but the revenue is different. And so as we see that our term license becomes less and less a percentage of total, then that does impact the revenue recognized in that year, and it becomes more ratable like SaaS. Jason Ader: Okay. I guess what I was referring to is if you do a three-year term deal, you do not collect all the cash upfront. You just collect it annually. Is that the right way to think about it? James Caci: That is the right way to think about it, as our multiyear contracts are still paid annually. And then the revenue would be different, obviously, for SaaS versus term. Jason Ader: Okay. Helpful. And then one for Tianyi. Tianyi, can you elaborate on the investments you are making in 2026? You talked about it as an investment year, and particularly around your hiring plans. I know there is just a ton of fear out there about jobs and how many jobs are going to be around in five years for knowledge workers and engineers, etc. Maybe just talk to that, in addition to just the specific investments you are making in 2026. Tianyi Jiang: Thank you, Jason. That is a great question. So we are not slowing down on the tech side. We have seen productivity improvements with, like, other tech companies leveraging AI-driven IDEs to get high productivity improvement. In our case, we use GitHub Copilot. So there, we also continue to invest into tech, but at the same time, you are seeing in James’ prepared remarks we have actually controlled the cost of that very well. So we continue to have the efficiency. So not only do we have tech productivity improvements, but we still monitor the efficiency very carefully because profit growth is the mantra. So on the tech side, we are not slowing down in terms of or reducing headcount. On the non-tech side, we are very actively looking at productivity—continued productivity improvement—leveraging AI. There are a number of initiatives internally leveraging AI so that we can really continue to accelerate our strong business presence and global go-to-market flywheel that we have going, both for the enterprise segment as well as the channel and partner investment in the mid-market/SMB segment. And, lastly, it is not related to headcount, but from a product perspective, you hear us talk about the scaling of the data fabric layer. So that is something we are super excited about. You will hear more in the coming month. We actually have close to a zettabyte of unstructured data that we are now surfacing out to our customers to what we call a new data intelligence offering that, combined with AI and UX enhancements, will allow more real-time unstructured data governance intelligence at scale to better service more user personas. So this will massively broaden our data protection and management platform’s consumption base and lead to, we believe, much further stickiness and realization value of our offerings, which is the core of infrastructure—base-level infrastructure—for all AI projects and deployments across companies. So all these things you hear me talking about are really focused on growth. We think the pie is getting bigger. Jason Ader: Thanks, guys. Good luck. James Caci: Thank you. Operator: The next question comes from Erik Suppiger with B. Riley Securities. Please go ahead. Erik Suppiger: Yes. Thanks for taking the question. First off, on the operating margin guidance, looks like it is going to be relatively flat in fiscal 2026. What will you change as you get past fiscal 2026 so that you can start to expand those margins to get to your target for fiscal 2029? And what gives you confidence that you are not going to have a slowdown in ARR as you invest less? James Caci: Yeah. Great question, Erik. And so I think one of the things that gives us confidence is our history now over the past three years of this profitable growth strategy and driving significant ARR growth. There are a bunch of sirens outside, so hopefully you guys are not hearing that, but all kinds of police activity outside. So I think that gives us confidence, right? That we have executed now over the past three years on this growth strategy and delivering both profitability and ARR growth. And what we have decided to do for 2026 is continue to do that, but look at making some outsized investments, particularly, as I called out in the prepared remarks, in marketing in particular, to really take advantage of this dynamic in this environment we are in right now and look to really spend more than we have in the past on marketing and really kind of lean into our go-to-market positioning. So that is different. Some of the investments that Tianyi alluded to, both technically for our development teams but even operationally, we are making investments both in 2025 that just passed but also in 2026. And those investments will not really pay significant dividends in 2026, but we are talking about operational efficiency from a technology point of view, AI adoption, and those will have benefits going forward. So some of our scalability moving forward should be much more efficient. So that gives me the confidence that 2026, although the operating margins are relatively flat, we will be set up to deliver expanded margins moving forward. Erik Suppiger: Okay. Very good. And then your growth in your larger customers was very good. Can you comment as to whether or not that is coming more from seat expansion at those customers, or is that layering on new services, or is it the combination of the two? James Caci: Yeah. So, historically, if you look at our NRR, it is mostly coming from cross-selling activities of customers consuming additional products more so than seats. Now, the only exception to that is our MSP channel. So, generally, our MSPs—or more successful MSPs—obviously, they are expanding. They are adding seats that they are managing for their customers, and so we see seat expansion there. But, generally, the driver has always been and continues to be adoption of additional components in our platform. And that has been the key driver, and we expect that to continue. Erik Suppiger: Very good. Thank you. James Caci: Thanks, Erik. Operator: The next question comes from Derrick Wood with TD Cowen. Please go ahead. Derrick Wood: Thank you, guys. Congrats on a strong quarter. First one for Tianyi. Obviously, a lot of concern of software disruption from the LLM vendors as they move up stack and into more of the workflow orchestration layer. Obviously, you do not seem to be seeing it at all, but how do you think about the potential risk of these vendors encroaching on your part of the market? And how should we think about your defensibility in these core areas? Tianyi Jiang: Yeah. That is a great question. So we always say that we continue to see robust growth. We have multiple vector growth. So we have continued to accelerate our new logo acquisition. There are still tons of greenfield opportunities, both in existing regions and newer ones. Our existing customers—we have a massive upsell opportunity, as clearly demonstrated through the new customer acquisitions and the cohort increase in ARR—and, of course, our channel, focused on MSPs, still our fastest-growing segment unlocking SMB and mid-market. We have not seen slowdown in SMB as some other vendors have seen, and also from a geography perspective. We attribute this much to our platform expansion, of our enhanced products and our capability around the fundamental underbelly of the data curation, data governance, and the context of data for which AI grounds on. We even called out Anthropic’s identification of that specific critical moat in their Tuesday conversations, and that, we believe, is something that is very, very strong in our perspective as a defensible moat. And, of course, software—we think—is not dead. It is really that there is going to be far more software to be written. The ability to write software and costs have come down and become easier. So there are a lot more niche areas that can now be served by software. We think there is an infinite amount of software to be written. So AI can definitely lower the barrier to entry. But for critical enterprise-scale data management, you actually need more rigorous approach to this infrastructure for AI, and that is the layer we play in. So we enable high-quality data to give you better AI-driven outcomes. And this is not going to change. So we are seeing tremendous demand and no sign of slowing. Derrick Wood: Probabilistic technology—probably not that great in enterprise security needs and compliance needs—but good to hear. James, real quick for you. Could you just comment on how the U.S. Fed business performed relative to expectations and what you are seeing in terms of pipeline and demand? James Caci: Yeah. So, great question. What we saw in Q4 was, I would say, similar to what we had seen in Q3 in that the public sector and particularly Fed space growth rate was lower than North America in general. So that is why, I think I said in the remarks, we are really pleased that North America still grew 20% despite that. Now, having said that, we still are very, very keen on the public sector. It is a big part of our global strategy, still part of our North America strategy. And for us, there are really multiple components within public sector. We have all been talking about the federal, and that is really the federal civilian piece of the public sector, but there is obviously state and local, and there is also Department of Defense. So those areas of the business—the weakness that we saw this year and kind of anticipated—was in that civilian piece. But the other parts of the business are very strong. Obviously, globally, it is still a very key component to our growth strategy in the future. So we are not backing down on public sector. We know it was a tough year, but we are really proud of the team that, even in this difficult time, executed as well as they did. James Caci: Thank you. Operator: And the final question will come from Joe Andre with Scotiabank. Please go ahead. Joe Andre: Thanks. So I will keep it to one question. So if I look at the breakdown of ARR, it looks like the Control suite came down from 28% of the total last year in Q4 to now 26% of total ARR. So can you talk about why the Control suite net new ARR was maybe a bit weaker than we would have expected, given the AI tailwinds we were expecting to accrue in this segment, and why modernization and Resilience came in a bit stronger? James Caci: So I can start that one, and Tianyi maybe can jump on. But, yeah, I think it is twofold. Right? First is that Tianyi touched on the improvement in migration and kind of the step up of customers in their journey of trying to take advantage of AI, really making sure that their data is in one place or as few places as possible. And so this idea of migrating your data to be able to accomplish that seems to have resonated, and we saw really a step up of that in Q4 in particular, but really in the second half of the year. So I think that, in general, had an impact on the overall Control kind of step down as a percentage. But we do not see that as a real long-term challenge. We think that still governance is key, and we would expect to see continued improvement in that area going forward. So, again, we do not look at this as any kind of indication of what the future holds. Tianyi Jiang: Yeah. From my side, we continue to see very robust demand on the Control side for AI governance. As James mentioned, because there were more data movement—data migration—projects ongoing. And, secondly, the average deal size of a Control license sale is actually lower than the other modules, but it is our highest margin product due to the type of compute and the type of proprietary algorithm that we have to essentially make sure agentic AI data access monitoring is all taken care of on remediation. So, from that perspective, it may look a bit—from quarter to quarter—varied, but overall, it is very much what makes our platform very robust and strong to replace the point solution providers. It is that combination of data analytics, integration and migration, data resiliency and recoverability, and as well as governance and control. So I would not read too much into the percentages. It is part of our platform. And we also have seen tremendous success in the way we actually start to bundle the platform as a service for our customers and partners. James Caci: And then the only thing I would add, Joe, is that, overall, year over year, it is still growing at roughly 20%. So we are still very, very proud of that growth rate as well. Joe Andre: Alright. Thank you. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Tianyi Jiang, CEO, for any closing remarks. Tianyi Jiang: Thank you. Thank you for spending time with us today. Our results in 2025 were very, very successful, and we are very proud of our achievement as a team. And, also, you have heard our growth in 2026. Our strong outlook demonstrates our confidence in our ability to continue to deliver profitable growth at even greater scale. As we lean into today’s highly disruptive macro environment and meet the existing and emerging needs of our customers and partners, we see no signs of our momentum slowing down. The value of our platform in enabling AI-driven transformation for companies around the world ensures a durable competitive moat and a vast market opportunity that is ours to capture. I know I speak for the entire AvePoint, Inc. team when I say how energized I am for 2026 and the many years ahead of us. So, thank you for joining us today, and we look forward to speaking with you more this quarter. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Ladies and gentlemen, welcome to Luckin Coffee's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. Now I'd like to turn the call over to Ms. Nancy Song, Head of Investor Relations at Luckin Coffee. Nancy, please go ahead. Nancy Song: Thank you, and hello, everyone. Welcome to Luckin Coffee's Fourth Quarter and Full Year 2025 Earnings Conference Call. We announced our financial results earlier today before the U.S. market opened. The earnings release is now available on our IR website and via Newswire services. Today, you will hear from Dr. Guo Jinyi, Co-Founder and CEO of Luckin Coffee, who will share a strategic overview of our business. Following that, Ms. An Jing, our CFO, will discuss our financial results in greater detail. Afterwards, we will open up the call for questions. During today's call, we will be making some forward-looking statements regarding future events and expectations. Any statements that are not historical facts, including, but not limited to, statements about our beliefs and expectations are forward-looking statements. These statements involve inherent risks and uncertainties. Further information regarding these and other risks is included in our filings with the SEC. In addition, for non-GAAP measures discussed today, the reconciliation information related to those measures can be found in our earnings press release. During today's call, Dr. Guo will speak in Chinese, and his comments will be translated into English. Now I'd like to turn the call over to Dr. Guo Jinyi, Co-Founder and CEO of Luckin Coffee. Dr. Guo, please go ahead. Jinyi Guo: [Interpreted] Hello, everyone. Welcome to today's earnings conference call. Thank you for your continued interest in and support of Luckin Coffee. 2025 marked a year of foundational progress and rapid growth for Luckin Coffee. As growth in China's coffee market continued to accelerate, we remained focused and agile, consistently executing our scale focused strategy centered on store expansion, customer growth and product innovation. This approach further reinforced our leadership across both our store footprint and customer base while steadily increasing our market share. Over the past year, we responded swiftly to market changes and fully capitalized on the expanding demand for coffee consumption, efficiently converting customer demand into meaningful growth. Since June 2025, Luckin's average monthly transacting customers have exceeded 100 million for 5 consecutive months. In addition, we added over 110 million new transacting customers during the year, bringing our cumulative customer base to over 450 million. At the same time, annual sales of freshly brewed beverages increased by 39% year-year to 4.1 billion cups with both our market share and average cups per customer continuing to rise. Supported by strong demand, we quickly adjusted our... Operator: Pardon interruption everybody. This is the conference operator. It appears we lost the speaker connection. I'm going to get that reconnected, in the meantime, we're going -- please put call on hold. Please standby for the quarter results. Pardon interruption everyone. This is the operator, I have reconnected the line. Jinyi Guo: [Interpreted] The continued expansion of our customer base and the store network drove our strong full year financial performance. In 2025, our total net revenues increased by 43% year-over-year to around RMB 49.3 billion. Same-store sales for our self-operated stores steadily improved, achieving annual growth of 7.5%. Our operating profit also demonstrated solid momentum, increasing by 42% year-over-year to around RMB 5.1 billion. We believe that Luckin's advanced digital business model, together with accelerated scale expansion across both our store network and customer base will create a more resilient foundation for our future development. These advantages position us well to navigate external changes while gradually translating our digital operational capabilities into long-term efficiency gains and continuing profitability. I will now provide some highlights of our fourth quarter results and our operational progress. Our CFO, An Jing, will share additional financial details later on this call. In the fourth quarter, we delivered solid growth with total net revenues increasing by 33% year-over-year to around RMB 12.8 billion. During the quarter, food delivery platforms significantly reduced subsidies during the industry's off-peak season. While the delivery order mix declined sequentially, it remained at a relatively high level. Against this backdrop, same-store sales growth for self-operated stores moderated to 1.2% in the fourth quarter, and operating profit amounted to around RMB 820 million. As mentioned in our previous earnings call, this short-term fluctuations reflect the industry's current stage of development and the phased execution of our strategy, fully in line with our earlier expectations. Operationally, centered on our 3 core pillars of people, products and places, we continue to scale our business while enhancing product feel and the customer experience. further reinforcing Luckin's leading advantages in China's coffee market. On the store front, we maintained a competitive pace of store openings, further strengthening our presence across high-quality locations in high-tier cities while expanding into lower-tier markets. These efforts strengthened our coverage across diverse consumption scenarios and further widened our scale advantage. By the fourth quarter, our total store count reached 31,048, marking another key milestone. We officially opened our 30,000th store, the Origin Flagship store in Shenzhen. The store is themed around global origins and features an Origin Lab, a coffee master space and the store exclusive selection of premium single origin beans and a curated specialty coffee product menu. This flagship store showcases Luckin's ability to lead beyond its scale by advancing coffee craftsmanship and elevating the customer experience. We warmly welcome everyone to visit and experience our Origin Flagship store. Looking at our store expansion progress in more detail, we added 1,792 net new stores in China, bringing our total domestic store count to 30,888, including 20,144 self-operated stores and 10,744 partnership stores. With this milestone, we officially became the first food and beverage chain in China to surpass 20,000 self-operated stores. This is another testament to Luckin's brand leadership, reflecting our stronger market responsiveness, operational discipline and scaled execution efficiency. It also reinforces the foundation for long-term win-win collaboration with our partners. Looking ahead, we firmly believe that China's coffee market has significant growth potential. We are confident in our ability to maintain an industry-leading pace of expansion and further broaden market coverage while focusing on market share and driving our long-term growth. Internationally, our disciplined and steady expansion continue to yield positive results. During the quarter, we added 42 net new stores, bringing our total overseas store count to 160, including 81 self-operated stores in Singapore, 9 self-operated stores in the U.S. and 70 franchise stores in Malaysia. As of year-end, our store count in Singapore ranked among the leading coffee brands in the local market with both our business model and the store unit economics largely validated. We have also built a constructive relationship with our partner in Malaysia. And by leveraging our successful experience in Singapore, we consistently support our partner in enhancing localized operations and improving store performance. In the U.S., we are still in the early stages of exploration and remain committed to our disciplined expansion strategy. With a focus on refining our underlying operational infrastructure and exploring locally tailored operating models, we will continue to accumulate operational experience and further deepen our local consumer insights. Supported by our great tasting products, seamless customer experience and compelling value for money proposition, we are confident in the long-term growth of our overseas business. On the product front, we launched 30 new freshly brewed beverages and around a dozen snack items in the fourth quarter, bringing the total number of new product launches for the year to over 140. During the quarter, we continue to lead in product innovation while further strengthening our positioning as a professional coffee brand. At the same time, we expanded our non-coffee portfolio to better address consumers' diverse taste and experience needs across different consumption scenarios. In December, we launched Luckin's Brazil season, introducing new products such as the Samba's Dark Roast Americano and the Samba's Dark Roast Latte. Featuring Arabica beans sourced from core origins in Brazil and roasted using our proprietary high-temperature low-roasting technique. These new launches further reinforced Luckin's origin-oriented flavor selection and strengthened our professional brand perception. In addition, we added dark roast bean options for 25 beverages, better meeting consumers' growing demand for professional quality and personalization. On the non-coffee side, we launched several new products, including [indiscernible] and daily vitamin D fruit and veggies tea, continuing to extend beverage offerings across a broader range of leisure occasions and day parts. With the continued enrichment of our product matrix, non-coffee beverages accounted for more than 20% of total cups sold for full year 2025. On the customer front, we continue to deliver great tasting products and emotionally relevant brand experiences, creating a consumption journey that combines quality and the connection. During the quarter, we partnered with popular IPs from a national blockbuster mobile game and several animated films. Through well-received co-branded campaigns and merchandise, we further enhanced customer engagement, strengthening consumers' recognition and loyalty to our brand while maintaining our high-quality, high affordability value proposition. In the fourth quarter, we added over 24 million new transacting customers. Our average monthly transacting customers grew 26% year-over-year to over 98 million, maintaining a level close to 100 million even during the industry's off-peak event. Powered by Luckin's digital operational capabilities, we integrated product innovation, IP collaborations and refined user operations to effectively expand our customer base, while steadily increasing the proportion of high-frequency users and overall purchase frequency. On the ESG front, we have been advancing the deep integration of corporate social responsibility and human-centered care, continuously embedding sustainable development principles into our daily operations. As one of the first companies to support the Moss Flower Compact by providing barrier-free environment for people with accessible ability needs, we opened Luckin Coffee's first accessible store in Hangzhou in December. In parallel, we are actively advancing standardized and scalable inclusive employment programs for people with disabilities nationwide, further fostering a more supportive workplace and consumption environment. In recognition of these sustainability initiatives, we were awarded 2025 China Best ESG Employer by Aon group in December, marking the third consecutive year we have received this distinction. Guided by our long-term perspective, we will continue to create value for customers, society and our partners. In summary, following a year of rapid growth in 2025, China's coffee market is experiencing accelerated demand along with an increasingly diverse competitive landscape. We have consistently believed that freshly brewed coffee as a business inherently centered on offline physical locations and comprehensive consumer experiences derives its core competitive moat, not from any single dimension, but from integrated end-to-end operational and systematic strength across the entire value chain. Leveraging our digital operational capabilities across people, products and places, we are confident that Luckin's comprehensive strength in brand perception, customer experience, supply chain depth, product innovation and store management form the key advantages that enable us to navigate evolving external environment and capture structural growth opportunities in the coffee market. Looking into 2026, we will remain focused on scale expansion while maintaining the flexibility to adapt to market changes. As we maintain healthy profitability levels, we remain committed to steadily growing our market share, strengthening our industry-leading position and unlocking long-term growth potential. Finally, we extend our sincere gratitude to our customers, partners and investors for their continued trust and support and to our 170,000 Luckin team members for their dedication and hard work. We will keep moving forward to build a world-class coffee brand, make Luckin Coffee a part of everyone's daily life and create long-term value for our customers, partners and shareholders. Now I will turn the call over to our CFO, An Jing, to go through our financial results in detail. Jing An: [Foreign Language] Thank you. Good day, everyone. Thank you for joining today's call. We closed 2025 on a strong note as our scale focused strategy drove robust full year revenue growth, along with solid profit performance, record customer additions strengthened the foundation for our long-term success. We accelerated store openings underscored our ongoing investments to capture rising customer demand. Let's now look at our financial performance in detail. In the fourth quarter, total net revenue increased by 33% year-over-year to RMB 12.8 billion, primarily driven by a 33% year-over-year increase in GMV to RMB 14.8 billion. This growth was mainly driven by higher cup volumes across our self-operated and partnership stores, reflecting ongoing store expansion and growth in transacting customers. Revenues from product to sales increased by 31% year-over-year to RMB 9.9 billion, primarily driven by enhanced sales performance in our self-operated stores. Breaking down our product sales into 3 streams. Net revenues from freshly brewed drinks were RMB 9.2 billion, representing about 72% of total net revenues. Net revenues from other products were RMB 605 million or about 5% of total net revenues. Net revenues from others were RMB 174 million or roughly 1% of total net revenues. Looking at product sales from the perspective of company-owned stores, revenues from self-operated stores increased by 32% year-over-year to RMB 9.5 billion. Same-store sales growth was 1.2% for this quarter, mainly driven by cup volume growth. Store level operating profit remained largely flat year-over-year at RMB 1.4 billion with self-operated store level operating margin of 15%. Revenues from partnership store increased by 39% year-over-year to RMB 2.8 billion, accounting for 22% of total net revenues. This growth mainly came from increased sales of materials, higher contribution from profitable partnership stores and increased delivery service fees driven by rising delivery volumes. Cost of materials as a percentage of total net revenues remained stable year-over-year at 40%. In absolute terms, cost of material increased by 33% year-over-year to RMB 5.1 billion, in line with our business expansion. Store rental and other operating costs as a percentage of total net revenue was 25% relatively flat compared with the same period of 2024. In absolute terms, sales expenses increased by 33% year-over-year to RMB 3.2 billion, driven by higher payroll costs associated with cup volume growth and increased rental expenses from continued store expansion. Delivery expenses increased by 94% year-over-year to RMB 1.6 billion, driven by a substantial increase in delivery orders through food delivery platforms. As a result, delivery expenses as a percentage of total net revenue increased to 13% from 9% in the same period of 2024. However, on a per order basis, delivery costs declined year-over-year, reflecting improved operational efficiency driven by our scale expansion. Sales and marketing expenses as a percentage of total net revenue was 86%, remaining stable from the same period of 2024. In absolute terms, sales and marketing expenses rose 32% year-over-year to RMB 756 million, largely due to higher commission fees paid to food delivery platforms as delivery volumes increased. General and administrative expenses as a percentage of total net revenue remained stable year-over-year at 7%. In absolute terms, G&A expenses rose 33% year-over-year to RMB 846 million, mainly driven by higher payroll costs and share-based compensation as well as increased investment in research and development. Our GAAP operating profit was RMB 821 million with an operating margin of 6.4% compared to RMB 1 billion and 10.5% in the prior year period, mainly reflecting higher delivery-related expenses as the delivery volume increased. On a non-GAAP basis, operating profit was RMB 946 million with a margin of 7.5% Net profit was at RMB 580 million with a net margin of 4.1% compared to RMB 851 million and 8.8% in the prior year period, mainly due to a higher effective tax rate on a non-GAAP basis, net profit was RMB 699 million with net margin at 5.5%. Finally, looking at our balance sheet and cash flow. We generated around RMB 565 million in net operating cash during the fourth quarter of 2024 -- 2025. As of year-end, our total cash position, which includes cash and cash equivalents, restricted cash, term deposits and short-term investments was about RMB 9 billion compared to RMB 5.9 billion at the end of 2024. Our strong cash position and continued cash generation provide us with a solid financial foundation, giving us the flexibility to pace our investment and expansion in line with market conditions. Before we begin the Q&A portion of the call, I will briefly touch on the full year of 2025 financial highlights. Compared to 2024, total net revenues increased by 43% to RMB 49.3 billion. GAAP operating profit increased by 42% to RMB 5.1 billion with operating margin at 10.3%. Non-GAAP operating profit increased by 43% to RMB 5.6 billion with non-GAAP operating margin at 11.5%. Net profit increased by 22% to RMB 3.6 billion with net margin at 7.3%. Non-GAAP net profit increased by 27% to RMB 4.2 billion with non-GAAP net margin at 8.5%. In closing, our full year results have placed us on a stronger footing. We remain well positioned to execute our long-term growth strategy with a continued focus on disciplined cost management and ongoing efforts to optimize our operating performance. With that, we will open the call for questions. Operator, please go ahead. Operator: [Operator Instructions] Our first question today comes from Jessie Xu at JPMorgan. Jessie Xu: [Interpreted] Jesse Xu from JPMorgan. 2025 has been quite volatile with many more moving factors in the industry. Very excited to be in the fast-growing sector. It's very dynamic and very interesting. For the fourth quarter '25, store expansion is definitely a strong beat, a net opening of over 8,000 stores fully demonstrates the competitive edges and strong execution, which is very rare in the whole China retail market. But at the same time, we also noticed that same-store sales performance seems to be weaker than expected. So could you first maybe elaborate a little bit more to help us understand the rationale behind the numbers? And more importantly, how should we think about the outlook or trend for '26, including new store opening pace, same-store sales trend and margins on both store level and company level. What's your strategy to cope with the fluid situation this year? Any guidance or colors would be great. Jinyi Guo: [Interpreted] Thank you for your question. And this is also a question focused on by investors. As mentioned earlier, our fourth quarter same-store sales performance and profit performance were affected by a combination of factors, including seasonality, changes in food delivery platforms, their subsidy dynamics and also cup volume mix. So all of these factors are actually in line with our expectations. So looking into 2026 and our long-term development strategy. So as emphasized in our previous earnings calls, I'd like to reaffirm again that China's coffee market remains in a rapid growth phase with significant structural opportunities ahead. So in 2025, food delivery platform, their subsidy campaigns significantly accelerated coffee adoption among Chinese consumers. So accordingly, we saw strong demand and the fast-growing coffee consumption, which further validated our strategic view. So therefore, gaining market share remains our top strategic priority and focus. For 2026, in a complex and dynamic market environment, we will maintain a disciplined yet agile development approach, focusing on key areas, for example, stores, costs and price levels to drive healthy business performance. So in terms of store expansion, we will leverage our unique and also industry-leading digital site selection and planning system to implement a refined strategy, maintaining an efficient and competitive pace to capture the fast-growing market demand. And at the same time, we'll continue to closely track store performance to make sure that we have a healthy ramp-up and maturation cycle. So in terms of cup volume, on the supply side, centered around customer needs, we'll continue to drive product innovation and enrich our product portfolio to reach more customers as well as to cover more consumption scenarios. On the demand side, we will leverage our digital capabilities to implement more targeted and market relevant marketing strategies. All these efforts will allow us to strengthen emotional connection through brand innovation and improve customer reach and conversion efficiency ultimately contribute to retention and purchase frequency. And on pricing, we maintain competitive price levels while broadening our price range to optimize our overall pricing architecture and flexibly address diverse market needs. And at the same time, we'll continue to enhance the consumption experience to support our overall pricing and operating performance. For example, we will introduce more diversified color offerings, more customization options as well as professional coffee bean flavor selections. So in conclusion, overall, given the evolving food delivery platform, there are the subsidy dynamics and the time required for order mix to gradually shift back to pick up. And on top of that, also considering the high base created by large-scale subsidies in 2025, we may continue to see some near-term volatility and challenges in the same-store performance and the profitability in 2026, which is also consistent with such market dynamics. However, we believe these short-term fluctuations don't change the underlying drivers of our long-term growth. And with our digital infrastructure and our strengthened competitive advantages across both store scale and customer base, along with our operating infrastructure that continuously improves efficiency, we are confident in the long-term outlook for same-store performance and profitability. Operator: And our next question today comes from [ Becky Kai ] at Macquarie. Unknown Analyst: [Interpreted] My question is regarding the market competition. So the coffee market is getting way more diverse. So for example, like we see more cross-category competition between tea and coffee brands. So how do you see the current competition evolving? And what does it mean for Luckin. Jinyi Guo: [Interpreted] Thank you for your question. So we are also very closely monitoring the evolving competitive dynamics. And -- but first of all, we strongly believe that China's coffee industry remains at a relatively early stage of development. So there is still substantial headroom in both consumer penetration and per capita consumption compared with the mature markets. So the freshly brewed sector stands out as one of the few industries in China with significant long-term structural opportunities and also a long runway for growth. So when consumers' habits continue to develop, it's natural to see more players entering the market. But more importantly, increased participation also contributes to broader consumer education and a deeper market penetration. So we will further expand the overall market size. From a long-term perspective, the basis of accommodation in the industry is also evolving. So since Luckin's inception, both China's coffee industry and the consumers' behavior have transformed rapidly. So today, freshly brewed coffee brands can no longer rely solely on pricing individual hit product or single marketing campaigns to achieve lasting success. Instead, long-term -- this long-term competitiveness increasingly depends on an integrated set of capabilities, for example, brand perception, customer experience, emotional connection, product development capabilities and the store coverage. So ultimately, delivering a comprehensive experience across these dimensions is what will define our long-term success, which also requires the support of a very powerful digital operations and scale advantage. And after 5 years of development, we believe that Luckin has begun to build the systematic competitive advantages across all the mentioned dimensions. And coffee is a well-established category with strong consumer recognition. So as a dedicated coffee brand, Luckin has consistently positioned ourselves around professionalism, youthfulness, fashion and wellness while continuing to strengthen our brand concept, LuckinHand. We continuously reinforce our coffee identity through product innovation, customer experience, brand campaigns and IP collaborations. All these efforts have deepened consumers' brand recognition of Luckin Coffee. This deeply established brand perception forms a key competitive advantage for us. Building on all the foundation, Luckin has leveraged our digital capabilities to establish direct, frequent and efficient interactions with our customers. This enables us to gain deeper consumer insights, better understand evolving tastes and preferences and execute more targeted product launches, marketing campaigns and customer engagement initiatives. And as mentioned earlier, our average monthly transacting customers have exceeded 100 million for 5 consecutive months from June to October last year. This is also the most direct testament to this highly efficient interaction and our operational capabilities. And our data-driven approach to product innovation, brand building and user operations help us sustain our strong brand momentum and support our long-term growth. And in terms of products guided by customer needs, we continue to drive product innovation with a strong focus on elevating coffee expertise and flavor experience. Our frequent new product launches aren't simply an expansion of SKUs, but rather reflect the strength of our supply chain elasticity and product development capabilities, including the sourcing, roasting capabilities, recipe formulation, flavor expression and customization from expanding our global origin footprint to building China's largest in-housing roasting network all the way to assembling professional coffee master teams, we have built a robust infrastructure that supports our long-term competitiveness. This freshly brewed coffee is fundamentally a category that relies on convenient locations and efficient customer fulfillment. The breadth of consumption scenario coverage and the store proximity to customers are key to converting this demand into actual sales. So with our 30,000 stores nationwide, we have broad coverage across cities and townships from high-tier to lower-tier markets. Our clear scale advantage better positions us to capture the sustained demand growth. And finally, our end-to-end digital capabilities across all businesses are a key competitive differentiator for us. As the era of AI arrives, we continue to increase our technology investment, exploring ways to adopt new technologies and advance our intelligent upgrade. On the customer side, we leverage AI-driven algorithms to unlock more opportunities across both private and public channels. And on the product side, we are building a more efficient and cost-effective product and supply chain infrastructure across consumer insights, product development and supply chain management. On the store side, we apply AI across site selection, store construction and AIoT-enabled store operations to continuously enhance efficiency. All these initiatives will support our long-term operational efficiency and reinforce our competitive edge. Yes. So overall, as more players enter the market, competition is becoming increasingly multifaced. We firmly believe that the scale and structural advantages we have built across these key areas will allow us to further expand, consolidate and strengthen our market-leading position as China's coffee industry continues to grow rapidly. So over the long term, this will also translate into sustained growth momentum and long-term profitability. Thank you. Operator: And our next question today comes from Sijie Lin with CICC. Sijie Lin: [Interpreted] Guo, An, and Nancy, I'm Sijie from CICC. I have a question on globalization. Our globalization -- our global expansion has been underway for some time now. So how should we evaluate the current progress of overseas expansion? And what's the strategy and plan for the future? Jinyi Guo: [Foreign Language] Operator: Pardon me everyone, this is the operator. Looks like we're having a connection issue again with the main speaker line here. Please let me reconnect them and we will continue the answer in just one moment. Please standby. Pardon me, everyone, I've reconnected the speaker line. Please proceed with your answer. Thank you. Jinyi Guo: [Interpreted] Apologies, we were experiencing some interruptions. Now we are back online. And I will translate this question from the beginning. So thank you for your question. Luckin Coffee's vision is to build a world-class coffee brand. So international expansion is a key part of Luckin's long-term strategy and the necessary steps in fulfilling our vision. Therefore, we will continue to evaluate and steadily advance our overseas expansion. Compared with the overseas markets where coffee consumption is very mature and stable, Mainland China's coffee market remains the most attractive globally in terms of growth and upside potential, and it continues to be the core foundation of our business. And Luckin has built our comprehensive advantages and proven business model on digitalization and scale in China's complex and intense competitive dynamics, which we believe will also form the core advantages for Luckin's overseas expansion. Therefore, we are advancing our international expansion with a long-term perspective and a merit approach as we remain committed to building a sustainable and replicable operating model. Overall, Luckin's overseas development has delivered encouraging early results. In Singapore, which is our first international market with a self-operated model, after 3 years of exploration and operational build-out, we had over 80 stores there by the fourth quarter, making us Singapore's second largest coffee chain by store count. With our innovative product offerings, convenient digital services and strong value for money proposition, we've been expanding our customer base while achieving growth in both top volume and ASP. Since the second half of last year, we've achieved stable store level profitability with business model largely validated. Also, this demonstrates the viability of Luckin's model in the overseas market. So building on the brand influence established in Singapore, we entered Malaysia in 2025 through a master franchise model. By year-end, we had opened 70 stores there, achieving our first year store opening target as we planned. Leveraging our proven experience in Singapore, we guide and help our local partner to build a highly localized operating infrastructure covering customer operations, product selection and marketing methodology, which has steadily strengthened market performance. As our Malaysia business enters a phase of accelerated expansion, both us and our local partner remain fully confident in our future development. This also provided a strong reference case for future franchise opportunities in more international markets. In mid-2025, we began exploring the U.S. market, and now we had opened 9 stores by year-end. As one of the world's largest and most mature coffee market, the U.S. represents one of our important long-term opportunities. So we are expanding our U.S. business with great patience and discipline, focusing on building strong foundations across our product, supply chain, consumer insights, customer experience and organizational capabilities for the long run. So at this very early stage, our priority remains on validating our business model and building operational experience. We are focused on refining fundamental capabilities such as product R&D methodology, user experience and supply chain optimization to establish a solid foundation for our future scaled expansion. So overall, we have both confidence and patience in our international expansion. Going forward, we will continue to follow a disciplined approach to deepening localized operations. We remain committed to maximizing Luckin's core strength while adopting flexible locally tailored models to deliver differentiated and innovative product offerings as well as customer experiences and refine our store model. As we build overseas operational experience, we aim to expand into more international markets over time and dedicate ourselves to building Luckin into a world-class coffee brand. Operator: Thank you. Due to time constraints, no further questions will be taken at this time. This concludes the question-and-answer session. I'd like to turn the call back to the management team for any closing remarks. Nancy Song: Thank you, everyone, for joining our call today. If you have any further questions, please feel free to contact our IR team. This concludes today's call. We look forward to speaking with you again next quarter. Thank you. Operator: Thank you. That concludes today's conference call. We thank you all for attending today's presentation. We look forward to speaking with you again next quarter, and have a great day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Greetings, and welcome to the LSB Industries Fourth Quarter Full Year 2025 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kristy Carver, Senior Vice President and Treasurer. Thank you. You may begin. Kristy Carver: Good morning, everyone. Joining me today are Mark Behrman, our Chairman and Chief Executive Officer; Cheryl Maguire, our Chief Financial Officer; and Damien Renwick, our Chief Commercial Officer. Please note that today's call includes forward-looking statements. These statements are based on the company's current intent, expectations and projections. They are not guarantees of future performance and a variety of factors could cause the actual results to differ materially. For more information about the risks and uncertainties that could cause actual results to differ materially from those projected or implied by forward-looking statements, please see the risk factors set forth in the company's most recent annual report on Form 10-K. On the call, we will reference non-GAAP results. Please see the press release in the Investors section of our website, lsbindustries.com, for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. At this time, I'd like to go ahead and turn the call over to Mark. Mark Behrman: Thank you, Kristy, and good morning, everyone. Turning to the 2025 Highlights. I first want to recognize our teams for their continued focus on safety and operational discipline, which drove further improvement in our safety performance during the year. Our 12-month rolling total reportable incident rate of 0.40 incidents per 200,000 work hours as of December 31, 2025, was a record low, and 3 of our 4 sites operated injury-free for the full year, quite an accomplishment. That represents a meaningful improvement over 2024, and we're proud of the progress our teams have made. We delivered significant year-over-year growth in net sales, adjusted EBITDA and EPS in both the fourth quarter and the full year of 2025. Our strategies to improve our operational performance, combined with disciplined commercial execution, yielded strong financial results. The operational progress we achieved during the year enabled us to fully capitalize on favorable pricing momentum across our key products. We delivered record nitric acid and ammonium nitrate solution production in 2025, reflecting the progress we've made in plant reliability, throughput and operational efficiency. We believe this positions us well going forward, and we are ready to take advantage of current favorable market conditions. While we have been able to capture value with the operational and commercial improvements we've made, there remains significant value to capture, and we have ongoing initiatives intended to do just that. Cheryl will provide more color on that later in the call. Lastly, we are making good progress on our CCS project at our El Dorado site, and we feel good about meeting our projected time line. I will provide an update later on the call. Now I'll turn the call over to Damien to provide more detail on the commercial environment. Damien Renwick: Thanks, Mark, and good morning, everyone. Turning to Page 5. Our Industrial business remains well positioned with demonstrated performance across the board. During the fourth quarter, we optimized our production balance by reducing UAN production volumes to maximize ammonium nitrate spot sales at above typical market prices. This was to support existing customers whose regular AN supply was constrained by some supplier issues. Demand for AN for explosives in mining is strong across all commodities, but particularly with copper and gold miners who are maximizing production volumes to take advantage of record prices. AN demand for explosives for quarrying and aggregate production for infrastructure also remains steady. Demand for coal production remains resilient as the U.S. continues to generate more power from coal. Preliminary antidumping duties on imported methylene diphenyl diisocyanate, or MDI, combined with tariffs has increased U.S. production, leading to increasing demand for nitric acid. Turning to Page 6. Pricing for UAN averaged $320 per ton on a NOLA basis in Q4, up 39% over Q4 2024. UAN prices dipped slightly in November and December, but have recently improved. This reflects continued low levels of domestic inventory, constrained supply and a strengthening in urea prices. We began the 2026 fertilizer year with the lowest carryout inventory of UAN in several years. Together with the late start to summer fill, this has created a tight domestic supply situation, and we expect this to continue through midyear. We saw strong full ammonia sales, supported by favorable weather conditions, and we continue to see strong demand domestically with ongoing favorable application weather and higher prices for upgrades supporting demand. The Tampa ammonia benchmark price remains above year ago levels. Ammonia prices currently reflect reduced supply from the Middle East and Trinidad, higher cost of production in Europe and delays in new production capacity coming online. This is constraining global supply availability. In terms of the outlook for global ammonia, we see prices trending back to mid-cycle levels as new production comes online during 2026. But like the last couple of years, the market remains finely balanced and sensitive to any production interruptions. Finally, we believe broader ag market dynamics remain supportive of nitrogen fertilizer demand. The USDA recently projected 94 million planted acres for corn for the 2027 season, and we anticipate nitrogen demand to track closely with recent years. Now I'll turn the call over to Cheryl to discuss our fourth quarter financial results and our outlook. Cheryl Maguire: Thanks, Damien, and good morning. On Page 7, you'll see a summary of our fourth quarter and full year 2025 financial performance. Our results reflect the impact of the reliability improvements we've implemented across our operations. These gains, combined with the absence of planned turnarounds, positioned us to capitalize on strong market conditions. As a result, full year 2025 adjusted EBITDA was $162 million compared to $130 million in 2024, representing a 25% year-over-year increase. As shown on Page 8, Q4 adjusted EBITDA grew 42% year-over-year from $38 million in Q4 last year to $54 million this year. This increase reflects higher pricing, coupled with stronger volumes and product mix, which were partially offset by higher natural gas and other operating costs. Operating costs were elevated this period due to timing of expenses, along with increased maintenance and contractor support as we advance towards our production targets. We expect contractor-related costs to decline toward the end of 2026 as this work is completed. On Page 9, you can see that our balance sheet remains solid with approximately $150 million in cash at year-end and net leverage of 1.8x for the period ending December 2025. Operating cash flow for the full year of 2025 was $96 million. After subtracting $53 million of sustaining capital, the capital required to maintain our operations, free cash flow was $44 million. The remaining $25 million of CapEx relates to investments made to support growth in our business, which is discretionary and not included in free cash flow. While free cash flow looks lower than EBITDA might suggest, the shortfall is largely timing related. Working capital grew by over $30 million during the period, driven by the rollover of certain 2024 payables that were paid early in '25 as well as strong end of the quarter sales falling into receivables at year-end. Adjusting for the timing of these items, free cash flow generation was consistent with our expectations. In addition to investing in our manufacturing assets in 2025, we also derisked our balance sheet by repurchasing approximately $40 million in principal amount of our senior secured notes while also repurchasing approximately 300,000 shares of stock during the same period. Page 10 outlines the key considerations behind our full year 2026 expectations with the table on the upper left showing our estimated ammonia production and sales volumes. These estimates reflect planned turnaround activity, including the previously communicated El Dorado turnaround, which we have scheduled for the second quarter. In addition, we are accelerating a turnaround at our Pryor location, originally scheduled for 2027, so we can proactively perform work needed to improve reliability at that site. We are targeting the third quarter for this turnaround. This proactive step reinforces our focus on improved plant reliability and positions the business for sustainable production performance. The impact of both turnarounds is expected to result in lost ammonia and UAN production tons in 2026 of approximately 60,000 and 50,000 tons, respectively. Despite these planned outages, we continue to expect strong underlying volume momentum, reflecting the operational improvements we've made across our facilities. The slide also covers our estimates of variable and fixed plant expenses as well as SG&A and other expenses for 2026. Our expectations for costs reflect investments we are making to achieve our production volume goals. We expect to see costs trend down towards the end of 2026. We expect our effective tax rate for the year to be approximately 25%. However, we do not expect to be a material cash taxpayer in 2026 as we continue to utilize our NOLs. In the table at the bottom right of the slide, you'll see that we expect to invest approximately $75 million of CapEx in our facilities during 2026. That includes $55 million for annual EH&S and reliability CapEx and $20 million earmarked for investments, including enhanced logistics and storage capabilities for our growing AN business. Turning to the first quarter, a few notables. We expect strong selling prices for our products, roughly in line with the fourth quarter of 2025. Winter storm burn drove short-term gas volatility in late January and into February settlements and resulted in elevated gas prices for February. However, gas prices have moderated back to around $3 per MMBtu, and therefore, we expect much lower realized pricing in the second quarter. As a result of the inflated February natural gas prices, our average gas cost for the first quarter is expected to be approximately $5.50 per MMBtu. From a Q1 sales volume standpoint, we may opportunistically shift some production towards ammonium nitrate solution where market conditions warrant. As a result, UAN sales volumes could be lower with a corresponding increase in AN volume. This reflects our ability to optimize product mix based on market conditions. Ahead of the scheduled turnaround at our El Dorado facility planned for the second quarter, we plan to build ammonia inventory to support continued operation of our downstream plants during the majority of the turnaround. As a result, first quarter ammonia sales volumes will be impacted by approximately 15,000 tons. Overall, we expect a meaningful uplift in our first quarter earnings compared to the first quarter of 2025 and expect the earnings power of the first quarter to mirror that of the fourth quarter of 2025, adjusted for the temporary run-up of gas costs I previously mentioned. We have discussed our focus on upgrading an increasing amount of ammonia to capture additional margins on previous calls. Page 11 illustrates the favorable sales volume trends we're driving in our major product group adjusted for the impact of turnarounds. The first chart shows the increase in AN and nitric acid sales volumes recognized in 2025 as a result of our reliability improvements to our downstream operations and the full year volume impact we expect in 2026. Similarly, the middle chart shows UAN sales volumes, which are on a steady trajectory upward after normalizing for turnaround activity in certain years. The chart on the far right shows a downward trend in ammonia sales as we continue to upgrade ammonia into higher-value products. In this case, a down and to the right trend is a good thing as it results in improved margins. Page 12 highlights the value creation we've delivered over the last 24 months. Since 2023, we've captured approximately $20 million of annual EBITDA uplift, driven primarily by higher downstream production as outlined on the previous slide. Additionally, we expect to achieve approximately $15 million of annual EBITDA improvement beginning in early 2027 related to our carbon capture and sequestration project at El Dorado. Mark will provide an update on that later in the call. As we continue our focus on best-in-class operations, we see an additional $35 million of incremental annual EBITDA uplift ahead of us, primarily from higher production rates, numerous efficiency gains and the continued cost optimization. In total, when complete, these efforts should yield a total of $70 million of annual EBITDA with $20 million already captured and a further $50 million that is planned and underway. We've demonstrated our ability to deliver on these initiatives, and we see a clear path to capturing the remaining value through continued execution of numerous initiatives. And now I'll turn it back over to Mark. Mark Behrman: Thank you, Cheryl. Page 13 is a time line for our low-carbon project at our El Dorado facility for the year. We and our partners met with senior officials from the EPA's Region 6 office in mid-December to discuss the status and timing of our Class 6 permit application. Based on that conversation and the EPA's stated support for our project, we remain on track to begin sequestering CO2 by the end of this year or at the latest early next year. The milestones we expect are first for the technical review of the permit to be completed in April of this year, followed by the permit to construct in August of this year. And lastly, the permit to inject CO2 by year-end. We're excited to get strong support for our project from the EPA and look forward to partnering with them to complete the milestones this year and getting into operation. Our commercial team continues to pursue low-carbon product supply opportunities where we can generate premiums for those products as well as the potential to sell environmental attributes that we generate. 2025 was a year of meaningful progress across several fronts. Improved production, strong commercial execution and solid financial performance drove strong results, while our continued shift towards industrial business has reduced the earnings volatility of our business. We also took important steps to strengthen our balance sheet, including reducing our debt, all while continuing to invest in our assets and the growth of our business and returning capital to shareholders through share repurchases. We ended the year with a healthy cash position and significant financial flexibility, allowing us optionality when thinking about how we allocate capital and how we grow our business. While we've captured meaningful margin uplift over the last several years, we are keenly focused on executing on specific initiatives that will generate an additional $50 million of annual EBITDA when complete, giving us clear line of sight to continued value creation. I am excited about the future of our business and the opportunity for value creation. I'm encouraged by a healthy market backdrop, and I am confident that we have the right team to continue executing and creating long-lasting shareholder value. Before we open it up for questions, I'd like to mention that Cheryl will be participating in the Gabelli Specialty Chemicals Conference on March 19 in New York City, and I will be participating in a virtual conference with Granite Research on March 16 and 17. We look forward to speaking with some of you at these events. That concludes our prepared remarks, and we will now be happy to take your questions. Operator: [Operator Instructions]. Our first question comes from Lucas Beaumont with UBS. Lucas Beaumont: I just wanted to talk about the gross ammonia production. I mean that's sort of -- it's been somewhat volatile just sort of with the turnaround timing. But when we look at it on a multiyear view, it's up kind of maybe 5% on a 2-year stack. So I just wanted to get your thoughts on how we should think about your ability to kind of continue to lift productivity from here going forward and just sort of how that flows through into the remaining kind of $35 million in production improvement initiatives that you called out? Mark Behrman: Good morning, Lucas. So I think we have a chart in our earnings presentation that is showing sales volumes, but we don't really put in a production volume chart. But having said that, I think if you look year-over-year and you normalize for any turnarounds and you think -- look at the outlook for this year that Cheryl presented, I think you can see that we're continuing to go up. So what we would really -- what we're really focused on is getting to about 875,000 to 880,000 tons of gross ammonia production without any turnaround. So we're confident that we're on the path to get there. We're seeing that year-over-year. And as far as how should we think about that and how much of the $35 million really represents that, I'd probably say maybe about 30% to 40% of that $35 million is by having higher ammonia production rates and getting to the targets that I've outlined. Lucas Beaumont: And I guess then just looking at your non-gas cost assumptions that you sort of put out today for 2026. I mean, in aggregate, it looks like you're sort of targeting to hold those basically flat year-on-year, maybe even slightly down, so which is a much more attractive outcome for you guys than the inflationary pressure that we've seen over the last couple of years. So I guess, is that sort of inflation abating? Is it work you're doing to kind of keep your costs down? And where you kind of see any swing factors there that could push you sort of higher or lower on those non-gas costs? Mark Behrman: Yes. So I think what you're seeing is just a lot more efficiency with the business. And also when we become more -- as we become more reliable, there's less maintenance costs, and so we're driving our maintenance costs down. that should continue. And there is a continued expense reduction in the $35 million that we expect to capture. Lucas Beaumont: Great. And then maybe just one last one on the AN market, I just wanted to get your thoughts on how, I guess, the market is responding to the supply disruption from CF at Yazoo City. What's kind of supply availability like? And is that sort of flowing through to pricing in your P&L? Or how would you expect that given the -- I mean, the market is more contracted. So I assume there's more of sort of a lag there, and it's not as quick a transmission but would be interested in your views. Mark Behrman: Damien, do you want to handle that? Damien Renwick: Good morning, Lucas. Look, I think it's really fair to say that the market is pretty tight at the moment. I mean that's a significant production capacity that's out. And I think the players in the market are flexing production where they can, including ourselves. So where it makes sense for us, we're optimizing our plants and reducing UAN production to make more AN available. And we're certainly doing that where it's financially viable as well. So pricing for those sales is definitely above typical contract rates. So how long will that go on for? Look, market intel sort of suggests that, that will go through to the end of the year and we'll continue to try and optimize our production and capture some of those sales. But also against that, you've got the backdrop of the market being pretty buoyant for AN. So as I said in the remarks, you've got gold and copper miners really trying to maximize their production as much as they can, and that is drawing on explosives demand, and we're seeing that in our day-to-day business. So the market is really well set up this year, and we're really well positioned to take advantage of it. Operator: Our next question comes from Laurence Alexander with Jefferies. Kevin Estok: This is Kevin Estok on for Laurence. So I have a few end market questions. Just curious to get your thoughts on basically how much of a potential tailwind in demand you could expect to receive from rising U.S. coal production? I guess, or more simply whether you expect U.S. coal production to basically drive a growing share of demand for the company? Damien Renwick: Yes, hi, Kevin. Look, I think coal is probably more holding steady than increasing. It's -- I mean, there are months where you are seeing some increases in production, but that's really just a power generation mix decision that's happening with potentially higher natural gas prices. So I think what we're seeing this year and what we saw through the end of last year is that there's a lot of support at the moment to keep coal-fired power stations running, and that's providing a pretty solid demand backdrop for coal producers and therefore, for AN. So I think it's pretty constructive the way it's set up at the moment. Kevin Estok: Okay. Understood. And then just on fertilizers, Obviously, supply continues to be broadly constrained, but I'm just curious to get more detail on maybe what you're hearing on the ground, like how you expect the demand to basically evolve in '27 and maybe if you're hearing demand being crimped by elevated pricing? Damien Renwick: Yes, great question. Certainly correct in the market is tight, and we're seeing that for our ammonia and UAN products and pricing is reflecting that. And we would expect that to continue through the season. upgrades, urea prices are getting high. Will that cause some demand destruction? Possibly around the edges. But I think with the corn acres being forecast for this year, I think demand is going to be pretty solid, and I would expect the supply and demand balance to be really tight through the end of the year. And also the global dynamics also support that. In ammonia at the moment, it's a very tight market. Urea, we've had sort of unseasonal unexpected Indian tender. Brazil demand is strong. You've got supply constraints in the Middle East and Trinidad. So I think the market from a nitrogen perspective is really constructive and tight, and we expect that to continue through the fertilizer season. Operator: [Operator Instructions]. Our next question comes from Andrew Wong with RBC Capital Markets. Andrew Wong: So just maybe just broader, in 2025, we saw some good progress on your main strategic priorities, better production, reliability, more upgrade capacity. There was a transition to industrial sales. So a lot was done in 2025. Like can you just talk about what your main strategic priorities are for 2026? Mark Behrman: Sure. Good morning. Andrew. So we have a real focus to continue that momentum on the manufacturing side. While we've made a lot of improvements, our real goal is to be an upper quartile manufacturer. So what does that mean? I mean we want to run our ammonia plants at 95% capacity utilization. And so that's the real goal. In order to do that, we've got to mature a lot of our maintenance practices and operating practices, but we've also got to continue to invest some selected capital within our capital plan. But a lot of the time, you really need extended downtime, and that really comes to turnaround. So we expect some real improvements in our operating rates down at our El Dorado facility after this extended turnaround that we have in April. And then again, as Cheryl mentioned, we pulled forward our prior turnaround to proactively make significant improvements there as well. So we should see some real reliability improvement coming out of that turnaround. And then at the Cherokee facility, of course, we have a turnaround next year where we'll do some work there. So that's always going to be a priority as we try and continuously improve. And then really, once we eventually get to the level of reliability that we're really looking for and that we think we can attain, then you're sort of continuing to look at efficiencies. In addition to the manufacturing side, we've still got some optimization that we'd like to do throughout our commercial operations. And we've got some opportunities that we need to look at with some customers. And so that's going to be a big focus this year as to how do we take advantage of those opportunities and where can we selectively invest capital in the future to really take advantage of some of that demand that we can't meet today. The last thing I would say is Cheryl talked about profit optimization. One thing that we've done is we've probably spent a little bit more. And so I think the question earlier by Lucas about expenses and seeing it sort of flatten out this year or slightly down. I think we've got to take more cost out of the business, and I think we've got some plans to do that. And we've spent to improve the reliability. But once you get that reliability, now you can pare back some of the expense, and that's what we'll look to do. So those probably would be the 3 main sort of operating priorities. And then from a strategic standpoint, I think we've -- I think I'm really proud of my team that they've really done a great job in turning around this business. And I think we're at a point now where it's time to grow. And whether that's organically through some debottlenecking opportunities or some just other growth initiatives or that's through some combination of assets or company, I think we're really focused on that. Andrew Wong: Okay. That's great. Then just on the blue ammonia front, as the Lapis project is kind of coming into focus and hopefully start production by the end of this year, I'm assuming you're having some discussions on blue ammonia with potential customers. What are you seeing from a willingness to pay standpoint for that blue ammonia? And are you seeing customers willing to pay a premium for low-carbon product? Mark Behrman: I'm going to start with an answer, and then I'm sure Damien is going to chime in on this. I think we're -- the market is really slow to pay a premium. So I think you got to work really hard to find the right customers that are willing -- that it becomes important too. If you're able to export like some of our competitors, you might be able to -- or you can send low-carbon ammonia to Europe. And then depending on what happens with CBAM, you might see a premium paid for that. And there's still an if on what's going to happen with CBAM as we sit here today. So domestically, the fact that we have a pretty large industrial business, I think, gives us an advantage when we're talking to customers that are using our products or upgraded products as a feedstock for some other product. And so they need to work through what's the ultimate cost increase for the value that they'll receive by having a lower carbon product. So a long-winded way of saying, I think that the market -- it's slower to develop -- to pay a premium for a low-carbon product, but there are niche opportunities that we're pursuing. And I think we do believe that over time, people -- and the market will develop and people will pay a premium, but I don't think it's going to happen as fast as everyone thought if the question was asked a couple of years ago. Damien Renwick: Yes, I would concur with that. I mean, certainly, domestically, it's been slower going, particularly as you've seen some uncertainty around decarbonization and the energy transition here in the U.S. But the story still is positive, I think, globally. And as Mark said, you've got opportunities if you can export to secure premiums, be it into Europe under the CBAM regulation or even into other emerging markets. But it is -- the market, I think, is still immature and has been slower to develop than we'd all want and expect. So yes, that's where we stand today. Andrew Wong: Given there's more opportunities in the export market, is it possible for you to do some sort of swapping maybe to access that export market? Damien Renwick: Yes. Look, we continue to evaluate all opportunities for us to be able to export our product, including swaps or some sort of physical transactions. So yes, it's all on the table. Operator: Our next question comes from Rob McGuire with Granite Research. Robert McGuire: Two questions. One is on AN. Can you give us an idea of how much your sales volume was under contract exiting in 2025? And if you do ship production towards AN this year, will you try to lock that up under contract? Damien Renwick: Good morning, Rob. Look, our stable, steady AN business, the base business is all under contract, and we work to make sure that that's the case. And only a small amount really is spot. But what we're doing at the moment is really tweaking the product balance to maximize and produce more AN, and we're doing that by reducing our UAN production and putting it into the AN market. So -- and that's all under spot. And there's a multitude of conversations going on with customers around whether they turn into longer-term arrangements or not. I mean it's a very fluid market. Robert McGuire: And then shifting to the turnarounds. Can you tell us when you expect Cherokee to take place in 2027? And then on El Dorado, will you be able to build inventory and continue downstream production during the April turnaround this year? Cheryl Maguire: Yes. So on the El Dorado turnaround, the plan is to build ammonia in the first quarter so that we are ramped up on ammonia in inventory heading into that turnaround, which, yes, should allow us, for the most part, to run all downstream plants through that turnaround. With respect to Cherokee, the Cherokee turnaround right now, I believe, is slated for the third quarter of 2027. Robert McGuire: And then on import volumes, have U.S. import volumes or buying patterns shifted since fertilizer tariffs were lifted in the fourth quarter? Damien Renwick: I think it's too early to tell, Rob. I mean, the market is short here, and you're going to see some import tons come into the market to try and correct for that. But I think that's more just a response to the U.S. market per se rather than tariffs. Mark Behrman: I would say that imports have never stopped coming in here, right? So there's the demand and people have different production points have found a home into the U.S. I think with the tariffs being lifted, I don't know that you're necessarily going to see more imports coming in. I think you could see different imports from different locations coming in. Robert McGuire: And then I'm not sure who can answer this question, but on farmer economics, there's been a lot of media focus on just the stress in the ag sector. And I'm just wondering how you view the current farmer economics? And do you anticipate that softer farm incomes impacting demand or ordering behavior this year? Mark Behrman: Yes. So good question. And there's no doubt that when you look at farm economics and you look at lots of folks that are smart than us that really understand the economics that the farmer is under some level of stress today. And therefore, you saw the U.S. government do a $12 billion sort of payment package. I think when you take a step back and we spend a lot of time really thinking about this and talking about it. And the industry really focuses on what do we -- what can we do to help the situation. But the reality is it's really a supply and demand for commodities. And so right now, we had a record corn crop that was planted and inventories are pretty high. And why did that happen? That happened because demand for soybeans, particularly soybeans that are exported, has gone down pretty dramatically. And so when you think about the demand for both of those crops, which are the 2 largest crops for nitrogen use and 2 largest crops that are planted here in the U.S. there needs to be more demand created, one for soy. And so the U.S. government needs to help probably with that to create more demand. But also demand is going to drive corn prices as well. And so there's a lot of talk about permanently going to E15. And if that were to happen, that obviously would increase ethanol demand for corn pretty dramatically. And so I think ultimately, we need to figure out a way to create more demand for our 2 largest commodities. And therefore, that will lift some of the pricing for those products and then put less stress on the farmer. Operator: We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Mark Behrman for closing comments. Mark Behrman: Thank you. I want to thank everyone for participating on the call. I'm really proud of the quarter and the year that we just posted. And we're really excited about 2026 and think we'll make a lot of great progress. So again, if there's any follow-up questions, feel free to call Cheryl or myself. Thanks so much. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Ladies and gentlemen, thank you for standing by. I'm Vassilios, your Chorus Call operator. Welcome, and thank you for joining the HELLENiQ ENERGY Holdings Conference Call and live webcast to present and discuss the fourth quarter and full year 2025 financial results. [Operator Instructions] The conference is being recorded. At this time, I would like to turn the conference over to HELLENiQ ENERGY Holdings management team. Gentlemen, you may now proceed. Andreas Shiamishis: Good afternoon. Thank you very much for the introduction, and welcome to the financial year '25 results presentation. We'll be going through the fourth quarter, but also through the full year numbers and key issues that we believe we need to communicate. So group financial highlights, Page 4, for a fourth year in a row, we've got very good performance. I won't go through the numbers in detail. They will be dealt with later on, but it's a clean EBITDA of EUR 1.1 billion, which effectively puts the company for a fourth year in a different league. And if I was to take a view on the future, I would probably say that this is something that is expected to continue. Now whether it's going to be 0.8, 0.9 or 1.2 or 1.3. I don't know because I don't know what the market is going to look like. But given that a lot of the new investments is actually more predictable as cash flows, I think we've managed to move up into a different league. On the net income base, we've bridged the EUR 0.5 billion, which is good news. And on that basis and given the balance sheet, which is very healthy, we are proposing a EUR 0.60 final dividend, which effectively means EUR 0.40 -- sorry, EUR 0.60 per share total dividend, which means EUR 0.40 per share as final dividend. That's EUR 0.15 up from last year, which covers partly the exceptional dividend that we -- distribution rather than dividend, which had to do with the sale of DEPA Commercial. Moving on to the next page on the key points. A relatively good market, especially towards the end of the year with respect to the refining environment. Europe has been benefiting from relatively low prices and low dollar compared to euro, which means that palm prices have been kept at a relatively lower level. That always helps the consumption and demand, which is still growing, not only because of the price levels, but also because we see the economic activity growing as well. On the electricity side and the nat gas, we've seen some normalization, which is beneficial for the consumption, but still, Europe is suffering from relatively high cost of energy compared to non-EU markets. As a company, we've had a good run. If one takes into consideration the fact that we had Elefsina down for 4 months in the year and that as probably was a refinery was at the end of its run before the shutdown. The achievement of a record high production is actually very good news. From a margin point of view, we had healthy international benchmarks. But on top of that, we managed to improve on that as a result of better supply chain management, procurement and of course, the fact that the Geneva team is now up and running, which helps increase the overperformance of the system. Moving into more controllable areas, which have to do with marketing. I'm very happy to say that both domestic and international businesses have done very well. We have the best performance from marketing for a number of years. And that's a result of a very holistic and diligent work done by all the teams, be it market shares, new products, NFR, network expansion, service delivery, all of these things have done very well, and we are pleased to see that actually being capitalized in the form of improved numbers. On the power, clearly, the inclusion of Enerwave in the system for the last part of the year for the half, July, December is reflected in the consolidation. We've tried to give you a view of the performance -- full year performance so that we get a better idea of the run rate. It's a business which we believe we can improve upon. The performance of the business was effectively held back by the process of acquisition from 1 of the 2 shareholders. But I think now it is in good hands. And combined with the renewables portfolio, it would be able to grow even more. On the financials, you can see the performance, and I've talked about the numbers. As key milestones, I would refer to probably a few things that are part of the operating review, but they are also the result of our strategy over the last few years. So starting from the most important thing for us, which is safety. The completion of the Elefsina turnaround earlier in '25 is something that we're very happy about because it was done safely within time and within budget. And that's always our #1 priority, and that goes for the Aspropyrgos refinery shutdown as well. We managed after a lot of back and forth and a lot of years to establish the trading platform in Geneva with a team that combines external expertise and talent with our own people who have relocated there or work from Athens in the refineries. And that is something that has already started demonstrating some tangible results with respect to how good we can do there. Marketing, as I said, has been doing very well. And as a result of that, we were able to maintain and extend the BP trademark use for another 10 years, probably one of the very few countries in Europe that BP has that sort of arrangement. And on the development point of view, right at the last day of the year, actually on the eve of -- on the 30th rather of December, we started pumping diesel from Thessaloniki-Skopje. So that is a process that we are very happy about because it took us almost 10 years to get this pipeline back in operation. On power, we've done a lot over the last 4 years. We have even more ambitions going forward. The plan is to develop a second pillar, and we are well on our way to doing that. So on top of the downstream capabilities, the power, which is effectively Enerwave Gas and Power and Renewables is expected, is planned to deliver up to EUR 0.3 billion of EBITDA by 2030. Clearly, totally different economics from the current downstream business. And even in between that, we have different economics between power generation, supply business, gas and renewables. Even within renewables, we have different profiles, but it's there. And the good thing is we have a very specific 1.5 gigawatt of portfolio, which means another gigawatt of projects that we fully control in terms of delivery. And the FID is entirely up to us based on specific returns and timing. We beefed up our delivery capacity through the acquisition of a small team in Greece. George will talk a little bit more about it going forward, but we feel more comfortable about that part of the business. On upstream, I don't think I need to tell you a lot of things because it's been well publicized. We've signed the agreement with Chevron for the exploration and the Farm-In agreement with ExxonMobil in Block 2 has already been signed and announced. Effectively there, what we are saying is we have been consistent and deliver on the strategy envisaged 5 years ago to convert the E&P business into a portfolio business, whereby we maintain a smaller stake, but a much more diversified stake into various assets. And in the meantime, we have our national champion head, if you will, agenda, which helps this process. Finally, positioning in businesses and running businesses requires good governance and operational excellence. And on that basis, the main drivers, which are effectively how we run our HR, how we run our systems, digitalization, procurement efforts are very high on the agenda. So a business is as good as you make it to be. And at the same time, we don't forget that we need to be part -- an active part of this community of the society we work in and proactively participate in CSR initiatives and at the same time, manage our ESG footprint. Even though the discussion has shifted a little bit on the ESG and especially on the CO2 agenda, it is not something that we take lightly. And in fact, the recent changes are more in line with our original Vision 2025 strategy of transitioning on a realistic path towards a better environmental footprint. With that, I'll pass you on to Kostas. Kostas Karachalios is our new Head of Supply and Trading. Kostas has been with us for a number of years in different positions in the past. His latest position was in International as Head of International. A lot of the achievements as he's doing, but even before that, he spent a lot of time in refineries and in business development. Kostas, welcome to the team in this role. You've been part of the team. And over to you for the industry environment. Kostas Karachalios: Thank you for the intro. Good afternoon to everybody. The industry environment was mixed during this year. The 2025 started off with declining crude prices, particularly sharp during Q2, and it also continued well into Q4, ending the year with an average of $64 per barrel, significantly lower than the start of the year. However, there was a robust demand for products and cracks remained relatively healthy, particularly in Q4, reaching near record levels for middle distillates, which provided a margin to the system of approximately $10 to the barrel on benchmark margins, double what it was in 2024. And as previously mentioned, record production during the last quarter with the margins boosted results significantly. Moving on to Slide 9. Natural gas prices were started off relatively high in the year and tailed off to 30. Similarly, with electricity prices ending the year overall at the same levels in 2025 on average that we had in 2024. Carbon emission credit, EUAs had a soft start to the year, but then rallied in Q3 and Q4, reaching at some point close to $100 per ton. They've eased off since those levels recently. In terms of fuel demand, the domestic market grew modestly in 2025, although Q4 was almost flat. There was a 2% increase overall. Aviation sales and bunkering sales -- aviation sales increased 6% during the year and bunkering sales 1% overall. With those key market developments, I hand over to Vasileios. Thank you. Vasilis Tsaitas: Thank you, Kostas. Good afternoon, and many thanks for attending our earnings call today. So moving on to discuss our numbers. As we mentioned before, both fourth quarter and the full year exhibited very strong refining production and volumes despite the turnaround at Thessaloniki refinery earlier in the year. Same with marketing, both domestic and international. In power gen, you have the addition of Enerwave during the second half that we started consolidating. In terms of EBITDA, more than EUR 1.1 billion of adjusted EBITDA, driven by a very strong fourth quarter. In refining, it's the second best quarterly performance ever recorded on the back of the strong refining margins that Kostas mentioned before, but also a very good profitability in marketing, both domestic and international, setting up a very -- a much higher baseline going forward. Finance costs lower, and we'll discuss a little bit further. And if you look at the reported results, those have been affected largely by the inventory losses on the back of 20% to 25% decline in euro terms, oil and commodity prices. Adjusted EBITDA just over EUR 0.5 billion, that enables a very good distribution that Andreas mentioned before. Now on Page 13, so a 10% increase in adjusted EBITDA. If you look at the Downstream business, this is mainly driven by the very good environment, strong refining margins in the second half, partially offset by the weaker dollar for most of the year and improved operations in both SNP refining and marketing despite the impact of the turnaround that we have seen now in the second quarter. On the Power business, you have the addition of Enerwave and the renewables investments at the end of '24 that's giving a good EUR 30 million for the second half. The annualized impact of that is double, which we'll see from '26 with the adverse impact of curtailments mostly and the lower load factors due to weather conditions for both PV and wind. Now moving on a bit on the cash flows on Page 14. 2025 was a year of record investments, if you look at the total. So we have the usual run rate of stay-in-business CapEx of EUR 250 million, which during '25 was augmented by the turnaround of Elefsina had a full turnaround in the second quarter as well as some long-term maintenance in tanks, jetties and pipelines. In Downstream, we invested into mainly some energy efficiency projects at Aspropyrgos refinery that will be tied in during the turnaround and will yield additional EBITDA benefits of around EUR 15 million from the second quarter on an annualized rate as well as targeted investments in our marketing business in Greece and internationally. The bulk of the expansion CapEx will goes to power. It includes the 50% of Enerwave acquisition as well as investments in renewables, mostly outside of Greece during 2025. So on a cash flow basis, we start from what we call normalized cash flow, which includes the EBITDA of the year that required, let's call it, same business CapEx of EUR 250 million and any other working capital movements, lease liabilities, so the operating stuff that you need to run your business. We take out the remuneration of our capital providers, and that yields more than EUR 300 million of cash flows. We've invested in Downstream and mostly in our Power business. That was funded partially by the acceleration of DEPA Commercial sale proceeds that we were able to collect during the year. And certainly, these investments are yielding additional EBITDA as we discussed before. And think that wouldn't move much the total net debt position. However, we had the Solidarity contribution that was paid in February '25, as you may recall, a net impact of just over EUR 170 million as well as the impact of the disruption on the Red Sea routes of the cargoes that are coming from Iraq. That is increasing the working capital temporarily. We don't know for how long, obviously, because this is very much geopolitics driven, but it's not something to be repeated in '26. So we're ending up with a net debt of -- for the group level of EUR 2.1 million, flat leverage levels versus last year. Moving on to Page 15, looking at the capital structure of our 2 businesses. So just under EUR 4 billion of capital employed in our Downstream business. We don't see significant movement in the gearing of this business. It oscillates anywhere -- the net debt oscillates anywhere between 35% to 45%, depending on the working capital needs of the year. It's well funded by committed facilities, termed out no maturity in '26. We're certainly going to continue working during the year -- during this year at improving this even further. If you look at our Power business now with the addition of Enerwave, it's just over EUR 1 billion of capital employed. 20% of that is development capital projects that are under construction, especially the 100-megawatt wind farm at Northeast Romania, which will complete in '26 and start operating in beginning of '27, with almost 50-50 funded between debt and equity. More than half of the debt is project finance, non-recourse project finance at the project level with maturities of around 15 years on average for the projects that are already operating. And you can see the maturity profile on the bottom right. Now looking at the capitalization, again, of our 2 businesses. So the leverage of Downstream is 1.5x. We're looking at an absolute net debt levels of around EUR 1.5 billion, a little bit higher, a little bit lower depending, as I mentioned before, on the working capital financing of the business. Those levels are lower than they used to be 10 or 15 years ago with EBITDA being 2.5x higher. And I think it's important to mention that around half of the EBITDA is coming from going to the markets from our commercial logistics business, which includes supply and trading as well as marketing, which have established a baseline on which we can further grow with the rest coming from refining. So a much more resilient and stable earnings and cash flow profile versus 10 or 8 years ago. And for Power business, despite the fact that it's a business that it carries a higher level of gearing because of higher upfront investment. Still at the end of '25, the credit metrics have improved a lot. And again, let me remind you that this is mostly non-recourse project finance at the project level without spillover to either the rest of the Power business or the group as a whole. The interest cost courtesy, both of rates reduction as well as spread improvement has reduced even further for the second year in a row to EUR 110 million. And important to look how the market perceives the credit. So if we're looking at our outstanding notes maturing in 3.5 years, more or less, it's more than 100 basis points of reduction. More than half of that is actually implied spreads that I think it's an important message. In terms of distributions, we -- I mean, we have -- over the last few years, we've been returning significant capital to shareholders, driven by the profitability of the business as well as one-off events that have to do with the sale of our DEPA participation back in '22 as well as in '24. This is totally in line with our dividend policy. And if you look at the normal recurring dividend, it's 20% higher than it used to be last year at EUR 0.60 per share. Again, very competitive both at the Greek Stock Exchange as well as the European peer group. Moving on to discuss the performance of our business, starting from Refining, Supply and Trading. As we mentioned before, one of the best performance or the best quarterly performance, both in terms of production and sales despite the fact that Aspropyrgos was at the end of run with the shutdown currently ongoing. We're halfway through this process, in line with the table, safely execution and aiming to complete by the end of the current quarter with overall EBITDA 12% higher year-on-year. In terms of operations, important to note the domestic market sales increasing with market share gains, if you look versus last year and very strong exports. It's the highest quarterly -- it's the highest fourth quarter performance in terms of both percentage and absolute export sales we've ever recorded. Very strong -- moving on to Page 22, very strong realized margins, $11 per barrel of benchmark margin with overperformance at almost at $10. We -- I mean, we had very good opportunities in the market during the fourth quarter, both on the crude supply side as well as export netbacks. And now our Geneva desk with the better market outreach as well as a much more solid risk framework that we've established was able to capitalize on those opportunities and take advantage and this is flowing well into the first quarter of this year. In Petrochemicals business, we're certainly in a downside. We had a lot of capacity additions globally over the last 3 years, which combined with the slow demand growth that we've seen, it's resulting at negative margins for most of the quarter. It's improving a bit in the first quarter, but certainly, we're not looking at getting back to what used to be normal anytime soon in petrochemicals. Still, however, it's important to note that the integration with refining provides a resilience for this business. And it's cyclical. It will certainly -- the current overcapacity will certainly prompt capacity rationalization. It is taking a bit more, but the business will find a way to rebalance itself. In marketing, we discussed before or even in previous quarters, the very strong performance, which is consistent and improving on the back of the strength of our EKO brand, structural market share gains in both diesel and gasoline mostly, high penetration of differentiated fuels, high-margin differentiated fuels as well as increasing NFR contribution and the best EBITDA performance for several years at EUR 71 million. Similarly, international marketing, another record-breaking year, similar story more or less with domestic in the sense that NFR contribution has increased notably. The positioning of the group in the regional markets has improved. We're able to take advantage of the geopolitical developments to a large extent. And from '26, we'll also have the additional contribution from the reopening of the start of the Thessaloniki-Skopje pipeline that will reduce the operating cost of transporting fuels to South Balkans as well as open up market opportunities. So we're expecting an additional EBITDA contribution of anywhere between EUR 5 million to EUR 10 million from '26 from this event. On this note, I'll pass you over to George Alexopoulos to discuss our Power business. George? Georgios Alexopoulos: Thank you, Vasileios. Good afternoon, everybody. This is the first quarter in which we have fully consolidated for the whole quarter Enerwave. On Page 29, you can see -- you can look at the entire business taking Enerwave on a pro-forma basis to give you a better picture of the unit, about 1.4 gigawatts of operating capacity, EUR 100 million EBITDA, 3.7 terawatt hours of generation and about EUR 1 billion of capital employed. If we turn to Page 30 and zooming to the renewables business, it was a quarter with unfavorable weather conditions in both wind and PV and also continuing curtailments. So the profitability was somewhat lower than last year. And the year is just about at the same level as last year. You can see the load factors. Of course, the load factors reflect curtailment as well as weather conditions and the generation and EBITDA mix. As you can see, the work-in-progress, the projects under development have increased as our growth plan is being rolled out. And that also has an effect -- a short-term effect on profitability as we haven't adjusted figures for these expenses. Going to Page 31. You can see what Andreas mentioned before. We have a secure path to getting to 1.5 gigawatts installed by 2027, starting from our current operating capacity of 0.5 gigawatt. We expect the 300 or so megawatts under construction to be delivered in the course of this year and possibly an additional 50 megawatts for our batteries towards the end of the year. Together with a number of RTB projects in Greece and Bulgaria and Romania, that makes up the composition of the mature pipeline, which can bring us to the 1.5 gigawatt. We have focused on delivery, and we have improved considerably our delivery capabilities through the acquisition of ABO Energy Hellas and the development and construction team. And we are diversifying both technologically and in terms of geography as well as gradually hybridizing our projects to adjust to the market conditions. If we go to Page 32. Enerwave, again, shown on a pro-forma basis, both for -- well, the quarter, it's really the same, whether it is pro-forma or not because we consolidated it fully, but the year is on a pro-forma basis. Improved performance as a result of the improved performance in supply following the acquisition of the company and the re-branding in November of last year and also better energy management account for a 27% increase of the adjusted EBITDA to EUR 54 million. In addition to the new identity, it's worth noting that since we took over the remaining 50% of Enerwave, we reviewed and redesigned the commercial policy and launched new products and solutions and improved customer experience, reducing also the customer churn and all that translated already and will translate in the following quarters into improved performance. Regarding energy management, we are running now as an integrated portfolio. Our conventional units, our renewables units, soon our battery portfolio and managing the significant store positions we have in retail and in our own consumption. So this is very much part of the strategy of our integrated power business, which includes renewables, but also conventional assets and energy management position. And I think with this, we've come to the end of the presentation. So we will turn it over for Q&A. Operator: [Operator Instructions] The first question comes from the line of Villari Giuseppe with Morgan Stanley. Giuseppe Villari: We have 2, if we may. The first one is regarding the one-off items you recorded for the fourth quarter. I think you mentioned during the presentation, but could you tell us -- we can see EUR 29 million in adjustments. Could you give us more color on that? And then secondly, your domestic performance in retail has been very strong. So you're clearly benefiting from the lift of the fuel retail caps in Greece. Could you quantify what the benefit is? Is performance driven by other factors as well? And also, thirdly, if you could like quickly run through sort of an outlook for 2026 in terms of volumes, especially for refining, that would be great, if possible. Andreas Shiamishis: Okay. I'll ask Vasileios to take the part on the financials, then I'll talk a little bit about the marketing. And on the volumes, maybe Kostas can give us an update on the '26 projection. Vasileios? Vasilis Tsaitas: Thank you, Giuseppe. I mean out of the EUR 25 million, you have, I mean, a number of small items. The main ones have to do one with the legal case at EKO, a very old, 30-year-old case that was finally resolved against the company which is EUR 12 million. And the other has to do with decontamination expenses at some products of the refinery at Aspropyrgos. The other are small items of around EUR 5 million here and there. Andreas Shiamishis: On domestic marketing, the performance is much better in the fourth quarter. Clearly, given the size of the numbers, it's not a totally different ball game, but it's a big improvement. A very small part of this improvement is due to the price cap lifting simply because we refrained from increasing prices. What did happen, however, is that the increase in profitability came from 4 main drivers. The first one has to do with the crackdown, which the Greek state has affected on petrol stations, which were operating not exactly within the boundaries of legislation and tax provisions. We've had a couple of campaigns, which led to closure of a number of petrol stations. And the change of practices that were destroying the market. That has boosted our quality and reliability message and has given us an advantage in terms of sales volumes. It also reduced the pressure on some areas where margin was depressed as a result of inappropriate behavior on the part of certain petrol stations. The second has to do with the continuous effort on premiumizing our products. So we've increased the penetration of premium products in our total sales portfolio, and that is something which is leading to improved margins. The third has to do with NFR, and that is something which is continuously improving. We have a long way to go, but it is something which is now beginning to show that we're doing very well. I'm just talking about the retail business now. I'm not talking about aviation and bunkering. And the final part has to do with the network configuration. So new petrol stations, locations and also the conversion of petrol stations into commercial stations, which effectively increases margins. So those are the key drivers of increased profitability on the petrol stations. Kostas, do you want to tell us a little bit about the '26 volume expectations given we have the shutdown of Aspropyrgos and Thessaloniki. Kostas Karachalios: Exactly. Thank you, Andreas. The volume expectations for 2026 in terms of refinery production would probably look slightly less than the 2025 numbers. There's the major shutdown of Aspropyrgos, which is expected to last less than last year's Elefsina shutdown, but there's also a maintenance schedule for Thessaloniki as well that would influence. Operator: The next question comes from the line of Grigoriou George with Wood & Co. George Grigoriou: I've got a couple of questions. Going back to what you just mentioned about the shutdowns. Can you give us a timetable when Aspropyrgos and Thessaloniki will be down for the year? That's my first question. Andreas Shiamishis: George, Aspropyrgos is already done for the fourth week now running. We expect it to be completed by the end of March, give or take, a few days. So, so far, so good, progressing well. Thessaloniki is expected to go into a maintenance shutdown sometime in Q3 this year. We have to run our full diagnostics and go through the process to define when exactly and for how long. George Grigoriou: Okay. If I can ask as well. You mentioned Vasileios, that there was -- if I got it right, there was a EUR 12 million hit to marketing in the fourth quarter from some legal arbitration that actually was settled in the fourth quarter, if I got it right. And Vasileios, you also mentioned some improvements in downstream that you expect to add some euro million to profitability in 2026, but I didn't catch the number you mentioned. Vasilis Tsaitas: Correct. Grigoriou, there are a couple of items here. So one has to do with the energy efficiency projects at Aspropyrgos and some debottlenecking at units that will be completed and tied in unit shut down. We expect a run rate of around EUR 10 million to EUR 15 million at refining at Aspropyrgos. And the reopening of the VARDAX pipeline, the Thessaloniki-Skopje pipeline will yield another EUR 5 million to EUR 10 million in '26 onwards annualized. George Grigoriou: Okay. And if I just -- one last question, sorry. I don't want to take up your time. Given that there's been talk now about the EU's CO2 emission allowances and what will happen to the EUAs and everything like that, you can see where the prices have gone for CO2 allowances. Can you quantify, for an example, if you can give us -- I don't want to mention any specific examples. But let's say that if you -- I think you've got still free allowances in 2025, you had free allowances. If that was to be sustained until, let's say, the end of this decade, what would be the benefit to your EBITDA? Vasilis Tsaitas: If there's no change in the free allowances from '25 at current rates, we would be looking at around EUR 25 million of EBITDA. Operator: [Operator Instructions] There are no further audio questions. I will now pass the floor to Mr. Katsenos to accommodate any written questions from the webcast participants. Mr. Katsenos, please proceed. Nikos Katsenos: Thank you, operator. We have 2 questions from PKO BP Securities and specifically from Adam Milewicz. The first question is whether we expect to pay special dividends also in 2026. And the second question relates to the current level of refining margins. Andreas Shiamishis: Okay. With the special dividends were linked to special transactions like the sale of DEPA, the sale of DEPA Infrastructure, sale of DEPA Commercial. We don't have something up for sale at this point in time. I have to say that. Never say never, but there is no projection for that. So any special dividend will be replaced by what I would call an exceptional performance dividend if we're blessed with decent refining margins. Sorry, current level of refining margin -- yes, sorry, I didn't see that. Kostas, do you want to comment on that? Kostas Karachalios: Yes. Thank you. The current levels of refining margin and benchmark margins have rebounded quite strongly. So from a weak start of the year, in the last week or so, they're between $9 and $11 to the barrel, which is very attractive numbers. Nikos Katsenos: Operator, we don't have any other questions from the webcast. Back to you. Operator: Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing statements. Thank you. Andreas Shiamishis: Okay. Thank you very much for your time. I hope that we've been able to convey the message for the performance of the group. It has been a good year. The performance -- the financial performance is one indicator of how well the company is doing, clearly affected by the environment. So it is clear that we have been blessed with the good environment in the last part of the year, and that added a little bit of profits to the bottom line. However, what we need to take away is the fact that this company over the last 5 or 6 years has transformed itself, we've managed to establish a baseline, which is EUR 1 billion, something that we've been talking about for a number of years. A lot of new businesses have come into play on the renewables part more than anything and the conversion of investments into cash flows. I've always maintained that investments should be converted into cash or cash flows. So we've converted the Enerwave, the ELPEDISON investment into cash flows by acquiring the additional 50% and we converted the DEPA investment into cash by divesting by selling the 35% that we had. So that actually brings about a much better governance and operability of that business. So we have been adding new businesses to the group, which are more predictable, maybe not as predictable as we would like on the renewables, but still they are not driven by refining margins. They are establishing a cash flow baseline, clearly, a totally different model from the refining baseline, but it is adding to the group stability. The Enerwave business is something which will provide additional profitability with a diversified profile, the gas and power and the utility profile is different to the refining profile. So I think we've been doing a good job at diversifying the portfolio and also making it more future compatible with a lower environmental footprint as a group. However, we should not ignore the improvements made on our up until now core business of downstream, which has to do with the refining, the supply and trading and the marketing. In fact, I probably feel more proud of the turnaround in the domestic marketing than the investment in growing our portfolio of renewables because that involves a lot of people, changing of cultures, being more aggressive in the market and fixing long-standing issues of management in the group. The expansion in markets outside of Greece, whether it's exports and whether it's trading through the new company or whether it's acquiring petrol stations or expanding into existing or new markets, again, it is something which has been done very, very successfully. And Kostas has handed over a portfolio, which is in a much better shape than the one he took responsibility for almost 7 or 8 years ago. That is a signal of strength for the group because I don't know when, but I have no doubt in my mind that refining margins will change again. Maybe they will go down, maybe they will go up. Chances are that from where we are, we will see lower margins in the next 3 or 4 years. But what provides comfort is the fact that the group has built some sustainability, some strength, some endurance to manage those volatile trends and we'll continue to deliver very healthy profitability. Over the next few weeks, we will be aiming to address the market with our new strategy. We have a number of events planned for the next 3 months, the opening up of the VARDAX pipeline ceremony, and things which have to do with other parts of the business. So I think we will have the opportunity to expand more on our strategy in the coming months. Up until then, you have to take away with you a very good performance, a more robust and sustainable performance going forward, a much improved operation and governance structure in the group, a healthy balance sheet even with EUR 0.5 billion of investment in renewables, which were funded entirely out of debt, project finance or our own reserves. And even after that, we are still at a very healthy leverage and credit metrics. So I believe that is good news for the group going forward. Thank you very much once again, and we'll renew this appointment in 3 months' time. Thank you. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant evening.
Operator: Good afternoon, everyone. My name is Lennius, and I will be your conference operator today. At this time, I would like to welcome you to The RealReal Fourth Quarter 2025 Earnings Call. [Operator Instructions] At this time, I would like to turn the call over to Caitlin Howe, Senior Vice President of Finance. Caitlin Howe: Thank you, operator. Joining me today to discuss our results for the period ended December 31, 2025, are Chief Executive Officer and President, Rati Levesque; and Chief Financial Officer, Ajay Gopal. Before we begin, I would like to remind you that during today's call, we will make forward-looking statements, which involve known and unknown risks and uncertainties. Our actual results may differ materially from those suggested in such statements. You can find more information about these risks, uncertainties and other factors that could affect our operating results in the company's most recent Form 10-K and subsequent quarterly reports on Form 10-Q. Today's presentation will also include certain non-GAAP financial measures, both historical and forward-looking. We have provided reconciliations for historical non-GAAP financial measures to the most comparable GAAP measures in our earnings press release, which is available on our Investor Relations website. I would now like to turn the call over to Rati Levesque, Chief Executive Officer of The RealReal. Rati Levesque: Thank you, Caitlin, and good afternoon, everyone. Thanks for joining us as we discuss our fourth quarter and full year results. 2025 was a transformative year for The RealReal. We accelerated top line growth throughout the year, culminating in exceptional fourth quarter performance. We delivered $616 million in GMV for the quarter, representing 22% growth while achieving an adjusted EBITDA margin of 11%. During the fourth quarter, we surpassed the $2 billion mark in GMV for the year, a milestone for The RealReal that gives us further confidence in our growth trajectory and our market leadership position. For the full year, we delivered $2.1 billion in GMV and our first year of positive adjusted EBITDA in every quarter, demonstrating our ability to scale profitably while maintaining strong momentum. Before Ajay walks you through our detailed results in a moment, let me provide some context. Our performance in 2025 is the result of years of laying the groundwork for the luxury resale market and refining our business model. We've built a durable and hard-to-replicate foundation that uniquely positions us to lead and create long-term value. We are leading a fundamental shift in the luxury consumers' mindset. Our customers have begun to view their closets as a portfolio of assets to be tracked, actively managed and eventually monetized. With 47% of all consumers considering resale value when making a purchase in the primary market, we are influencing the luxury consumers' behavior in a meaningful way. I see us becoming the personal adviser of the closet, providing tools, access to information and curated insights. Today, we are blending uniqueness, quality and depth with the commercial scale and accessibility that only The RealReal can offer. We are leaning into this vision through disciplined execution of our 3 strategic pillars. First, our growth playbook, which is how we unlock supply through meeting the customer where they are. Second, operational excellence, which is how we drive profitability; and third, obsess over service, where we up-level our experience. These efforts are underpinned by a foundational culture of trust with our community of over 40 million members. Diving into our growth playbook. Our sales team, which we've built over the last 15 years, is a competitive differentiator that anchors our growth playbook. Our model combines art and science, deep personal relationships our team cultivates with consignors, accelerated by data and insights. Last year, we rolled out Smart Sales, our AI-enabled tool that automates lead scoring, ensuring our sales team is mobilized towards the highest value supply opportunities. In Q4, we launched a new tool for our sales team, which leverages our vast data and AI-led pricing algorithms to provide real-time valuation estimates. It allows for a more precise dialogue with consignors about their expected earnings and strengthens our position as a trusted adviser. Sales team tenure reached an all-time high in Q4 with 54% of our team at TRR for 2 years or longer. The longer a sales associate is with TRR, the more productive they become. On average, an experienced sales rep delivered approximately 20% more value than a first year sales professional. Our marketing engine drives our sales execution. Active buyer growth accelerated in Q4 to 9% on a trailing 12-month basis. We aren't just finding shoppers, we are identifying future consignors. Our Q4 results highlight this flywheel in action. 40% of new consignors come from our existing buyer base. By turning buyers into sellers, we're acquiring supply more cost effectively while deepening the loyalty of our community. We accelerated new buyer growth in Q4, and we believe it's a positive catalyst for future supply. Through leveraging social channels and high-impact creative like our holiday influencer campaigns, we've energized our existing customers and attracted a new generation of luxury shoppers. Our second pillar, operational excellence, is centered on scaling our unique technology and operational advantages. Our current industry-leading authentication approach is the result of years of strategic development. To date, we've received 12 patents formally recognizing our innovations in luxury resale and positioning us to capitalize on AI as an enablement tool in authentication and pricing. We continue to lean into our authentication expertise through Athena, our proprietary AI-enabled intake process. Athena is designed to optimize the blend of human expertise and technology. By automating the repetitive data-driven tasks, we are reducing costs and increasing speed to site. A core advantage of our model involves physical possession. When our experts have an item in hand, we verify details that cannot be captured digitally, like the weight of a gemstone or the texture of a fabric. The success of our approach is showing up in our results. We met our goal of exiting 2025 with 35% of all units fully flowing through Athena, a key contributor to the strong leverage we delivered in the quarter. Looking to the future, we are focused on further automation around listings and fulfillment to continue our progress on operational speed, accuracy and efficiency. Our third pillar is obsessing over service, which is focused on up-leveling the experience for our customers. As you may recall, we introduced MyCloset last year. The first phase was Reconsign, which provides a one-click consignment experience for items purchased on TRRR's platform. The next step in the evolution of MyCloset is customer tools to track and capitalize on the value of their closet. We're evolving our consignor interaction to make it less transactional and more relational and enduring. We are the trusted adviser for our customers as they journey through the primary and secondary luxury markets. Currently, we're testing app features that allow consignors to get on-demand valuation and earnings estimates and look forward to expanding MyCloset as we move through 2026. We are obsessing over service in other ways, including leveraging GenAI to transform how our members discover items on our platform. We've launched a new natural language search experience to make discovery more intuitive and are seeing encouraging results. The new search experience drove a notable improvement in new customer conversion during our test period. As we look out through 2026, we will expand these capabilities further, starting with AI recommendations in the near term, followed by visual and agentic conversational search to further create a hyper-personalized high-end shopping experience. In closing, we've proven that our growth playbook is working. By integrating our team's deep expertise with our industry-leading technology, we're building an engine that is designed to scale, win and deliver lasting value. I want to thank our team across the country and our more than 40 million members. The trust you place in us is our most valuable asset. Looking forward, we're excited to continue to drive results together and delivering on our mission to be the definitive authority in luxury resale. Thank you. With that, I'll turn the call over to Ajay. Ajay Gopal: Thank you, Rati, and good afternoon, everyone. I am pleased to review our financial results for the fourth quarter and full year 2025, a year of transformation and accelerating momentum. In Q4, we delivered double-digit top line growth in both GMV and total revenue, driven by healthy supply and strong buyer engagement. Our disciplined execution against our 3 strategic pillars, the growth playbook, operational excellence and obsessing over service continued to pay off. We delivered 450 basis points of adjusted EBITDA margin expansion, demonstrating the operating leverage in our business model. We also generated free cash flow of $43 million in Q4, up $23 million year-over-year. Turning to our detailed fourth quarter results, beginning with the top line. Q4 GMV of $616 million increased 22% compared to last year. Growth was driven roughly evenly by unit volume and higher average selling prices. Q4 total revenue of $194 million increased 18% with consignment revenue up 16% year-over-year. Direct revenue increased 39% compared to Q4 of 2024. In Q4, active buyers, orders and average order value all increased year-over-year. On a trailing 12-month basis, active buyer growth accelerated to 9% year-over-year. Orders were up 10% and average order value increased 11% versus last year. This growth reflects our success in unlocking supply, particularly in high-value categories like fine jewelry and watches. Q4 take rate of 36.5% declined 120 basis points year-over-year. This was driven by a favorable mix shift into higher-value items and categories. These items carry a lower percentage take rate while generating more profit dollars and improved unit economics. On margins and profitability, fourth quarter gross profit of $145 million increased 19% year-over-year. Gross margin of 74.8% in Q4 increased 40 basis points compared to the prior year period. Breaking this down by channel, consignment gross margin was 89.6% in the fourth quarter, an improvement of 60 basis points year-over-year, reflecting our continued focus on operational efficiency. Direct gross margin was 26% in the fourth quarter, an increase of more than 1,200 basis points year-over-year, driven by favorable mix of products sold. Fourth quarter operating expenses of $139 million leveraged 600 basis points year-over-year as a percentage of revenue. Excluding stock-based compensation, operating expenses leveraged by 550 basis points. These improvements were driven through increased use of AI and automation in our operations, sales team productivity and leverage on fixed costs. Fourth quarter adjusted EBITDA of $22 million or 11.3% of total revenue increased $11 million versus prior year. Adjusted EBITDA margins increased 450 basis points year-over-year. On cash flow and the balance sheet, we ended the quarter with $166 million in cash, cash equivalents and restricted cash. Our operating cash flow in the fourth quarter was $49 million, a $21 million improvement year-over-year. Free cash flow was $43 million in the fourth quarter, a $23 million improvement year-over-year, demonstrating our business model's favorable cash dynamics as we grow. Moving to our full year 2025 results. Full year GMV of $2.13 billion increased 16% versus prior year. Revenue of $693 million was up 15% versus the prior year, driven by strong execution of our growth playbook and our strategic focus on unlocking supply. Full year gross profit of $517 million grew 15% year-over-year. Gross margin of 74.6% increased 10 basis points versus full year 2024. Operating expenses of $541 million leveraged 600 basis points in 2025. This improvement was driven through increased use of AI and automation, sales and retail team productivity and leverage on fixed costs. We delivered adjusted EBITDA of $42 million for full year 2025 or 6.1% of total revenue, an increase of 450 basis points year-over-year. This improvement in profitability translated to $37 million in operating cash flow and free cash flow of $5 million. Over the past 2 years, we have reduced our total indebtedness by over $80 million, demonstrating our commitment to strengthening the balance sheet while delivering profitable growth. Looking back on 2025, we made significant progress across our strategic priorities. We unlocked supply at scale through our growth playbook, expanded adjusted EBITDA margins, generated positive free cash flow and strengthened our balance sheet. These results give us confidence in our momentum as we look to 2026. Now turning to our full year outlook. We are projecting full year GMV growth in the range of 12% to 15%. Revenue growth is expected to be between 10% and 13%. For the full year, we expect gross margin to remain relatively consistent with 2025. Adjusted EBITDA is expected to be in the range of $57 million to $65 million. This represents approximately 8% margin at the midpoint, an expansion of nearly 200 basis points versus 2025, which is aligned to our target of 15% to 20% adjusted EBITDA margins over the medium term. We continue to expect capital expenditures on property, plant and equipment to remain between 2% and 3% of total revenue for the full year. Regarding cash flow timing, similar to 2025, we expect operating cash flow and free cash flow to benefit from our favorable working capital dynamics in the second half of the year. Moving to our outlook for the first quarter. GMV growth is expected in the range of 19% to 22% versus prior year. First quarter revenue growth is expected in the range of 16% to 18%. We expect direct revenue to be in the range of 12% to 15% of total revenue. First quarter adjusted EBITDA is expected to be between $11 million and $13 million, representing approximately 6% to 7% of total revenue and 340 to 430 basis points of margin expansion year-over-year. In closing, our fourth quarter and full year 2025 performance underscores the financial power of our model. By scaling our growth playbook, while leveraging AI-driven efficiencies, we have improved our unit economics and delivered meaningful margin expansion. Our progress on delevering, combined with our ability to translate gains and adjusted EBITDA into free cash flow, strengthens our financial foundation. As we enter 2026, we're focused on continuing to drive operating leverage as we scale. Thank you to the entire RealReal team for your dedication and for driving these outstanding results. With that, I will now turn the call back over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from Ashley Owens. Ashley Owens: Well, first and foremost, congrats on the quarter. I did want to start out. I just noticed that AustinTech accelerated its deleverage. So I did want to touch on Athena. You've talked through the year about how central Athena is to that operational model and you hit the target you gave in November in 4Q. So first and foremost, with the 35 [indiscernible] update here, is that a count of units that are seeing intake fully completed by Athena? And just as importantly, how are you thinking about expanding that penetration across low, mid- and high-value items in 2026? Ajay Gopal: Thanks for the question, Ashley. Yes, we're pleased with the progress that we've been able to make with Athena. We ended the year with 35% of the units in our fulfillment center being processed through Athena. And that was the primary driver for the operating leverage that you commented on in our ops and tech line. All in ops and tech leveraged 330 basis points for the year. And it was a combination of Athena with other automation efficiencies that we've been able to unlock in that part of the P&L. We're -- 35% was our target for the end of the year, where we will continue to build on that. Going forward, we're excited to extend Athena into the mid-value items, and then we will continue to build on that, taking it into higher-value items. We expect this to take place over multiple quarters, and it will continue to be a source of leverage for us going forward. Ashley Owens: And maybe just to follow up quickly on Athena as well. I know it affected the intake to listings spurt. Could you expand on how it affected the intake to listing cycle times in 4Q? You previously stated a long-term goal to cut that timeline meaningfully. How much progress did you see in this quarter? What's the current [ data for base ] count? And what would you consider a reasonable target for 2026 as some of these automation and workflow optimization start to mature? Ajay Gopal: Yes. Thanks for the follow-up. We are excited about Athena, not just in terms of how it delivers efficiency improvements, but also on how it reduces the cycle time, which leads to a higher consumer satisfaction because we're able to get their items up on the website sooner. When you think about the 35% of items that went through Athena, what essentially happens is the item first goes to photography. And once we've completed taking those images, we're able to pretty much launch the item on the website. So those items are going very quickly through our fulfillment center and not having to go through multiple handoffs as compared to the other items. We'll -- as we build the coverage from Athena, we'll extend that benefit to more and more items in our portfolio. Operator: Our next question comes from Ike Boruchow at Wells Fargo Securities. Irwin Boruchow: Congrats. I guess I was wondering maybe, Ajay, Rati, the guide for Q1 will obviously 4Q much better. But I think 3 months ago, you told us you only expected slightly above [ algo ] growth in the first half, so above low double digits, and you're guiding 22% GMV. So just what are you seeing quarter-to-date? What gives you that confidence to guide those numbers? Rati Levesque: Yes, Ike, thanks for the question. A couple of things that we're seeing in the business, right? We're seeing our buyer and seller be quite resilient. We all know it's driven by supply. Our growth playbook is working. So it's important to understand that trifecta of our sales strategy, our marketing strategy and retail strategy kind of coming together there. So we have seen, for example, the sales team and the Smart Engine or Smart Sales that we've called in the past, the conversion is getting better on the sales side. We're able to get more appointments per day, more volume per sales rep. On the marketing side, the flywheel strategy is working. We're turning buyers into consignors in a more impactful way. And then on the demand side, still early, but our AI or agentic testing there on discovery and search is really impacting conversion, especially on the new buyer side. So all of these things, some of these are -- we're testing our way into and they need to scale up throughout the year, but definitely seeing the supply really coming through. Irwin Boruchow: Have you seen a slowdown since the fourth quarter, I guess, is something I'm curious about. Rati Levesque: We showed you or we give you your guide for Q1, I would say, as far as macro goes, same trends on buyers and sellers, double-digit growth on both buyers and sellers as well. Ajay Gopal: Yes. No slowdown, Ike. I would add that when you think about Q4, you've heard us talk about how it's become increasingly more relevant as more and more people turn to resale for gifting. And we saw that play out in Q4, which we believe is one of the drivers for the acceleration from Q3. Operator: Our next question comes from Bobby Brooks at Northland Securities. Robert Brooks: I would just be interested to hear first on an update of how testing with drop shipping has gone and maybe what are the plans for it as we go into 2026? And maybe it would be helpful to just take a step back and remind folks what categories you kind of started in and how you've selected those certain vendors who can access the drop shipping beta testing, I guess, I'll call it. And how you expect that to evolve moving forward? Rati Levesque: Yes. Bobby, thanks for the question. I'll start; Ajay, if I miss anything, feel free to jump in. Drop ship, we're seeing this year was all about testing and expanding categories. We started in watches. We also launched handbags and fine jewelry. They were very much to specific or targeted partners. So we're continue to expand that to international markets, for example. I'd say the growth rate is healthy, but not the main driver of our growth. So we'll continue to expand to other categories, continue to test and learn in the next couple of quarters. Robert Brooks: And then setting aside Smart Sales tool and the rollout -- broader rollout of drop shipping, are there any other exciting initiatives aimed at driving more incremental supply? Obviously, that's like the key part of the growth engine here is unlocking more supply. So I just wanted to hear if there's any other initiatives that folks should be kind of looking forward to. And maybe it's even partnering with direct brands directly. Rati Levesque: Yes. I think that's what gives us confidence in the full year guide as well and what we're seeing into Q1. We have many new initiatives that some of them are earlier in days and some of them a little bit later in days, but Smart Sales is one of them for sure. Referrals and affiliate programs, that's another one. I'm really excited about seeing one of the higher growth channels when I look at where supply is coming from. Again, early days, but you can see how this could really scale up. Our retail strategy, again, 1/4 of our new sellers are coming from retail. We're also looking at our marketing ROI, higher LTV is what we're seeing. So as we're reinvesting in marketing, we're seeing -- really seeing that pay off. I would say another is flywheel. We talked a little bit about that in the last quarter's call, our strategy around buyers becoming consignors, and we're seeing that accelerate. Early days on that, but that also gives us confidence headed into full year. Operator: Our next question comes from Anna Glaessgen at B. Riley Securities. Anna Glaessgen: I'd like to turn back to Athena. Nice to see that it met the target of between 30% to 40% of units by year-end. Wondering if you'd be willing to share your outlook for its contribution to unit processing in 2026. Ajay Gopal: Thanks, Anna. Yes, we're pleased with Athena exiting the year at 35%. It's one of our key use cases of how we are able to leverage our unique data set of 50 million items to combine it with recent developments in the world of AI and unlock real efficiencies in our platform. We'll continue to build on it. As I mentioned earlier, right, 35% is nowhere close to where we could be. In theory, we see that expanding to all the items in our fulfillment center, and we will pace that over the next few quarters. Anna Glaessgen: So safe to say it should continue to increase? Ajay Gopal: Yes, it will continue to go up. Anna Glaessgen: And then secondly, exciting to hear about the initiatives within agentic search. I guess, when should we expect that to be formally launched on the website? Rati Levesque: Yes. Hi, Anna, so we are also very excited about it, just really focused on discovery, matching, getting the right product to the right person. We're seeing it deliver incremental revenue. So we will start to scale that up. But what we are seeing right now, like I mentioned, was new buyer conversion and the testing looks very good. And then we see us kind of moving on to conversational and visual search as well, just to kind of, again, get that flywheel going and continuing that buyer growth at double-digit numbers. Operator: Our next question comes from Marvin Fong at BTIG. Marvin Fong: Congratulations on the quarter. A question on just sort of like ASP and product mix. So I believe higher-value items has been really strong for a while now, fine jewelry, handbags, watches. How -- could you address specifically like your supply pipeline visibility? How is that going there? Are you at all sort of reaching a point, where it's getting a little harder to obtain those types of items? And -- or is that pipeline very strong? And just as it's a driver of AOV, I'd love to just get a better understanding. If we break it down kind of like like-for-like, are you seeing ASPs climb? So for instance, even within apparel and other goods, are prices rising? Or what's sort of going on there? Ajay Gopal: Yes. Thanks, Marvin, and thank you for the question. A few things to unpack there. I think at the start, I would say, when you look at our 22% growth in Q4, it's a healthy balance between volume and price, almost an even 50-50 split between the 2 elements. You had a question about how it shows up in ASPs like-for-like. A large part of what we are seeing has been driven by the shift into higher value items and categories. You heard us highlight fine jewelry as a category that has been experiencing strong growth. In fact, it was one of our strong -- fastest-growing categories in 2025. We have a lot of sophistication built into how we -- how our pricing algorithm manages ASPs, right? So we are always trying to find the highest price on behalf of our consignors. And that pricing algorithm is looking at over 100 data points and trying to figure out exactly what we think a customer would be willing to pay for any given item. The last point I would make is to your question on how does it influence supply. One of the key strengths about The RealReal as a platform is as trends come and go, we are able to quickly respond to them and really capitalize on like consumer preferences shifting. So fine jewelry is a great example of that. We saw that trend start to pick up in late Q4 of 2024, and we've been able to capitalize on that very effectively. And we will continue to do that as a marketplace. Marvin Fong: And a follow-up question just on direct. You mentioned margins there are very strong. You mentioned favorable mix. So just to drill down on that, was it a matter of the product mix, again, higher ASP items? Or is it also that, Get Paid Now contributed a bit more? Could you kind of decompose what kind of drove that and how sustainable that is in the first quarter and maybe beyond? Ajay Gopal: Yes. Thank you for the questions. We are pleased with the margin expansion we've seen in our direct channel. It was 26% gross margin in Q4 and 22% for the full year. Both of those numbers are quite substantial improvements, 880 basis point improvement on a full year basis versus what direct used to look like if you go back a year. We've made a conscious effort to change the mix of what goes through that items. And right now, it's a mix of Get Paid Now and other select supply that we know is incremental to our platform and runs through that channel. Those margins will stay within that fairly wide range of 15% to 25% going forward, and it will vary based on the mix of what we sell. Operator: Our next question will come from Mark Altschwager at Baird. Mark Altschwager: I guess a couple on the model here. First, you're guiding to revenue growth a couple of 100 basis points below the GMV growth. Obviously, a lot of moving pieces as we go from A to B there. Maybe just what are the key factors we should be thinking about take rate, revenue mix or otherwise that are influencing that this year? Ajay Gopal: Yes. Thank you for the question. Yes, we are guiding to a revenue growth that is a couple of percentage points lower than GMV. The key driver there really is our take rate. If you look at the second half of 2025, we've seen a favorable shift in our product mix towards higher-value items and categories. Our take rate structure is designed in such a way that when we sell those items, they attract a lower percentage take rate, but they bring in higher absolute dollars and strong unit economics against those items. We do expect that phenomenon to play out in the first half of '26 when we will be lapping sort of the change that occurred late in '25, and it should normalize going forward, particularly in the second half of the year. Mark Altschwager: That's very helpful. Also wanted to ask about the sales team and just any hiring goals you have for 2026. You spoke earlier about the efficiency you're seeing with that team as they build tenure. So trying to just better understand the strategy behind further efficiencies relative to expanding the team as you look to fuel supply growth. Rati Levesque: Yes. Thanks, Mark. So on the sales side, the relationship that we built there is really important with the consignors. It's definitely a combination of art and science there. And when we think about the growth rate there, we think about hiring healthy in that area as we're growing our business, but it's also finding more efficiencies there, too. So we measure things like how much value are they bringing in per sales rep, how many appointments per day are we taking? Things like Smart Sales or Smart Engine definitely help that experience. So it's definitely a two-pronged approach. Operator: Our next question will come from Dylan Carden at William Blair. Dylan Carden: I think I did that right. I guess I'll know. Curious on the -- MyCloset, this next phase where you kind of dig deeper into the consumers, the customers' closet. Is that something happening in '26? And I guess, is there a line of sight into how you might be able to sort of target or get after the balance of what's in the closet beyond what's just purchased on RealReal at this point? Rati Levesque: Yes, Dylan, thanks for the question. For those that don't know what MyCloset is, I want to say, first of all, we see ourselves as that personal adviser to the seller already. We're seeing that behavior shift in the seller, where they call us to now get better insights into the primary market, what should they buy, what should they sell, what holds its resale value and what doesn't. So how do we leverage that? We're looking into MyCloset and testing our way into that. You saw us launch something called Reconsign that was focused on our flywheelers as well. So when people are buying things on our site, how do we target them and get them to consign. That's been working quite nicely. The next phase of that goes into pricing transparency. So again, empowering them with the insights on brands, pricing, what to hold on to, what to trade up and so forth. So by the end of this year, we'll have kind of the full build of something like this early -- not going into even early next year, but we're testing our way into that. You're going to see improvements into that relationship. And the real vision there, like I said, is being that personal adviser to our seller, but we're really getting them to think about The RealReal when they're in the primary market, right? How do we gain mind share in that first phase. Dylan Carden: I guess that brings up another question about how tied in you are -- your business is to the broader health of the luxury market. And I know there's been some sort of mixed signals for the primary market. But how does that sort of flow through your business, if you had a sense? Rati Levesque: Yes. Definitely some mixed signals, but how I see it is the primary market and resale can coexist. We are seeing the shift into resale happening as resale is becoming more mainstream, driven by the Gen Z and Millennial cohorts. We mentioned this last time, almost 50% now prefer resale and that TAM continues to grow, right, $200 billion in people's closets and $80 billion gets added. So we have the access to all that inventory. The magical thing about our business at the end of the day is that we're brand agnostic or channel agnostic. So we can react to the trends pretty quickly, bring in the right product at the right time for the consumer and definitely opportunistic about even partnerships that we have seen that you've seen us done in the past as well with the primary markets. Dylan Carden: Well, then to that end, you keep teeing up here. The new tools from a search functionality, natural language search and I'd just be curious if you're using other things to make the overall curation and discovery process easier. And I know -- I think at least it's early days for that. If you're seeing meaningful improvement in conversion, time on site, return to site, those types of metrics? Rati Levesque: Yes, for sure. So definitely early days, like you mentioned, but we are testing agentic commerce and testing our way into it. And I think I mentioned earlier, especially around search and discoverability matching, like I mentioned before, matching the right product to the right person much faster. We did see conversion go up for new buyers, especially as we're testing our way into that. So we'll continue to kind of double down there as we see fit and be thoughtful about our approach, but as we scale up. Operator: Our next question will come from Jay Sole at UBS. Jay Sole: Ajay, my question is for you. You're talking about a lot of leverage on OpEx to get the nice EBITDA margin expansion for the year. Can you just talk about some of the ways you're going to be able to control expenses as you grow revenue to get that leverage? Ajay Gopal: Yes. Thanks for the question, Jay. We're making good progress towards our medium-term goal of expanding margins to the range of 15% to 20%. In 2025, we delivered 6% adjusted EBITDA margin, and our guidance for 2026 has a midpoint of 8%. We see that as being well on track to that range of 200 to 300 basis points of margin expansion every year to get to that goal. That is being driven by -- I would say that at the forefront, it's really about getting efficiencies in the operations and tech line of our P&L. That's where we see the effect of initiatives like Athena, where we are able to leverage AI and automation to drive efficiency gains. Outside in other lines, sales, SG&A, you've heard us talk about how we are bringing other tools to help our sales team be more effective. Things like Smart Engine and Smart Sales really help optimize the time that our reps spend dealing with consignors and help them be that much more efficient at unlocking supply. And then finally, a key element of our story on operating expense leverage is our fixed cost base as well. We are in a good place, and that continues to be a source of leverage for us as we grow as a business. Operator: Our final question for today comes from Matt Koranda at ROTH Capital Partners. Matt Koranda: Nice work in the quarter. A lot have been asked and answered. I guess one of the things I wanted to hear a little bit more about was how AI can help you on the supply side. I know AI has been discussed a lot in terms of Athena, in terms of processing inbound items, in terms of merchandising and sort of adding assortment customization to your buyers. But what can AI do for you, I guess, in the supply procurement side of the house? And do you have anything that moves the needle in '26 on that front? Rati Levesque: Yes. Great question. Thanks, Matt. So we definitely are an AI beneficiary and not new to AI and definitely been early adopters there. We've always focused on our differentiators, whether that's authentication; supply, like you said; and pricing and data, just to zoom out for a second. So really excited not only about the efficiencies that we believe that we'll see there and are seeing there, but also around transforming the seller experience as you dig in. So Smart Engine is a piece of that, right? And we've talked a lot about that really gaining traction, converting more of those sellers and then converting buyers into sellers with a more targeted approach. So getting smarter about targeting those areas and getting them in. Everything we do on the buyer side does feed into the seller side as well. And I think that's really important to remember because as they earn more pricing for their items, they're happier with the service, and then they come back and consign with us very quickly. So that marketplace approach is really important as well. And we talked about a little bit about MyCloset. That is another place where we really become that trusted adviser, making sure people understand what to consign and when to get consigned and using that data over now more than 50 million items that we've consigned and over 40 million members to kind of create that deep human connections with the seller specifically on the Agentic AI side. So think about that human and kind of technology coming together to create that experience. And so we're pretty excited about that. Matt Koranda: And then maybe just one other one on the margin expansion that's planned for the EBITDA guide for '26. Just wanted to maybe hear you put a finer point on the sources of margin expansion within OpEx. It sounds like that's going to be the biggest driver in terms of margin expansion for '26. Is it evenly split between O&T and SG&A? Or is it more heavily on the O&T side of things, just given Athena implementation and what that -- how that benefits you on O&T? Ajay Gopal: Yes, Matt, thanks for the question. Between those 2 categories, we do expect operations in tech to be the leader in terms of generating operating leverage. That is what we've experienced. That's what you see in our results in 2025, and that sort of directional mix is going to continue going forward as well. Operator: Thank you. That concludes the Q&A session and today's call. You may now disconnect.
Operator: Good afternoon, everyone. Welcome to the Jamieson Wellness conference call to discuss the financial results for the fourth quarter and full year 2025. [Operator Instructions] Please be advised that the reproduction of this call in whole or in part is not permitted without written authorization from the company. As a reminder, today's call is being recorded. On the call today from management are Michael Pilato, President and Chief Executive Officer and Christopher Snowden, Chief Financial Officer. Before I turn the call over to Mr. Pilato, please note that a press release covering the company's fourth quarter financial results was issued this afternoon, and a copy of that press release can be found in the Investor Relations section on the company's website. Please note that the prepared remarks, which will follow, contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. We refer you to all risk factors contained in Jamieson's press release issued this afternoon and in filings with the Canadian Securities Administrators for a more detailed discussion of the factors that could cause actual results to differ materially from those projections and any forward-looking statements. The company undertakes no obligation to publicly correct or update the forward-looking statements made during the presentation to reflect future events or circumstances, except as it may be required under applicable securities laws. Finally, we would like to remind listeners that the company may refer to certain non-IFRS financial measures during this teleconference. A reconciliation of these non-IFRS financial measures was included with the company's press release issued earlier today. Also, please note that unless otherwise stated, all figures discussed today are in Canadian dollars and are occasionally rounded to the nearest million. I will now turn the call over to Mr. Pilato to get started. Please go ahead, sir. Michael Pilato: Thank you. Good afternoon, everyone, and thanks for joining the call to discuss our fourth quarter and full year 2025 results. 2025 was another strong year for Jamieson Wellness, marked by consistent execution across our core markets and nearly 16% growth in our branded business. Consolidated revenue grew 12%, supported by meaningful gross margin expansion and stronger double-digit growth in adjusted EBITDA and operating cash flow. That momentum continued through the fourth quarter as well, led by 17% growth in our Jamieson Brands segment. Now let me touch on our key markets. China was a major driver of growth again in 2025, with revenue up more than 56%, outpacing the broader VMS market in the country by 4x. That performance was driven by highly effective performance marketing and strong gains in brand awareness and purchase conversion metrics across all major digital platforms. Over the year, brand awareness to trial conversion rates increased by 57% and trial to regular buyer conversion rates grew by 81%. The key message here is that our investments are paying off, and we're seeing that reflected in our brand health and repeat rate metrics. While digital remains the engine of growth in China, we're also seeing our brand strength carry over in-store, which speaks to the broader platform we're building in that important market. Youtheory delivered double-digit revenue growth on the full year, driven by the success of our new e-commerce go-to-market strategy and strong consumption in traditional channels. We saw solid performance from innovation in high-growth categories like stress and energy support and continued distribution gains across key retailers. Taken together, these factors strengthen the brand's presence and positioning in one of our highest potential markets. In Canada, we continue to outpace the market with revenue up nearly 6% for the year, driven by even stronger consumer consumption behind our quality-focused marketing campaign. Innovation also contributed meaningfully with new on-trend products and formats continuing to resonate with consumers and reinforce our leadership position in our home market. Our international business delivered another strong year with 2025 revenue up 24%, a particularly notable performance across the Middle East, Europe and the Caribbean. Our Canadian quality campaign launched globally, combined with locally relevant innovation continues to drive trial, category growth and deeper consumer engagement with the Jamieson brand. Across all of our key markets, innovation continues to be an important part of our growth. We're focused on need states like immunity, sleep, stress and energy, and we're bringing forward formats and ingredients that reflect where the consumer is going, while leveraging our global platform to scale winning concepts quickly across geographies. That ability to combine global consumer insight with local execution is a meaningful competitive advantage for us. As we look ahead to 2026, we expect another year of strong branded growth, building on the momentum we have created. We see significant runway ahead in China as our consumer base continues to expand. In the U.S., we're focused on accelerating digital and e-commerce growth and continuing to innovate in high-potential categories. In Canada, we'll continue leaning into our quality-led strategy and innovation to reinforce our market leadership. And internationally, we see continued opportunity through distribution gains and locally relevant innovation in our priority markets. Together, these drivers give us confidence in our ability to deliver another year of solid top line and earnings growth in 2026. With that, I'll turn it over to Chris to walk you through the financial details. Christopher Snowden: Thank you, Mike, and good afternoon, everyone. In the fourth quarter, consolidated revenue increased 13.4% to $277.7 million, driven by strong growth in our Jamieson Brands segment, partially offset by expected declines in strategic partners. Jamieson Brands grew 17.1% to $237.4 million, while strategic partner revenues declined by 4.4%. Within Jamieson Brands, we delivered growth across each of our key markets. In China, revenue was up 43.9%, primarily driven by successful performance marketing, innovation generating growth and brand loyalty across all our major digital platforms. In the U.S., youtheory grew 20.2%, driven by innovation, together with continued strong consumption in e-commerce and growth in our traditional channels. In Canada, revenue increased 5.5%, reflecting strong consumer consumption driven by our quality-focused marketing campaigns and innovation. International revenue increased by 39.2%, reflecting strong consumption and organic growth from all major markets led by the Middle East. In Jamieson Brands, gross profit increased by 19.7% or $18.6 million, and normalized gross margin increased by 90 basis points to 47.6%, reflecting the benefit of branded mix and scale in China. Revenue in Strategic Partners reflected the anticipated decrease of 4.4% or $1.9 million in the quarter impacted by a reduction in business and the timing of onboarding of new customers, contracts related to trade and tariff uncertainties. Strategic Partner gross profit decreased by 2.4% in the quarter, driven by lower volumes. Gross profit margin increased by 30 basis points, mainly driven by customer and product mix. In the quarter, consolidated gross profit increased by $18.5 million to $118.7 million, mainly driven by higher branded revenue and increased margins, partially offset by lower strategic partner revenues. Gross profit margin increased by 180 basis points due to a higher proportion of growth in Jamieson Brands and higher growth in China impacting geographic mix. SG&A expenses increased by 20% or $9.8 million in the quarter. The increase reflects investments in performance marketing, particularly in China, variable compensation and ongoing spend to support our global infrastructure. Specific costs of $2.7 million in the quarter were primarily comprised of legal and professional fees related to due diligence for a potential acquisition that ultimately did not meet our very high standards for investment. Earnings from operations decreased by 0.02%, driven by higher revenues and gross profit, offset by marketing investments and acquisition-related legal and other nonoperating costs. On a normalized basis, earnings from operations were up 13.3% to $60.4 million in the quarter. Normalized operating margin was 21.8%, which was consistent with Q4 2024. Adjusted EBITDA increased by 13.7% or $8.1 million in the quarter, and adjusted EBITDA margin was consistent with the prior year at 24.3%. Net earnings were $37.6 million and adjusted net earnings increased by $3.9 million to $38.5 million. Adjusted diluted earnings per share were $0.90, an increase versus the prior year. Turning to our balance sheet and cash flow. We generated $31.9 million in cash from operations in the fourth quarter compared to $37.8 million last year. Cash from operations before working capital was $12.9 million higher than Q4 2024, reflecting stronger underlying earnings. This was offset by an $18.8 million increase in investment in working capital, driven by preliminary higher inventory levels to support growth and to mitigate risks related to tariffs and port congestion. At year-end, we had $126.6 million in cash and available operating facilities. We continue to return capital to our shareholders in the quarter and over the full year. In the fourth quarter, we purchased 53780 common shares for cancellation under our NCIB program for an aggregate consideration of $18.1 million and an average price of $34.05. For the full year, we purchased almost 1.2 million common shares for a total of $37.9 million at an average share price of $32.39. We paid total dividends of approximately $37.2 million. Today, we have announced a dividend of $0.23 per common share declared on February 26, 2026. totaling $9.5 million in aggregate. The dividend will be paid on March 16 to common shareholders of record on March 6. Turning to our 2026 outlook. At the consolidated level, we expect revenue between $895 million and $935 million, representing 9% to almost 14% growth. With that, we expect Jamieson Brands revenue between $790 million and $820 million or growth of approximately 9% to 13%. By region, we expect China revenue growth of 20% to 30% U.S. revenue growth of 14% to 19% in U.S. dollars, Canada revenue growth of 4% to 6% and international revenue growth of 10% to 15% in U.S. dollars. We also expect Strategic Partner revenues to return to growth in 2026, increasing by 10% to 20%. From a profitability perspective, in 2026, we expect consolidated adjusted EBITDA of $174 million to $181 million, representing growth of 9% to 13.4%, with adjusted EBITDA margins maintained at approximately 19.4%. We also expect adjusted diluted earnings per share of between $2.08 and $2.21, reflecting growth of 12.5% to 19.5%. From a cash perspective, we expect to generate between $120 million and $130 million of cash from operations before working capital, representing growth of 9% to 19%. We expect working capital to increase by $25 million to $35 million, reflecting lower investments in 2025, organizational growth and the impact of tariffs on our supply chain. Capital expenditures are expected to be approximately $20 million to support the maintenance of our operations and drive efficiency, including investments aligned with our sustainability goals. Overall, the fourth quarter capped off a very strong year for Jamieson Wellness. We delivered solid financial performance and continue to invest for growth and exit 2025 with a strong balance sheet and a clear outlook for 2026. With that, I'll turn the call back to Mike. Michael Pilato: Thanks, Chris. As we step back and look at the full year, what stands out is the strength and resilience of the foundation we've built, bolstered in 2025 by the successful implementation of our new SAP system, supporting our global Canadian headquarters and three manufacturing facilities. Across our markets, consumers are choosing our brands more often, coming back more often and responding to the innovation we're bringing forward with globally consistent, locally relevant products backed by the trust we've built for more than a century. You can see that in the consistency of our execution throughout 2025 and the momentum we carry into 2026. Vitamins, minerals and supplements is not a discretionary category. It's a staple in people's lives. The category was growing before COVID, it grew through COVID, and it continued to grow through one of the most challenging inflationary periods in the generation. There is no category in CPG I would rather be in. And within it, we are well positioned to continue to grow and operate effectively in whatever environment comes our way. Looking ahead, we're focused on scaling what's working, deepening our relationships with consumers, ensuring our distribution reflects where they want to shop, advancing our innovation pipeline across key need states and showing up with the same quality and trust that has always differentiated our brands. We have a clear strategy, strong demand across our core markets and a team that continues to execute with discipline. In 2026, with a guide of over $900 million in revenue, we are taking the next step in pursuing our goal of crossing $1 billion in sales. None of this happens without our people. Their commitment to our purpose of inspiring better lives every day is what drives this business forward. I'm incredibly proud of their work and grateful for the passion and collaboration they bring to our consumers and our company every single day. Thank you for joining us this afternoon and for your continued support of Jamieson Wellness. We'll now open the line for questions. Operator: [Operator Instructions] Our first question today comes from Stephen MacLeod from BMO Capital Markets. Stephen MacLeod: Nice to see the very strong growth in Q4, particularly in China. And I know you talked a lot about the performance marketing campaigns and the focus on generating brand loyalty. I'm just curious if you can talk a little bit about how those investments are expected to evolve in 2026. Michael Pilato: Thanks, Steve. As we talked about a bit, you could see in our results, and as I talked about in the previous comments, we are seeing great conversion increases, starting with brand awareness and all the brand awareness programs that we're running. We see brand awareness scores increasing. We then see trial increasing. Our conversion rates from awareness to trial are up 57%. And then from trial, consumers that are regularly buying or what you would call repeat, we're seeing those conversion rates increase 81%. So we're continuing to see the consumer resonate with our brand. We continue to see them to be more and more interested in our brand, and then try them and convert to be a regular user, which is fantastic. That's the goal. We continue to see top line growth, and we continue to see margin growth in China as for the expectations we laid out in the Investor Day or Market Day back in March of 2025. And we're quite pleased with the scale of the business and where it's taking us across all of our metrics right now. And we just expect more of it in 2026. The team in China is humming on all cylinders. I was there in November and just totally impressed by what they're doing, how they're operating, and just how engaged they are in growing this brand across consumers in China. Stephen MacLeod: And I think you mentioned in your prepared remarks, just in China, you're seeing the brand growing into the store as well. I guess, as people are seeing the brand online and then that digital growth that digital investment is resonating. So, can you talk a little bit about your in-store experience in China as well? Michael Pilato: Yes. I mean the one thing about this digitally enabled retail world in China and starting to see it grow in other markets as well is it all works as a halo. It's like what you're seeing online is operating as both a retail channel but also a marketing channel. And you're seeing more and more dollars being spent from traditional marketing and media into digital aperture, especially in a place like China. So, we saw, obviously, e-commerce is our biggest channel in China by quite a lot and the fastest-growing part of the market, and we saw great growth there. But we also saw great consumption growth in retail and club, like strong double-digit POS growth in those channels. So, you're really seeing the halo effect of the brand equity building investment combined with the digital and e-commerce investment, haloing across not only retail, but all e-commerce platforms at the same time with strong growth across the board. It's really nice to see, and it shows that the engine and what we would call the flywheel is working right now, which is great. Stephen MacLeod: And then maybe just on Canada. I was just wondering if you could give some color around the sort of consumption volumes that you saw versus what you thought the market did in the quarter? Michael Pilato: We saw the market on the quarter, on the year. Stephen MacLeod: I was asking about the quarter specifically, but happy to hear both. Michael Pilato: I mean, they both are in line with the same trend. We saw category consumption in Canada continue to grow at the mid-single-digit range in dollars and in units. And then as a company, we outpaced that by a couple of points. So, I feel really good about consumption and shipments and all lining up to deliver what was a great year in Canada. I know we talk a lot about China, we talk a lot about youth, and they are our top growth vectors. But to deliver a year in Canada again 5.9%, almost 6% that's just an incredible number in a very mature market where we already are a market leader. I'm just as impressed with the work the Canada team does to continue growing that business as I am for what's going on in China. It's been amazing to see that. And again, if you look at our guidance, Canada is expected to grow again somewhere in that range, which is great to see. Operator: Our next question today comes from Justin Keywood from Stifel. Justin Keywood: Excellent results. Maybe just to start on the favorable guide. What gives you confidence that the business is going to grow at that rate, including Canada, given the strong 2025 that will be lapped? Michael Pilato: I think a couple of things, Justin. I think one, we have marketing programs and innovation, all led by some of the strongest consumer insights we've ever had globally, and that then resonates down to all of our markets. I mean, our team is just on it right now and doing a great job in everything that they do. But the reality is the health and wellness category as a whole continues to grow globally. We continue to see optimistic growth projections on categories and all the markets we play in. We continue to see the consumer getting healthier. We continue to see the aging population engage in the category in a deep way, and the younger generation, the Gen Zs, the millennials, and the Gen Zs getting into the category earlier than ever. I mean it's not uncommon nowadays to see 18- to 20-year-olds taking vitamins, minerals, and supplements, and you're seeing that grow and expand. And I just think that global trend is perfectly in line for us to continue to grow and to continue to outpace the market growth based on our 100 years of heritage and knowing what we know and how to grow in this category. Justin Keywood: And on the Q4, was there any impact from the tough flu season that we were in the mid? Or was it just regular demand patterns, including from the younger generation, as mentioned? Michael Pilato: No, we definitely saw some immunity growth in Q4. And most notably in December, it really picked up in December. We saw immunity really grow double-digit consumption in the month of December. So, it definitely is impacting the business. The one thing I would say, though, today is if you go back to COVID, we talked about immunity and it being a high percentage of our business, which it was and it still is, but it is much less meaningful part of our business today than it was back then. I mean we've just expanded so much globally. We've expanded into so many categories. While it is a very important category for us and important in Canada, it doesn't have the same materiality in our numbers that it would have had historically, now that we're so much bigger in so many different places now. Justin Keywood: And then in the opening remarks on M&A, there was mention of a potential acquisition not meeting the stringent criteria of Jamieson. Are you able to refresh us what that criteria is and how the M&A pipeline looks for this year? Christopher Snowden: Yes, we are looking for a scaled quality brand. We're focused primarily on the U.S. today as an ability to increase the breadth of our participation with the U.S. consumer in that market. So, we're looking for digital expertise. We're looking for multichannel and multi-segment. Justin Keywood: My question was by scaled provider. Would that be a similar size to youtheory or potentially larger? Christopher Snowden: I think minimum $100 million is what we're looking for. Certainly, if they had expertise in digital, we would consider smaller. But ideally, we would be looking for a little larger than $100 million. Operator: Our next question comes from Nathan Po, National Bank Capital Markets. Nathan Po: So, your 2026 EBITDA margin commentary implies a stronger mix shift into fast-growing geographies, which don't have quite a mature margin profile yet. How does that tie into your commentary from last quarter on higher ROI on marketing spend? And can you also frame that with respect to current growth expectations? Christopher Snowden: So, as we continue to reinvest and invest in China, we've been realizing a higher return on that brand awareness on that conversion, as Mike said. So, we are actually ahead of our margin expectations in China as a specific geography, and you compare that to what we talked about in our March Investor Day presentation. The point offset is the fact that China is growing much faster. So even though you're ahead on a discrete margin profile perspective, them being a larger part of the overall pie is what allowed us to continue just to match the margin profile on an annual basis in '25 versus '24. When we look forward to '26, we see margin growth in all segments of the business. Now it's the mix that then again, affects that margin. So with additional growth in Strategic partners, accelerated growth in China, that means we're going to be roughly flat in EBITDA margin year-over-year. Nathan Po: And can you give us an idea of seasonality this year with respect to promotional windows and pipe fill timing? Christopher Snowden: Yes. Seasonality doesn't change too much year-to-year. In each of our geographies, we have specific key promotional periods. In Canada, you'd be really focused around Q3, back-to-school, back to routine New Year, New You. Within the U.S., it would be back to beach that July, June, July time frame, focused volume in Q2 and then again in Q4 with, again, the New Year, New You. Whereas in China, you've got the two big promotional windows with 6/18 and 11/11. Those are going to be consistent year-on-year, and we don't see a big seasonal shift between our growth patterns between '25 and '26. Nathan Po: And just further on that, the commentary over the last 2 years on innovation, specifically in youtheory being front half weighted and back half weighted. Could you give us some more color on that? Michael Pilato: Yes. Youtheory has a great year planned on innovation. I do think you will see a bit more balance this year and their innovation throughout the year. We've got multiple products planned to launch. They're launching throughout the year. We did have a big launch in late Q3, early Q4 in 2025. So we will be lapping that in 2026, but I would expect a more evenly planned out innovation cycle, nothing that should have a material impact like that one last year did. Operator: [Operator Instructions] Our next question comes from Ryan Neal, TD Securities. Ryan Neal: This is Ryan sending in for Derek. Canada is a mature market for you guys, but you're still evidently squeezing out that consistent mid-single-digit growth. Just wondering if you could quickly talk about some of the categories where you're taking share as well as maybe some of the other categories you feel perhaps you're under-indexed in or growth is going to be higher moving forward? Michael Pilato: Yes. I mean we continue to see great growth around things like sleep, energy, and stress. And of course, talking about the flu season of the past year in immunity. So we continue to innovate and focus on where the trends are in the marketplace, and that's where we'll continue to focus. So I would say those trends are playing out globally. We're seeing growth and share growth across most of our markets under those subcategories, and it continues to be the case here in Canada. I'm sure you saw a lot of our advertising and innovation advertising and marketing campaign through Q3 and Q4 around our new magnesium product. That, for example, is doing very, very well for us and driving leadership in a category that is on fire, quite frankly, globally. Operator: Our next question comes from Ryland Conrad, RBC Capital Markets. Ryland Conrad: Just on youtheory, I think it's been a year or so since you've launched the GLP-1 companions. So could you just provide an update on that? And then more broadly, I mean, we've seen several developments in recent months around improving accessibility to GLP-1s, whether that be oral formats or just lower prices. So how are you thinking about the impact of GLP adoption just on BMS as a whole? Michael Pilato: Yes. I think we've talked about this over the past couple of years. I think GLP plays well into our business on two fronts. One is the products we launched to deal with some of the side effects, and I can talk about that in a minute. But the larger, more exciting part for a business like ours is the long-term effect of GLP on global consumers and the fact that you have millions of global consumers that are step changing their health and step changing their health for the long term. We know when consumers step change their health, they will engage in our category for the first time, then they will add a second product. They'll continue to grow into the category. So I really do think that GLP-1 and this notion of consumers globally trying to get healthier and tapping into a consumer segment that hasn't typically been engaged in our category is really good for us long term. It might be a bit of a slower build, and it will take some time, but we truly believe that's a tailwind for our category for the long run. When it comes to the specific products we launched, we launched them last year, early last year, we said we did not have a lot in our guide. It was a slow rollout. We were testing it. We were seeing where the right place was for it. I would say that it's still early days. I mean it's a completely new segment. We have had some encouraging results, like, for example, on the multivitamin product online. We're starting to see some nice trends there. We're just starting to really figure out with retailers, how do they tackle GLP-1 from a support product perspective and where is this category going to go. So I would say it's where we expect it to be at this time. We expected it to remain modest through the year, but growing, and we continue to expect the same thing in 2026 as we continue to see where the GLP-1 trends go. Ryland Conrad: And then just on China and the medium-term margin trajectory there. I guess, could you maybe help us size that up? Like will that be gradual expansion as the business scales? Or are there any kind of step changes over that period? Christopher Snowden: So if you go back to our March investor presentation, we said there was about an 800 basis point margin evolution over the next 3 to 5 years starting from 2024 as a base. We're well on track. That is really focused on levering the infrastructure that we've built out there. We've got, I think, more than 60 people in our Shanghai office now, and that team is really set up to deliver a significant amount of revenue. So that will scale evenly. It will be a slow build over the next 3 to 4 years. Ryland Conrad: And then just still on China, I guess, given your success there to date, are there any plans to take your learnings there and just expand the Jamieson brand into other countries across APAC? Michael Pilato: Yes, for sure. I mean we have an ongoing project going in Asia, trying to figure out what is the next big market for us in Asia. We do have some business in other markets in Asia. We have for some time. But we do have a small group of people in our international team really trying to figure out where do we want to invest in Asia outside of China for the longer term. So that work is going on. Nothing major built into our guidance for 2026. But as we start to expand and grow there, we will definitely make sure the market knows about it. Operator: Ladies and gentlemen, there are no further questions at this time, and this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, everyone, and welcome to today's AMG Q4 and FY 2025 Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded, and I will be standing by if you should need assistance. It is now my pleasure to turn the conference over to Thomas Swoboda. Please go ahead, sir. Thomas Swoboda: Thank you, Paul. Good day, everyone. Welcome to AMG's Fourth Quarter 2025 Earnings Call. It is a very busy reporting day. We are aware of that. So we appreciate you taking your time for us. Joining me on this call is the entire AMG Management Board, namely Dr. Heinz Schimmelbusch, the Chairman of the Management Board and Chief Executive Officer; Mr. Jackson Dunckel, the Chief Financial Officer; and Mr. Michael Connor, the Chief Corporate Development Officer. We published our fourth quarter 2025 earnings press release yesterday, along with a presentation for investors, both of which you can find on our website. They include our disclaimers about forward-looking statements. Today's call will begin with a review of the fourth quarter 2025 business highlights by Dr. Schimmelbusch. Mr. Connor will comment on strategy and Mr. Dunckel will comment on AMG's financial results. At the completion of Mr. Dunckel's remarks, Dr. Schimmelbusch will comment on outlook. We will open the line to take your questions thereafter. I will now pass the floor to Dr. Schimmelbusch, AMG's Chairman of the Management Board and Chief Exec Officer. Dr. Schimmelbusch? Heinz Schimmelbusch: Thank you, Thomas. In 2025, we achieved the third highest adjusted EBITDA in the company's history despite weakness in lithium and vanadium. This flexible response to a changing market environment highlights the quality and the breadth of our critical materials and technologies portfolio. Governments are pushing for onshoring of critical materials supply, creating significant opportunities to grow our business. AMG is focused on capital-light, high-return projects that expand its geographic and critical materials base. For example, we are expanding the footprint in U.S. critical materials with a high-purity chrome metal facility, which is set to come online in the first half of '26. Moreover, the Management Board plans to strengthen AMG's critical materials recycling franchise in 3 ways: First, we plan to develop a circular high-purity molybdenum processing facility for fresh refining catalysts in 2009 (sic) [ 2029 ] at latest. Second, we are strengthening our lithium cluster in Germany by accepting recycled lithium carbonate and converting it to technical grade hydroxide for the use then in Bitterfeld's main upgrading facility. And third, Phase 1 of our supercenter project in Saudi Arabia is currently under construction and commissioning is targeted for the second half of 2028. Looking ahead, our operational focus will be on compensating for the temporary inventory benefit of more than EUR 70 million in Antimony in 2025. Thanks to the recent tailwinds from pricing as well as volume increases in our vanadium and lithium businesses, we are optimistic about maintaining our attractive earnings level. Based on our detailed scenario planning, we expect 2026 adjusted EBITDA in the range of EUR 210 million to EUR 240 million. The first quarter of 2025 will represent the trough of earnings cycle as higher pricing begins to impact in the second quarter and our volumes ramp up in the second half of '26. This is due to certain delays in the pricing reaching our EBITDA. I will now hand over to Mike Connor. Mike? Michael Connor: Thank you, Heinz. Good morning, everyone. While markets have been captivated by AI and other intangible assets, the foundation of that growth remains deeply physical. AI, electrification, aerospace, defense, renewable energy, all of it depends on refined materials and industrial infrastructure. As a result, it's becoming increasingly clear that critical materials are not commodities. They're strategic assets, and they are increasingly being used as tools of geopolitical influence. Governments around the world are intensifying efforts to secure supply chains. In that environment, AMG is not simply participating. We are positioned at the center of it. Today, control of critical materials is not defined by who owns a mine. It's defined by who can process, refine, recycle and deliver materials to exacting specifications at an industrial scale. This is where AMG lives. We combine more than a century of metallurgical experience with advanced processing technology, world-leading vacuum furnace systems and global leadership in metallurgical waste recycling. Across lithium, vanadium, specialty alloys and catalyst recycling, our competitive advantage is processing excellence. Today, we are outlining $120 million growth CapEx program to expand and strengthen our recycling franchise. You can see a summary of this program detailed on Page 3 of our fourth quarter investor presentation posted this morning on our website. Let me now move to our Lithium segment, where we are seeing meaningful progress. At Bitterfeld, we are delivering on plan. The refinery is producing battery-grade lithium hydroxide in specification and ramping steadily. Operational performance is strong and customer engagement on qualification continues to advance. We expect to begin selling commercial volumes by midyear and progressively ramp toward full utilization. This marks a significant inflection point for AMG. Bitterfeld provides critical energy storage material capacity in Europe at precisely the moment the region is building its own battery ecosystem. As the plant ramps and pricing recovers, the value of this asset will become increasingly evident. We are also expanding our lithium feedstock optionality in recycling. This is shown on Pages 5 and 6 of our quarterly slides. Today, we can recover lithium from recycled lithium hydroxide streams, which are typically available at highly attractive pricing and represent a portfolio -- a profitable feedstock source for us. To enhance this advantage, we are adding processing capacity for recycled lithium carbonate streams as well. This expansion increases access to low-cost secondary material, improves margin resilience, strengthens flexibility at Bitterfeld and reinforces our role in building a circular European battery ecosystem. Importantly, this investment is supported by grants from the German government, as we previously announced. In Brazil, concentrate volumes in the fourth quarter were temporarily impacted by amphibole incursions in that ore body, increasing waste material and reducing production late in the year and into early 2026. Drilling confirms these incursions were isolated. Production has moved beyond the affected area and is now operating smoothly. Most importantly, with lithium and tantalum prices recovering, we are seeing a meaningful and accelerating improvement in profitability in Brazil. Turning to molybdenum, which we detail on Pages 7 and 8 of our quarterly presentation. We have announced our ambition to build a fully circular high-purity platform, similar to what we established in vanadium. AMG has successfully tested proprietary technology, converting recycled molybdenum into high-purity oxide suitable for fresh HDS catalyst. The acquisition of AURA Technologies accelerates this strategy. AURA provides an established recycling platform and a fully permitted site, reducing execution risk, accelerating our timeline and lowering capital intensity. It strengthens our specialty recycling platform, expands our footprint in high-specification materials, and we see clear opportunity to further scale this highly profitable venture over time. In the Kingdom of Saudi Arabia, our supercenter joint venture is advancing toward final documentation for nonrecourse project financing. This project, which will process power plant gasification ash into high-purity vanadium pentoxide, demonstrates our ability to combine advanced processing expertise with alignment to regional industrial policy objectives. The full scope of our supercenter project is shown on Page 9 of our quarterly slides. Additionally, AMG LIVA will install its hybrid battery system at an Aramco solar plant in the Kingdom. This installation supports renewable integration, reduces carbon emissions and enhances grid independence, translating our materials expertise into energy system solutions. Overall, we expect headcount of approximately 3,200 by year-end compared with 3,600 at the end of 2025, reflecting the sale of AMG Graphite and the closure of AMG Silicon operations. This is disciplined portfolio management in action, focusing capital and talent on our highest value strategic platforms. In summary, when 2026 -- while 2026 is an operational transition year, strategically, AMG is emerging stronger with expanding processing platforms, improving profitability drivers and increasing strategic relevance in critical material supply chains. We are building capacity where it matters most, expanding high-return recycling and processing platforms. Positioning AMG at the center of the structural shift toward material security and supply chain localization. The world is rediscovering that physical assets and industrial know-how matter. AMG has spent decades building a global platform that gives us an unparalleled position as geopolitics and supply chain shifts redefine the critical materials industry. As a result, today, we are more confident than ever in our strategy, our recent investments and our ability to capitalize on the opportunities emerging in this market. I will now pass the floor to Jackson Dunckel, AMG's CFO. Jackson Dunckel: Thank you, Mike. Starting on Page 10 of the presentation, you can see that Q4 '25 adjusted EBITDA increased 25% versus the same period last year. This was primarily due to the recognition of incremental [Technical Difficulty] On the lower left, you can see that our adjusted net income attributable to shareholders. In the fourth quarter, we had $41 million of net operating loss in the U.S. and to a lesser extent. This was due to operating losses, and it is consistent with IFRS accounting. It's important to understand, however, that these tax loss carryforwards are at our U.S. and German holding companies. In Germany, we removed the equity and holding it as assets held for sale, and we had a $19 million write-down for silicon. Per accounting rules, these losses negatively impact us from utilizing our loss carryforwards. In the U.S., our holding company pays the interest on our debt and holds all of our corporate costs. In 2025, our earnings on vanadium could not overcome these expenses and IFRS dictates that we derecognize the loss carryforwards. As some of you have noted, prices are increasing, and this outcome does not reflect management's confidence that we will be able to utilize these net operating losses when the two holding companies return to profitability. As such, we added back to adjusted net income figure in addition to the tax effective amount of our, I'll discuss below. The net result is a $5.6 million adjusted net income for the quarter, which reflects the operational performance of the business. On Page 11, you can see the price volume movement for our key products represented by arrows, which our segmental results. I will. Page 13. On the top left revenues increased 16% versus the prior year, driven by higher lithium market prices as well as a 35% increase in [Technical Difficulty] sales volumes. These impacts were partially offset by lower lithium concentrate sales volumes versus Q4 '24. In Brazil, as Mike discussed, poor ore quality caused recoveries to drop during Q4, reducing production volumes and impacting production costs. We are currently running at an annualized production rate of 110,000 tonnes. Despite the depressed volumes, we remain profitable and low cost due to our multiproduct mining operation. AMG Vanadium results are shown on Page 14. Revenue for the quarter increased by 8% compared to Q4 '24 due largely to our aerospace-focused businesses, titanium alloys and chrome, which increased volumes and prices during the quarter. Q4 '25 adjusted EBITDA of $11 million for our vanadium segment was 64% lower than the same period in 2024. This is primarily due to the recognition of incremental 45X allowances in Q4 '24, but is also due to lower volumes of vanadium produced to supply shortages from our North American refinery suppliers and shipping challenges for overseas catalysts. -- results for AMG Technologies are shown on Page 15. The Q4 '25 revenue increased by $66 million or 40% compared to the same period in '24. This improvement was driven largely by the higher antimony sales prices in the current quarter as well as strong sales in engineering. EBITDA of $31 million during Q4 '25 was [Technical Difficulty] 54% higher than the $20 million in Q4 '24. The increase was due to higher profitability in AMG Antimony and AMG Engineering. Page 16 of the presentation shows our main income statement items. The key change on this page is regarding our tax expense, which was $43 million for Q4 '24, up from $8 million in the same period in '24. This increase was due to the derecognition of net operating losses we discussed earlier. Page 17 of the presentation shows our cash flow metrics. Strong cash generation resulted in $81 million of cash from operating activities during Q4 '25 compared to $64 million in the same period in '24. Our cash generation would have been even stronger if we had received the cash for the 45X allowances as planned. Due to the government shutdown last year, we now expect to book this cash in 2026. Our Q4 '25 return on capital employed was 13.2% compared to [Technical Difficulty] 9.1% in Q4 '24. AMG ended the year with $509 million of net debt. And as of December 31, 2025, we had $289 million of cash and cash equivalents and $195 million available on our revolving credit facility. The resulting $484 million of total liquidity demonstrates that our balance sheet is in good shape. And importantly, we have no significant near-term debt maturities. In '26, capital expenditures are projected to be approximately $70 million to $90 million [Technical Difficulty], primarily driven by the targeted growth investments in our vanadium and lithium segments, which Mike discussed earlier in his remarks. Based on our expected 2026 EBITDA and this estimated CapEx, we expect to generate positive free cash flow in 2026. That concludes my remarks. Dr. Schimmelbusch? Heinz Schimmelbusch: Thank you, Jackson. Pricing for many of our materials has strengthened in early '26 and the backlog in our engineering business has sustained historically high levels. However, given the lack of pricing effect falling through [Technical Difficulty] P&L, this tailwind will only begin supporting our adjusted EBITDA in the second quarter of this year. We expect the first quarter of '26 to be down sequentially. Our scenario planning results in an adjusted EBITDA range for the year of $210 million to $240 million end [Technical Difficulty] Operator: [Operator Instructions] And our first question comes from Frank Claassen of Degroof Petercam. Frank Claassen: Two questions, please. First of all, on -- you've indicated that on the Brazilian lithium plant, you are now at a 110-kiloton run rate. When do you expect to reach the full 130 kilotons? That's my first question. And then secondly, you've made EUR 30 million equity contribution to the supercenter in Saudi Arabia. Is this it? Or is there more to come in the coming years? Michael Connor: For the Brazilian operation, we're working on it. We obviously have had some problems with the expansion. Currently, we are running at the 110 rate, and we're working to fix it as quickly as possible. Our hope is to have it running at the full rate by the end of the year. Jackson Dunckel: And on ACMC, that $30 million has not yet been invested. We are currently investing equity to get the plant moving and starting construction, but that does represent the total required outlay, assuming that we close the nonrecourse project financing, which we feel very good about. Heinz Schimmelbusch: One might... Frank Claassen: Sorry, yes, go ahead... Mr. Schimmelbusch... Jackson Dunckel: We haven't contributed it yet, but that is the max we will contribute. Heinz Schimmelbusch: So one might add that this is Phase 1 of a multiyear, multiphase project development concept in Saudi Arabia, but that is not a short-term equity contribution matter. This is just to mention that this is not a onetime project. This is part of a multi-project expansion. Operator: And our next question comes from Michael Kuhn of Deutsche Bank. Michael Kuhn: Firstly, on, let's say, sequential results momentum. You're basically saying another down quarter. Maybe you could provide a few more insights into -- into the building blocks here. And maybe you could also put maybe a rough number on the 45X effect in the '25 accounts and, let's say, in the catch-up effect that you expect for 2026? Jackson Dunckel: So I'll start with 45X. We have an outstanding receipt from the government of $30 million. That is not a catch-up effect. That's purely the calculation from 2024, 2023. We will be submitting '25 in due course. Michael Connor: And as far as the sequential earnings, there's about a 3-month lag that we see the impact of lithium prices. And so you can look at the timing on the charts, but essentially, that's happening over the past few weeks. So we'll really see that in the second quarter. So I wouldn't expect to see significant increase in profitability in our Lithium segment until the second quarter. There's also a lag on some vanadium prices as well. It's not as significant but similar in nature. And so when you look at the profitability of those 2 segments, you won't see the pricing effects until the second quarter. And the impact of the pricing effect, you know our volumes for both lithium and vanadium largely, and you can kind of calculate that. But we wouldn't expect significant movements for those 2 segments in the first quarter, but do expect to see that price impact come through in the second quarter. Jackson Dunckel: So Michael, numerically, what that means is, yes, sequentially down in the first quarter, second quarter, well north of $50 million of EBITDA and then ramping thereafter throughout the rest of the year. Michael Kuhn: Understood. Then maybe on the AURA acquisition on that deal. I understand the logic. The question I would ask is why wasn't that part of AMG's portfolio right from the beginning and entered it now? Jackson Dunckel: Yes. So AURA on a stand-alone basis was a pretty small operation. And the key to unlocking the potential for us for AMG that made it highly attractive was the technology that we came up to produce high-purity molybdenum, which can be reused in fresh catalysts. The technology didn't exist historically. And so that's why we weren't in there originally. But once we were able to develop this technology, which we've worked on for several years because we saw the huge market potential of it. Once we achieved that, we then looked at the best opportunities to quickly and as cost effectively as possible, develop that expansion, which we're extremely excited about because it's a fantastic market. And there's great opportunity for further expansion on it. But the key is the technology advance that we made recently and then putting a strategy together to advance it. And so historically, prior to us achieving that technology, it would have been a relatively small business for us, as you can see in the purchase price. It wasn't a huge opportunity from an EBITDA perspective until we added in that technology advance. Michael Kuhn: One more on the carbonate converter. -- let's say, adding this to your supply chain and having discussed potential investments in Brazil and Portugal in the past, does this have an impact on, let's say, the overall planning of your -- what you want to reach at some point, integrated lithium supply chain? Heinz Schimmelbusch: No. This is an optimization. We want to open our supply chain to recycling. And recycling interim products have that quality, which we need to convert into a quality in order to the hydroxide refinery being able to process it. Michael Kuhn: All right. And then very last question. Any additional news you can share on, let's say, the talks with the U.S. government that we already discussed over the past 2 calls. Heinz Schimmelbusch: Well, we are discussing, as Mike has said, of course, with several governments wherever we are operationally involved in critical materials. This is a worldwide thing. We are very happy that the U.S. government is active in this, and we are since quite some time in very constructive conversations with the various funds, which are covering that subject in the U.S. government and the various departments. So that is -- we will comment on that when we -- when we have definitive results. But right now, it's in the preparatory stage. Operator: [Operator Instructions]. We have no further questions at this time. [Technical Difficulty] Thomas Swoboda: Thank you, Paul. Your line was quite bad. I hope I'm getting it right. So thank you again for taking the time, and we hope to see you on the road to discuss the developments in the industry and in our company in person. Thank you very much. See you next time. [Technical Difficulty]
Arturo Langa: Good afternoon, and welcome to Globant's Fourth Quarter 202 Earnings Conference Call. I am Arturo Langa, Investor Relations Officer at Globant. [Operator Instructions] Please note, this event is being recorded and streamed live on YouTube. By now, you should have received a copy of the earnings release. If you have not, a copy is available on our website, investors.globant.com. We will begin with remarks by our Chief Executive Officer, Martin Migoya; our Chief Technology Officer, Diego Tartara; and our Chief Financial Officer, Juan Urthiague, followed by a Q&A, where they will be joined by our Chief Revenue Officer, Fernando Matzkin. Before we begin, I would like to remind you that some of the comments on our call today may be deemed forward-looking statements. This includes our business and financial outlook and the answers to some of your questions. Such statements are subject to the risks and uncertainties as described in the company's earnings release and other filings with the SEC. Please note that we follow IFRS accounting rules in our financial statements. During our call today, we will report non-IFRS or adjusted measures, which is how we track performance internally and the easiest way to compare Globant to our peers in the industry. You will find a reconciliation of IFRS and non-IFRS measures at the end of the press release we published on our Investor Relations website announcing this quarter's results. I will now turn the call over to Martin Migoya. Martín Migoya: Hello, everyone, and welcome back. Globant has spent 20 years helping the world's leading companies build and transform their technology, developing deep engineering capability, real industry expertise and long-term client partnerships along the way. That is and will always be our foundation. Over the past year, we have been adding a new layer on top of it. And what I want to share today is how that layer is already changing our trajectory. Enterprises are moving from AI experimentation to AI execution. After a period of significant investment with limited returns, our clients are now deciding with greater clarity. They understand AI's potential, and they are seeking partners who can deliver real outcomes, not just pilots, but production-grade solutions built with knowledge of their industry, their systems and their business logic. That is exactly what we built with our AI pods, running on top of our industry specialized AI studios. And that is why we believe Globant is the AI native technology solutions company. The partner enterprises are choosing to close the gap between AI investment and AI impact. We launched our AI Pods 9 months ago, and it is already proving real success with our customers. In 2025, we achieved both our highest revenue and strongest free cash flow generation ever while simultaneously restructuring our delivery organization and transforming our delivery model. In Q4, we produced the highest quarterly bookings of the year, up 32.4% year-over-year. Our pipeline remains robust at $3.4 billion. I want to use this call to walk you through our results, our strategy and the specific metrics that demonstrate why we are convinced about the path ahead. The IT professional services industry faces a structural shift. Technology capital is flowing overwhelmingly toward AI infrastructure, with Gartner projecting IT services to grow just 4.4% in 2026, less than half the rate of overall IT spending. However, the big 4 hyperscalers are approaching $700 billion in combined 2026 CapEx, nearly triple the level of just 2 years ago. The scale of that investment is extraordinary, but it also created a massive implementation gap. In 2025, MIT research showed that most enterprise AI pilots did not deliver measurable P&L impact yet and a significant number of companies paused or restructured their AI initiatives during last year. Meanwhile, technical debt across the Forbes Global 2000 stands at $1.5 trillion to $2 trillion according to HFS Research. And Forrester reports U.S. customer experience quality at an all-time low after 4 consecutive years of decline. What this tells us is not that AI is failing, it is that the industry is entering its execution phase. After an 18-month cycle of experimentation, enterprises now understand what AI can do for their business and are actively seeking the capability to implement it at scale. This shift from exploration to execution is currently driving our record bookings. We are living through a generational transition. Think about what happened when AWS launched. It did not just offer cheaper servers, it gave birth to an entirely new industry. Cloud-native companies, modern SaaS, the entire start-up ecosystem of the last 15 years, none of that existed before AWS made elastic accessible infrastructure possible. That is the moment we are at now in technology services. AI native delivery, intelligent agents supervised by domain experts operating on a token subscription model is not a better way to do what we already do. It is the foundation of an industry that does not yet fully exist. Globant has been the first to define what AI native technology services look like, and 2026 is the year the market begins to validate that bet. Our core business, deep software engineering, digital transformation and domain expertise built over 2 decades is not going anywhere. Enterprises will continue to need that capability for many years to come, and we will continue to grow it. What we are doing now is adding a new and powerful layer on top of that foundation, an AI native offering that scales with the AI opportunity itself. For years, a company's digital products were its moat, building differentiated software required hundreds of top engineers and hundreds of millions of dollars. AI has made it faster and more accessible to build. And that is actually a demand accelerant for the entire industry. When every company can build software more efficiently, differentiation no longer comes from whether you can build. It comes from how much you build, how fast you iterate and how continuously you evolve. We are entering an era of dramatically more software creation and dramatically faster competitive cycles. Our deep engineering expertise and 2 decades of domain knowledge now supercharged by AI, position us perfectly to meet that demand. Against that backdrop, we see 4 clear and growing avenues of demand. First, Agentic Workflow Orchestration. Enterprises need autonomous AI agents coordinated across complex systems, not point solutions, but end-to-end workflows that actually move business processes forward. Second, core modernization at AI speed. The Global 2000 carries $1.5 trillion to $2 trillion in accumulated technical debt, a massive anchor on innovation. AI native delivery allows us to attack this backlog at a pace previously thought impossible, enabling the enterprise agility our clients need to compete and win. Third, custom software reclaiming ground from SaaS. For years, SaaS was the default answer for enterprise software needs. AI native delivery is now expanding the range of what enterprises can build economically, making highly personalized software viable for use cases that were previously only practical with off-the-shelf platforms. This is not about replacing SaaS. It is about enterprises having more options, more control over their data, their workflows and their competitive differentiation. SaaS and custom software are increasingly complementary, and we are uniquely positioned to deliver both. Fourth, AI governance and corporate sovereignty. As enterprises deploy agents from multiple vendors across departments, data scatters and control erodes. They need a trusted orchestration partner to govern it all and keep every interaction under their control. Our partnerships with NVIDIA, OpenAI, AWS, Salesforce, SAP, Oracle, Microsoft, Google, Adobe and others are central to this strategy. We are the AI native orchestration layer that makes it work for our clients. Our AI pods are AI-powered service units specialized by task and industry. AI pod software creates and evolves technology. AI agent workflows supervised by Globant experts produce working software artifacts on a token subscription model. AIPodOps automates business processes in production with institutional knowledge compounding with every token consumed. The customer owns everything, no seats, only usage. Unlike traditional models, our AI Pods operate on a subscription-based capacity model. Clients subscribe to a dedicated tier of orchestrated output with a defined token consumption cap. The delivery engine powering both is Globant Enterprise AI, our proprietary platform with 4 interconnected hubs, the enterprise hub connecting securely to all corporate systems, the AI hub routing intelligently across 140-plus LLMs while preserving full data sovereignty, the agent hub, where we build and publish industry-specific agents encoding 20 years of domain expertise and the AI Pods hub where clients subscribe and scale. What I want to be explicit about is that this platform did not appear overnight. We have been investing in Globant Enterprise AI for years, building real product, real orchestration infrastructure, real security and compliance architecture. That investment is embedded in our operating expenses and reflected in our current EBIT margin. In other words, the margin profile you see today already carries the cost of building a proprietary AI platform. 12 months ago, AI Pods revenue was 0. In 2025, we have reached an exit rate ARR of $20.6 million, with gross margins between 45% and 60% compared to our blended gross margin of 38%. This is not an experiment. This is a business. For 2026, we are targeting between $60 million and $100 million in AI Pods exit rate ARR. On top of that, we expect that margin profile to improve further as the subscription model scales and the cost per token continues to decline. This represents a fundamental shift in our structural profitability DNA. As AI pods scale as a share of revenue, they are expected to expand our overall margin profile. Our AI Pods pipeline reached $283 million in Q4, up 34% over Q3 and now represents 8% of the total pipeline versus just 3% in Q2. Over 60 AI Pods operate across clients globally with 24 new subscription offerings closed last quarter alone. Several of our top 10 clients have completed rigorous security and procurement approvals and are actively running AI pods on the platform today. The pipeline is converting. The revenue is flowing, and we are just getting started. Based on the record bookings we are reporting today, the accelerating AI Pods adoption across our client base and the improving pipeline conversion trends, we have a clear line of sight to returning to positive year-over-year organic revenue growth by mid-2026. This is not a hope. It is supported by the bookings we have already signed and the pipeline that is converting. Our 100 squared accounts drove 73% of total bookings this quarter, a clear reflection of the market shift toward high-value, long-term transformations. Underlying these record bookings is our reorganization around AI studios by industry. The record bookings we are reporting today are a direct reflection of that organizational transformation we did last year. Several of our top clients have already moved past the pilot phase and are scaling AI Pods across their entire operations. Let me share a few examples. We are working with Employbridge, an Apollo-backed portfolio company, driving AI-led transformation through our AI Pod subscription model. After a successful pilot phase, Employbridge decided for AI Pods as their core operating layer, accelerating delivery and driving rapid adoption across the business. We are also working with Banco Galicia, one of Latin America's most prominent banks. After the pilot phase with our AI Pods, they performed an assessment to gauge the efficiency of the model among other vendors and similar teams. Our AI Pods ranked first in nearly every criterion, leading the institution to move to the decision to move to a scaled phase with YPF, Argentina's century-old state oil company. With our human-supervised AI agents, we created a resource orchestration platform to help YPF better coordinate their complex supply chain, reaching over 5,000 providers. Our solution has already helped them reduce the requirement to contract process cycle by 30% to 40% as well as boost the productivity of their supply buyers by up to 50%. Through the use of AI on Globant's orchestrated platform, we are helping them with inventory optimization, enabling YPF's managers to obtain the best possible products for the task at hand before ordering new inventory. We have a long-standing relationship with FIFA, helping them enrich their fan engagement channels in the digital age. Through the deployment of AI Pods, we were able to move beyond traditional consulting services and achieve a major financial milestone for the organization, reducing costs by 20% without compromising the velocity or quality of our engineering output. Our initiative with LaLiga demonstrates how AI Pods rapidly transform an entire ecosystem. In just 3 months, we moved from concept to execution, deploying AI agents across critical functions like budget preparation, contract analysis and audience data. The result is a massive leap in institutional productivity. By moving from traditional services to AI native solutions, we are enabling LaLiga to shift new functionality at a speed previously deemed impossible. We also applied our AI Pods model to our long-standing partnership with Santander to power their new digital payment platform, Santander Pay. By deploying a specialized product definition AI agent within the pod, we cut the projected time for the app's product definition in half. This AI native approach drove a 50% increase in the client team's overall productivity. In summary, it clearly demonstrated how we can accelerate the software development life cycle for one of the world's leading financial institutions. The professional services industry is being restructured right now. The companies that own the orchestration, the domain expertise and the talent to supervise AI at scale will define what comes next. We will be relentless in delivering value for our clients, our partners and our shareholders. We will be disciplined in how we invest, and we are determined to build what we believe is the defining AI-native technology services company of the next decade. Globant has spent 20 years building the foundation for this moment. We have the platform, we have the people, we have the offering. And with that, I'll hand it over to Diego Tartara, our CTO. Thank you very much. Diego Tartara: Thank you, Martin. Hello, everyone. It's great to be here. Following Martin perspective for the industry, we keep on firmly executing on our own reinvention and those of our clients, listening to customers, helping them understand their gaps and curating tailored solutions that create real business value. This goes beyond cost savings and efficiencies and into strategic areas such as increasing market share or improving customer satisfaction. To do this, Globant has overhauled our delivery model to ensure that the quality of our delivery is both technology-focused and client-centric. The teams that previously executed under the delivery and operational areas have now been brought under the technology umbrella. This way, our teams operate without siloed priorities and have more cohesion between offering solution quality and delivering results on time. The result has been tech-powered solutions for our clients that have a stronger operational backing. I'd like to share a few examples with you. We are working with a leading bank in North America that is launching a strategic enterprise-level modernization of its credit and debit card platform, moving from Gen 2 to Gen 3 accounts on AWS. Globant has been selected as the strategic partner to lead this migration, delivering a next-generation cloud blueprint that elevates performance, accelerates delivery and positions this line of business for continuous innovation at scale. This project showcases our strength in helping financial institutions that are already in the cloud and at the forefront of innovation to continue pioneering the industry. We have also been working with Trafilea, a global e-commerce group that builds and scales direct-to-consumer brands needed to rapidly migrate new client stores to their Trafilea platform. We built an AI-powered solution that automates the entire process, resulting in a 40x faster migration. This not only saved Trafilea significant time and resources, but also enabled faster onboarding of new customers. In the pharmaceutical industry, we are working with PharmaMar, world leader in the discovery, development and commercialization of marine-derived anticancer drugs to accelerate oncology research with AI. Through Globant Enterprise AI, together, we created a multi-agent AI system that delivers more than 90% accuracy in complex data retrieval and reduces time to insights up to 15-fold, helping scientists select high potential drug candidates for clinical development in a fraction of the time previously required. This intelligent system integrates information from internal databases, scientific publications and regulators such as the FDA and EMA, allowing PharmaMar's teams to identify promising treatment combinations and make more informed, faster decisions. We also partnered with TOURISE to develop the foundations of the world's first universal Agentic protocol for tourism. AWS, Salesforce, Amadeus, Red Sea Global and Riyadh Air, among others, are also part of the initiative. We presented it at Davos in Switzerland to over 30 global CEOs, and it is gaining strong traction as the standard for how AI delivers seamless, personalized traveler experiences at scale. GUT had a landmark 2025. The agency closed the year with breakthrough campaigns for some of the world's most high-profile brands, including a fully integrated 360-degree campaign, Renaissance of Snacking that took over the Las Vegas Sphere and launched Cheetos and Doritos Simply NKD product line. GUT is a genuine competitive differentiator, and its creative momentum continues to grow. Strengthening our partnerships with leading AI model developers, enterprise platforms and hyperscalers remains a key priority. Globant continues to present its strategic partnership with OpenAI to top clients in its key markets. Weeks ago, we hosted their first multi-industry event in Spain to discuss opportunities with over 60 current and potential clients in that region. In December, AWS granted us competency certifications in both financial services and media and entertainment, further solidifying the autonomy and quality of solutions of our AI studios. We also received the SAP Excellence Award 2025 for delivery quality in Latin America, thereby becoming the most certified SAP partner in the region. Our Salesforce ecosystem capabilities also expanded significantly reaching expert level implementation distinctions across MuleSoft Anypoint, Data Cloud and Agentforce, along with top-tier partnership status across multiple Salesforce clouds. Our teams will take the stage at the NVIDIA GTC in March to share how LaLiga is transforming its business through the most ambitious AI program in global sport using Agentic AI to build connected intelligence across operations, competition management, content, marketing, sporting performance, broadcast and fan engagement. In such a disruptive year, we considered it especially important to share our perspective with the global business community. In Q4, we published industry reports on retail, games and our annual tech trends outlook. You can download all of them at reports.globant.com. While AI continues to dominate many conversations, the real differentiator in 2026 will be execution. Companies that want to remain relevant must accelerate their transformation journeys. Over the past year, we've evolved Globant to be the partner of choice for organizations ready to act and set the pace for the next decade. Thank you very much. Juan Urthiague: Hello, and good afternoon, everyone. I am pleased to discuss our fourth quarter results. We are encouraged by the stabilization of our top line performance and a shift toward more optimistic client sentiment, which represents a meaningful improvement over the conversations we were having 9 months ago. We closed the year with a solid quarter in terms of operational discipline with revenues, operating margin and free cash flow metrics above our initial estimates. In the fourth quarter, our revenue stood at $612.5 million, coming in above our guidance of $605 million. This represents a 4.7% year-over-year decline, including a positive FX tailwind of 180 basis points. Now let's turn to profitability. Our adjusted gross profit margin for the quarter was 37.6%. Gross margins were slightly impacted by the USD weakness relative to LatAm currencies and to a lesser extent, by statutory cost increases in 2 of our main delivery centers, Colombia and India. However, our adjusted operating margin remained at 15.5% for the quarter, flat sequentially. We successfully optimized our delivery pyramid and tightly managed our SG&A, allowing us to protect the bottom line while we work on accelerating our growth. The effective tax rate for the quarter stood at 23.5%, and our adjusted net income for the quarter was $68.9 million, representing an adjusted net income margin of 11.3%. Adjusted diluted EPS was $1.54, consistent with our profitability targets. I am particularly proud of our cash generation mechanics this quarter. During the fourth quarter, we generated $152.8 million of free cash flow, marking the highest quarterly figure in our company's history and achieving a free cash flow to adjusted net income ratio of 221.6% for the fourth quarter or 355.3% on an IFRS basis. On a full year basis, free cash flow reached a record $211.7 million, translating to 76.6% of adjusted net income and 203.6% on an IFRS basis. During the fourth quarter, we invested $50 million to repurchase shares as per the plan announced in October 2025. We plan to continue executing on the share repurchase program. A significant improvement in our days sales outstanding, combined with working capital and CapEx efficiencies helped drive an improvement in our liquidity. We ended the year with $250.3 million in cash and Short-term investments, an increase of nearly $83.3 million sequentially. With a modest total net debt position of $116.4 million, our balance sheet remains strong, providing us with the flexibility to continue our disciplined capital allocation strategy, including our share repurchase program. Now let's move to our outlook. Let's start with our 2026 full year guidance. Based on current market conditions, we are providing a revenue range of $2.460 billion to $2.510 billion, implying 0.2% to 2.2% year-over-year revenue growth with approximately 100 basis points of FX tailwind. We have set the lower end of our range as a prudent baseline. The upper end reflects the conversion trends we are already seeing in our pipeline and the accelerating adoption of AI Pods across our client base. In terms of profitability, we are expecting an adjusted operating margin to be between 14% and 15%. This range includes the impacts of USD weakness and statutory cost increases in Colombia and India. We view the lower end as a stress test scenario as it assumes a further appreciation of local currencies beyond today's spot rates. The upper end contemplates a more positive currency environment and the benefits of our ongoing efforts in SG&A dilution and increased utilization. We continue to prioritize our operational discipline to offset these headwinds and drive toward the higher end of our margin target. The 2026 IFRS effective income tax rate is expected to be in the 21% to 23% range. Finally, we are guiding an adjusted diluted EPS of $6.10 to $6.50, assuming an average of 44.2 million diluted shares. The lower end incorporates the conservative margin assumptions I mentioned earlier, specifically the potential for continued USD weakness. At the same time, the upper end reflects the operating leverage we expect as we scale. For Q1 2026, we expect revenues in the range of $598 million to $604 million. This is an improvement relative to prior years, where the Q1 decline was more significant. The Q1 year-over-year guidance implies at the midpoint, a 300 basis points improvement relative to the Q4 year-over-year performance. For Q1, we expect our adjusted operating margins to be between 14% and 15%. Gross margins will be slightly impacted by the weakness of the USD plus certain statutory cost increases in Colombia and India, as mentioned before. The IFRS effective income tax rate is expected to be in the 22% to 24% range, and adjusted diluted EPS for the first quarter is expected to be between $1.44 to $1.54, assuming an average of 43.7 million diluted shares. To conclude, 2025 was a year of consolidation and evolution. We have diversified our revenue streams, shifted our go-to-market, streamlined our operations and strengthened our financial foundation. We enter 2026 with a healthy pipeline, a more efficient delivery model, which embeds AI in all our projects and the financial strength to capture the opportunities ahead. Thank you for your continued support. Arturo Langa: [Operator Instructions] We'll take the first question from the line of Bryan Bergin from TD Cowen. Bryan Bergin: So 2 questions. I'll ask them both upfront here. First, just a growth clarification for the year on the upper end. I think you mentioned it assumes a solid pod demand trend that you've been seeing in 4Q. But does it also require some level of macro or broader demand improvement versus it being like the same macro backdrop? And then my second question is on the pod model on your GenAI solutions. When we think about the clients that are utilizing these pods, is it pieces of work, broader engagements? Can you kind of just talk about where it's being used specifically as well as then the net impact from like a transition from old to new, if you can kind of get us there. Juan Urthiague: Thank you, Bryan. So as for the first part of the question, the upper end of the guidance assumes that we will continue to perform very well with our pods plus some improvement in the overall market. The midpoint is the most likely scenario as usual, where we see basically more or less more of the same. I mean, no big changes on the macro, no changes, no big changes on the business overall. And that's how we build the guidance for the year in terms of revenues. As for the second part, I will let the team here. Martín Migoya: Yes. The -- what we are seeing on our 7 out of our 10 top customers, we're seeing that people are loving it. And when I say loving it is that people are really looking to change the model from hours or other types of engagement into this kind of output model in which, of course, we charge the tokens, but always, there's a business result attached to those things. So what is happening is that sometimes we're transitioning that work from our current kind of engagement to this new kind of engagement. In some of our customers, there are some small pilots that are starting to happen. In some others, we're going now from pilots into scale without any kind of ask in the middle because the results are really amazing, as I laid out on the examples I provided. So that is kind of changing the whole dynamic around the future of the company, right? Now we are able to not just scale our teams with new people, but now we can also be connected to everything that is happening on the AI space in a direct way. There's a new market that we are creating, which is called the AI native technology services companies. And those AI native technology services companies must find a way to deliver their services, having agents that repeat certain processes that ensure that what is produced is enterprise class with the right security, with the right kind of characteristics for what they need to be produced and then humans supervising those assets that are being created. And that transition is being 12 months ago, indeed, 9 months ago, this product didn't exist. And now we are in a situation that we have in 2025, more than $20 million in ARR. And now we are scaling big customers like the one I mentioned, like FIFA, like Santander, like LaLiga, like Employbridge and many others. So I feel that change is very healthy. It positions us in a different place. And of course, everything is mounted on top of what we already have, more than 800 relationships with top-notch corporations, 28,000 people that are ready to supervise all kind of products that we can produce those agents, the right technology platform to be able to deliver those services and a commercial model, which is absolutely different from anything that we have seen before. And the best thing is not just a prediction, but also a real business. So we are extremely happy with that. I don't know if that answers your question. Bryan Bergin: Well, I guess it partly did. The aspect I'm trying to get at is you mentioned certainly, the gross margin is very high relative to what your historical is, right, in these pod structures. But I'm trying to think about the revenue transition. So if you start from scratch, great in an engagement. But if you start on a client that had an existing engagement, what is that revenue? Like you're getting more productive. Is there a netting impact there on the revenue? Martín Migoya: No. I'm absolutely happy with exchanging the revenue. I mean we are kind of getting the teams that we had in that customer and transforming that into AI Pods with a very different revenue proposition and a different revenue value proposition. So it's a transition that is happening slowly, but it's happening. And sometimes there are new customers. Sometimes there are customers that are working with us on a fixed price that we are delivering now in this new way. So that transition is starting to happen, and we expect that transition to gain momentum as the year progresses. Juan Urthiague: Yes. And in certain customers, Bryan, what you're going to get is that this additional productivity that we have can translate into helping them to reduce all the technical debt that you typically find in organizations. In other cases, it may be in a specific project that you are able to maybe to price in a way that is more cost efficient. So there's going to be a lot of cases, right? But the common factor here is that a lot of the technical debt that many of our customers have, now we can be more productive and we can offer them to do basically part of that additional work with our AI as well. Arturo Langa: The next question comes from the line of Maggie Nolan from William Blair. Margaret Nolan: I'm hoping that you could comment on your expectations for Latin America in 2026, just particularly given some of the recent uncertainty that's resurfaced related to tariffs. Juan Urthiague: Sure. So Latin America, as you remember, at the beginning of '25, we faced some issues and the region for a few quarters was showing negative growth. But then towards the second half of the year, we started to recover, and we actually ended up in a very healthy manner, being Latin America, the fastest region for the quarter. There are different -- as you pointed out, there are different situations in different countries. Argentina and Chile, which are 2 of our main operations are doing very well. Brazil, it's okay. We are basically performing in line with our expectations. And now, of course, we need to see what's going to happen in Mexico, which is a little bit of an unknown at this point. But the main countries are performing well. I think that the recovery that we achieved in the second part of the year, when we look at which are the customers driving that, most of them are in Argentina. So we don't see -- we are not -- we don't see any headwind coming from Latin America. Margaret Nolan: Okay. Great. And then you sounded pretty optimistic about converting the pipeline as well, but I also caught in the prepared remarks that maybe you're expecting clients to look for larger scale or longer duration projects, which I would imagine would kind of change the pace of pipeline conversion and would change the ramp-up of revenue over time. So can you help us understand how that's reflected in the guidance and maybe if it's different from historic? Fernando Matzkin: Yes, Maggie. So what we are seeing is shorter sales cycles in smaller deals. And the bigger deals still lagging just a little bit behind slower than we would like to in terms of closing and ramping up. But leveraging the amazing quarter we had in -- the amazing quarter we had Q4 and also Q3, we're expecting to start ramping up onboarding and converting to revenue very quickly in Q2 and in H2 even. So it's true that clients are cautious, are taking time to make decision when it comes to very large investments. But the robustness of the pipeline is still there. The quality of the deals is very solid. The [ Henry Square ] are performing very, very well, where the vast majority of the bookings are coming from, like Martin said, 73% in Q4. So I'm pretty confident that this combination will allow us to move forward in a very confident way. Arturo Langa: The next question comes from the line of Puneet Jain from JPMorgan. Puneet Jain: So with all the news flow over the last 1 or 2 months around evolution of Agentic AI, what does that mean for IT services spend? Like Martin, you mentioned that it's time for some of those AI investments to move into execution. Are you seeing like increased urgency among your clients to embrace Agentic AI given like all the news flow over the last 1 or 2 months? Martín Migoya: Yes. In the last few months, what we have seen is that companies are moving into action in that space. The avenues are how can I accelerate my technical depth? How can I replace some not very deep Software-as-a-Service solutions. How can I automate my processes using AI? How can I replace workflows of agentic AI processes that I had before. Of course, they must be supervised by humans. And I believe those 3 avenues and the fourth avenue is that how can I improve my customer experience? That research really bumped me when I read it about the idea of consumer happiness. Yes, consumer happiness about how interfaces and experiences are evolving is falling in the last 4 years in a row. So there's a big technical depth of $1.5 trillion to $2 trillion, but also there's a big consumer experience depth. So another avenue of demand is saying, okay, how can I update all these interfaces to the next generation of interfaces. So all these avenues are creating like a lot of demand for AI. I believe that the way to deliver those next-generation services, those AI native services must be absolutely different from what we did in the past. And imagine that we have each of these AI Pods, Puneet, are like a recipe or like a set of instructions like a process that we have been refining for years and years. It has different steps to create enterprise-ready security-ready types of solutions. And what we are producing using those tools is really much more scalable than before and really much faster than before. So customers are seeing that. Now if you just threw AI tools to people, you don't get those results. And that's why it's so important to stress the point that this new industry is the way to create -- is the way to create the savings that you are expecting or if you don't want savings, is the way to create the productivity that you're expecting from these AI teams. So that's why I believe that the AI pods are really catching up. It's a pretty simple way of understanding how to make those savings real as opposed to just keep on throwing licenses of AI tools to people to use them. I'm not really sure that they will use them in the correct way. And again, it's much more different to orchestrate and to supervise a set of agents producing software, and that's real productivity than just throwing AI tools to people. It's an order of magnitude of difference between the 2 things. And this is exactly what we are doing on our AI pods. So yes, I'm seeing momentum and that will keep on growing. That will keep on growing. Puneet Jain: And then all this spending on AI, whether it's for core modernization, consumer experience, AI Pods, do you think like it will represent like incremental spending on IT services? Or will this -- those budgets will stem from cutting elsewhere other parts of discretionary spend? Martín Migoya: No. Look, I mean, I think humanity will create 100x more software than before period. And that is only expansionary for us. So I don't see that this will -- oh, well, now we are happy with this small increment on the productivity and the small increment on the functionality of our product. You hear and you listen, companies delivering much faster functionality than before live. I read many examples during the last few weeks. So I believe that this is something that it will only keep on growing. And the more you can do, the more you consume, and that's a historical trend, right? In every single -- so if we can produce more software faster, we will use more software. And we will expect more functionality, and we will expect more customers to be happy. So it's not a trend. I mean, sometimes when I see analysts and when I see reports and when I read to reports, I see that there's a kind of a limited amount of scope. And what I'm trying to -- the message I'm trying to convey to you is that there's no limited amount of scope just the technical depth is another industry of our size, just the technical depth, right? If you add on top of that, the consumer experience depth, all the new -- there's no way that it will be the same amount of software as before. It will be 100x more software. So that will be translated into better solutions with more platforms, with more AI Pods with a stronger pipeline, well, all these things are building up. In my speech, what I said is 4 years, we have received -- sorry, for almost 2, 3 years now, the vast majority of the investment has gone into AI infrastructure that don't necessarily translate into demand on the professional service space. Before that same investment, we're going into better cloud that was yielding better Software as a Service, more implementation services, but that cycle now needs to come back. And that's why I made the point on the technical depth on this consumer experience depth because at some point, those things need to catch up. Otherwise, the consumer experience index will keep on going down for years and years and years, and doesn't make any sense. In the moment we can have the better and the best experience for our customers, we're having a decline customer satisfaction for interactions with companies. How can we explain that? So one way or another, companies has been distracted investing on AI, throwing AI to people, now is the time to make it -- to get it serious. Impossible more color, my friend. Arturo Langa: The next question comes from the line of Bryan Keane from Citi. Bryan Keane: I guess just thinking high level, Globant has always been a double-digit grower, organic grower. And this year was kind of a transition year, grew 2% for the year and obviously down 5% for the fourth quarter. What can you point to like specifically happened this year that might not be recurring in years to come? Was it just certain client consolidation? Was it any AI pricing pressure that was priced into the model? Like what exactly is the difference that happened this year that necessarily won't recur as we go forward? Martín Migoya: You mean this year or 2025, right? Bryan Keane: Yes, 2025 versus, yes, going forward. Martín Migoya: Yes. I think 2025 was a year of uncertainty in general. Companies retracted budgets in many cases. I think it was a year in which macro uncertainties were extremely hard to overcome for many of our customers, and we suffered that. I think that right now, the situation is a little bit more clean in that aspect. So that increased my expectations of having a more normal year. That kind of compounding downwards from the revenue last year, we bottomed on that revenue, and we expect to come back to growth by the year-over-year, by the half of this year. So the exit rate will come back to a pretty decent level of growth as we approach the end of this year. So what you see on the year-over-year is kind of, okay, it was a year of reaccommodation, restructuring, customer uncertainty, so on and so forth. The whole industry growing slower, which is kind of a killer. And now we are catching up and we are starting to grow again. And towards the end of the year, the exit rate will be much healthier than what you are seeing now. A note on the year-over-year that you are seeing, this already represents something that is stationary, right, that has to do with the moment of the year. And it represents a huge improvement from what we did last year at the same time. I don't know if you noticed that or Juan. Juan Urthiague: Martin is referring to the first quarter compared to the first quarter of last year. So the beginning of this year is definitely better than the prior year, but the cadence of the quarter last year is somehow impacting the growth rate for 2026. When you look at 2026 exit rates, they are more like mid-single digit. And if we keep on compounding, that should put us in a better place for '27. Now of course, there has been an industry situation. I mean, if you look at the vast majority of the players, they are all between 3%, 4%, 5%. So there has been less growth in the sector after massive investments in COVID times and around that time. There is a little bit of getting -- going past that period of massive investments. But the needs are there. The pipeline shows that customers have been accumulating debt, technical debt, and that needs to start converting at some point. Of course, a better macro, a solid U.S. economy should help eventually. I think that we are coming out of 2 years of a lot of uncertainty globally, and that has not helped. But all in all, in summary, I think that the fourth quarter shows a bottom in terms of year-over-year numbers. Q1 already shows a better performance relative to Q4, and the expectation is for that to continue throughout the year. Bryan Keane: Yes. My quick follow-up, Juan, is what do we -- how do we model out headcount growth and revenue per head for this year? And does that model change at all as we get more embracing more of the AI Pods? Juan Urthiague: Yes, definitely, yes. We are seeing that we can do slightly higher numbers, we can continue to grow our revenue per head. With the same or even less headcount, the AI Pod model by definition, requires less people. It's AI Pods, which are agents supervised by some few people. So there is less need for talent. So I think that not just for Globant, but in general, the sector will start to change a little bit that trajectory of headcount and revenue that we have seen in the past 20 years. Definitely, the more we are able to penetrate our customers with AI Pods, the more the mix of AI Pods relative to the rest of the business increases, that should be a positive for revenue per head and also for margins. Arturo Langa: The next question comes from the line of Arvind Ramani from Trust Securities. It appears that there is an issue on the line of Arvind, so we'll jump to the next question. The next question comes from the line of Jim Schneider from Goldman Sachs. James Schneider: I was wondering if you could maybe address on the AI Pods business, the path to get to the upper end of the range on the $100 million in run rate ARR in that business. What is required for you to get there? Do you -- how many more bookings do you need to put in? How much is supported by your existing pipeline of AI Pods business? And I guess maybe you just kind of talk about the broad outlook or your confidence of kind of getting to the high end of that range. Martín Migoya: Great question. Thank you, Jim. The higher part of that range could be achieved with not many big customers moving into that model. But let's see. That's why we are always being cautious here. We are extremely excited about the progress of that. Now we're seeing engagements of $20 million, $18 million, $15 million being transitioned into this kind of engagement, which is extremely encouraging for us. So we expect to achieve those numbers. But I don't want to be -- I mean, it's the first time we're guiding them. I don't expect to guide those numbers every quarter neither, but I'm trying to be moderate here. So -- but I'm quite optimistic about the possibilities of reaching to that top line -- top guidance that we did at the end of 2026. Fernando Matzkin: If I can add to Martin's, the behavior of the pipeline when it comes to AI Pods is very encouraging. We're seeing a positive trend and a very accelerated growth. So -- and on top of that, the openness of our top customers to start piloting, right, piloting and to start scaling up. When you review the list of clients that are starting to ramp up in this new technology, it's really encouraging. So we are very confident and we trust that we are going to be very close to the range that we guided in terms of AI Pods, yes. James Schneider: That's helpful color. And then maybe you talk a little bit about the profile of the gross margins for your overall business as we head through the year. Juan, I know you mentioned some issues relative to FX and regional costs that were sort of providing some pressure in Q4. Should we expect that we're sort of at a trough on gross margins and we can see acceleration throughout the year? Or how should we think about how that shapes up? Juan Urthiague: Thank you, Jim. So I mean, yes, we have been impacted by the U.S. dollar weakness. If you look at Colombian peso, Mexican peso, Chilean peso, Brazilian real, most of the currencies where we operate in Latin America have had significant appreciations throughout 2025. And that is what impacted the first -- sorry, the last quarter of last year and what is also impacting the beginning of this year. I think that the dollar is getting to a point where it's on an average kind of in a very low place relative to historical terms. So there has to be a little bit coming from there. But also more importantly, I think that we need to keep on focusing on not just looking at what's happening with the currencies, but moving the business towards AI Pods because that's where productivity increases, that's where margins become higher. And the more we operate on those models, the more efficient we can run them. So I think that pricing will be okay. I mean it's not going to be a massive growth this year in terms of pricing for the general business. But definitely, there is an opportunity to increase our share of AI Pods and hence, maintain or improve our gross margins as we scale that business. Arturo Langa: The next question comes from the line of Jonathan Lee from Guggenheim. Unknown Analyst: I wanted to ask what in your customer conversations in January and February gives you confidence around the conversion time lines that are contemplated in your outlook, particularly given some of the client caution you've called out and some of the conversion challenges you may have seen historically? Fernando Matzkin: So we are seeing clients more open to resuming big deals conversations than in the past. We are seeing also some of the volatility and the uncertainty lowering their levels in their conversations. And also another interesting fact to consider, Jonathan, is that when we architected the numbers for 2026, we were able to bake in some very relevant deals that we closed in Q3 and Q4, right? And some other deals that we are working on and hopefully will close before the end of Q1. So some of that volatility going away and some of the clients being more open and those deals that we closed and we are in the process of onboarding and ramping up give us the confidence that the trajectory will be different. Unknown Analyst: Great. That's encouraging to hear. And just as a follow-up, can you help decompose what you're expecting across your verticals over the course of the year? And are there any that you expect to decelerate versus accelerate relative to what you've seen? Juan Urthiague: When we look at our different industries for last year, financial services had a good year, growing approximately 13%. We have seen a consumer retail and manufacturing performing very, very well. We continue to expect to see that behavior in that particular industry. So far, we have not seen the recovery of professional services, which has been kind of one of the drags during 2025. Technology will come back. We are starting to see some big deals shaping up with our tech customers, which was another sector that was not doing as we wanted last year. But definitely, when we look at the Q4 and some of the expectations going forward, that's going to be fine. And finally, health care. Health care and gaming, right? Those are the 2 that are big deals that have already been signed that are in the process of ramping up and that are part of the explanation of the sequential growth that we should see for the rest of the year. So that's in general, I try to go to all the industries as we report them. So hopefully, that helps. Arturo Langa: The next question comes from the line of Sean Kennedy from Mizuho . Sean Kennedy: On the bookings growth and momentum in the business. Great to see. So I was wondering about AI Pods and the conversations with your customers. Are you seeing the procurement teams becoming more comfortable with the AI Pods business model versus legacy? Martín Migoya: That's a great question. Thank you. This has been one of the most challenging things. However, as the thing gains -- as the idea gains momentum in the industry, on the analyst side, on you guys, the procurement teams are getting more relaxed. And also, I believe that the fact that we are talking something that is extremely solid and is, I would say, an order of magnitude more transparent than the traditional model, procurement love it. So whenever you can tied any asset that is being produced to the amount of tokens and understand that, that correlation is what you're paying is much better than saying we consume this amount of hours to do whatever. So I think the AI Pods offering is extremely solid. Of course, a long road on convincing more people about this. The more you help us, the more we can do it. So we appreciate any kind of explanation on your reports. And analysts from Forrester, from IDC, from McKinsey, from [ Bain ] they're already explaining this way of working. And 70% of the people, as I read on a report the other day, 70% of the people that are buying technology are expecting a change in the way the engagements happen. And the answer to that change is either a monthly subscription, an amount of tokens or some kind of combination there, but it must be on that [code]. So procurement teams are responding quite well to that. Having said that, of course, it's always complicated, but it's not impossible. And the business is pushing very hard for that. Diego Tartara: And there's also -- when we started this, we tied the AI Pods with the capacity that it was equivalent to a team of X amount of people, right? And procurement is used to that type of instrument. And we become much more mature nowadays, and we are actually talking and correlating the consumption and the subscription with outcome to a certain -- we provide full transparency as well. So there's also -- we've been getting a lot more mature in describing and showcasing how an AI Pod performed, and data has also relaxed a lot the procurement teams. Sean Kennedy: Got it. And then as my follow-up, I think you stated that the high end of the guide embeds that the current conversion levels that you're seeing are consistent. So I was just wondering how it's been trending over the last few months. Juan Urthiague: You mean for AI Pods or in general? Sean Kennedy: Excuse me. Juan Urthiague: You're talking about AI Pods or in general? Sean Kennedy: No, no, just in general, in total. Juan Urthiague: Look, they are -- I mean, we built the guidance a couple of weeks ago. And so far, the conversion rates that we are seeing, some of the big deals that we closed last year that are ramping up, they make us comfortable to be at the midpoint of what we guided. The pipeline that we have plus the expectation of some improvement throughout the year somehow can take us to the upper end. But definitely, with the current level of -- or the current conversion rates plus what we have already done during Q4 and the beginning of this year, that will take us -- should take us to the midpoint of our guidance. But again, that doesn't -- that doesn't -- the midpoint doesn't include any material improvement or a material change on the overall environment. Arturo Langa: The next question comes from the line of Arvind Ramani from Trust Securities. Unknown Analyst: Good set of results. A lot of questions on AI, so I'll kind of hop on to that trend. I mean AI Pods generated about, I think you said $21 million in ARR this quarter, very impressive given it's still early. But still, it's less than like 1% of your overall revenue, so still pretty small. But when you look at this model, it's basically designed to do more work with tokens and less with humans. And as the AI Pods scale, how do you prevent them from cannibalizing your core seat-based revenue? And then secondly, what is the internal modeling saying about the revenue crossover point when you're doing -- you're generating more from like token-based revenue versus headcount-based revenue? Martín Migoya: I'm not in a position to prevent cannibalization. So I want that transformation to happen. And that puts us in the right side. And that means that as AI grows, we will keep on growing. And the way we are delivering our services with these AI Pods is by far very scalable. It kind of the style years and years of experience and the configuration files that we are using for each of those AI Pods and how the agents must run the process is really very, very impressive to see how those small recipes to achieve the assets that our customers have are really changing the way we are using AI and the current models that we have because we're baking into those configuration files, all the experience that we have in the company. So this is the north for us on how to deliver technology and solutions moving forward. And -- and of course, there will be customers that are comfortable with the hours and our current business we have with them, so on and so forth. And I'm extremely happy to keep on doing that. But we are extremely encouraging our customers to move to this new model because we believe on the benefits for transparency, for productivity, for the long-term relationship we have with them. And not necessarily AI Pods are cheaper, they are more productive. So we see a transition year in which we were going to be transitioning from one kind of business to the other type of business. So it will be like a rational migration rather than anything else. So I don't know if I answer your question. Juan Urthiague: For the second part, Arvind, as we migrate the business to AI Pods, and AI Pods start to gain share, hopefully, by the end of the year with the current forecast that we have in our internal projections, the numbers that Martin mentioned in terms of ARR for the end of the year. So definitely, we went from 0 to $20 million run rate in just 2 quarters. The model has been under a lot of evolution, a lot of testing with customers, a lot of internal work on making sure that it creates a differentiator for Globant that makes us stronger relative to other players or other models that might be out there. And now it is starting to accelerate. As we discussed before, when we look at which are the customers that are now getting on board, which is the size of some of the deals. Now it's not just, let's try with a small thing here, but some customers are actually talking about $10 million, $15 million, $20 million being migrated to the new model. So I think that we are starting to get that acceleration after a couple of quarters of understanding the customer, getting feedback. We just launched this in Q3 last year. So it's only a few quarters that the is around. It's already creating interesting revenues, creating a lot of momentum with customers. I would say that by the end of the year, it will be more relevant relative to our old pie. But definitely, it should be next year when the curves start to get closer. Martín Migoya: Yes. And also for your models and for everything that you are covering guys, I think that we must acknowledge here that the industry is shifting and that this new industry about AI native services is going to be, in essence, different from what it used to be. And AI native services is leveraged on, of course, on knowledge, but also on repeatable processes and things that we have never had before. So in the same way Amazon created the cloud computing industry when they launched Amazon Web Services. Of course, at our scale, and I don't want to be comparing with Amazon, but our scale, we are kind of executing this vision of AI native technology solutions. And the way to model that and the way to do that is absolutely different from what it used to be. That's why I started talking about ARR because it's kind of a recurring revenue that is not coupled to the amount of people. Right now, we are using people to supervise what the agents are producing. Every kind of asset has a certain amount of time for those things to be supervised. So we can calculate how much people we need for that. But what we believe is that the revenue has nothing to do with the amount of people that we are putting there. The revenue has to do with the amount of assets that we are creating and how enterprise-ready those assets are, right? You can use Codex but you won't get all the discipline and the rigorous approach that enterprise software needs. So what we are creating here are processes to create assets that are enterprise-ready, security ready, that they have the scalability and the repeatability and maintainability that you need to have moving forward. So it's really a different way of understanding the industry itself. There's a $2 trillion industry that must change to a new model, and this is the very beginning of that. Unknown Analyst: Perfect. That's incredibly helpful. Just a quick follow-up here. Just a quick follow-up. In terms of like the token, the token cost you particular amount of money and then you're charging your customers, are the margins you're making there higher or lower than the company average? Martín Migoya: As we reported, the margins are between 45% to 60% depending on the AI Pod and depending on the customer and depending on the things that we need to create. We expect that margin as we progress with time to increase as we get more efficient with technology and we get more efficient supervising and the technology for supervision gets improved, too. So this is the kind of model we have in mind. As we are able to supervise more assets, with the same amount of people, with less people or with better technology, we will need less supervision, and we want to increase our margins. And that's a virtuous cycle that happens here. But not just that, every single conversation and every single token is being stored on our enterprise AI platform. And those tokens can be used to improve the processes and to retain corporate sovereignty of the processes of the company. So this is kind of an explosion of productivity and it will reshape the whole industry and not just for software development, it will happen also for process operation. Today, we have AI Pods plus AI Pods software, and we have another AI Pods called AI Pods operations. And those AI Pods of operations, they get that kind of doing things for operating certain processes of companies, and we charge it also per consumption. So it's a radically different way of understanding how professional services and how services will be rendered moving forward. There's a lot of value to add for companies like Globant, and there's a lot of change of mindset that is needed to understand this new industry. I could be talking forever about this, but. Arturo Langa: Thank you very much, Arvind. Unfortunately, that's all the time we have for our question-and-answer session for today. So with that, I will now ask Martin to provide some closing remarks. Martin, the line is open. Martín Migoya: Thank you so much, Arturo, and thank you, every one of you, for your support, for your help and for being here today. Bye-bye. See you next quarter. Thank you.
Dwight Gardiner: Good morning, everyone, and thank you for joining us. Frank sends his apologies. He's not with us today due to personal medical reasons related to a cycling accident, and we expect him back shortly. So Mark Strafford, whom we all know well, and I will be hosting the call. Our plan is that I will provide an overview of 2025 and an update on the business before handing over to Mark to take you through the numbers. I'll then come back to talk about the progress we're making on our growth strategy. And we'll finish by opening up to questions, which you can either ask verbally or submit online. On to Page 3, please. You're all familiar with our purpose, which is to enable a zero carbon, lower-cost energy future. I'll start as I always do by reaffirming that that is our purpose, and it guides everything that we do. In terms of our strategy, which is to create value by investing in the U.K. energy transition, we're focused on a couple of things. First, we are preparing the group for the new running regime that the new low-carbon dispatchable CfD will require. That process is well underway, and that will underpin the earnings and cash flow, which I'll talk about later that we expect to earn between now and 2031. Second part of our strategy is investing that cash to grow our U.K. power business as the energy transition continues and AI drives electrification and growth in demand. And I'll talk more specifically about the investments we're making in BESS and the progress we're making on a data center. Finally, and most critically, our people are at the heart of Drax and their safety and well-being is an absolute priority for us. And while we've had to take some difficult but necessary steps to position our business effectively for its exciting future, it's more critical than ever at the times like this that everyone feels a valued member on a winning team with a worthwhile mission. Turning to Page 4. We've delivered a strong operational and underlying financial performance across the group, which is underpinned by a continued focus on safe and efficient operations. We produced a record level of renewable power, primarily from the Drax Power Station, which serves to emphasize its ongoing importance. We're a major provider of renewable power in the U.K. as well as flexibility, accounting for around 6% of overall power and 11% of renewables. And in certain periods of peak demand, we have been more than 50% of U.K. renewable power generation when there has been limited levels of wind. We've also delivered a record level of pellet production, while at the same time, reducing our costs in the U.S. South, which we see increasingly as highly integrated into our U.K. biomass generation operations. The signing of our low-carbon dispatchable CfD agreement for the Drax Power Station is a key inflection point for the group, enabling us to continue to support the U.K. system while investing for growth. As you know, we're committed to our plans to generate free cash flows of about GBP 3 billion between 2025 and 2031, of which we delivered about GBP 0.5 billion last year. And to be clear, this is from the current business before accounting for new cash flows associated with our growth plans. Of that GBP 3 billion, we expect to initially allocate over GBP 1 billion of free cash flow to shareholder returns. which is inclusive of the ongoing GBP 450 million 3-year share buyback program. And up to about GBP 2 billion of that then will be allocated to incremental investment in growth as we seek to enable the energy transition and support the growth of AI. And we're making great progress. First, at the Drax Power Station, we're developing plans for as much as 1 gigawatt or more of data center capacity, while at the same time, continuing to provide energy security for the U.K. Secondly, in our FlexGen business, we're developing a gigawatt scale BESS pipeline. And you will have seen that in the last 6 months, we have purchased or made agreements, which will give us operational control of over 700 megawatts of batteries across 5 different sites. We've also acquired a new optimization platform and one of the leading players in that space, Flexitricity. And third, we're continuing to assess further investment in flexible renewable energy, about which we would provide further updates later in the year. And finally and critically, we remain very much committed to disciplined capital allocation and delivering attractive returns for our shareholders. Turning to Page 5. So sustainability remains at the heart of what we do. And we've made excellent progress this year and have started to see that reflected in third-party ratings and accreditations. Of particular note, we received 2 A ratings for our CDP disclosures on climate and forestry. Only 4% of the 22,000 companies making CDP disclosures receive an A rating and even less received 2, which we believe demonstrates our commitment clearly to sustainability and, importantly, also to transparency. We are also A rated by MSCI. And in addition to that, during the course of the year, we undertook a significant number of new initiatives, including a new sustainability framework, our climate transition plan, and we continue to progress our reporting and alignment with both TCFD and TNFD as well as SBTi, which has recently validated our targets going out to 2040. And finally, in January, we launched a public tracking tool, our biomass tracker, which shows the provenance of our biomass supply chain, and I would encourage you all to have a look at that. Moving on to Page 6. I just want to reiterate, as we said at the beginning of last year that we have a target to deliver post 2027 adjusted EBITDA of GBP 600 million to GBP 700 million per annum across the combined pellet production, biomass generation and FlexGen and as we said before accounting for development expense. We're very much committed to that target, but as a reflection of the continued development of the U.K. power system, shifts in the Canadian pellet business and increasing value from the flexible generation, we now expect the FlexGen business to comprise a greater proportion of that mix over time. And if you take those targets, together with the strong contracted cash flows that we have up until 2027, we believe we will deliver free cash flow of about $3 billion between 2025 and 2031. And delivering this plan supports our options for growth and enhanced value creation. And my plan now is to go through each of the different parts of the business and explain how we are doing. On to Page 7. FlexGen, I'll start with pumped storage and hydro. So that portfolio has performed extremely well since we purchased it in 2018. And as a reminder, Cruachan represents about 1/3 of the total megawatt hours of long-duration storage in the U.K. It can run for up to 16 hours at full load and has the equivalent of over 7 gigawatt hours of stored energy. Under our ownership, Cruachan has seen an increase in its operating activity over the last 6 years from 20% to 60%, which reflects both its role in our portfolio and the growing need for system support across the U.K. The strong performance of these assets has provided an exceptionally good return on investment and a 5-year payback. And reflecting the value we see in these assets, we're investing in an ongoing upgrade at Cruachan to replace 2 of the 4 turbines with new larger machines. This is a major program of work for the team and an investment of GBP 80 million in U.K. energy security that's going to take place between 2025 and 2027. As you know, Units 3 and 4 of Cruachan are currently unavailable due to a grid connection failure in late December caused by assets owned by the Scottish network operator, SSEN. We're working with them to restore the connection, and they will provide a timetable for that repair shortly. We're taking advantage of that downtime to progress planned outage work on Unit 3 for minimizing the overall impact. Second piece of this business, the open cycles. We expect to take commercial control of the first of those shortly with the unit already receiving capacity market payments. The second and third sites are expected to commence commissioning in 2026. The earnings of the open cycles are underpinned by around GBP 270 million of capacity market payments, complemented by system support services, peak power generation and a low operating cost base. And again, we expect to retain these assets as a part of our FlexGen portfolio. The third piece, which we're getting increasingly excited about as demand side response becomes a more important piece of the puzzle, is the energy solutions business. So in addition to power sales to industrial customers, we're also an enabler of more renewables on the system as we provide a route to market for 2,000 embedded generators. Across our customer book, we offer demand side response, whereby we can reduce load to industrial customers at certain periods of high demand, creating value for our customers as well as for Drax. It's also of note that we had significant experience enabling customers to purchase power through both the wholesale market and through PPAs. Turning to Page 8 and the low-carbon dispatchable CfD. So the signing of a CfD for post 2027 is a key inflection point for our group and a significant endorsement of the contribution that biomass makes towards energy security as well as decarbonization and value for money, saving bill payers billions over the term of the agreement. Under the terms of the agreement, we will sell the equivalent of 6 terawatt hours per year or about 30% of the load of those units. The structure of the agreement allows us to constantly reprofile generation to the periods of greatest need and highest value. So in periods of high demand, we would expect to use all 4 units to produce and sell as much power as possible at the highest prices. And in periods of low demand, we'll add value by buying back forward sold baseload power at lower prices. And by operating this way, we support energy security, provide flexibility to the power system and earn a higher average price for our power. The agreement also includes the continued evolution of sustainability standards and a further reduction in supply chain emissions limits. We're very comfortable with that and supportive of those measures. As a reminder, we expect to use around 2 million tonnes of our own pellets from our operation in the U.S. South. Again, a further reminder, we've hedged all of the FX requirements associated with the deal as we have our logistics requirements for our own pellets, and we are progressing agreements to finalize biomass and logistics hedging from third parties. So the third piece, turning to Page 9, our sustainable biomass business. So this is a bit new. We're increasingly looking at our pellet business in a new way. Our U.K. business is fundamentally part of our U.K. supply chain. That business is doing very well with its current level of value supported by existing contractual arrangements. As you will have seen, our Canadian business is more challenged, and we've been talking about this for some time as margins have come down due to fiber costs rising in Canada more rapidly than indexed power prices in Asia. As we noted last year, this dynamic contributed to the decision we've made to close one of our pellet plants in Williams Lake towards the end of last year. So against this backdrop, we're not currently expecting to commit any more capital to this segment, and we are -- that includes the paused Longview project. Now overall, in the pellet market, while the market dynamics we expect to be challenging through the 2020s, as a company or as a group, we're largely insulated from that by the contracted nature of our book. Now if anything, we'll look to benefit from lower market pricing by accessing the spot market by pellets at attractive prices for Drax Power Station. And longer term, we continue to see opportunities for biomass to play a key role in energy transition and our Elimini business gives us an important capability and brand to continue exploring those opportunities in SAF, BESS and other areas. But again, as you will have seen, reflecting the current market environment, which we've seen for some time now and been talking about, we are reviewing strategic options for that Canadian business. And with that, I will hand it over to Mark. Mark Strafford: Thank you, Will, and good morning, everyone. I'll now take you through Frank's section of the presentation, starting on Page 10. We see tremendous value for the group in the delivery of our purpose and strategy through which we are supporting energy security, creating solutions for the energy transition in the U.K. and enabling AI growth. Unlocking that opportunity is a strategic puzzle, which the team are working through and, in doing so, creating value for shareholders and other stakeholders alike. We have a very strong business today with a strong balance sheet, and we are generating strong cash flows, which can support value-accretive growth and returns to shareholders. But we must operate well and safely and execute our plans diligently to realize this. Moving on to the financial summary on Page 11. Operationally, we performed well in 2025, generating GBP 947 million of adjusted EBITDA. This reflected a particularly strong December, where market conditions allowed us to generate additional volumes, leading to a record year for biomass power production, which totaled 15 terawatt hours. Adjusted earnings per share of 137.7p was an increase of 7% on 2024 and reflects the reduction in EBITDA, offset by the ongoing share buyback program and a lower net finance cost. Strong cash generation meant that net debt of GBP 784 million was 0.8x 2025 EBITDA. This is significantly below our long-term target of around 2x. Total cash and committed facilities was GBP 942 million, a strong position, which supports our plans for growth across the group. Our expected full year dividend of 29p per share is an 11.5% increase on 2024 and reflects the confidence we have in the business. We are committed to value and are pursuing this through disciplined capital allocation decisions. During 2025, we completed a GBP 300 million share buyback and commenced a further GBP 450 million program. So the 24th of February, we have purchased GBP 57 million of shares under the new program. Moving on to EBITDA by business unit on Page 12. I'll now take the performance of each business unit in turn, starting with pellet production and biomass generation, which, as Will mentioned, we see as increasingly interlinked through the vertical integration between our operations in the U.S. South and Drax Power Station. Pellet production's EBITDA reduced from GBP 143 million in 2024 to GBP 129 million in 2025. Let me explain this movement. Volumes produced increased in 2025 to 4.2 million tonnes, which is a new record. We also showed progress on cost reductions, reducing the cost per tonne of biomass produced. For internal sales, the reduction in cost is then passed through to the generation business at a lower cost of biomass as part of a well-established cost-plus transfer pricing methodology. To be clear, this is a positive outcome for the group. And if the price had remained at 2024 levels, pellet production EBITDA would have been over GBP 150 million in 2025. This is the rationale for why we see U.S. pellet operations and Drax Power Station as increasingly integrated. And accordingly, we are considering adjusting our reporting going forward to reflect this. Outside of EBITDA, against the backdrop of an expected softening in the global pellet market post 2027 and a constrained fiber supply in British Columbia and Alberta, we have reduced our expectations for the Canadian business and recognized a charge of GBP 198 million. We have also paused our development project at Longview in Washington State and have taken the decision to impair this asset with a charge of GBP 139 million. We retain the land and the option to progress this opportunity at a later date if market conditions become attractive. Moving on to biomass generation, which had another strong year. Despite an expected decrease in achieved power prices, the business produced record volumes of generation and had a particularly strong year-end, capturing value from meeting higher winter demand. As I mentioned, the business also benefited from cost reductions in the U.S. South and therefore, lower prices of internal pellet supply as well as a reduction in the electricity generator levy. This reinforces our view that Drax Power Station is a vital source of reliable renewable generation and energy security, both now and in the future. Below the line, reflecting the lack of progress in development of appropriate commercial and regulatory support for carbon removals in the U.K., we have booked an impairment of GBP 48 million in relation to BECCS at Drax Power Station. However, we continue to believe that carbon removals at scale remain vital for the U.K. to deliver its commitment to net zero by 2050. As such, we retain the option for future development, minimizing cost and maximizing optionality so that we could proceed if the opportunity develops. Moving on to FlexGen. Cruachan continued to perform well in 2025 and after adjusting for planned outages, maintained a high utilization rate, which is well above historic averages. EBITDA reduced from the previous year as planned outage works, including the Unit 3 and 4 upgrade program, progress. In energy solutions, our I&C business performed well, maintaining a broadly consistent margin on a smaller revenue base against the backdrop of lower power prices. The windup of Opus Energy is now largely complete with a small residual loss in 2025. Moving on to development expenditure. Elimini spend has reduced as we have been disciplined in allocating capital to that business against the market backdrop that does not currently support significant investment in carbon removals. Other DevEx, which includes a component of uncapitalized OCGT cost, is broadly flat. Turning to Page 13 and the balance sheet. Our balance sheet remains strong. During 2025, we repaid over GBP 230 million of debt, extended facilities and secured a new term loan. Our year-end cash and committed facilities position was strong. At 0.8x levered, we have significant headroom to fund our plans for growth through the investment cycle. Moving on to Page 14 and capital investment. We have continued to invest in growth and in our core business, including the OCGTs, our first battery acquisitions and the upgrade project at Cruachan. In addition to the acquisition of the Apatura battery project and Flexitricity, we have committed GBP 300 million to battery tolling agreements, which Will cover later in the presentation. These themes continue through 2026 as we commission the OCGTs and the enhancement work on Cruachan. Of the growth CapEx in 2026, we expect over half will be on batteries. Lastly, we will continue to invest in the maintenance of our asset base to deliver good operational availability and safe and efficient operations. We expect an increase in maintenance CapEx in 2026 to reflect a major planned outage on one biomass unit at Drage Power Station. Moving on to Page 15 and cost management. Our post 2027 EBITDA target requires us to be disciplined on costs, and we are making good progress towards putting in place the structures and cost base to allow us to succeed and deliver long-term value to stakeholders. Our targets are eminently achievable, and we are progressively taking actions to deliver significant cost reductions. By 2027, we expect to establish structural savings of over GBP 150 million per year compared to a 2024 base year. You are aware of several areas of efficiency already, including a reduction in output from Drax Power Station post 2027, which will drive a lower cost base, an appropriately sized corporate and core services structure and a focused external supplier cost reduction program. But to reiterate, these savings are already reflected in the GBP 600 million to GBP 700 million post 2027 EBITDA target and are not additional to that. Turning to Page 16 and capital allocation. Our capital allocation policy, which remains unchanged, is at the heart of the financial decisions we make and supports our focus on value creation and opportunities for growth. Our balance sheet is strong, and we remain committed to a long-term target of around 2x net debt to adjusted EBITDA. We will continue to invest judiciously in the core business to deliver safe and efficient operations and options for growth in flexible renewable energy. Since 2017, the dividend per share has grown on average by 11% per annum, including the expected 11.5% increase in 2025. Income returns to shareholders are an important part of our investment case, and we remain firmly committed to our policy to pay a sustainable and growing dividend. And lastly, to the extent there is a surplus of capital beyond our investment requirements, we will consider the best way to return this to shareholders. We see buybacks as an investment which we can make in the business to create value for shareholders alongside opportunities for growth. And with that, I'll hand back to Will. Dwight Gardiner: Thank you very much, Mark. Turning to Page 17. I'm not going to provide a wider strategy update here, but plan to do that later in the year. For today, I want to focus on the areas we're making the most progress in, Drax Power Station and batteries. Turning to Page 18. And before I get into the whole question of growth, let me share with you how we're preparing the company to run under the new CFD mechanism. We're putting in place the financial and operational structures, systems and performance culture, which will allow the company to succeed, and we call this program Future Focus. As a part of this, we recently announced a consultation process for the U.K., and we've announced changes to our North American businesses, which could see a reduction of 350-plus roles across the group. We have conviction that this is the right thing to do for the business, and we will complete the process in a respectful and considerate way as quickly as possible. So moving on to the Drax Power Station on Page 19. We believe that the size, flexibility and location of Drax Power Station making an important long-term part of the U.K. energy system, and we are focused on options to maximize value from the site. Options for a data center are a priority. But we could also utilize the site for multiple generation technologies, new system support services and, in the longer term, we're still excited about carbon removal. So on Page 20, let me talk a bit more about options for a data center. The site, which is located centrally in the U.K. and next to one of the country's largest substations, comprises over 1,000 acres and has 4 gigawatts of grid access, of which 2.6 gigawatts are flexible renewable generation. We also have cooling systems on a secure site with proximity to the U.K. fiber optic cable network. And this makes it ideal for the development of a data center. So we're discussing the potential for a data center with a developer. We don't have more details to share at this stage, but we'll update the market as soon as we do. What I can say is that we envisage development of the site in 3 phases. The first is for around 100 megawatts, utilizing existing infrastructure and transformers to import power directly from the grid, and we expect to submit a planning application shortly. The second and third phases are behind the meter. The second phase aims to utilize 500 megawatts of capacity before 2031. And since this is during the period under which the station is operating under the CfD, that development will be subject to agreement with the U.K. government. And the third phase would follow from 2031 onwards and add further 600 megawatts of capacity or more. So again, we believe that Drax Power Station is uniquely placed to do this in the U.K. and that the development could represent a multibillion-dollar foreign investment opportunity for the U.K., creating thousands of jobs while continuing to support energy security through the period of 2031 and beyond. And quite importantly, we have a very talented workforce who are experts in U.K. power in planning and in consenting. Turning to batteries on Page 21. I wanted to share some thoughts on the rationale for that market and why we're excited about it, how we see the market developing and the progress that we've made so far. NESO's future energy scenarios show power demand is likely to double in the U.K. over the next 25 years due to the electrification of heat, transport as well as new industrial demands like data centers. At the same time, intermittent renewables like offshore wind are expected to triple and flexibility will continue to fall, largely reflecting the removal of gas in the system. So as a result, there's likely to be either too little or too much power on the system at any one point in time. To help manage this, NESO's analysis suggests a requirement for over 30 gigawatts of BESS by 2030 compared to 7 gigawatts today. As you know, BESS can respond very quickly, capturing higher prices when available and then storing the power when the demand is low. BESS also nicely complements our existing portfolio, having super-fast response and short duration storage for our existing portfolio, meaning we are well placed to maximize value no matter what the needs are of the system. But again, having the right assets in the right location at the right time will be critical to success as well having the tools to manage that portfolio effectively. So what are we doing about it? If we look at Page 22, reflecting this demand, we're developing a gigawatt scale pipeline of BEV opportunities. And we're doing that in 2 ways. First, we're investing in the ownership of physical assets where we believe the locations are optimal and there are opportunities to invest in the sites in the long term. Secondly, many BESS assets will be developed by infrastructure funds who are looking to secure cash flows through floors and tolls. And that provides us with additional opportunities to access the BESS market and use our deep expertise in trading Flex assets. We believe that by acquiring development projects and tolling agreements with existing grid connections, we can benefit from a shorter time to power and at the same time, reduce our exposure to development risk. In addition, the recent acquisition of Flexitricity bolsters our ability to provide our own assets as well as third-party owners with best-in-class optimization services. Flexitricity's platform, combined with Drax's 24/7 trading capability, underpins our ability to maximize returns for flexible assets, both in front of and behind the meter. So again, we're making good progress. We've committed on the order of GBP 0.5 billion with a control of over 700 megawatts of capacity in addition to the acquisition of Flexitricity. Let me give you a little bit more detail on our progress. Turning to Page 23. In October of last year, we acquired 3 development projects for 260 megawatts under an agreement with the developer Apatura. It's a fixed price deal that's structured such that we have protection in the event of cost overruns. Two of the sites are located in the key England, Scotland transmission constraint corridor and a third is in East Yorkshire near the Drax Power Station. This deal also gives us option rights over an additional 289 megawatts of capacity. In addition to that, on Page 24, so in addition to physical ownership, we've entered into tolling agreements for 450 megawatts with the developers of Fidra and Zenobe. This model complements physical ownership, but differs in that there is no cash outlay or ongoing maintenance costs. We'll pay a tolling fee in return for which the developer is responsible for building, maintaining and making the asset available. We, on the other hand, have full operational control and keep all revenues from operation other than capacity payments and, for Zenobe, certain other immaterial ancillary revenues. And we expect this model to work well for both parties. The asset owner gets a predictable revenue stream, and we can access the value which we see from the energy market dynamics that I described previously, but with no capital outlay and a shorter time to power. And both of these projects are targeting FID this year. For the third leg of this approach on Page 25, was in January, we agreed a deal to acquire the asset optimization platform, which is Flexitricity for about GBP 36 million. Flexitricity provides front of and behind-the-meter solutions to third parties with a customer base of over 900 megawatts across a large number of sites, including Air Products and Severn Trent. The technology is an important component of managing the enlarged FlexGen business and the gigawatt scale BESS portfolio, which we are developing. If we didn't have this capability, we would have had to outsource it. But by retaining it within the group, we keep the IP and value associated with an end-to-end trading and optimization capability, and we expect the transaction to complete in March. Turning to Page 27. Our primary investment opportunities are currently in the U.K., where we are a leading provider of flexible renewable energy. Our expertise operating FlexGen and 24/7 operations makes us a good owner of these assets, and we believe we can create additional value through growing the portfolio. During this year and through 2028, we will start to add additional capacity from OCGTs and from BESS, providing a range of technologies, durations and dispatch feeds, which will enhance our capabilities. We also have options over additional BESS developments as well as the grid access we have at Drax Power Station. In addition to which we expect to have close to 2 gigawatts of route-to-market services for over 2,000 small renewable assets as well as grid scale assets by Drax Energy Solutions and Flexitricity. In total, 8 gigawatts of capacity we own, we toll or provide other route-to-market services for. So importantly, to wrap that all together, while the earnings from Drax Power Station will reduce next year with the new CfD, we are expecting to grow earnings in our FlexGen business and overall as a group as we bring these new generating assets on stream through the rest of the decade. Finally, on Page 28. So let me bring it all together. First, we have performed well again in 2025. And Drax is already a leading provider of flexible renewable generation in the U.K., as I have described. We see a great opportunity to grow that position. The first key underpin is the low-carbon CfD and the new operating regime that we are creating. The second one is we've already begun our investment program, as I've described, and look forward to growing our business through the rest of the decade and creating value by investing in the U.K. energy transition. We will be disciplined about how we approach these opportunities in line with our existing capital allocation policy, and we will be very focused on creating value and delivering excellent returns to shareholders. With that, I'll hand it back to the operator, and we are ready to take any questions that you may have. Operator: [Operator Instructions] Our first question comes from the line of Alex Wheeler from RBC. Alexander Wheeler: Two questions from me, please. Firstly, on the impairment in the Canadian pellets. Should we think about this as formalizing the messaging you've already given? Or is there an implication here that you think things are getting worse? Then if you could also give some color on the strategic options for that business, that would be great. And then secondly, just on the guidance, just interested in why you've not included the BESS assets within the current medium-term guidance and when you think you'll consider formally adding those? Dwight Gardiner: Great. Thank you, Alex. So in terms of the impairment, I think you described it well. We have been, I think, communicating over the last sort of probably 6 quarters, the weakness that we see in the Canadian market. It's really a long-term sort of structural issue related to the nature of our contracts and the shrinking fiber supply becoming more competitive and not driving up the cost of our inputs, right? So it's absolutely not -- it's not an indication that things are getting worse. It's just really a sort of formalization, I think, of where we have been, right? So -- and again, for the avoidance of doubt, the GBP 600 million to GBP 700 million that we've been talking about for some time, very much takes into account where we think the Canadian pellet business is and has been and will be. In terms of strategic options, I mean, we're working with our suppliers to sort of manage our costs as best we can. We're working with our customers, again, to manage the contracts as best we can to drive increased profitability. We have had to shut the Williams Lake facility. We will look at the best way to optimize where we're supplying pellets from relative to where they're going. So that's another piece of that puzzle. And again, disposal of the asset would also be an option we will explore. In terms of BESS, I mean the GBP 600 million to GBP 700 million, as we've said, is before those investments. And frankly, what we're planning to do is come back to the market sometime later in the year and sort of talk more completely about how the overall strategy fits together. And I think at that time, we would probably look to update our views of where we think numbers will be as we go through the rest of the decade. Operator: Our next question comes from the line of Pavan Mahbubani from JPMorgan. Pavan Mahbubani: I have 2, please. Firstly, on the EUR 3 billion of cash flow and the uses, you talk about EUR 2 billion of investments and you've given us visibility on batteries. Can you give a bit more flavor or color as to where you see the rest of that capital deployed? Do you see it all as going into batteries? Are you looking at gas or maybe some other investments? Would be great to hear how you're thinking high level about where this money is going to go if it all gets deployed? And my second question is, Will, on the confidence you have in the phasing of the data center opportunity as you laid it out in your slides, is this based on what you think your capacity is? Or is it based on the conversations you're actually having? I would appreciate any color around that as well. Those are my questions. Dwight Gardiner: Thanks, Pavan. So first, in terms of the allocation of capital, I think -- so again, to make sure it's clear, GBP 3 billion is what we expect to generate. Again, that includes '25. So that's sort of over the next -- last year plus the next 4. The uses of that, I think, again, we talked about GBP 1 billion or GBP 1 billion plus that goes back to shareholders. Again, that should be pretty transparent in what we've already described. And then the GBP 2 billion. So I think at this point in time, we've already allocated about GBP 0.5 billion to batteries as we've described. One of the things that give me a little bit of caution about investing a lot more in that now is that we haven't really seen the results of that investment yet. I mean those earnings will come on stream probably '27, '28, '29. So we need to watch how that develops to some extent. Although, again, we are excited about that market, and I could see plus or minus up to GBP 1 billion potentially of the GBP 2 billion moving into that space. I would call that a hard target. That's something that, again, we'll come back and sort of later in the year, give you more color. But the other area, I think, which is -- before I get to the other area, the other thing that's interesting is that the data center, we would expect largely to be a source of capital, i.e., the type of deal we would look to be doing is one where we would be selling the powered land and then providing a PPA to the end customer. We will be making some investment in that space as we get to the bigger pieces of it, and I'll come back to that in a second, but again, largely a source of capital. And so -- but again, other things we'd be looking at, I mean, we are still very much committed to our purpose, as we said, enabling a lower cost zero carbon energy future. Again, I think that ports probably more in the direction of more renewables, although I wouldn't rule out gas, as you know, we've got the open cycles, but more intermittent renewables is the area that I think we're exploring at the moment. And I guess, how do I see that? -- really, it needs to be -- well, the first thing I would say is it's very much consistent with our core business, right? We are a flexible renewable generator in the U.K. To add intermittent renewals to that portfolio would be a very logical extension of where we are today, right? It's the same trading environment, same regulatory environment, same grid environment, all of those things are very much part of our core competencies, right? Second thing is though, it would need to really meet a sort of set of criteria that we are working through now. So it clearly has to be -- the returns have to be attractive. And I think it's actually -- there is more potential for that than there would have been, let's say, 5 years ago when a lot of these assets were being built. It's likely to be at least in the initial piece through acquisition, something that's generating cash probably more interesting in the first instance than just a development asset. We have to be convinced, and I think we're getting convinced that there's interesting sort of commercial and industrial logic, i.e., the potential to create attractive products for customers. The third piece, which I think is one of the more interesting ones is that as we grow the FlexGen portfolio and given the characteristics of the bridge, our in-year earnings, we would expect to become more volatile. We're very much -- we're excited about the growth and volatility. But again, it does make our in-year earnings potentially more volatile and not as hedgeable as they would have been in the past, right? Adding longer-term contracted earnings, let's say, through intermittent renewables is quite an interesting sort of counterbalance to that. And that's one of the things that we think is quite an interesting thing to look at. So again, we're looking at those intermittent renewables. We haven't made any decisions. And again, we'll probably come back and make sure that we make a clear case for that as we look at it further. On the data center, I think -- I mean, I've highlighted sort of 3 different phases for a couple of important reasons. So the first one is that we think that our ability to use 100 megawatts of in-feed to the Drax Power station quite quickly is differentiating. There aren't many ways that you can build a data center, potentially be online next year without -- not many people have that 100 megawatts available. So that's one of the reasons we described that. Second reason we talk about the 500 is that very explicitly in our dispatchable CfD agreement with the government, we have effectively -- they've agreed that they will discuss with us. If we can -- and if we meet certain criteria, they would be very much open to us using that 500 megawatts for a data center. So that's the reason we discussed that. And then the third piece is, ultimately, we think we have enough biomass behind-the-meter generating capacity to do something in excess of 1 gigawatt. And the final point is the logic for that is both a function of what we think makes sense and a function of what we are discussing. One thing I want to be very clear, it would not be very -- I would much -- I would be very disappointed if we ended up with 100 megawatts and not more, right? So that's very much part of the thinking. Operator: Our next question comes from the line of Dominic Nash with Barclays. Dominic Nash: A couple of questions from me as well, please. I think the first one might have a couple of more parts in it, and it's following up from sort of the data center angle. On the first 100 megawatts, will you have the ability to switch that to behind the meter at a later date? Or will that permanently be in front of the meter? And secondly, on the economics of this, clearly, if you're in front of the meter that you've got no real competitive advantage, I presume, except the speed, which you mentioned. But when we then go to behind the meter, you've clearly got quite a high marginal cost of biomass. How are your conversations going with potential offtakers or what your thoughts are on, a, their desire to source power from biomass; and b, your relative economic position from behind the meter with biomass versus behind the meter from OCGTs? And of course, the follow-on question from that is, could you also provide gas from the Drax turbines at some point post 2031 or before? And the second question is on the biomass part, you're moving from 7 million tonnes of consumption to 3 million tonnes. I think more than 2 million tonnes are going to be from yourself. You're saying you're contracting with third parties. Can you just tell us what sort of scale and when do we expect to get the news flow on who you're going to contract from? And the follow-on question from here is that do you not think there's a bit of a risk if you end up contracting too much of your feedstock from the United States alone, particularly in light of a very sort of capricious trade issues between the U.S. and everyone else and whether or not you should have some sort of diversification for your biomass sourcing. Dwight Gardiner: Okay. I think there's probably about 7, Dominic, if I count them back. Thank you for the questions. I'm more than happy to respond, just kidding. So on the data center, the first one, I think, was could we switch to behind the meter later. And I would say, again, it's all -- we don't have a sort of negotiated deal. So that's obviously something we have to get to as we go. But I guess the key thing to think about from our perspective is that if you only have 100 megawatts of generation that's behind the meter, you don't have enough to effectively support a full unit at the full power station. So we will need to structure it in such a way that actually it manages that risk, right? Secondly, the economics, I think you've absolutely landed on it in the sense that the behind-the-meter cost of biomass power is well below the front of the meter power cost. So we're clearly highly competitive relative to something that you get off the transmission network. But clearly, again, someone who's got behind-the-meter gas would be more sort of competitive than we are, right? Now getting behind-the-meter gas and having that online between now and the rest of the end of the decade is not that straightforward. So again, we think we have advantages there. So again, all of this is something that we are and have been discussing with counterparties. And so again, the proof will be in the pudding. So when we come back and say, if and when we've got something done, I think that's probably the best way to answer that part of the question. Could we do gas? Again, as you well know, Dominic, we had a plan to do a repowering with gas at one point in time. I guess what I would say is that that's -- it's not a trivial activity. And basically, it's a new power station or a massive refurb it's a big activity. So it's not something that we could do, but we would have to consider that as effectively a new investment. And frankly, with 2.5 gigawatts of capacity available, I think that's definitely our first port of call. Just to be clear, the 2 million tonnes we have is effectively the capacity we have in the South. So we will be using all of those pellets. 7 million was a target. We never got to that. So the northern pellets again is about 2 million, and that's what the numbers are currently. Using another 1 million tonnes is something we're doing because of a combination of diversification. So yes, we clearly want to make sure we manage the geographical risk as we'll do that. Clearly, we want to manage price risk, so we want to make sure we can track that in the best possible way. And that's why as soon as we have something that is enunciable, we will do so. So that's all I will be saying at the moment. Again, it makes sense. I may have missed something, Dominic, I'm happy to come back if I have. Operator: Our next question comes from the line of Mark Freshney with UBS. Mark Freshney: Thanks for your presentation, but to summarize, half your pelletization capacity is in Canada. It's uneconomic. You can't source the fiber. You're looking at shutting it down because it's high cost and it will be squeezed out in the impending pellet oversupply as subsidies are cut. That seems to be the synopsis of what you're saying. So it's of that 2 million tonnes that you may shut down, what would be the additional impairments and onetime costs of shutting it down? Just secondly, on the cost-out plan, I think the 150, the existing one, mainly centered around Yorkshire. I think you only took a GBP 9.4 million charge below the line. So what would be additional -- are there any additional charges next year and the year after? And would they appear in the middle column or the left column? And my final question -- Dwight Gardiner: What are you referring to the second thing, Mark, I don't understand. Mark Freshney: The GBP 9.4 million charge for the cost reduction. So exceptional costs -- are there any additional such costs to come through? Or are you booking it in the middle line or in underlying, so it's within the EUR 600 million to EUR 700 million EBIT? And finally, just on the cabling issue with SPN, is there any compensation that you could get to the extent that you're not an outage? Dwight Gardiner: Thank you for your questions, Mark. I guess first thing I would say is that the Canadian pellet business is effectively in the same position it has been for some time. So I'm not sure there's much new news there. I mean we're not -- I think you are saying that we're going to shut it down. We're not saying we're going to shut it down. So I think we should be careful in the way you characterize it. We are looking at various different options for how we manage that well. We have contracts with customers, which we intend to deliver on. And so that's quite important, right? So just to make sure everyone else on the call understands what's happening here. We have contracts through the 2030s with customers in Japan, some in Korea, and we fully expect to deliver on those contracts. So we are not saying by any means that we are closing the Canadian business, right? And the value that remains there, we believe, is well underpinned by the assets that we have, right? So that's the first thing I'd say. Second thing is we have taken, as you mentioned, a part of that impairment or part of the exceptional charge associated with the Future Focus program, and that is what we're doing for now, and that's all there is there. And in terms of SPN, I mean, the key thing we're doing now is we're making sure we work closely with them to get those assets back online. That's our focus. Operator: Our next question comes from the line of Harrison Williams with Morgan Stanley. Harrison Williams: A couple from me. Firstly, coming back on the pellet division. You previously provided quite a useful EBITDA margin target of around GBP 50 per tonne, appreciating. Clearly, there's been some deterioration. Can you provide an update to that margin target now? The second question I had was on batteries. Clearly, quite an attractive investment opportunity as things currently stand in the U.K. market. But can I ask how you are thinking about maybe the risk of cannibalization as we think a few years out if we really do see as much battery capacity added to the grid as some of these forecasters expect? And then finally, can I just get one clarification. You mentioned the GBP 150 million cost saving plan is included in the medium-term guidance of GBP 600 million to GBP 700 million in EBITDA. Could you just confirm that was always the case, i.e., when you provided that medium-term guidance on EBITDA a few years ago? Dwight Gardiner: So maybe, yes, it was always the case. On batteries cannibalization, I mean, we see batteries as an attractive participant in the wholesale market and the balancing market. So it effectively still will be a small piece of the overall market. So we think that that's -- there's lots of room for those to sort of deliver good value over time. And in terms of pellets, I think what we've been talking about for some time now is the 600 to 700 combination of pellets, biomass generation and FlexGen, and that's very much in line with where we've been. And again, there's no new news in Canada other than the impairments. And so that's consistent with where we've been for some time. Mark Strafford: I was just going to add, Harry, I mean, that GBP 50 target that you mentioned there, I mean, that is well underpinned by operations in the U.S. South, that business is in a good place. And the point we're making today is that lower EBITDA in U.S. pellets maps across the higher EBITDA in generation. It's just where that value sits. Fundamentally reducing the cost of biomass is a good thing for the business. So that value, that target is captured within the U.S. business and Drax Power Station. Of course, Canada more challenged. Operator: Our next question comes from the line of Adam Forsyth with Longspur Research. Adam Forsyth: Just a couple of quick questions on the BESS opportunity. Do you see an ideal split between tolling and outright ownership? Or is that something that's really just likely to be driven by the opportunities that come up in the market? The last tolling deal you did for our non-escalating, is that the sort of agreement you would like to be seeing going forward or even into longer durations? And just on that longer duration opportunity, I mean, if we start to get a lot of assets coming -- being delivered through the cap and floor mechanism, do you see any opportunities for you there, either in maybe buying post-development assets? Or even perhaps I'm not sure if tooling really makes sense with cap and floor, but maybe it does. Is that something you've had to look at? Dwight Gardiner: Thanks, Adam. Can you tell me what was the second part of your question? Adam Forsyth: The second one, just about the last tolling deal for ours and non-escalating. Is that the typical sort of deal you would like to be seeing going forward? Mark Strafford: Yes. I mean I think having a mix of durations, Adam, is quite attractive, having that 2-hour and also 4-hour in the portfolio in addition to the longer duration storage we have at Cruachan. So having a mix of technologies and durations, I think, is helpful in terms of how we operate the portfolio. And in terms of the duration of the tolling agreements, 10 to 15 years, I mean, I think every deal is going to be slightly different, but something in that sort of range is something we're comfortable with. Dwight Gardiner: And I think in the first part of your question, Adam, if you think about the sort of differences between them, I mean, clearly, there's a different risk profile, right? So with the tolling agreement, we're not taking the development risk, i.e., we only have the obligations and get paid when they start operating, not taking the operating maintenance risk and then we get attractive returns. And so I think what we're doing for now as we build the portfolio, we will look at the relative returns and the relative risk on a case-by-case basis and see which we want and think are more attractive. But we think that there's value in having sort of both of them, but we haven't set a sort of explicit target as to how much we want to have of each in the portfolio. In terms of the cap and floor, I mean, I think my guess is that the cap and floor probably sort of makes a tolling or floor arrangement sort of less interesting because the government is effectively providing a lot of that for you already. And currently, we're focused much more -- we're actually focusing more on things that are actually on a merchant basis and, frankly, we're providing a lot of sort of stability in the earnings that maybe a cap and floor would otherwise provide. Operator: Our next question comes from the line of Charles Swabey from HSBC. Charles Swabey: Three for me. Just on -- back to battery storage, would you consider a move into markets outside of the U.K. for BESS to diversify some of the price risk there as you get more comfortable with the technology? Two, on data centers, when you're thinking about the pool of developers that are interested in using Drax Power Station, how has that changed over the last year in terms of the number of interested parties and the type and what they're looking to actually use the site for? And then three, with the dispatchable CfD in place, could you give any insight if there are any discussions with governments already about sort of plans for DPS post 2031? Dwight Gardiner: Okay. I got that. So in terms of moving outside the U.K., I would say we are very much focused on the U.K. for now, Charles. And I think that's quite an important piece of what we're trying to do here is extend our sort of -- extend our generating technologies, but sort of consistent with maintaining that within a market regulatory and framework that we're quite interested in. I would say that the strategy is very much a sort of M&A sort of given one, right? So if there was something that was super attractive and largely U.K. or vast majority of U.K. but had some other pieces outside, we might look at that. But the focus is very much on the U.K. In terms of parties, I mean, I think we've been quite clear we're working with a developer, and they've been talking to multiple parties. And I would say that, that group of parties, obviously, there are sort of people come in, people go out. But I guess I wouldn't say that there's a sort of a trend in the way that that's moved over time. I think there's still quite a few people that they are talking to. And then in terms of the dispatchable CfD, I mean, we're in very close contact with the government on this all the time. We're very focused right now on getting ready for the first part of the one we've got, right? So we haven't started any explicit discussions post '31. And frankly, we're also -- we need to talk to them first, I would say, about the data center carve-out. So that's probably the next item on our agenda with government. Operator: Our next question comes from the line of Mark [indiscernible] with Citi. Unknown Analyst: I've got one slightly around the edges for Drax, I suppose. But on the U.K. capacity market auction, the upcoming ones, can we get your views on how you think that will go? I mean we saw there's a lower capacity target requirement, potential greater headroom there. And if I look at your slide, I think your illustrative 60 kilowatt expansion [indiscernible] per kilowatt on that. Have your views -- or what are your views on how that might go in the next couple of weeks, please? Dwight Gardiner: I'm afraid I'm going to be deeply unhelpful. I mean, I guess maybe the best way to think about it is we will be putting a series of our assets that are price takers into that market. Effectively, we don't have any new significant projects we're putting in. So I haven't spent a lot of time sort of focused on where we think that will come out. And I think probably better for me not to give a forecast. Mark Strafford: And I was just going to add that the number in the presentation, Mark, that is purely illustrative and based on what it was historically, just to indicate that there is future value from the capacity market for existing assets when that current contracts under the scheme expire. Operator: As we have no further questions on the conference line, that concludes our Q&A session. And I would now like to turn the call back over to management for closing remarks. Dwight Gardiner: Okay. Well, I believe there are no questions in the webcast. So I guess I'll wrap up by saying I think the -- maybe I want to leave you with one thought, right, which is that I think where we're going to go from here is that we had a strong 2025. I was pleased with the way we overdelivered on our operating earnings there. Looking into 2026, again, we are comfortable with the consensus, and we're looking forward to delivering on that. When we get into 2027, I think we start to really become, in some ways, quite a different company, right? We'll have the new CfD, and we actually have a strong growth trajectory from there, right? We've got the battery transactions you've already seen. We expect to be investing more of that sort of GBP 2 billion of available cash flow going forward. So -- and also the sort of the mix of things will start to shift, right? We'll be sort of maybe 50% biomass, 60% FlexGen and, over time, FlexGen should grow, and we look forward to sort of developing that new business as a sort of a leading growing dispatchable renewable energy company in the U.K. So watch this space. Mark Strafford: Thanks, guys.
Operator: Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to ZipRecruiter Q4 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Emilio Sartori, Head of Investor Relations. Please go ahead. Emilio Sartori: Thank you, operator, and good afternoon. Thank you for joining us for our earnings conference call, during which we will discuss ZipRecruiter's performance for the fourth quarter and full year ended December 31, 2025, and our guidance for the first quarter of 2026. Joining me on the call today are Ian Siegel, Co-Founder and CEO; David Travers, President; and Tim Yarbrough, CFO. Before we begin, please be reminded that forward-looking statements made today are subject to risks and uncertainties related to future events and/or the future financial performance of ZipRecruiter. Actual results could differ materially from those anticipated in these forward-looking statements. A discussion of some of the risk factors that could cause actual results to differ materially from any forward-looking statements can be found in ZipRecruiter's annual report on Form 10-K for the year ended December 31, 2025, which is available on our investor website and the SEC's website. The forward-looking statements in this conference call are based on the current expectations as of today, and ZipRecruiter assumes no obligation to update or revise them, whether as a result of new developments or otherwise. In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, GAAP results. Reconciliations of the non-GAAP metrics to the nearest GAAP metrics are included in ZipRecruiter's shareholder letter and in our Form 10-K. And now I will turn the call over to Ian. Ian Siegel: Thank you. Good afternoon to everyone joining us today. 2025 was a year of stabilization and strategic execution for ZipRecruiter. After multiple quarters of sequential growth, I'm pleased to share that we achieved year-over-year revenue growth in Q4 '25, the first time a quarter has grown year-over-year since Q3 of 2022. Throughout 2025, we remain focused on our mission to actively connect people to their next great opportunity by delivering high-impact product enhancements. We upgraded ZipIntro and our resume database to drive faster connections, deployed new AI-powered suggested screening questions to decrease the time it takes employers to vet the candidates they receive, and optimized our automated campaigns to deliver better performance for our enterprise clients. In January of 2026, we took another leap forward with the launch of Be Seen First, a product which enables job seekers to jump to the top of an employer's candidate list. Job seekers earn this advantage when they tell the employer why they are excited about the role and what skills they bring to the table. The results are promising. Be Seen First candidates are nearly 2x more likely to have a conversation with an employer. Following the sequential growth in Q2 and Q3 of 2025, Q4 '25 marked a return to year-over-year revenue growth. We achieved this milestone despite a challenging macroeconomic backdrop. That said, hiring demand in Q4 '25 was soft. Hiring demand dropped below what normal seasonality would have predicted and job openings declined 10% year-over-year. As a result, Q1 '26 started from a lower base of paid employers. Our Q1 '26 revenue guidance of $106 million at the midpoint reflects this lower holiday baseline. However, in Q1 of '26, paid employer trends have rebounded year-to-date. Those trends are, in fact, stronger than the trends we called out as noteworthy in Q1 of '25. We are encouraged by the momentum we see in performance marketing revenue. Year-over-year performance marketing revenue increased 5% in Q3 of '25 and 9% in Q4 of '25. Our go-to-market motion and product offerings continue to resonate with and drive value for our larger enterprise customers. This performance gives us confidence that our product improvements and technology investments are driving us forward in this environment with our underlying momentum intact. For the full year 2026, we expect hiring demand to follow a typical seasonal cadence, albeit at subdued levels given the lower starting point post holidays. We believe a likely result in this scenario is for us to achieve flat year-over-year revenue in 2026 compared to the 5% decline in 2025. Further, in this scenario, we expect adjusted EBITDA margins to expand by 5 percentage points from 9% in 2025 to 14% in 2026. This improvement reflects our rigorous cost discipline alongside targeted investments aimed at capturing growth. In addition to addressing our business specifically, we have been receiving many questions about AI and its impact on the labor market. While some attribute the current hiring slowdown to AI displacement, ZipRecruiter employer survey data tells a different story. According to ZipRecruiter customer responses in our Q4 2025 Annual Employer Survey, the current labor market trends are primarily driven by economic factors, such as lower customer spending or cost-cutting mandates rather than technology-driven automation. AI is currently having little to no impact on our customers' hiring plans. This matches the sentiment from a large number of economists on the topic. Over the long term, we expect AI to be a substantial boon to the labor market. History shows that major technological shifts display specific roles, but ultimately unlock productivity and enhance labor demand. We believe AI will follow a similar trajectory. We further believe ZipRecruiter is uniquely positioned to lead this next wave of AI-driven acceleration. Since our inception, we have invested over $1 billion to build an enduring brand that resonates with both employers and job seekers. Our proprietary AI matching technology trained on billions of interactions continuously learns to surface the right roles and deliver qualified candidates faster. Our team and our technology investments are laser-focused on continuously improving the process of finding a great job or a great employee. ZipRecruiter remains committed to its mission of actively connecting people to the next great opportunity through every economic cycle. We believe we will continue to lead the shift in recruiting from offline to online, and we are prepared for this new wave of AI-driven innovation. Before I turn the call over to Dave, as you read in our shareholder letter, our CFO, Tim Yarbrough, has decided to pursue a new opportunity and will be departing ZipRecruiter. On behalf of the Board and the entire ZipRecruiter team, I want to thank Tim for his over a decade of dedicated service. We wish him continued success in his next opportunity. Dave Travers, our current President and previous CFO of 6 years, is stepping in as Interim Chief Financial Officer effective February '26. Dave's deep familiarity with our business, financial operations and history will ensure a seamless transition during this interim period. We've also initiated a comprehensive search for a permanent CFO. And with that, I'll turn the call over to Dave to share some business highlights. David Travers: Thanks, Ian, and good afternoon. Our performance in the fourth quarter reflects the continued success of our product-led strategy. Even in a complex hiring environment, our investments in matching technology and seamless integrations are delivering clear value to both employers and job seekers. I'm excited to share several highlights with you. Q4 '25 revenue reached $112 million, representing 1% year-over-year growth. This is a significant milestone, marking our first quarter of year-over-year growth since the market decline began in Q3 of '22. This performance is consistent with the scenario we outlined over the course of 2025, and we believe our execution, brand resilience and strong market position overcame what continues to be a challenging macroeconomic backdrop. We finished the year with over 59,000 quarterly paid employers in Q4, up 2% year-over-year and down 12% sequentially, consistent with historical seasonal patterns. This is our second consecutive quarter of year-over-year expansion, signaling the long-term health of our employer base. This January, we launched Be Seen First, a new product designed to help job seekers break through the application black hole and turn one-way applications into real 2-way conversations. By adding a short note to their application, job seekers moved to the top of an employer's applicant list, highlighting essential skills and enthusiasm that resumes often missed. This provides recruiters with critical context and surfaces the most engaged talent. Employers are prioritizing these high-intent applicants and Be Seen First candidates are nearly 2x more likely to have a conversation with the employer. In response to the shifting SEO landscape, we optimized our marketplace for generative AI discovery. This drove a significant increase in engagement with site visits from AI engines more than doubling year-over-year in Q4. Additionally, ZipRecruiter's job seeker traffic outperformed our largest competitors throughout 2025, validating our ongoing product improvements. By reaching job seekers regardless of where they begin their search, we believe we are uniquely positioned to capitalize on the eventual acceleration of U.S. hiring. Since its U.S. launch in 2025, Breakroom has published over 16,000 employer profiles, powered by 1.6 million employee ratings. We recently integrated these ratings directly into ZipRecruiter, enhancing 8.7 million job postings and over 9,000 company pages with transparent workplace insights, providing job seekers with transparency to better evaluate potential employers and increasing the likelihood of a strong long-term match. In 2024, we launched ZipIntro, an AI-powered solution that speeds up hiring by rapidly connecting employers and job seekers for face-to-face conversations. Enterprise adoption of ZipIntro grew consistently throughout 2025. In Q4 alone, scheduled sessions increased 17% sequentially and expanded by more than 5x year-over-year. To further optimize the platform, we recently made a number of targeting improvements that drove a 32% increase in sessions that met or exceeded RSVP targets, delivering a more predictable candidate flow for employers. We've enhanced our resume database to allow employers to filter by recent platform activity, such as whether they are new to the ZipRecruiter marketplace or if the candidate recently updated their profile. Employers are finding these real-time insights incredibly valuable. The resume unlock rate for candidates with these activity labels is 66% higher than those without. When thinking through specific questions to ask candidates, employers often struggle when starting from the blank page. In Q4, we launched an AI-driven tool that automatically generates tailored screening questions. Employers have quickly embraced this upgrade with 93% of new employers using our AI recommended screening questions in Q4. By automating this key step, we drive higher quality connections faster. ZipRecruiter's enterprise-focused strategy is gaining significant traction, fueled by high demand for automated tools. In Q4, adoption of our automated campaign performance solution increased 32% year-over-year. This and other enterprise enhancements led to a 9% year-over-year increase in performance marketing revenue in Q4, an increase from 5% growth seen in Q3. Despite a complex hiring landscape, these results demonstrate that our programmatic tools are successfully delivering the efficiency and candidate quality that large employers prioritize. For over a decade, ZipRecruiter has invested in building a network of over 180 ATS integrations to streamline the enterprise hiring process. This momentum continued in Q4 with the launch of an enhanced Workday integration and a new Bullhorn partnership. By connecting with these major ATS platforms, recruiters can now source talent from our resume database and export candidates to their preferred system with a single click, drastically reducing applicant friction and accelerating time to hire. With that, I'll now turn the call over to Tim to run through the financial results. Tim? Timothy Yarbrough: Thank you, Dave, and good afternoon, everyone. Our fourth quarter revenue of $111.7 million represents 1% growth year-over-year and a 3% decline quarter-over-quarter. Our first year-over-year increase since Q3 of 2022 was primarily driven by higher performance-based revenue from enterprise employers, which grew to 25% of total revenue. The sequential decline is consistent with seasonal hiring patterns in the fourth quarter. We finished the year with over 59,000 quarterly paid employers, representing a 2% increase year-over-year and a 12% decrease sequentially. This marks our second consecutive quarter of year-over-year growth, demonstrating the stability of our employer base despite macroeconomic volatility. The sequential decline is consistent with our historical seasonal patterns and reflects the typical slowdown of hiring during the holiday period. Revenue per paid employer was $1,889, down 2% year-over-year and up 10% sequentially. The year-over-year decrease reflects continued softness in hiring demand, particularly among SMB customers. The sequential increase is primarily driven by the seasonal reduction in the number of paid employers in the fourth quarter. Our net loss in the fourth quarter was $0.8 million. Adjusted EBITDA in Q4 '25 was $16.2 million, equating to a margin of 15%. This is higher compared to 13% in Q4 '24 and 8% in Q3 '25, with increases driven by a return to revenue growth and continued expense discipline. Our full year adjusted EBITDA margin of 9% exceeded the mid-single-digit expectations we shared at the beginning of the last year. Cash, cash equivalents and marketable securities was $409.1 million as of December 31, 2025. During Q4 '25, we repurchased 1.8 million shares totaling $8 million. As Ian mentioned, after more than 10 incredible years at ZipRecruiter, I'll be stepping down from my role as CFO to pursue a new opportunity. I'm deeply grateful for the growth and experiences that have shaped both my career and me personally. Thank you to our amazing employees for your dedication and partnership. It's been an honor to be a part of this team, and I'm excited to see how ZipRecruiter will continue to transform how hiring is done. With that, I'll pass it back to Dave to discuss our guidance. David Travers: Thanks, Tim. I echo Ian's comments, and we wish you luck in your future endeavors. Moving on to quarterly guidance. Our Q1 2026 revenue guidance of $106 million at the midpoint, down 4% year-over-year and 5% sequentially, reflects the lower baseline of paid employers as we started Q1. Our adjusted EBITDA guidance midpoint of $5 million represents a 5% margin, which is flat year-over-year and demonstrates our financial flexibility as we navigate the current labor market backdrop. Looking beyond Q1, we expect hiring demand to follow a typical seasonal cadence over 2026, albeit at subdued levels given the lower starting point post holidays. We believe a likely result in this scenario is for us to achieve flat year-over-year revenue in 2026, which is a 5 percentage point improvement over last year. In this scenario, we expect adjusted EBITDA margins to expand by 5 percentage points from 9% in 2025 to 14% in 2026. This improvement reflects our continued cost discipline alongside targeted investments to ensure ZipRecruiter emerges from this cycle in a position of strength. The stabilization in the business we've seen despite a weak hiring environment is encouraging, and we remain confident in our long-term growth opportunity. We believe our flexible operating model and healthy balance sheet position ZipRecruiter to take advantage of growth opportunities and position us to outperform the broader hiring category over time. With that, we can now open the line for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Eric Sheridan from Goldman Sachs. Eric Sheridan: Tim, thanks for all the help over the years, wishing you the best of luck. Maybe 2, if I can. First, if you look at the demand environment you're facing right now, any different characterizations you would give on the employer side from what you're seeing from large enterprises relative to SMB? And any indications how that might change as we progress into Q1 and deeper into the year? David Travers: Eric, this is Dave. Great question. Yes. So what we saw last quarter was in the latter half of the quarter over the holiday period a -- after a strong start to the quarter was a slowdown in SMB demand, particularly. And we've been encouraged since the beginning of the year, as we said, that SMB demand looks as good or actually slightly better than last year and better than we've seen in several years. So our expectation is that from a lower baseline, given the weak latter half of holiday period of last quarter, from that lower baseline, we'll see a stable overall macro environment and that our ongoing investments and continued operational improvements as we just detailed, ZipIntro, resume database and most importantly, perhaps our execution in enterprise, where we see a similarly -- forecasting as the most likely scenario, a similarly stable demand environment but where our execution and obsession with hitting customers' targets, defining clearly for them what their target is and what their definition of success is and then making sure we hit it and are having our -- both our product and our go-to-market teams work relentlessly to make sure that happens. That's paying off, and we see it -- for the first time in 4 years, seeing slight sequential growth in performance marketing revenue in Q4 versus Q3. So what we foresee is -- we're ready for a wide range of scenarios as always, but the most likely scenario being the overall demand environment for both SMB and enterprise being flat from this lower start and that our investments allow us despite a weak starting point for -- to start the year in Q1 that we get to flat this year and are able to expand margins as we do it so that we're increasing revenue by 5 percentage points versus last year and increasing margin by 5 percentage points at the same time. Operator: Your next question comes from the line of Ralph Schackart from William Blair. Ralph Schackart: Maybe just a follow-up on Eric's question. Just trying to square a little bit, I guess, some of the more soft conditions you saw in Q4 after a strong start compared with, I guess, a stronger rebound in Q1, particularly I think you called out SMB. Anything that you sort of call out there for the, I guess, the dramatic or pretty sharp rebound there? And then two, just in terms of the traffic you're seeing from the LLMs, can you maybe sort of walk us through how that traffic is behaving, performing, perhaps converting? And then is it at a level perhaps in 2026 when it could start to impact the results? Just any other color on the LLM traffic would be great. David Travers: Thanks, Ralph. This is Dave. I'll take the first one and let Ian take the second one. So on the soft Q4, I think it very much -- what we saw in Q4 very much mapped to what the job openings numbers from the government look like where we saw that 10% decline. And each -- even when you seasonally adjust it, December is always the hardest month of the year to forecast and is always the seasonally weakest month. But even when you adjust for seasonality as the government does in their official data, there was a month-over-month decline each month in Q4 in terms of job openings, and that's very consistent with what we saw. And as we look at it, as we always say, our employer base looks like the whole U.S. economy. But when we look at particular areas of weakness and strength, health care remained resilient as it has for several years now and demographic changes and other structural reasons for that in the U.S. economy. But on the flip side, retail, food service, education were all areas of weak spots during the quarter, and we saw those degrade. And then to the point I said earlier, starting January 1, we saw a different story where we've seen a nice pickup in activity. And so that gives us the confidence to say the most likely scenario of those that we prepare for is that we will be flat from that lower baseline for the year. Ian Siegel: And speaking to the LLM question, to give context, ZipRecruiter gets traffic from a wide array of different media sources and sites, and that includes everything from other job sites to organic traffic to SEM to response advertising and LLMs are just one part of the mix. What makes them interesting is they are the fastest growing in terms of both they themselves as a category as well as the traffic that we are getting from them. However, in the overall mix of traffic that ZipRecruiter gets, overwhelmingly still traffic that is highly engaged and active on the site is still coming from the variety of traditional sources. The difference between LLM traffic and those sources is not much. They are active job seekers who are eager and engaged. They are still continuing to grow at a healthy pace, and we are excited about the momentum that we see with LLMs. Operator: Your next question comes from the line of Trevor Young from Barclays. Trevor Young: First one, just as we think about the cadence of growth throughout the year, it would kind of suggest that 1Q is maybe the low point for the year and you would exit the year at low single-digit territory or something like that, such that you're flat overall even with tough compares. What kind of informs that view that growth will accelerate from here given that backdrop? Particularly because you are seeing EBITDA margin expansion, so that maybe suggests not leaning in on marketing meaningfully. And then second one, just on capital allocation. You have about $200 million in cash on hand, Guide implies free cash flow maybe improves a bit here in '26. Clearly, a willingness to buy back stock in the last year. Should we expect opportunistic repurchases of the stock given a bit of an uptick in the outlook here? And then relatedly, any thoughts on the trade-off of stock versus debt repurchases because I know a lot of folks on the credit side also care on that. David Travers: Great. Thanks, Trevor. So in terms of the cadence throughout the year, I think what gives us confidence is, a, what we've seen year-to-date since January 1; and b, going back longer than year-to-date, the momentum we have with enterprise. And to the point you made, which is astute that margins going up while we see the cadence of improvement over the course of the year being the most likely scenario is consistent with enterprise continuing to outperform where we're not as -- the demand generation is much more sales-led and much less marketing led on the enterprise side of things. And so those teams are more -- the expense line on those teams is more stable and preexisting, and we see a lot of investments that we've made over the past couple of years starting to pay off and is less dependent on same quarter sales and marketing. Obviously, we remain flexible to and we'll adapt based on changing environments we see, but that's the most likely thing we see, and we see more than just dating back to January 1 in terms of momentum there with that part of the business. And then to your question on capital allocation, so our sort of strategic framework remains the same. The top priority always is organic growth. We were not just EBITDA profitable last year, but free cash flow profitable as well and obviously talked about seeing expanding margins this year. So in terms of organic growth, we're well covered, but we'll always prioritize that first. The second priority is M&A opportunities. You saw us take action there in terms of Breakroom where there's a really strong value proposition to both job seekers and employers about how our entire marketplace gets stronger with better employer branding and giving job seekers the real straight dope on what it's like to work -- in frontline workers, in particular, what it's like to work at a particular employer. The third priority is return of capital. And so as you pointed out, we've been a consistent returner of capital last quarter, about $8 million for about 1.8 million shares. And every single time we have an opportunity to allocate capital, we think about what are our resources. We currently have a very robust balance sheet and lots of liquidity, as you mentioned. And we look at the different opportunity set of different opportunities to repurchase shares or bonds or whatever, as you mentioned, and look at the ROI there, and we'll take action accordingly. You've seen us do that before. We will continue to evaluate that as we see opportunities to do so. Operator: Your next question comes from the line of Josh Chan from UBS. Joshua Chan: Good luck, Tim. I guess maybe just 2 questions. So I guess, first, what do you make of the Q4 slowdown and then Q1 recovery? And relatedly, why doesn't the Q1 recovery get you back to the same spot? Is it just like not enough of a recovery in magnitude? And then the second question would be, are you seeing meaningful changes in terms of how employers are trying to find candidates as in moving away from the traditional resume? I mean you launched this Be Seen First feature, which allows people to feature different things other than their resume. So just curious if something like that is starting to happen in the environment? Ian Siegel: Yes, go ahead. David Travers: So on the first one, your question is a good one. So the way we think about it in terms of the cadence in Q1, it is very typical in Q1, given the seasonality, as I mentioned or we mentioned before, that the holiday period is the weakest period of the year seasonally, then Q1 can look fairly flat to Q4 in a typical year, plus or minus a couple of points. But it's really a story of building throughout the quarter from a lower starting point given what happens, the slowdown over the holidays, especially in the SMB part of the business. And so what we see here is just a steeper climb. And the starting point was lower. The trend line within the quarter looks good, but we're just starting from a lower point where the SMB part of the business was a little bit weaker over the course of late November and December, which is what causes that cadence. Ian Siegel: And then on Be Seen First, without question, the world of recruiting is experiencing a renaissance as it relates to both the way candidates are sourced and the way -- the opportunities they have to communicate with the employers and the hiring managers. Resumes are very much still in play. They are a necessary part of a comfortable expected process that employers are not willing to let go of. What Be Seen First is, it's really a mechanism for job seekers to show their enthusiasm, to stand out when they apply to a job in a novel way, and job seekers are using it exactly as we intended. They are not spamming employers with Be Seen First. They're being selective about which jobs that they express their enthusiasm for and employers are responding as we would expect, which is in a sea of candidates, many of whom resumes look highly qualified for the role in which they are applying. They are looking for other signals that will allow certain candidates to stand out from the rest of the pack. A candidate participating in Be Seen First, showing their enthusiasm and getting pushed to the top is not only advantaging themselves, they're actually doing the employer a favor by giving them one more method from which to assess the pool of candidates they received to decide who were the very best that they want to bring in for an interview. Operator: Your next question comes from the line of Kishan Patel from Raymond James. Kishan Patel: This is Kishan Patel on for Josh Beck. You mentioned in the shareholder letter that you're optimizing the platform for Gen AI discovery. How do you think about optimizing the ZipRecruiter platform for agentic search or engagement by job seekers? Ian Siegel: Well, this is certainly a topic that we are spending a lot of time thinking about. And we are excited about the potential and opportunities that is represented by AI. There are so many different directions we could choose to take this in. And certainly, already AI is permeating our site. I mean you can go all the way back to our S-1 when we first went public where we described ourselves as an AI-powered marketplace long before there was ever an LLM and everyone was talking about AI. And when we talked about AI, we were really talking about the matching engines that we built that are powered by those billions and billions of interactions between employers and job seekers, which is what allows us to not only do an exceptional job of matching keywords and resumes to the keywords and job descriptions, but also to benefit from what's known as the wisdom of the crowd, where insights can be gleaned by the different AI methodologies that we were applying in order to find the very best jobs for job seekers and the very best candidates for employers. As we look at our own service today, already, you can see AI making its way in. We talked about suggested screening questions in our shareholder letter. That is a product that has reached massive levels of adoption on our product. It's skyrocketed with the launch of suggested screening questions. The difference between putting a blank page in front of an employer and saying, come up with screening questions versus putting a set of AI-created pre-written screening questions in front of them, has been fundamentally night and day. It has been a sea change in how our product works and how applications are processed, and it's fantastic for employers because again, employers are always looking for signal, how can I differentiate between the seemingly equally qualified candidates who I have received, screening questions is a fantastic tool for that. I would expect you will hear many more AI-driven features coming through the ZipRecruiter development team and entering into our platform over the coming years. And I think you will see that AI becomes a fundamental tool and a fundamental advantage for ZipRecruiter to enhance the marketplace that we have already created. Operator: There are no further questions. That concludes the question-and-answer session. That also concludes today's meeting. You may now disconnect.
Operator: Welcome to the IonQ 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 Hanley Donofrio, Director of Investor Relations. Please go ahead. Hanley Donofrio: Good afternoon, everyone, and welcome to IonQ's Fourth Quarter and Full Year 2025 Earnings Call. My name is Hanley Donofrio, and I'm the Investor Relations Director here at IonQ. I'm pleased to be joined on today's call by Niccolo de Masi, IonQ's Chairman and Chief Executive Officer; and Inder Singh, IonQ's Chief Financial Officer and Chief Operating Officer. By now, everyone should have access to the company's fourth quarter and full year 2025 earnings release issued this afternoon, which is available on the SEC's website and on the Investor Relations section of our website at investors.ionq.com. Please note that on today's call, management will refer to non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. You are directed to our earnings release for a reconciliation of adjusted EBITDA and adjusted EPS to the closest comparable GAAP measures. During the call, we will discuss our business outlook and make forward-looking statements, including those regarding our guidance for 2026. These comments are based on our predictions and expectations as of today and are not guarantees of future performance. Actual events or results could differ materially due to a number of risks and uncertainties. Therefore, you should not put undue reliance on those statements. We refer you to our recent SEC filings, including our annual report on Form 10-K for the year ended December 31, 2025, for a more detailed discussion of those risks and uncertainties. We undertake no obligation to revise any statements to reflect changes that occur after this call, except as required by law. Now I will turn it over to Niccolo de Masi, Chairman and CEO of IonQ. Niccolo de Masi: Thank you all for joining us on today's historic call. 2025 was a highly successful and transformational year for IonQ, both strategically and financially. Strategically, we expanded our business from leadership in quantum computing to become the world's leading quantum platform solution and merchant supplier. We are the first company in history capable of delivering integrated quantum solutions across computing, networking, sensing and security in all major allied geographies. IonQ is the world's only full stack quantum platform company operating in all domains. This strategic expansion is powered by an unmatched intellectual engine as we continue to attract the world's best and brightest quantum leaders as well as the leading quantum IP portfolio. IonQ benefits from approximately 300 PhDs and 800 talented colleagues with advanced degrees, many of whom are household names in their fields. Financially, we delivered a record year, not only for IonQ, but a historic one for the entire quantum industry. In the third quarter of 2025, we delivered nearly as much revenue as we did in all of 2024. In the fourth quarter of 2025, we surpassed this by growing more than 50% quarter-over-quarter. After becoming the first public quantum company to achieve 8 figures of revenue in 2024, we grew to deliver substantially more revenue in the fourth quarter of 2025 than in the entire calendar year of 2024. Strong organic growth powered our full year 2025 revenue to be over 3x that of 2024. Commensurately strong investor interest allowed us to fortify our balance sheet with the 2 largest capital raises from a single investor in Quantum history. Quantum is indeed now, and IonQ is confidently leading this revolution by every measure. As most listeners know, late last month, we announced the largest acquisition agreement in Quantum history and the first public-to-public planned Quantum transaction ever. SkyWater is the leading quantum foundry in the world, commercially supporting not only IonQ, but also more than a dozen other Quantum and DoW programs. By leveraging SkyWater's unique expertise in pioneering quantum semiconductor scaling within secure trusted environments, we will be positioned to accelerate manufacturability of IonQ's entire Quantum platform roadmap. However, our mission extends beyond IonQ to power the broader U.S. quantum industry and all our global allies. We aim to ensure our nation's entire quantum ecosystem moves forward with speed and security. In our joint IonQ SkyWater webinar last month, we laid out the fact that IonQ is already a leading merchant supplier to the broader quantum industry. Our precision atomic clocks power a number of quantum computing businesses and government contractors, and we already sell our quantum networking solutions and sensors broadly. Our modality-agnostic networking components are, in fact, designed to integrate diverse quantum devices, ensuring seamless connectivity across the quantum industry. Once SkyWater is part of the IonQ family, we will become the largest quantum merchant supplier in the world, with Thomas Sonderman continuing to lead SkyWater. Our focus is accelerating our nation's quantum industry, and we will continue investing to ensure the United States prevails in this geopolitical race. SkyWater has already created the compartmentalization, the protocols and the IP protections that will allow customers to continue to operate within our foundry model. We are a kindred spirit with everyone supporting our nation and our allies in this quantum space race of our era. Our combined company will have the capacity and capital to grow not only U.S. quantum R&D initiatives across quantum computing, quantum networking, quantum sensing and quantum security, but also to ensure the U.S. quantum manufacturing scaling. SkyWater helps us build an IonQ platform that customers, especially government and other mission-driven buyers, can trust and plan around irrespective of geopolitics. Together, we intend to ensure the entire U.S. quantum industry will deliver, scale and do so onshore with trusted processes for the good of the nation. Returning to 2025. It has been a year of tremendous accomplishments across our product families, both technically and commercially. In quantum computing, IonQ demonstrated the highest performance quantum gates in any system platform and by a wide margin. 99.99% 2-qubit gate fidelity means we can concentrate on system architecture and scaling in order to make smaller and cheaper systems even as they become more powerful. While other quantum computing companies are still working on perfecting their underlying qubits and gate operations, ours are based on physics that was settled 25 years ago. Our fidelity advantage translates into a powerful and enduring error correction advantage. I want to highlight today that our quantum computers deliver the best time to solution on the market for commercially relevant applications. Time to solution is how fast a customer running an algorithm gets to accurate answers that actually solve their problem. For example, when we look at a common quantum algorithm used for signal processing, search and factoring, IonQ is up to 1,000x faster than the leading superconducting system on reaching the solution. We also see a massive speed advantage in signal processing and optimization tasks with up to a 10,000x faster solution on IonQ systems compared to superconducting. We aren't just doing theoretical work. We are solving real-world problems at a speed that creates commercial utility. This is how IonQ is delivering in today's competitive landscape, and we're just getting started. Our near-term roadmap builds to 1,600 fault-tolerant module qubits a year before our competitors even get to 200. We believe we will continue to outpace competitors on commercial utility to an accelerating extent as we unlock our application roadmap announced last fall. Best of all, we deliver these advantages at a far more accessible cost for both commercial and government customers. At our Analyst Day in September, we shared third-party validated estimates of IonQ's full scale system cost, which is 2 orders of magnitude below superconducting competitors. As students of history, we all know that the best economics occasionally beat the best technology, but best economics and best technology is what makes markets and builds an irresistible ecosystem. This is what IonQ is poised and focused on delivering. In Q4 2026, we are targeting to demonstrate an operational 256-qubit system, which will be our sixth-generation machine in the market. With our world-leading 2-qubit gate fidelity, we expect to unlock substantial value for our customers and explore world-changing applications this year. Last year, we worked closely with dozens of customers around the world who use our quantum computers to run complex applications. A prime example is our continuing work with Ansys and Synopsys as we pursue a mutual goal of commercializing quantum in the engineering space. To paraphrase the CEO of Synopsys on my Quantum panel at the World Economic Forum in Davos last month, the key driver of innovation is complexity. Customers do not adopt new technology because they're curious, but because they need to solve a problem in a more affordable way. We help customers around the world do just that, running applications from pharmaceuticals and automotive to chemistry and AI with the fastest, most energy-efficient and cost-effective approach. In quantum networking, among numerous deployments, we partnered with the U.S. Air Force Research Lab to achieve the first qubit to photon frequency conversion in a field deployable system. This ensures real-world quantum networks on existing standard fiber optic commercial infrastructure. We also won the contracts to deliver multiple international quantum networks, including the world's first citywide dedicated quantum network in Geneva, Switzerland, Slovakia's first national quantum communication network and one of Europe's largest operational QKD networks to date in Romania. In quantum sensing, our atomic clocks and inertial sensors are the highest performing fielded devices for their form factors. Our quantum sensors already operate in domains from under the ocean to up in the air. This technology leadership is translating directly into high-value defense partnerships, including U.S. Navy contracts for miniature ultra-stable atomic clocks and U.S. Army contracts to provide resilient timing systems for GPS-denied environments. Our clocks are the highest performing in the marketplace, and they are shrinking in size. Most recently, in partnership with DARPA, we successfully reduced our clock size by 6x while maintaining similar performance, a breakthrough that paves the way for integration into satellite payloads. Together, IonQ's market-leading quantum sensing technologies complement our quantum computing and quantum networking infrastructure to position IonQ as the partner of choice for the mission-critical needs of defense, aerospace and sovereign nation customers. We bolstered our IonQ federal team with the appointment of Katie Arrington as our CIO until recently, the acting CIO of the Department of War and adding General John Raymond to our Board, the first Chief of Space Operations for the United States Space Force. Rick Muller joined last year also having until then been the Director of IARPA. Dean Da Costa joined to run communications and government relations, having previously held the same role at Lockheed Martin. The collective expertise of these leaders uniquely positions IonQ to navigate the complexities of the federal landscape and win large-scale mission-critical federal contracts. Geographically, we deepened momentum in South Korea through our QKD National Security accreditation and KISTI system sale win, where IonQ is now anchoring the country's largest quantum classical compute platform. We also expanded our agreement with QuantumBasel in Switzerland to over $60 million, spanning 4 years and 4 generations of IonQ systems. In the EU, we struck a partnership with leading autonomous vehicle company, Einride of Sweden, and incorporated IonQ Italy under the leadership of Dr. Marco Pistoia, the former Head of Quantum at JPMorgan. In Canada and Sweden, we struck a partnership with CCRM to accelerate the development of advanced therapeutics, reinforcing the transformative impact of Quantum in the pharmaceutical sector and building on the proven results of our work with AstraZeneca last year. Scott Millard joined us to lead our global commercial efforts, having previously led the AI team at Dell. Chad Sakac joined us to run field engineering and presales following his distinguished career doing the same at EMC and Dell. Under their leadership, our expanded commercial team is positioned to accelerate our global go-to-market strategy, delivering our full stack quantum solutions to meet the evolving needs of our global enterprise customers. Moving now on to 2026. As our team knows, we have 3 key objectives; first, to drive superior financial performance by leveraging our scale and our complete platform to further accelerate our commercial execution. Our strategic evolution into the world's only full stack quantum platform company positions us with continued momentum to achieve $235 million in revenue in 2026 at our current guidance midpoint. Second, to answer the key strategic questions that unlock exponential value in our product families and across our global quantum platform. DARPA QBI Phase C and the next-generation GPS that is orders of magnitude more accurate are examples of our ambitions here. Third, to hone our internal operating system for efficiency, speed and talent density as we scale. We continue to make smart, disciplined organic investments to move technical progress earlier in all our product families. We will also continue to consider value-enhancing acquisitions to further deepen our product and service offerings and accelerate our long-term path to profitability. You will hear us talk more about both time to solution and cost to solution, areas where IonQ has and will always excel. And we will unlock utility for Fortune 500 companies, U.S. and allied governments alike. Our North Star is to positively impact all aspects of applied science by pioneering and globally commercializing the world's quantum solutions. 2026, I believe, begins the era of truly showing IonQ's quantum platform in action in all its forms and domains, quantum applications, quantum computers, quantum networks, quantum security and quantum sensors. IonQ is one platform, one team, primed and poised to win. As we advance our strategy and deliver on our objectives, we are confident we will drive significant value creation for shareholders. As I conclude, allow me to thank my colleagues for their tremendous efforts in 2025 and the entire U.S. quantum industry for their trust. We are here to speed up all of our nation's quantum initiatives and players using our merchant supplier capabilities. IonQ is here to support all initiatives at the White House, DoW, DOC, DOE, and Capitol Hill advance to ensure our country and its allies benefit from U.S. quantum leadership in the 21st century. We look forward to 2026 and beyond with confidence as IonQ's technical roadmap is delivered across all product families and our operating momentum continues to build. I am delighted now to hand you over to Inder Singh, IonQ's CFO and COO. Inder Singh: Thank you very much, Niccolo. It really has been an amazing year for IonQ. I'm extremely pleased that 2025 has been such a transformative and record-setting year for us from virtually every lens that I can see from record-setting financial results to exceptionally strong commercial sales globally to unmatched technology breakthroughs like the four 9 fidelity you mentioned. It was the year in which we transformed the company from a single product quantum computing company in 2024 to a full stack quantum platform company, able to deliver not just quantum computing, but as you said, quantum networking, quantum security, quantum sensing, interconnects, laser-based communications, the world's most precise PNT and on and on. In short, from one amazing product to the world's most comprehensive quantum product portfolio. In the process, we also became the Quantum industry's merchant supplier. Yes, as Niccolo noted, we provide components to our pre-group companies in the quantum space. And as you heard from Niccolo, we're not stopping there. We've announced our intent to acquire SkyWater Technologies, already recognized as the most secure fab in the United States. With SkyWater, once it receives regulatory approval, we would have both surety of supply and security in our solutions. With more than $3 billion of cash among our financial firepower, we intend to bring that surety and security in the most advanced and secure products to our customers around the world. Let me highlight our financial results, which help really punctuate what you and I just talked about. IonQ ended 2025 with an exceptional fourth quarter following a record-setting third quarter. Fourth quarter revenues were $61.9 million, even exceeding our own expectations and growing 429% year-over-year. This brought our full year 2025 revenues to $130 million, comprising 202% year-on-year growth. These historically high results mean that IonQ has outperformed our revenue guidance once again, exceeding the midpoint by 55% for the fourth quarter and 20% for the full year. Our full year revenues now exceed the Street expectations for 2025 revenues while the other pure-play quantum players combined. Let me take a moment to talk about some key drivers of what the performance we saw this quarter and this year. First, we saw tremendous demand from customers for our latest fifth-generation 100-qubit tempo system. In fourth quarter, we welcomed KISTI of South Korea as a new customer of our fifth-generation system. This sale highlights IonQ's distinct value and the ability for us to win even against competitors that may be larger than us or more entrenched or bigger marketing dollars. The value and the strength of our products clearly shine through. Customers are choosing to partner with IonQ because of our industry-leading tech road map today and the tech road map we have announced for the next 5 years as well. We also welcomed another new customer, CCRM, one of the world's leading advanced therapeutics accelerators, which plans to use IonQ's Tempo cloud-based solution to do bioprocess optimization, disease modeling and the design and manufacturing of advanced therapies for many health conditions. Yet another commercial success story is with QuantumBasel, which demonstrates our land-and-expand strategy, but also that we treat our customers as partners in a journey, combining theirs with ours. QuantumBasel, who already owns our prior fourth-generation Forte quantum computer, agreed in the fourth quarter to purchase our fifth-generation tempo computer and also obtained access to our future sixth-generation computer, which is still in development, and this is a 256-qubit semiconductor-based computing device we expect to deliver in 2027. This multiyear relationship now -- is now expected to span 7 years from the years we've been with them in the past and the 4 years that Niccolo mentioned with this new arrangement we have with them. It also demonstrates how one compute device can lead to the adoption of an entire road map. QuantumBasel is a testament to how customer relationships turn into enduring partnerships. Beyond computing, we are seeing similar demand and adoption for our networking and post-quantum cybersecurity solutions. As you also heard from Niccolo, we saw quantum networking adoption in Geneva, in Slovakia. And in Romania, IonQ is deploying one of the largest and most complex operationally post-quantum cybersecurity networks in Europe. These national partnerships represent significantly larger networks than in the past and are indicative of the growing adoption of our quantum networking and our quantum security solutions. Turning now to the mix of revenues we saw. For the full year 2025, over 60% of revenue came from commercial customers, marking strong sales in the commercial sector and reflecting the customers, some of whom I named before. And anecdotally, our international sales comprised more than 30% of revenue for the first time, reflecting how our Quantum platform solutions are now resonating worldwide. Because of the breadth of quantum products we are now delivering, our customers' list includes Singtel, SK Broadband, Solace, CERN, IIT, it's a very long list. Importantly, this broadening customer base presents us with a golden opportunity to cross-sell more things to more customers. As we move ahead, we continue focusing on new customer opportunities around the world, including in places like Australia, Italy, Greece, India, Japan, Vietnam, Argentina and many others. Our new CRO and the sales team are taking a very methodical approach to identifying the most compelling opportunities and taking a disciplined pursuit and capture approach. Importantly, our 2025 results included nearly 80% year-on-year organic growth, and I expect this to be even healthier in 2026. We are very pleased to see solid organic growth, of course, even as we have broadened our product portfolio with our Quantum platform. With my second successive quarter now in this role, we are continuing our focus on building strong backlog plus developing a very targeted view of our pipeline in order to make sure that we continuously strengthen our visibility for our financial planning and also that we match demand and supply. As a demonstration of this focus, in our 2025 10-K being filed today, we disclosed that our remaining performance obligations, or RPO, which provides one metric to gauge visibility over several quarters, stood at $370 million at the end of 2025 compared to just $77 million at the end of 2024, which is almost a fivefold increase. Turning now to EBITDA. We reported an adjusted EBITDA of negative $67.4 million for the quarter and negative $186.8 million for the year. I wanted to note that even this adjusted EBITDA is better than the full year adjusted EBITDA guidance that we had provided at the time of our third quarter earnings call. The adjusted EBITDA reflects the fact that we are making investments. We are investing in our business and our key investment area, as you'd expect, continues to be R&D. R&D comprised $96.1 million in Q4. And for the year, it was $305.7 million. That's 123% annual increase. We will continue to invest in R&D as this helps maintain the technological advantage that we deliver for our customers and also creates new IP to extend the value for our customers in the future. We are doubling down on investments in our computing platform, which is already leading the market by multiple years by both investing in our fifth-generation tempo deployments, which are in progress this year, which are already beginning really the build-out of our sixth-generation 256-qubit computing platform, as Niccolo mentioned. And then we have our sights on our seventh-generation system beyond that. Unlike other market players, we are also investing in building our own quantum application, in many cases, in partnership with our customers and also on our own. We are focusing on applications with the highest potential impact with the intent to build once and sell many times. Just a few examples of high-impact applications we might build include quantum high-frequency trading, energy grid optimization, life sciences acceleration and even the design of semiconductor chips in a more effective way. There are many others. To sum it up, our investments in R&D are not just lab experiments. We are bringing Quantum to life and delivering to our customers today. Turning to net income. For the fourth quarter, we reported a positive $753.7 million of GAAP net income, which was mainly due to an approximately $950 million mark-to-market valuation of warrants as required by accounting conventions. Needless to say, the mark-to-market impact warrants are noncash items and valuations are more related to our stock price at any given point and do not represent the operating fundamentals of our business. For the full year 2025, we reported a negative $510 million GAAP net income, which included warrants valuation impact of $66.7 million. Cash, cash equivalents and investments as of December 31, 2025, were $3.3 billion. The strength of our balance sheet provides us with what we consider unprecedented financial firepower to continue to invest in R&D to build out even more new products to invest in go-to-market resources and yes, to also acquire for critical new capabilities or to accelerate our road maps. IonQ is uniquely positioned with the resources, talent and differentiation so we can focus on cementing our market leadership and delivering the world's most advanced quantum technologies in every sector. As for operational excellence, which is so critical for establishing the foundation of future success. This will be one of the top priorities for Niccolo and the leadership team in 2026. And as you said, and as we reported last quarter, we've already turned our focus to this very important area to prepare for the future. Deploying organizational clarity and accountability is one essential ingredient. Manufacturing under a clear leadership, customer deployment under a single leader, sales under a single leader, supply chain under a single leader and applications development ownership. All of these things comprise the building blocks of what you need to be able to ensure that there's accountability and planning. Last quarter, we mentioned we have established a dedicated M&A integrations team. And I'm very pleased to report that since then, we have successfully integrated key functions like HR and finance and are making strong progress on IT consolidation under our new CIO. In short, we have moved to rapidly integrate our acquisitions, increase our execution velocity and deliver on key priorities. I'm pleased to report that our IT cybersecurity teams are now unified under the leadership of our new CIO that Niccolo mentioned, Katie Arrington, who recently joined the team from the Department of War and our CISO, who also brings years of experience with many agencies and also other companies, including through other agencies and reports to Katie. Our goal is to create our products in as highly secure posture as possible. Last quarter, we also spoke about IonQ's unique ability to now leverage the established semiconductor manufacturing process for our next-generation compute. In January of 2026, as Niccolo noted, we announced our intent to acquire SkyWater in order to strengthen our supply chain all the way through to manufacturing. On the close of that transaction, which, of course, must go through a regulatory process, we would acquire SkyWater's trusted fab U.S.-based Tier 1 foundry, enabling us to ensure we would have the availability, security and quality to scale our chip-based road map, bringing us both CMOS as well as advanced packaging capability. This acquisition also builds on our already existing merchant supplier business model in which we currently serve other quantum players today. As the pacesetter of the quantum industry, we do see it as a key responsibility to also help ensure in the overall development of our ecosystem. Let me turn now to fiscal year 2026 guidance. On the shoulders of the amazing 2025 numbers that we saw, we feel we have built a strong foundation for yet another year of strength in 2026. With that in mind, we are pleased to offer the following financial guidance for full year 2026 as well as for the first quarter. For 2026, we are projecting revenues of between $225 million to $245 million for full year and $48 million to $51 million for the first quarter. Our projected revenue growth is anchored by a continued expansion of our customer base, both in terms of number of customers, number of offerings that we bring to the market. And as I mentioned earlier, our guidance today is based on visibility stemming from a healthy backlog and an attractive pipeline that we will work methodically to convert. We are projecting adjusted EBITDA to be between negative $310 million and negative $330 million for the full year 2026. And as I discussed today, this range represents our continued investment in critical R&D to help drive the next generation of Quantum solutions across our portfolio. It goes without saying that since we announced SkyWater transaction has not closed, our guidance metrics do not reflect SkyWater. We continue to operate as separate publicly traded companies until such time as approvals are in hand. As Niccolo mentioned at the beginning of his comments, IonQ has rapidly established itself with the world's most unique set of products and capabilities, and we are for sure not stopping there. Compared to any other quantum pure-play one might look at, our product suite is unmatched. Our talent density is exceptional. Our business is global. We are actively selling into commercial deployments, not just labs. And critically for the future of Quantum, we possess a merchant supplier business model that enables the entire Quantum ecosystem to develop and succeed over time as we progress. And yes, while we do now and then take a moment to celebrate our progress like today, and I must say it does feel good. Tomorrow, the entire IonQ team will get up and continue to dash towards delivering the world's most advanced, innovative and complete quantum solutions for our customers. With that, operator, can you please open the call for Q&A? Operator: [Operator Instructions] The first question comes from John McPeake with Rosenblatt Securities. John McPeake: Guys, can you hear me? Inder Singh: We can, yes. John McPeake: Okay. Great. I think the last time I was on mute, and I don't want to repeat that. So congratulations on the numbers and guide. I just have a question about the SHIELD release that came out a couple of days ago. Now that you guys have a pretty broad portfolio of quantum assets, you talked in the release about the $151 billion opportunity. How should we think about what you might be able to address relative to that number? Inder Singh: We'd love to get all of it. No, I'm kidding, John, of course. We are very pleased to be included among the players that might participate in that. We intend to ensure that we deliver based on what we've built, John. And you know that one of the things that we're trying to make sure we are very clear on, maybe do a better job of is explain how we're actually a solution company. We're a platform company. And I think in some cases, we're still being compared against a single product company. And when you look at opportunities like SHIELD or frankly, any other opportunity that we may be looking at, and we are looking at others, too, you need a solution. You need to integrate things together. It's not enough to have a quantum computer that may work one day. It's not enough to have a quantum computer that even works today. You need to be able to link things together. You need networking. You need to be able to bring the quantum security up to industrial scale. You need to ensure that you're able to provide secure communications. You need to be able to make sure that you're able to deliver today, not promise something in 2029. So we're happy to be included in that, John. I mean, I thank you for your question. Yes, we'd love to have our unfair share of it. But I think that we will deliver on the things that we promised, and we think we can do things in a more effective and more complete way than many of the other players that I think we are looked at again. That said, we do these things with humility. We ensure that we have the engineering. We ensure that we have the software. We ensure that we have all the interconnections that are required. It's a solution sale, right, when you look at something like that, John. Niccolo, do you want to add anything to that? Niccolo de Masi: No, absolutely. Look, I mean, credit to the team for an outstanding year. We did a lot, obviously, in 2025. And as I said, we're just getting started. So we expect to continue momentum here, and it's not just momentum in each product family, but it's, of course, as Inder really points out between the product families, where we really are inventing the future in multiple dimensions, right? And I think that's what's appreciated to a grand extent by our nation's SHIELD initiative amongst many other appreciators at the moment. Operator: The next question comes from Kevin Garrigan with Jefferies. Kevin Garrigan: Team, congrats on the great results in reaching over $100 million in revenue. On SkyWater, can you just update us on the status of the regulatory approval process? And over the last 30 days since you made the announcement, have there been any unexpected developments, either positive or negative that could impact the timing? Inder Singh: We're still looking at it in the same way that we talked about it last time, and I appreciate your question, and thanks for your comments. It's a regulatory process. It's well defined. It's not that we try to predict how it may go or not go. We think that the model that brings together a merchant player and quantum platform, which is us and a merchant provider of manufacturing services through SkyWater is in the interest of the nation, the industry and all the players in it. And as I said, and as Niccolo said, we're already a merchant supplier. We supply products, components to others that you may call our competitors. We don't see them that way. We think that all players need to succeed, and that's what creates an ecosystem and an industry. This industry needs the same. So we are the pacesetter, yes. We will remain the pacesetter, yes. There's a responsibility that comes with that, and we will live up to that. Kevin Garrigan: Yes. Got it. Got it. Okay. That makes sense. And just a quick follow-up, continuing on the acquisition front. You guys had acquired Seed Integrations (sic) [ Seed Innovations ] at the end of January. Can you just talk about how this company fits strategically within your portfolio and what gaps it fills? Niccolo de Masi: Sure. So Seed is a software classified mission control business, that really is quite unique. Because almost all their work is classified, I'm not going to go into huge details for you. But you can assume that it is stitching together not just component solutions that we have at IonQ, but it's also helping 3 letter litter agencies and portions of our DOW do the same even before IonQ came along. So it is a unique opportunity for Quantum, not just in the hardware sense, but also in the application sense to be part of what we're doing in programs like SHIELD for the prior question as well as the rest of the broader quantum platform of sensing, security, networking, which we have put together in every theater of operation from under the ocean to on top of the ocean to on land, in the air and up in the heavens. There's a lot going on for the battle for the future, and IonQ very much is well positioned to have, hopefully, our fair share and maybe even a bit more. Inder Singh: And just to add, I mean, the DevSecOps capability and software development that Seed brings to us is actually relevant for all of IonQ. And so we intend to take part in ensuring that Steve is succeeding in everything they're signing up for directly externally, but also, frankly, leveraging their unique capability to help us accelerate in DevSecOps across the company as well. Operator: The next question comes from Craig Ellis with B. Riley Securities. Craig Ellis: Congratulations on the really strong results and the big RPO number, $370 million is quite substantial. I wanted to follow up on the guidance for calendar 6 revenue at the midpoint, $235 million. Can you help give us some color on some of the things that are driving revenues to that level, whether it be the international versus domestic mix of business or whether it be particular programs within your compute networking or sensing capability? And then just a sense, Inder, given the first quarter's guide on the linearity through the year, it would seem to be that there is implied growth, but any color would be helpful there. Inder Singh: Sure. Yes. Thanks for the question. Look, I think not to provide a lot of color underneath the guidance itself, but you can expect that we will continue to globalize the company. So that's also in there. I mentioned a number of countries that was not by accident. I mean we are looking at some amazing opportunities. Frankly, demand is exceeding supply, if I'm allowed to say. And we're trying to ramp up our resources to make sure that we can deliver the fifth-generation machine to as many customers as wanted. We're already starting to see demand for our next-generation machine, the 256 and beyond that. So what gives us confidence, first of all, just in general on the compute platform is the road map that we put out there is resonating. The fact that we are taking our customers on the journey with us is working. The fact that we are forward deploying engineers and application developers with those customers embed this with them. So we feel very comfortable that organic growth of our compute platform will be very strong in 2026, as I mentioned earlier. I wouldn't be surprised if it exceeds 100% growth year-on-year, but that's the direction of travel. The other parts of our portfolio are also performing. The need for and the sense of urgency, frankly, to deploy post-quantum security is taking on a different level of importance that didn't exist a year ago. In fact, we are agnostic as to the type of application that our customers want, whether it's PPC, QKD, but of acronyms, alphabet soup, I won't go through all of that. You know that. We do not have religion around it. We deliver everything. We know that 2 to 3 years from now, you will need all of it. Classical cybersecurity probably at some point, it doesn't work. So I think those that recognize that in some largest banks, largest governments, the countries I named, the cities we named, I think this is just the beginning. So underlying our assumption of guidance for the year also is that we will see healthy demand, which is what we're seeing for security solutions, networking solutions. And then sensing, I think, is at the very beginning of something very exciting. Niccolo talked about GPS interference and how you get around things like that. That is on the minds of virtually every country at this point, as you probably heard, right? And so to have the world's most precise PNT solution, most precise atomic clock, the ability to deploy that in different modalities under the water, in the sky, et cetera, that's the opportunity that we have ahead of us, which, of course, we have to execute on that, but the demand is there. And we intend to make sure that we deliver on elements of that for sure in '26, but that is a multiyear journey. So that's like years of potential opportunity for us. And then lastly, I think I mentioned to you that commercial is becoming bigger. Like 3 years ago and 4 years ago, when Niccolo and I joined the Board of this company, it was mainly labs, right? Of course, it would be labs, research institutions, et cetera. That's where they would first see this quantum work. Now the quantum works, you are starting to see, at least from our machines, people say, we want this one, we want the next one and the one after that. And so I think as long as we are also investing in applications, which is really key. Think about the iPhone with no apps, it wouldn't be as exciting. But the iPhone with the apps is what we're trying to do in the quantum space. That's the thing that I think resonates well. And I think that once you have that ecosystem going and you build some of the applications yourself and you build -- others will, of course, build apps perhaps on top. But we'll focus on the most important things. And again, we do have this sort of industry-neutral merchant philosophy. Our machines, our systems can plug into NVIDIA system, Microsoft's Cloud, the Google Cloud, et cetera. We want to make sure that we become ubiquitous and then we also drive the highest value things ourselves. So there's a bunch of things around confidence from customers now telling us, okay, I'm ready. The one that you haven't built yet, I think I might want that one, too. We're not putting that in our guidance, obviously, you know that. But to have backlog that have line of sight, that's kind of what we're looking at. Craig Ellis: Yes. Sorry to jump in on you, Inder, but there was mention in the transcript of a 256-qubit system by year-end. What should we keep in mind with the notable engineering milestones from here to bring that to market? Inder Singh: Yes. Look, I think you realize that, of course, and you know this, the 256 system and beyond, that entire road map for the next 5 years that we've talked about, is a semiconductor-based road map. It's the ability to use mature node manufacturing that exists today to build out and scale from 256 to 10,000 and beyond. So we are in the process already. And we said this when we announced the SkyWater transaction, we're already looking at them to be a supplier to us even prior to the acquisition announcement and other foundries also. These existing foundries enable us to, with some confidence, drive the development of the 256 into the 10,000 and beyond. As for the 256 itself, I'm happy to report that we've done the tape-outs of A, B and C. And as you know, from semiconductors, those are the most important ones in the beginning. And then the feature-rich, feature driver fourth D tape-out as it's called, is in progress. So not to give you an exact time line that you'll then say you told me it's going to be March 31 or April 1 or whatever. We are very comfortable with the way the development of the 256 is going. It's following the road map that other semiconductor development follows. And then beyond that, it's into tiling, it's into scaling. And we also have the engineering team already beginning to think about the 10,000, not just the 256. Does that help? Craig Ellis: That's very helpful. Operator: The next question comes from V. K. Rakesh with Mizuho. Vijay Rakesh: Pretty impressive guide and growth for the year. Just a couple of questions. Just wondering, as you look at the fiscal '26 number here, any way to think about -- and the forward quarter, I guess, any way to think about the hardware, software split? Inder Singh: I mean we will provide, obviously, when we report the usual breakouts that we do, which is kind of along the lines of what you described. I think of it less as hardware software. I think -- remember what I said, like the hardware without the software doesn't do much and vice versa. So solution thinking is really what's important. We're trying to think of our business as the only company, frankly, that can deliver entire solution. The compute, the ability to connect one compute device to another, the ability to connect one city to another, the ability to connect ground to space and back to ground again, the ability to provide security across those links, the ability to use Skyloom's OCT terminals to provide secure, high-speed transport for data and secure transport and on and on and on. I remember Cisco, and you'll remember Cisco as well. And I think of other companies that have done this in the past that have not asked for permission. So when Niccolo became CEO exactly 1 year ago, by the way, I think his anniversaries tomorrow, in one short year, we've gone from being a one product company to a platform company. We now have to execute and with responsibility, deliver for our customers what they are now wanting from us. And they're saying, "We will buy your road map, we will buy your solutions. You're bringing the secure solutions together." So it's a unique opportunity for us to actually just go and execute, and that's why this is the year of execution and yes, also continuing to innovate. So watch the space, more announcements, more things, we're not stopping. Vijay Rakesh: Yes. Very impressive. And just one other question. And obviously, you're growing your team pretty nicely here. Any thoughts on when this national quantum initiative, the NQI funding starts to open up? I know you have some pretty solid engagements with the Golden Dome SHIELD, et cetera. But any thoughts on when that national NQI funding starts to open up for the space? Inder Singh: Yes. I mean, thanks for the question. Look, I think that 3 years ago, probably that would have been top of mind for us. Like when does the funding unlock. But with more than $3 billion of cash available to us today and the ability to raise more if we need in the future, the ability to invest ourselves organically, to be candid, I think other companies might be looking for funding to unlock. We're looking for the ability to drive customer value today without the need for like additional funding. I'll let Niccolo add to my comments here, but it's an opportunity, obviously, for the whole industry to benefit if more and more countries focus on quantum in general. I'm starting to see, and Niccolo is the tip of the spear on this for us, but like virtually every government in any country in the world is now including quantum, very close to whenever they say AI, maybe not as many times as they say AI, but almost. So quantum is rising in relevance because it is becoming more real. We are making it more real. And we're making sure that we are -- we have the capital we need. We have the financial firepower that we need to keep investing for the foreseeable future and beyond. And we're fortunate to have investors that are saying to us, there are partners in that journey. Our job is to execute on that opportunity. And so yes, I mean, I think that funding things were important. I think for now, it's more about taking the engineering, building once, selling many times. So we're now getting into the very sort of commercial deployment of everything, quantum, less worried about what funding comes when... Niccolo de Masi: Yes. I mean, look, we, of course, value our government customers. We value them from all of our allies, and we're growing our IonQ federal team to capture that. But I think Inder said well in his prepared remarks as well as our press release today, 60% of our customers are commercial. That's the primary reason why we're not waiting with bated breath on government unlocks, if you will. That having been said, I do want to point out that we have a very bullish administration in the U.S. vis-a-vis growth in the budget of the Department of War. And within that, there's a considerable allocation to building the future of all things quantum sensing, networking and computing in every war fighting domain. And so IonQ uniquely operates in all of the war fighting domains, and we're uniquely able to sell those complete solutions that we believe the nation and all friendly nations absolutely must need. So watch this space, but we are growing headcount aggressively because we are growing the business aggressively along all of these vectors. Operator: The next question comes from Quinn Bolton with Needham. Shadi Mitwalli: This is Shadi Mitwalli on for Quinn. Congrats on the strong results. In the prepared remarks, you guys talked about making smaller and cheaper quantum systems. I believe the acquisition of SkyWater is going to help accelerate that. But just curious to hear the puts and takes of how much it cost to make a system today and how you expect that cost trajectory to evolve over the next few years. Niccolo de Masi: All right. So I mean, look, what we said at our Analyst Day on September 12 is that our full fault-tolerant machine and machines with hundreds of thousands to millions of physical qubits and thousands to tens of thousands of logical qubits and someday hundreds of thousands of logical qubits, we'll have a 2025 BOM cost, bill of materials cost under $30 million. Obviously, there's inflation each year. And the reality is when we said under $30 million, it was materially under $30 million to enable us to ensure that gross margin will be compelling as the years roll by. And of course, our ability to drive ecosystem expansion will be the most powerful, we believe in the quantum world, whether that's in the U.S. or our allies. We are -- look, we are cheering for everyone with the SkyWater acquisition, right? So it's really important to note that we already supply our clocks and sensors and QKD switches to a wide breadth of customers. With SkyWater, we are not only going to be supporting their existing customers, but we're going to be investing in SkyWater, which means that with our improved capital base on a combined basis, those customers will see tremendous benefits. And we expect additional customers in the fullness of time to want to be on that acceleration platform. The ability for us to maintain costs as we grow our computer power is almost unparalleled. And the reason for that is the electronic qubit controls that we have of our ion traps on a semiconductor basis and platform. So as we add more qubits, we're not really changing the cost of goods sold much. A little bit, the chips get a little bit bigger and machines get marginally larger, but it's single-digit percent kind of thing, not even double-digit percent, I think, in most instances. And that means with manufacturing volumes, as I said in my prepared remarks, we actually expect the size and the cost from a bill of materials perspective to actually go down over time even as the machine goes from 256 qubits to 100,000 and 1 million and 2 million qubits by 2030. That is obviously a cost curve that everyone is familiar with in the semiconductor industry. And we believe it's vital because it's what enables our ecosystem to prevail in the commercial market. At the same time, it's prevailing, of course, with our nation and allied nations federal customers. In the history of technology, as I said, sometimes you get cases where just economics alone prevail. But in our case, we have the most powerful machines soonest, and we have them at the lowest, most accessible unit economics. And so when you're doing something in a number of cases that were -- they're 5 years ahead technically and you might be 10 or even 100x cheaper, you can see why we are bullish on our ability to be the mass market platform of choice in the fullness of time. Operator: The next question comes from David Williams with Benchmark. David Williams: Let me also add my congratulations on the really solid results here. So I guess maybe firstly, thinking about your capacity and Inder, you talked earlier about the demand outstripping your ability to supply. If you kind of think about what your capacity is today, maybe on the Tempo solution, what would that look like if you could ship everything that you could build in maybe '26 from a unit perspective? Inder Singh: Yes. I mean, look, we are raising our ability to meet the demand to make sure that we satisfy what the customers are looking for, of course, and we will do that. And it's not always about manufacturing, of course, David, as you know, it's also about having the deployment engineers, the people that go on site, prepare the location, deploy a machine, turn it on, show the customer, et cetera, and then stay with the customer, frankly. So we're investing in all of those. And over the last 6 months, we've invested in, I would say, all of that. As far as like when you go from Tempo in 2026 to the 256 in 2027, the chip road map allows us to then begin leveraging that semiconductor base, which is, frankly, available, fully depreciated, low cost, not so capital intensive. So to the cost question earlier also, you can benefit over time from bringing costs down by leveraging that. So we don't have to necessarily build our own factory. But the Tempo in prior generations, we manufacture them in our factory in Seattle. So we think we have enough capacity right now to be able to meet demand. I did say that demand is exceeding supply, yes, it's true. We might have to be somewhat selective. That's a good problem to have. And so if that continues, we absolutely will surge our ability to deploy, build and ensure that we service the Tempo. But importantly, the question to be asking is, once you have the chip-based system out there, now we have with -- well, SkyWater closing, of course, or even the commercial relationship we already have with SkyWater, the ability to leverage their highly secure in U.S. trusted fab, the ability to make computing solutions that we can sell to national security customers. We can sell to the most discriminating bank in the world. We can sell to any customer that says, "Yes, I know the power quantum." It is both amazingly powerful in a good way, and it could do some really dangerous things, too. Much of the AI can. So we're making sure that we deploy it in a way where it has the level of surety of supply to us so that no geopolitics enters into the ability for us to get components and then have a product that our customers can trust. So I think that it's less about capacity in terms of manufacturing this time next year. But for this year, absolutely. We began investing in the third quarter. We talked about in the third quarter call. And we've hired deployment engineers, and we feel pretty good actually right now. Niccolo de Masi: Yes. And I'll just add, obviously, that all of those secure trusted fab capabilities and manufacturing scale, we are providing to the entire U.S. industry and all of our allies. So we look forward to working with everyone because I think it's time to put the pedal to metal for the industry. David Williams: Great color. Just one last quick one for me. Just as you kind of think about that fab and the capabilities there today and then looking out beyond '27, maybe, are there major step function potential investments that need to be made in order to hit that road map? Or are things -- do you feel like they have the appropriate maybe abilities today that the investment isn't as big a heavy lift as it might otherwise be? Inder Singh: Well, look, I think that I won't speak for SkyWater, they're independent company, obviously, right? So from our lens, when we look at the capacity that they have in Texas, in Florida and in Minnesota, it's more than what we need actually right now. So I don't see that other than sort of like maybe some tooling and things like that, I don't see where we need to necessarily build the fab capacity as much as ensure that it has the type of, I'll call it, sort of quantum-ready ability to be in a clean room environment, right? So they have clean rooms everywhere. The quantum is like one level higher than that clean room, that's the investment. So it's not like move out on many, many dollars. It's more like ensuring that we provide them what they need, of course. But they have the engineering talent. They have the people that are experienced. They have the ability to do advanced packaging, which is really important. It's not just fab, it's packaging. So we are looking forward to the deal closing, and we're looking forward to leveraging them, of course. And in the meanwhile, we have a commercial relationship, and we hope that we're able to continue providing for the needs of '26 and beyond. Niccolo de Masi: Yes. So I think just to add on to that, there is plenty of capacity at SkyWater today for the whole U.S. quantum industry. As the U.S. and allied quantum grows, we are confident we will meet that demand at SkyWater. The tooling absolutely is bespoke per program and per customer, but it's typically actually part of the commercial relationship. Speaking from experience, that's usually part of the total conversation you'll have on a multiyear basis. And so that won't come out of IonQ's balance sheet, so much as be part of each customer's commercial agreement. I think the last thing I'll add is probably the biggest investment we're making in the next few years in SkyWater is we're obviously assuming some debt, which we're going to be paying off on transaction close. And I think that will be the largest chunk of it, believe it or not. The rest of it, I think, will be growing with the operations in a fairly modest way. Inder Singh: And their CapEx to revenue, as you probably saw, is like low single digits. They're not very capital intensive, neither we. So I don't think that model changes much, candidly. It might be a surge here or there, but I don't think it's a big shift. Operator: And due to time constraints, the last question will be Troy Jensen with Cantor. Troy Jensen: Congrats on the great results. Maybe just a quick one for Niccolo. I get the partnership for applications and software. But what's your thoughts on IonQ controlling the controller specifically? And can you touch on your investment in horizon? Niccolo de Masi: So look, we like to think about our ecosystem in the following way. We are the -- an open interoperable stack, but we're students of history, and we want to make sure that we capture value from the hardware to the compiler to the application layer. It's been well known since our IPO that we've been public on the Google, Amazon, Microsoft clouds. And we want to interoperate with everyone because I think it's in the nation's interest and, of course, IonQ shareholder interest to have everyone learn on the IonQ systems and sensing and networking hardware and of course, flourish and build on top of that, right? So we like to work with software partners. We like to work with the so-called hyperscaler partners. We work, of course, with everyone from NVIDIA through to Ansys that does computational engineering is a leader of that in classical and the same in the pharmaceutical space. And so we see this all really as an end, right? We want as much more ease as possible to be interoperable with everyone. And to that extent, we will partner consistently both across our stack and up and down our stack. But we're not handing the keys over to someone else, nor are we trying to be a vertical play where you have to use all of our stuff or none of it works with your stuff, which we think is a limiting approach to life. And there are companies that attempt that. But I think history shows that you want to be open with the right posture and be clear on what you need to maintain control of to make sure that not just your ecosystem works well, but also that it works well and that you continue to be able to accrete long-term value at a pace that grows faster than your cost, of course. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Niccolo de Masi, Chairman and CEO, for closing remarks. Niccolo de Masi: Thank you. In closing 2025, I am confident the year will be remembered as the year IonQ moved beyond the laboratory and into the bedrock of global infrastructure. We didn't just meet our goals, we redefined the ceiling for the entire industry, becoming the first public quantum company to cross the $100 million revenue threshold while tripling our revenue scale year-on-year. And we did this while demonstrating unprecedented technical excellence, demonstrating 99.99% 2 cubic gate fidelity and becoming the first company in history that can proudly say that all of our key technical milestones have been achieved on the path to full fault-tolerant quantum computers. We are no longer just building quantum computers, however, we are supplying the high-precision atomic clocks, secure quantum networks and advanced quantum cybersecurity, hardware and software that will serve as the nervous system for the next era of computing, modeling and sovereign security. And by acquiring SkyWater, we will effectively onshore the future of quantum manufacturing, transforming IonQ into the quantum industry's merchant supplier for the U.S. and our allies in this important geopolitical race. We enter 2026 with a fortified balance sheet and an unmatched intellectual engine of approximately 1,500 professionals, having continued growing strongly even beyond our reported end of year total. Our focus remains clear: to lead the geopolitical space race of quantum for our generation by delivering a unified all-domain quantum platform and to help customers solve the world's most complex problems. The era of quantum utility is not on the horizon, it is here, and IonQ is the one team, one platform primed and poised to win. Thank you for your continued trust in our journey, and we'll see you next time. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Cleanaway 1H FY '26 Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mark Schubert, Managing Director and CEO. Please go ahead. Mark Schubert: Good morning, and welcome to everyone listening in today. Thank you for joining Cleanaway's financial results briefing for the first half of the 2026 financial year. I'm Mark Schubert, and I'm joined by Paul Binfield, Cleanaway's CFO; and Richie Farrell, General Manager, Investor Relations and Sustainability. Following the presentation, as usual, we will open the call for questions. So moving to Slide 7. I want to begin today by addressing health and safety. This is foundational to who we are and what we do at Cleanaway. Regretfully, we reported 2 fatal incidents at sites that we own in the first half of FY '26. Each occurred in different operational contexts. And in the case of MRL, it happened when a commercial customer was struck by one of their colleagues' vehicles in a back up area. We remain committed to learning from these tragic incidents and ensuring we have strong controls in place at our sites so that everyone goes home unharmed each day. I am pleased to report that we are seeing significant improvements in our safety performance. When compared to the first half of FY '25, our serious injury frequency rate was 64% lower, at 0.36 and our total recordable injury frequency rate was 35% lower, at 3.5. And we know that our TRIFR is significantly below domestic comparable companies and international industry peers. A Board-commissioned independent safety review has been completed over the last 3 months. There were 4 key findings from the review. Firstly and importantly, no systemic safety issues or failures were identified. The HSE strategy is fit for purpose, reflects contemporary safety thinking, and is aligned to the organization's most significant risks, that our implementation is well advanced at an enterprise level, but there is an opportunity to strengthen consistency and feedback loops closer to the front line given the variable but improving translation at branch level. And finally, our overall approach is aligned with contemporary good practice in comparable high-risk asset-intensive industries. The report also found that fatality reporting across peers is inconsistent and in some case, lacks transparency. And therefore, direct comparisons with Cleanaway are unreliable and should not be used to draw conclusions about relative safety performance. The external review confirmed our approach remains sound and that we should stay the course. The areas to work on are consistent with our stage of progress in the 5-year strategy journey. We also commenced 2 key programs of work during the half that represent tangible evidence of systematic risk reduction across the enterprise. By the middle of this calendar year, we will have completed the rollout of a yellow gear pedestrian detection system that uses latest Generation AI cameras to alert operators to human presence. And by December 2026, we will have rolled out in-vehicle monitoring systems or IVMS across our roughly 3,500 collections heavy vehicles. The cost for all these initiatives are included in our FY '26 CapEx guidance with approximately $21 million of capital spent on risk reduction in the first half. On the environment, we're proud to report 0 major or significant incidents. Moving now to the first half FY '26 financial results highlights. On behalf of the approximately 10,000 Cleanaway team, I'm pleased to report robust financial results for the half. Through our Blueprint 2030 strategy, we are creating a stronger, more stable Cleanaway. We have transformed the business by installing the foundations, the right people, the right standards, the right systems, the right network, and the right operating model. And you can see those benefits coming through in the underlying performance. We have continued our track record of delivering on the fundamentals that matter with 13% net revenue growth driven by a combination of disciplined pricing and strategic acquisitions. The acquisitions completed in July last year brought further scale and industry-leading capability to our operations. Again, our continued focus on operational efficiency has translated into margin expansion. We did this through better rostering, better workforce planning, and more efficient fleet R&M. Contract Resources performance this half with revenues up 19% and exceeding their 4-year CAGR of 13.5% validates what we discussed after the acquisition. Group ROCE improved by 80 basis points, to 9.4%. This reflects our disciplined approach to capital allocation and the improvements we are making to operational efficiency. Importantly, this says we are growing profitably and efficiently. EPSA was 18.2% higher and reflects our ability to convert operational performance into improved shareholder value. The Board declared an interim dividend of $0.0335** per share, an increase of 19.6%. This reflects the Board's confidence in our trading outlook, sustainable cash generation ability, and its commitment to providing attractive returns to shareholders while maintaining balance sheet strength. The free cash flow movement was driven by catch-up tax and acquisition integration costs and our strategic indirect cost program that permanently lowers our cost base. We expect a significantly stronger second half cash flow. Looking further forward to FY '27, we won't have any of those items repeating, and so we will see further acceleration of free cash flow growth. Looking ahead to the second half EBIT, we have a clear pathway to support the earnings step up. Our corporate costs were higher than usual in the first half. This was largely attributable to a planned project to upgrade our human resources systems with costs to revert to their traditional run rate in the second half. The second half outlook for our Solids business is positive, and our Environmental and Technical Solutions division is also well positioned to deliver improved performance. We're expecting strong organic growth across most lines of the OTS business. We expect to deliver $3 million in synergies from the Contract Resources acquisition and expect an initial $15 million in-year capture of structural efficiencies from our strategic indirect cost review. As part of our strategy refresh, we completed a comprehensive strategic review of our cost base and restructured our indirect labor to enable the strategy. We have restructured our solid SBU down key business lines. We centralized key functions such as sales, pricing, customer service, and fleet, removed duplication and created a leaner, more efficient, and more aligned organization. This has resulted in a reduction of approximately 250 FTAs with most of these changes already implemented. This supports continuing margin expansion, reinforces our market leadership, and sets us up to deliver our improved customer value proposition. We've also identified further opportunities for nonlabor cost rationalization, spanning corporate overhead reduction, shared services optimization, and increased procurement efficiency. Once fully implemented from FY '27, we expect at least $35 million in annualized recurring benefit embedded in our operating model. Based on a robust first half performance and our confidence in the outlook, we're pleased to be able to upgrade our full year EBIT guidance range to $480 million to $500 million. With that overview, I'll now move on to the segment results. Solid Waste Services delivered a strong performance in the first half. We grew net revenue by 7.5%, to $1.25 billion, and EBIT is 11% higher, at $196.7 million. We also demonstrated the operating leverage in the business by expanding EBIT margins by 50 basis points, to 15.7%. In Collections, we grew our C&I net revenue through price increases, strong regional volume growth, and the Citywide acquisition. We also expanded margins by improving labor and fleet efficiency. We delivered similar improvements in our municipal collections business, where, in addition to improving labor and fleet efficiency, we have remained focused on rigorous contract management to support improving profitability. We secured the Cairns municipal collections contract. This is a 7.5-year agreement starting in December 2026 and will contribute over $100 million of revenue over the life of the contract. It is a strategically important win that demonstrates our ability to compete successfully in the municipal tender market when the economics are right. Our Post Collections business delivered net revenue and a EBIT growth across our core landfill portfolio, driven primarily by higher project volumes and prices. As planned, we closed New Chum landfill on the 30th of November, which incurred a loss of approximately $3 million for the period. Our transfer station network delivered improved profitability. We optimized our network, improved payloads, and reduced R&M costs. Finally, we delivered strong earnings from our Resource Recovery business through continued growth in CDS volumes and improved cost efficiencies. We also grew our organic volumes, primarily through successful tendering for commercial and municipal processing off the back of the FOGO mandate in New South Wales. This represents a long-term structural growth opportunity as more New South Wales councils implement FOGO. Old corrugated cardboard or OCCC (sic) [ OCC ] prices softened through the half. This created a slight headwind in the first half where customers receive rebates using a lagged price, noting we expect this to be a relative tailwind in the second half. As part of the strategy refresh, we have made the decision to retire the construction and demolition SBU and rationalize our service offering to align with our C&I customers' needs. We will continue receiving C&D residuals for our post-collections network. The decision is based on focusing on our efforts in parts of the market where we can achieve an adequate return and illustrates our commitment to disciplined capital allocation. Overall, Solid Waste Services is achieving strong results. The scale, diversity, and integration of our network provide a competitive advantage and a growing earnings and margin trajectory. We expect this momentum to continue through the second half. Moving now to our Oil and Technical Services and Health Services. In aggregate, net revenue fell 5.1%, to $342 million and EBIT fell 12.6%, to $36 million. EBIT margin contracted 90 basis points, to 10.5% with the underperformance driven by Health Services. In OTS, we delivered EBIT growth and margin expansion despite some revenue headwinds due to capacity constraints at Christie St. We continue to perform strongly in packaged waste, with a high focus on high-margin work where our portfolio of total waste solutions, network, and safety standards provide a competitive advantage. We realized the initial integration benefits from the former LTS and Hydro business units and simplified the network as well as saw increases in volumes through our equipment services business. As expected in Health Services, our revenue declined following the competitive tender for the HealthShare Victoria work, where we retained 85% of the work. The disruption to our Yatala health facility in Queensland continued in the first half following ex-Cyclone Alfred. This resulted in approximately $2.4 million higher logistics costs. Repairs have now been completed and normal operations have resumed. Importantly, we are seeing the turnaround in Health Services, leading to a significantly stronger second half outlook. We are expecting higher revenue from increasing secure product destruction services, and we're using data analytics to reduce revenue leakage. Turning now to Slide 12. The performance of the Industrial Services segment is reflective of the outperformance from Contract Resources. At the overall segment level, we delivered 74% net revenue growth, to $339 million and 164% EBIT growth, to $28.8 million. EBIT margins increased 290 basis points, to 8.5%. Contract Resources increased revenue by 19.5%, to $157.8 million during the first 5 months of ownership. This compares favorably to its 4-year revenue CAGR of 13.5%. Contract Resources increased EBIT to $17.5 million and EBIT margin to 11.1%. This illustrates the quality and resilience of this production critical and turnaround services business. EBITA is a better reflection of CR's operating profit, given it adds back the noncash amortization of quality customer contracts recognized at acquisition. EBITA for the half was $20.1 million and converts to an EBITA margin of 12.7%. This is comparable to the overall group EBIT margin of 12.2%. The integration of CRs and our Industrial Services segment is on track and delivering synergies ahead of plan with our new structure in place since the 1st of January under the leadership of the Contract Resources CEO. We're beginning to realize synergies, particularly in shared customers, workforce planning, and greater asset utilization. And we expect these to build during FY '26 through cross-selling and operational leverage. We now have the leading industrial services platform that positions us to execute on the growing pipeline of significant decommissioning, decontamination, and remediation opportunities. In Cleanaway Industrial Services, we are undertaking a review of metro activities to align our operating and delivery models with the Contract Resources platform, improving consistency, scalability, and long-term performance. We also executed disciplined contract management and delivered on several fleet initiatives to offset the revenue headwinds. We will focus our IS work on activities where, like in CRs, we can earn appropriate risk-adjusted returns with less variable outcomes and as a result, transition towards a structurally higher-margin portfolio. And with that, I'll hand it over to Paul. Paul Binfield: Thank you, Mark. Cleanaway has a sustained track record of earnings improvement, having now delivered 6 consecutive hours of underlying EPS growth. This reflects the quality and resilience of our business model and shows the strength of our established integrated network of infrastructure. Looking at the underlying metrics on the left-hand side of the slide, net revenue for the first half came in at almost $1.9 billion, up 13%. EBIT was $228 million, up 16.9%, with EBIT margin improving 40 basis points to 12.2%, reflecting improving asset utilization, cost efficiency, and demonstrating operational leverage. EBITA was 17.4% higher, at $239 million. This metric excludes the noncash acquired amortization charges and offers a clearer view of the business' underlying cash-generating capability. Net finance costs increased to $73.4 million, reflecting higher debt levels following the Contract Resources acquisition. And at 2.3x leverage is reducing and well within our target and financial covenants. NPATA was 18.5% higher, at $117.3 million, with EPSA up 18.2%, to $5.2. Free cash flow was $74.2 million, $20 million lower than the prior period. Return on capital employed, or ROCE, is a metric that we're transitioning to as it's more commonly used by our peers and adjust for the noncash amortization of acquired customer contracts. ROCE improved 80 basis points, to 9.4%, proving that we're deploying capital more efficiently, generating better returns for our asset base. Similarly, ROIC increased 60 basis points, to 6.3%. So moving now to underlying adjustments. As Mark said in his overview, we're creating a stronger, more stable Cleanaway. The first phase is transforming the business by installing the foundations, the right people, the right standards, the right network, the right systems, and the right operating model. If we think about the underlying adjustments through that lens, the cash costs fall into 4 categories, but all but the first one aligned to our Blueprint 2030 strategy. So the first category relates to costs associated with issues identified as we layered in the strong foundations. In this case, it's treating legacy waste and remediating a legacy enterprise agreement, both dating back to 2018. OTS, post Christie St, we sought to increase the capacity of the network for our customers, and we reviewed the waste inventory at all of our sites. Retesting of legacy waste at one of our sites found that due to the nature of the waste, treatment and disposal costs would be significantly higher than expected. The subsequent independent review for the network -- of the network has confirmed that all waste inventories are adequately provided for. Similarly, with respect to the enterprise agreement, as we strengthened our capabilities to address the backlog of expired EAs, we identified inconsistencies between the evolved scope of work at certain branches and how the expired EA had been drafted. Expense in this half includes review costs to date and a provision for potential further employee compensation that may arise following review of EAs with similar characteristics. We expect to incur low single-digit million EA review costs in each of the next couple of years as we complete this assessment. In both cases, the costs being incurred in this period, don't relate to revenue generated in this or recent reporting periods. And therefore, we've excluded them from our underlying result to provide a true reflection of our continuing performance. The second category of adjustments relates to one-off strategy refresh costs associated with executing the strategy, including driving towards a leaner organization. This will be completed in the second half with a similar cost to the first half. The third category relates to the one-off modernization of our IT systems, where costs cannot be capitalized due to the nature of the software solution. This is foundational to the way that we were going forward and underpins the strategy. We again expect a similar cost in the second half. The last category, the costs associated with building the right network of leading waste infrastructure assets. In the past, that's been acquisitions like Suez, Sydney assets and GRL. And today, it's Contract Resources and Citywide. This has created the leading waste infrastructure network in Australia. We expect approximately $5 million of further integration costs in the second half. The strategy refresh has refined where we want to play with our focus on attractive returns and capital discipline. And you can see this with the rationalization of our C&D service offering and reducing certain [ IS ] metro activities. The outcome of the assessment of the future profitability of the C&D business has resulted in a noncash impairment of the associated assets. We also took a noncash impairment charge against our investment in the Circular Plastics Australia joint venture, where policy is lagging the desire to promote recycled HDPE, resulting in a softer market price outlook. Looking forward, we believe that underlying adjustments will reduce as a result of the foundations that we've installed to build a stronger and more stable Cleanaway. So now moving to free cash flow, just focusing on the material items in the bridge. We generated $56 million or 14.6% more underlying EBITDA. The cash impact of underlying adjustments was $40.2 million or $20.8 million higher than the prior corresponding period. This reflects the cash component of the underlying adjustments detailed in the earlier slide. We expect the full year cash impact of underlying adjustments to be about $30 million higher than the prior year. Working capital movements were adverse at $12.2 million, largely attributable to an increase in receivables related to a growth in the business. The interest paid was $9.2 million higher. And again, this reflected the higher average debt balances from fully debt funding $470 million in acquisitions. Tax paid was $16.5 million higher, and this reflects our higher taxable earnings and a $58.7 million catch-up tax payment. This is the final catch-up tax payment. Maintenance CapEx was $22.7 million higher and is largely timing in nature with the full year expected to be broadly in line with prior year. So the net movements resulted in $74.2 million free cash flow for the half. We expect significantly stronger free cash flow in the second half and importantly, into FY '27 as tax payments normalize, underlying adjustments reduce, and our relative capital intensity continues to decline. So now moving to capital expenditure. Our total FY '26 outlook stays unchanged at approximately $415 million. This includes $15 million allocated to Contract Resources. HS&E CapEx was $8 million higher for the half, but the full year is expected to be lower than FY '25. Our investment in energy from waste continues to be modest as we pursue our originator model. However, recently, we did enter into a joint development agreement for the Parkes Special Activation Precinct in New South Wales. Our 35% minority interest has not resulted in any material upfront capital outlay or binding capital commitment, and any future investment will need to meet our investment hurdles. We decided to pursue the Parkes location when it became clear that there were complex planning issues that [indiscernible]. So having largely built out our infrastructure network of scarce processing assets, our capital intensity is on a declining trajectory. This year, our CapEx guidance as a percentage of net revenue will be the lowest for 5 years. Furthermore, you will see the nature of our CapEx change. There will be fewer larger projects that have been - that have characterized our spend over the last 5 to 10 years and an increasing proportion of our spend on fleet. Fleet CapEx is, by its nature, lower risk, but still delivers good returns to reduce running costs, improved utilization, and more dependable customer service. So finally, I'll turn to net finance costs and dividends on Slide 18. Underlying net finance costs increased $14.5 million, to $73.4 million, driven by the debt financing of Citywide and Contract Resources acquisitions, which was only possible due to the strength of our balance sheet. FY '26 full year outlook for net finance costs is around $155 million. Our previous guidance, approximately $150 million was based on the forward curve in August when we provided our initial guidance. February rate rise is clearly outside of our control. What is in our control is delivering to or above operational expectations, which we're demonstrating today with our upgraded EBIT guidance. Moving to dividends. The Board has declared a fully franked interim dividend of $0.0335 per share, up 19.6%. This increase reflects the business' strong underlying growth, our confidence in future delivery, and strategy execution, including our ability to deliver strong free cash flow growth. With that, I'll hand back to Mark. Mark Schubert: All right. Thanks, Paul. As we look beyond FY '26, I want to provide a preview of how we are positioned for sustained value creation through to 2030. We have now completed a comprehensive refresh of our strategy that ensures we maintain the positive momentum generated over the last few years. The review of our cost base has always been part of our strategy. We have restructured our indirect labor, accelerating the realization of embedded operational efficiency created during the first phase of the Blueprint 2030 strategy. We've also identified further nonlabor cost reduction initiatives. At the heart of our refresh strategy is driving top line growth by delivering an improved, hard-to-replicate customer value proposition that combines 2 critical elements. Firstly, value for money. This means competitive pricing backed by reliable service, operational excellence, and scale and network advantages that our customers can't get elsewhere. And secondly, seamless customer experience. In today's digital world, this means customers expect easy and seamless experiences, transparency, responsiveness, and frictionless service. We're investing in systems and processes to deliver this. Our CustomerConnect investment positions us as Australia's most digitally enabled waste operator, creating barriers to entry that smaller competitors cannot replicate. Unlike fragmented regional players, Cleanaway's technology-enabled solutions will provide seamless customer experience across our unrivaled network. Our technology platform will increasingly leverage data analytics-led insights to understand customer behavior and optimize pricing by segment and route, allowing us to deliver personalized solutions to capture premium pricing where differentiated service is provided. We have the largest heavy vehicle fleet and the most extensive network of interconnected collections depots, transfer stations, processing facilities and landfills across Australia. Our scale creates operating leverage and strategic advantage that's hard to replicate. We will leverage our scale and lock it in, in 3 ways: Firstly, we'll use our digitally enabled sales and customer service teams to drive higher internalization and utilization of our integrated network. We capture a higher marginal contribution from every incremental ton of waste we handle through our existing network and through our powerful operating leverage. Secondly, we will extend our scale as an advantage by consistently executing best practices across our new national verticals in solid waste by flexibly reallocating resources based on demand patterns by cross-selling total waste services across our portfolio of customers and by ensuring we get value for money pricing. Third, we'll hardwire our branch-led operating model end-to-end, which ensures stability, creates transparency, drives local ownership and enables fast decision-making. Finally, our refresh strategy will deliver strong free cash flow growth from top line growth, margin expansion, and strong capital discipline. We are planning a dedicated strategy investor briefing on the 21st of April with further details to follow soon. Now let me provide you with an update on our FY '26 guidance and trading outlook. We are pleased to upgrade FY '26 EBIT guidance to between $480 million and $500 million. This is based on the robust first half performance and our confidence in the outlook for the rest of the year. I will walk you through the key drivers of second half performance that give me the confidence in providing that guidance today. We will continue to exercise price discipline in our Solids segment and expect positive organic growth. We're seeing supportive market conditions for project work in Post Collections in the second half. We also typically have a second half skew with higher CDS volumes across all states during the late summer months and the timing of our carbon benefit realization. Our Environmental and Technical Solutions division is well positioned to deliver improved performance. We are expecting strong organic growth across most lines of the OTS segment. We expect continued OTS integration benefits and a strong recovery in Health Services. And we will also begin to realize some of the synergies resulting from the Contract Resources acquisition. As I discussed earlier, we're expecting to capture approximately $15 million in-year savings from the organization restructuring completed over the last couple of months. Importantly, these savings are expected to deliver an annual continuing benefit of at least $35 million in FY '27. This all supports a stronger second half, which is reflected in our guidance. We have clear line of sight to these drivers, positive operational momentum, and confidence in our ability to deliver within this range, noting the midpoint of the range represents approximately 19% year-on-year EBIT growth. What's exciting is the trajectory continues beyond FY '26 with our refresh strategy unlocking many organic growth levers. Critically, our capital intensity is on a declining trajectory. The $415 million CapEx guidance will represent the lowest capital spend to revenue ratio in the last 5 years. This sets up accelerating free cash flow growth and improving returns beyond FY '27, which brings me to my final slide for today. As you can see, we now have a track record spanning multiple years of doing what we said we would do. Calling out a few highlights. We have grown the top line by 52.5% or $646 million over this 4.5-year period. We have demonstrated the powerful operating leverage we have in the business, growing underlying EBIT by 75.4% or $98 million across the same period. We are focused on both the returns from capital we spend and improving the base business, and this translates to the steadily improving return metrics you see here. What you cannot see on this graph is that we have done all of this by pulling sustainable handles. That is handles that will continue to be available and grow into the future. We are delivering resilient and dependable returns underpinned by our network of infrastructure assets with an enviable growth trajectory. Our expanding margins, improving returns, and strengthening free cash flow create compelling value. We are building a stronger, more stable, more capable, and more profitable Cleanaway. The exciting part is that with the refreshed strategy, we have line of sight and a laser focus to continuing this performance in the years ahead, and I'm really looking forward to discussing that with you soon. Before we hand over to questions, I do want to sincerely thank our employees for all their hard work. These strong results would not be possible without them. And with that, we will now take questions. Operator: [Operator Instructions] The first question today comes from Lee Power from JPMorgan. Lee Power: Just Mark, can you talk a little bit around the -- just the volume backdrop? I get there's a lot of moving parts which is better for Citywide. I think you're still calling out low metro volumes for C&I. I'm just trying to reconcile that volume piece with the pricing backdrop given that the commentary of the 2H around positive organic volume and price outlook. Mark Schubert: Yes. No worries, Lee. Thanks for the question. So I mean the first thing I'd say is sort of on metro C&I, we would say volume is flat, price is up. I think you should think about that as us also exiting some low-value C&I, which creates capacity for high-margin customers. I think, yes, the Citywide obviously coming through on a PCP basis is a positive. I think then on sort of other sort of volume areas, so landfill volumes -- just remember, landfill volumes is not just C&I. There's muni, there's civils, there's C&I, there's restricted waste, all those different things. What we're seeing particularly strongly in the landfill volumes is civil jobs coming through. So we've got a strong runway of civil jobs. The example to bring that to life would be, say, the M8 tunnel works in Sydney that we're seeing coming through. And then finally, just on price. While I've got the -- sort of the question on volume, I will also talk on price. I think price has been positive and importantly, well above inflation. Lee Power: Yes, that's really useful. And then maybe just when we think about into the second half, like if I just annualize your implied 2H guide at midpoint, you get $524 million EBIT. Is there any sort of color you can give us around the seasonality? I mean you've obviously called out a 2H skew in the Solids business. So help us think about updated thinking on the ramping profile of acquisitions through that period. I guess what I'm trying to get at is, what's an exit -- a sensible exit run rate? And how much of that's your initiatives versus just a normal skew in the business? Mark Schubert: Yes, sure. I mean let me try and bridge you the second half, which I think will answer your question. So like -- as you said, if you take the half 2 number implied by the midpoint of the guidance, that's how you get that number 260-odd that you just talked through. I think the drivers -- importantly, the drivers we've got good line of sight to. If I split them in 3 ways, if I talk about Solids firstly. So what we're seeing on Solids is strong Solids volumes coming through and price. We just talked through some of the drivers of that just a moment before. We are definitely seeing that Solid second half skew, and we talked about that previously, but just to go through it again, that's the CDS scheme is driven by volume in the late summer months. That's when the volume comes through, and that's obviously in that -- in the second half of the year. Carbon benefits also always come through in the second half. So that's kind of the Solids picture. If we go to ETS, we can see a good outlook of projects -- OTS projects in the outlook. We can see the Health business recovering. And just remember, that's -- we won't have the same issues that we had in the first half, which were related to the roof at the Yatala facility and having truck waste down to the South Coast. So that business will recover. We've got the OTS integration benefits coming through. So remember, that's the merger of Hydro and the LTS business, and we're talking about those benefits coming through. You get the first round of CR synergies, that's around sort of $3 million. And then the third bucket in the second half is you'll get the benefits of the indirect cost review. And remember, that's the $15 million in the second half that helps us step up those earnings. And just to kind of like recap and remember, so that $15 million is the number that then becomes more than $35 million as we go into FY '27. So $15 million in the second half, more than $35 million in FY '27. The difference is $20 million. Lee Power: And then maybe just one more, if I can. Just Paul, like you're obviously confident around the cash piece into the second half. I think in your comments, and correct me if I'm wrong, before, you said the full year cash impact of some of those adjustments will be $30 million higher than the prior year. Obviously, the first half is a pretty big part of that. So can you just remind me what that means on a second half basis in addition to the catch-up of the cash tax piece finishing? Paul Binfield: Sure. So Lee, if we look at prior year, the impact -- cash impact underlying adjustments is roughly about $50 million. So I'm calling out a $30 million step up on that. So roughly $80 million for the full year. We've taken $40 million in the first half. In terms of the tax catch-up, again, $58 million that we paid in December, that is the last catch-up tax payment. So we had back to normal installment payments into the second half. And you should think of a figure sort of in that region of about $48 million to $52 million, $53 million in terms of installments into H2. So if you look then beyond that into '27, again, hopefully fewer underlying adjustments, you're seeing no more catch-up tax payments. You're seeing a reduction in capital intensity in the business going forward and increased earnings and much of that increased earnings obviously coming through from higher margin type activity. So again, you don't have that nasty pinch in terms of the need to deploy additional capital to drive those earnings. So again, it gives us some confidence that the H2 will be better, but '27 will build on that further. Operator: The next question comes from Peter Steyn from Macquarie. Peter Steyn: Congrats on the upgrade. Just Paul, keen to just understand the underlying adjustments a little bit better and particularly the tax-free impact in the EBA issues. If you could just -- I mean, you've made the point that they were back in 2018 time lines. How far did they extend time line wise? Why is it that they've only become an issue now? Just keen to understand that and then your conviction at it being the -- you're drawing the line underneath those issues. Mark Schubert: I might have a go at that, Peter, if that's all right. By the way, I got my motorways wrong in the previous question. It should be the M12, not the M8. I am a bit confused on the motorways. All right. So just in terms of legacy waste. So let me start by saying today, we are fully aware of our waste inventories. We only accept waste where we understand the disposal pathway. We have clean waste acceptance matrices that drive that, and we make appropriate provisions at the time of acceptance. Let's go through the history. So the provision -- the original provision was made at the acquisition in 2018, but the adequacy wasn't checked because of manual systems. Since 2022, what we've been doing is installing the foundations into the company, and we talked about safe, stable, profitable Cleanaway, and like Paul said, right people, right standards, right systems. Post Christie St, as we sought to maintain the capacity of the network for customers, we did a review of waste inventory at one of our sites and found that the cost of treating and disposing that waste was significantly more expensive. We then had that validated by third parties. We also conducted further cross-Cleanaway auditing to ensure there was nothing else like this. We also confirmed that there's nothing for the CR's acquisition, and there's nothing from Citywide. And as Paul said, the costs are not related to the revenue received over the last 8 years, and that led to the decision to exclude it from the underlying -- to give you the best view of the ongoing performance of the business. If I run through the same summary for the enterprise agreements. So just remember, this has been flagged as a contingent liability for a couple of years now. Again, this is about we've been installing the foundations into Cleanaway, again, right people, right capability, those sorts of things. In the case of sort of industrial relations and enterprise agreements, we've been increasing the capacity and the capability of the function. We did that to initially clear the backlog of expired EAs, so we could get into the approach that we're in now, which is the proactive approach to negotiation. As we renegotiated this time, we identified a 2018 enterprise agreement where the work on the ground was different to that anticipated by the expired enterprise agreement. That led to a review of the enterprise agreement, and during the first half, the remediation of that enterprise agreement. We're now proactively looking at EAs with similar attributes. The underlying adjustment covers the 2018 EA, the remediation of the cost and a provision for other similar EAs. So I think that -- hopefully, that sort of like summarizes both those answers, Pete, for you. Peter Steyn: Yes. That's useful. And then just if you could give us a little bit of a sense of what you're seeing around ops excellence more generally, the margin improvement at solid waste was pretty handy in the half. If you could just shed a little bit more light on how the momentum in that program is going. Mark Schubert: It's going strongly. And I think what you should find is it will really -- it will accelerate. So we're pretty happy with the Solids performance and outlook. So in terms of the ops excellence, I mean, you saw us really focus on the branch operating model, labor and fleet efficiency. I think I say accelerate, Pete, because what we're seeing is we've got the branch-led operating model in now. But then what the switch now to the national verticals means that we've co-located all the like branches. So all the landfills are together, all the transfer stations are together, all the resource recovery facilities together. And so the value drivers are all the same. And the risks are all the same as well. And so it just means we're going to have experts running those plants, led by experts in those plants, and we will get much further operational excellence coming through. So I think the initial strong foundation has set the branch-led operating model, enabled us to do the restructure in a stable way, and now we get to really accelerate through the ops excellence. Operator: The next question comes from Jakob Cakarnis from Jarden Australia. Jakob Cakarnis: I just wanted to focus on the free cash flow, if we could, please. I appreciate the commentary about a stronger second half. It looks like you might best the first half somewhere between $40 million to $50 million based on the bridge items that you've got us. But it does look as though, at least from what I can see initial impressions, you'll be below the PCP. Can you just kind of calibrate those 2 things for me if that's the right way of thinking about it? Paul Binfield: Yes. I'm not going to give specific guidance in terms of free cash flow for the half. I guess the important thing I'm seeing here, Jakob, the key trends in terms of an improving outlook. So I think we've been pretty clear in terms of expectations about a further $40 million in the second half of underlying adjustment spend. We've been through the CapEx lines in terms of giving you an indication as to how we see that spend dropping out. Working capital, typically really well controlled in this business. We haven't seen any real deviation in terms of cash collections or credit risk. I don't have concerns on that front. I think importantly, too, you should look at the impact of the strong second half EBITDA performance as well, and that clearly has a beneficial impact in terms of the 2H cash flow. And as I said, if you look at '27, you have the additional benefits of lower cash outflow in terms of underlying adjustments and decreasing capital intensity as well. Jakob Cakarnis: And then just one for Mark. I mean, Contract Resources for a lot of people was a little bit of a surprise. It's good to see that it's doing a little bit stronger maybe than the business case and towards the margins that you thought it could do when you acquired it. Do you want to add just a little bit more color for how we think about that into '27 as well, just the scope of work that's coming down the pipe and I guess the integration more importantly with the existing business, please? Mark Schubert: Yes, sure. So I think maybe just in terms of the second half, I mean, what I'd say is we have a really strong first 5 months from the Contract Resources team. I think you should understand that, that includes sort of the peak Australian turnaround season, and that's just because really where winter falls. That's when the work gets done in those plants because it's the most comfortable time to do it. And so I think in terms of the sort of second -- or full year performance for Contract Resources, don't go and take 17.5 divided by 5 and multiply it by 11. That's not right. I think what you should estimate it to be -- for Contract Resource and Cleanaway, you should think -- sorry, Contract Resources and Citywide, you should think the number is about $35 million, excluding the $3 million of synergies. Again, that's a really strong outcome. If you think about where we were in August last year when we were talking about sort of circa $30 million. You're seeing the growth come through in all parts of CRs. They are continuing to gain customers and grow the share of wallet within their customer set, both here and the Middle East. So it's really positive performance, and it's pretty much exactly what we thought it would be as it's come across. Jakob Cakarnis: And then just into '27, sorry, Mark, like, is this -- Mark Schubert: Yes. Jakob Cakarnis: -- a more sustainable earnings base, do you think, like a representation of go forward? Mark Schubert: Well, I think we -- I mean, our expectation is CRs will continue to grow. I think there's real opportunities in -- we'll be more thinking about CRs plus IS going forward as opposed to CRs by itself. We've already -- we already see people dressed in red, driving blue trucks and all of that sort of thing. So that's well in hand. It's going to be really difficult to separate the 2 because the work is just being done by the most logical group and the assets are all starting to be shared. I think longer term, you should definitely think about that growing DD&R sort of vector, that is alive and well. The example there is Contract Resources today, we've got 3 groups on 3 different platforms in Bass Strait doing work for Exxon. So that is -- that's real DD&R. The nice part is Contract Resources doesn't even call it DD&R, they just call it work. And I think we should think that, that will continue to grow steadily into the future. Operator: The next question comes from Owen Birrell from RBC. Owen Birrell: Just a quick one on the financing cost. I think previously, it was 150, that's jumped up to 155. Just off that the leverage at 2.3x, is there a deleveraging time line? Or you guys are still pretty comfortable with where you sit in the headroom? And any refinancing risks looking into '27, '28? Paul Binfield: Yes. Thanks, Owen. In terms of delevering, again, expectation that we will continue to steadily delever. So if you look at -- if we take our long-term view into '27 and '28, we expect to see that to continue through that timeframe. And again, obviously, that's supported by the comments you've heard today about the lower capital intensity going forward. In terms of refinancing risk, we've done the heavy lifting on that front. So you'd have seen that we issued USPP notes for $500 million for tranches of 8, 10, 12, 15 years. So we pushed a really significant amount of debt out with some great tenure. So to be honest, I don't have any concerns about refinancing risk at all. And I'm very comfortable, frankly, with the leverage as well. Owen Birrell: Great. And just one other one. The MRL Southern expansion CapEx, is that just very much a one-off? Or could we expect more of that to come? Paul Binfield: No, that simply is now construction. So the bit of MRL that we moved into now, we call it the Southern expansion, and that is simply construction, one of the major sellers there. And that simply is ongoing. It tends to be a bit lumpy as you'd expect, but it is simply ongoing. Owen Birrell: Great. And just on associates, I noticed that was up $6 million. Is that a sustainable piece or [ bit of a question then ]? Paul Binfield: Yes. The primary driver there has been, we've seen the improved profitability of the CPA PET facilities, which has been good. Obviously, the continued weakness is in the HDPE facility. But the main driver was the Eastern Creek joint venture we have with Macquarie in terms of the org energy from waste property. So we had a block of land there. Clearly, we have no need for that land going forward, and we sold it at quite a significant profit, I think about an $8 million profit, and that would come through the JV result. That JV has been closed down now. Operator: The next question comes from Cameron McDonald from E&P. Cameron McDonald: Just 2 questions from me. Mark, just when you're talking about the visibility in the building blocks going into the second half and then into '27, can we -- can I just throw some numbers -- some items at you to get some granularity if we can. So the defense contract, please, like where -- what was sort of the benefit for that in the first half? And what's the expectation for the second, the Eastern Creek organics investment, and then the ramp-up in that, and then the Western Sydney MRF please, and then Tasmanian CDS? Mark Schubert: Yes. So I mean I think we're not necessarily commenting specifically on the profitability of sort of individual contracts. I'll talk around them. I mean, I think the defense contract is well established now. We obviously had the large -- Cameron McDonald: Talisman Sabre? Mark Schubert: -- Talisman Sabre exercise, but I think there's lots more opportunities to expand our offering with the defense contract. And obviously, we're working actively through that. Eco, which is the old GRL for sort of long-time listeners, that's the -- that's going well. You're definitely seeing us win muni contracts and the organic stream. So that's the tailwind that I talked about where there's 2 things going on. The government has mandated the shift to FOGO. That comes through muni where all councils need to have a FOGO offering by 2030. And we call it the COFO mandate, which is a commercial food organic, that basically is July of this year that large customers need to offer their -- will need to provide a food organics solution. That's all what that means, that's all good for us because we've got the infrastructure to process that. So we'll continue filling up Eco with those sorts of contracts and volumes. Western Sydney MRF is going really well. Again, the expectation was we would slowly build contracts into that. As you guys all know, that's a really well-located plant there and can intercept volume that would otherwise find its way coming further closer to town. So we've been successful there, winning a couple of council contracts. And Tas CDS is still in the ramp-up phase. Just remember that CDS schemes take about 18 months to ramp. Volumes there have been ahead of what we would have expected. And obviously, that program started up really strongly. There's a lot of pent-up, I think, storage of containers that surged through. And then we've seen the summer surge as well. So it's just really pleasing to see. Cameron McDonald: Okay. And then just is there any update on potential license and/or height extension in New South Wales on your landfills, please? Mark Schubert: Yes. So I mean, I guess the news there is we continue to work through the, we call it the extension -- extension or expansion -- I got to remember -- it's extension, Lucas Heights extension, which is the extension of the landfill to the area where the -- sort of the gun club was previously. That is a really active project. There's lots of work going on around the environmental approvals of that. And that's obviously a key project for Sydney and for New South Wales in terms of landfill air space. But I would say that is on track at the moment. I think in terms of other landfills, obviously, there's -- we're looking at the Eastern Creek -- sorry, the Kemps Creek, I guess that's the expansion. And of course, there's some work underway at Erskine Park in terms of hydros. So there's lots of sort of extension activities, all which I would classify as on track and in hand. Cameron McDonald: And so what would be the expectation around timing at this stage on getting approvals or some sort of decision? I mean, it's difficult with -- dealing with government, but best guess. Mark Schubert: Yes. I think what I would say there is we have significant airspace in Sydney until the early 2030s timeframe. What this project is trying to do is extend that forward for a long period of time and bridge into obviously, energy from waste, which then even extends it further. I think it's not something where we need approvals in some sort of rush, and we're just working through the long lead time type stuff and stepping that forward. So again, it's on track. The idea with these is to do a cost-driven project as opposed to a schedule-driven one, and we're on the cost-driven track at the moment. Operator: The next question comes from Robert Koh from Morgan Stanley. Robert Koh: First question is on HDPE, which I think you said that the small impairment on Circular Plastics was due to policy not being where you wanted. Could I maybe just ask what was the policy that you would have liked and what do we end up with? Mark Schubert: Yes. So I mean this is -- so just to recap for people. So in Circular Plastics, there's joint ventures, there's 3 plants. The easy way to remember it is the ones that start with A, which is Altona and Albury, they are the PET ones. They're performing well. And as Paul said before, that's because the plant is performing well and then the offtake is strong. And the offtake goes to, in Albury's case, to Asahi and to Altona's case, to Coke. And the joint venture there is the 4-way joint venture between Asahi, Coke, Pact and us. The challenge that we've had is at the Laverton plant, which is the HDPE or PP plant. If you remember what is that, that's milk bottles, ice cream containers, shampoo bottles, that sort of thing. This is a joint venture between Cleanaway and Pact. The good news is the plant itself is performing really well. The issue is that the federal government hasn't introduced a minimum domestic recycled content in milk bottles. And what that means is that dairies are unwilling to pay the extra price associated with recycled material. That would be like less than $0.01 per milk bottle. And instead, they're importing virgin material to make those milk bottles. I think at a headline level, this is the right plant at the wrong time. And so hence, with that sort of policy setting, we've taken the decision to write down the investment. Robert Koh: Just moving over to DD&R. Just -- and congrats on very encouraging early results there. Can you talk to any of the regulatory developments that are coming up in that space that might help or hinder you? You've got a Victorian parliamentary inquiry. Are we anticipating that NOPSEMA issues any more directions or anything like that? Mark Schubert: I think we're not really relying on sort of regulatory drivers. I mean what you see when you look at CR, is CR's top 8 customers are the #1 oil and gas companies in the country. They're at such a maturity level with those customers that they're virtually embedded into their operations, and they become the natural go-to to help out with that work, and help plan it, and then execute it. And that's what we see happening. Like I said before, Rob, like surprisingly, the CR's team doesn't even talk about DD&R, they just talk about as work as the natural work that follows on from being the incumbent. And so I think I know there's things like, we'll have to pull out the subsea pipelines and stuff like that. We don't really worry about that because there's enough work to do even if that's excluded, and we'll still be involved in the work of cleaning those pipelines before they get abandoned in any case, regardless of whether they come out of the ocean or not. Robert Koh: Okay. That sounds good. Final question for me. I'm just trying to think about this more than $35 million annualized cost saving that you're talking to. Is that incremental to the previously guided CustomerConnect benefit, which from memory was about $5 million in FY '27? Or is CustomerConnect part of this $35 million plus? Mark Schubert: No, it's incremental. Rob, good question. Yes. The way you should think about that, just to go back over the number so everybody listening can follow on. So we're saying it's $15 million in the second half of this year. That converts to more than $35 million in FY '27. It's mainly labor. It's around 250 FTAs. It represents about 10% of our indirect labor force, and it's mostly done. What we've said, when you say it to be greater than $35 million, you should think that what that means is there's further nonlabor opportunities that we've talked about, and we've listed them out in the voice over. But that seems like procurement efficiencies, further overheads rationalization. And when we talk about procurement, we're talking about both upstream and downstream procurement, where we've got a laser focus on some opportunities there. Operator: The next question comes from Nathan Lead from Morgans. Nathan Lead: Just interested in your comments there about the capital intensity and the declining trajectory. Can you put a bit more around that because obviously, you're quite a capital-intensive business. So if you can get the CapEx flat to declining, it's particularly strong value driver. So just how are you defining capital intensity? And where do you think that could end up? Mark Schubert: Well, I guess we're defining it as CapEx divided by net revenue. That's how we're defining it. So hopefully, that's right. I think you should think about the fact that over the last period of time, in the whole history of Cleanaway, Cleanaway has been evolving this fantastic network. Over the last 3 or 4, 5 years, we've been trying to complete that network. And we actually -- when we looked at the strategy work, the next phase of the strategy, we look back and we go, you know what, the network looks pretty good. It's basically complete. The only sort of outlier there is, obviously, we will upgrade Dynon Road in 2028, and you guys all know the numbers there. So therefore, the investment shifts towards smaller investments rather than the larger investments that we've been doing in the past. And the easy example there is fleet replacement, which has a very certain return. And obviously, we're really excited about modernizing the fleet. So when we look at CapEx as a percentage of net revenue, we see that number dropping. We see it has dropped and it will continue to drop as we look forward. So that's kind of what we mean. Hopefully, that's the color you were looking for. Nathan Lead: Yes. That's great. And second question is just in terms of the landfill remediation spend that goes through that cash flows. Can you give us a bit of an idea about what that looks like over the next 3 to 5 years? Paul Binfield: I'm not going to go out 3 to 5 years here, Nathan. But certainly, I think we've given you some indication that you should expect a slightly higher spend in the second half. And into '27 -- you should expect to see it step up a little bit in '27 and '28 as well. So importantly, you would have seen us obviously close the New Chum landfill and there's obviously a requirement to get on with the capping process there that will drive some of that remediation spend. And we've got some remediation activities, so capping activity at MRL and that as well. So again, you should expect to see the remediation spend a little higher in the second half and '27 and '28 a little bit higher than '26 as well. Operator: The next question comes from Nicole Penny from Rimor Equity Research. Nicole Penny: Referring to Slide 10 and the Solid Waste business splits, could you provide some guidance on which of the business lines see the greatest opportunity over the 3 to 5 years' timeframe, please? Mark Schubert: I'm just going to look at Slide 10. Okay. Interesting question. So I think my reaction to that initially would be, well then I would absolutely look at one of these sort of national verticals and think that any particular one has something special. Each has significant growth and improvement opportunities within it. So if you go back to what we're saying sort of -- I alluded to in the sort of strategy refresh sort of take there, there's a significant opportunity on margin expansion and efficiency that we have been setting up for in the first half of the strategy that now with the digitization layer coming in now will then be further enabled by just improving the way we work and also improving how we optimize the hard assets. I think if I look at -- we'll reduce -- the volume will obviously drive the equation. And one of the things there that you saw us talk about through the customer value proposition discussion also was we're not -- our plan is not to really add to the network. Our aim is to really drive the network like it's never been driven before in a really positive way and get increased internalization, increased utilization and those sorts of things. There's definitely tailwinds as well. There's tailwinds through the FOGO transition that we talked about before. There's tailwinds through the data analytics work into eventually AI and stuff like that. And that will drive volume and price through this network. Operator: The next question comes from Amit Kanwatia from Jefferies. Amit Kanwatia: Well done on the guidance increase. Congrats. Just a couple of quick questions. Similar to Kemps, if I unpack the second half EBIT a bit more, at the midpoint, it's -- sorry, $262 million at the midpoint in second half that's implied. And then if I think about the contribution from acquisitions, I mean, you've got LMS coming in. You've got the cost savings as well coming in. I'm just more interested in kind of understanding the growth in the base business into second half versus first half? Mark Schubert: Yes. So I mean we're not going to quite break it in that detail. I think what you should be thinking about is the business -- the base business is performing strongly. You can see that in the guidance upgrade that you just mentioned. You should be thinking that CRs and Citywide will deliver that number around sort of 35. And obviously, the base business progressed. That's obviously after some of those first half headwinds that we talked about probably around the AGM time, things like New Chum and stuff like that. So really, the underlying business is looking robust. And then I think it's back to kind of that bridge where you break it into Solids EPS and sort of indirect cost review benefits. It's -- in Solids, it's the price volume coming through. It's the Solid -- it's the second half skew driven by particularly CDS and carbon. In -- so ETS, it's the project outlooks; in OTS, it's health recovering, it's the OTS integration benefits and the CR synergies. And then at the group level, it's the indirect cost review, which is the sort of the $15 million. I think if you want to get to the one, which is like, what do you need to believe to get to the top of the range? Well, you just need to believe lots of small things. There's no one big thing that drives it to the top of the range. And that's a great thing about Cleanaway. Cleanaway is just a sum of lots of smaller moving parts. And so therefore, it's quite resilient. Amit Kanwatia: Sure. Yes, I think fair to say that second half growth will be more than first half. I mean if I can just move on to the capital allocation and then I mean, given the context of capital intensity, but maybe if you can speak to how are you thinking about capital allocation given your comments today over the next few years? Mark Schubert: Well, I think on capital allocation, you're seeing a few things. You saw us talk about the fact that we are -- what we're doing on construction demolition. So we're allocating -- we're strategically allocating capital to parts of the business that we think we can get the right returns for the risk that sits within them. In the case of C&D, we don't see that because the resource recovery activities moved to the demolition side. And so we will participate in that at the landfills and equip the tickets there. So that's absolutely fine. I think in terms of the capital allocation, you're seeing us be very thoughtful about muni where we've allocated capital to the Cairns contract. We see Cairns as a great location, regional location, where we can create a strong position there. And that's very consistent with the sort of the muni strategy. You can see us in Industrial Services reducing our capital allocation towards high-margin but low ad hoc metro work and instead shifting to contracted work using the sort of the CRs operating model. And then at a more macro level, you can see us saying, listen, the network looks pretty good now in terms of completeness. So therefore, you should expect us, therefore, to require less overall capital as a result, and our strong focus will be to fleet renewal and then just really driving our volume through our network using the advantage that we've built over the last 80 years. Amit Kanwatia: I mean it looks like the free cash flow seems to be improving, earnings strong. I mean, obviously, leverage is there. Is there a case for payout ratio to go up in the next couple of years given what you've said today? Do you think? Mark Schubert: You want to talk about payout ratio, Paul? Paul Binfield: Yes, payout ratio. It's not something we've given too much thought to at this stage, Amit. We think the ratio of 60% to 75% is -- it feels pretty sensible. We're obviously at the top end of that range. Obviously, we have significant franking credits, and therefore, that sort of encourages to be paying out perhaps more than less. But at this stage, we are focused on making sure that we get that balance right between capital and dividend and maintain that deleveraging profile as well. Amit Kanwatia: And just a final one. Maybe just the strategy around waste-to-energy in New South Wales and maybe if you can touch in the Victorian market as well. Mark Schubert: Yes. So I mean in New South Wales, I guess, sort of the statements that we sort of shared around that, which we haven't talked about in these calls, but it's not -- it's been sort of announced by others. So we've signed the JDA for the Parkes energy-from-waste with Tribe and Tadweer. That is just -- that's the capital-light originator model playing out. We end up with a 35% interest and the waste supply for the C&I tranche. So that's the low-cost access for customers that we've been driving for. We prefer the Parkes location now over Willawong, and that's just due to planning uncertainty and the Parkes has sort of more support from locationally from the government and from various stakeholders. So that's the sort of progress there. There's a long way to go with these sorts of projects. So there's nothing really much in the near term there in terms of investments. I think in terms of Melbourne; Melbourne, again, is just in long-term sort of progressing capital-light approvals. And so that's the status there. So I guess the main update was the one that Paul walked through on Parkes. Operator: At this time, we're showing no further questions. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Ben Jenkins: Good morning, everyone, and thank you for joining our half-yearly results webinar for the financial year 2026. Tim, we've got a bunch of people in the room now, ready to kick off. Timothy Levy: Awesome. Thanks, Ben. Thanks, everyone, for joining us. Look, in many ways, the half-yearly is a repeat of the information that's coming out in the quarterly results. But what I've done in this -- what we've done in this session is to provide some -- a deep dive into some of those really important strategic themes. Those things that we're doing in our business that are making sure that we are set up for success long term way into the future. So I'll talk a bit about sustainability in this presentation. The highlights of the half. I think this provides a good summary of them. We have got a business now that is growing comfortably above 25%. For the half, we grew 25% PCP, whilst doing so over the last couple of years, we've kept our fixed cost discipline strong with our CAGR of fixed costs at 4%. That's delivered $10.3 million of EBITDA, a 68% increase on the prior period, and $9.2 million of free cash flow, again, 51% increase on the prior period. There's some notable things going in our business, but one clear highlight is custodial. It has been growing at 15% per year in the first 3 or 4 years of its joining of our business, but it's really come into its own in the last couple of years, now growing comfortably at 34% for this financial year. It's profitable. It really is a strong part of our business. And all the other things we're doing around our K-12 business that are promoting into custodial are now proving successful. And again, we once again reiterate our guidance around ARR growth north of 20%, adjusted cash flow, free cash flow, and adjusted EBITDA margins of around 20%. I'm sure Ben will talk more about those in a moment. Before, I think where we're at a business is in a great spot. Honestly, I've never been more excited. Custodian business is on fire. We're profitable, cash flow breakeven or better. The next half of the financial year, obviously, everybody knows we will be generating significant cash flow. Crispin, who's on this call, he runs our K-12 business, and that has never been set up better than it is today, with clear innovation. I'll talk a bit about that in our product ranges. Our go-to-market motions are outstanding and only getting better. Reputation is getting better. Our pipeline is enormous and even bigger than what we reported in December. So I literally cannot wait for Chris our K-12 numbers in July with the annual results. So we have never felt more excited and more better set up than we are right now. And let me highlight some of the things that we're investing in that -- so we are seeking to be the most capable provider of safety technology globally, and here is a few indicators. We're looking after 30 million children, 9 million parents, 32,000 schools. And significantly, we've passed through 20% of U.S. students on our platform now. And that is a -- that's all organic. We entered that market in 2018, and now in 2026, we're at 20% of that market. And we're accelerating. If you look at our ARR growth, we're accelerating into that market, particularly in the big end of town, where we're becoming really the go-to for statewide procurement deals, and those big top 100 schools. Chris again is on this call if anyone's got any specific questions. And then, as we said at the top there, not only all of those kind of raw statistics, but we are literally intervening lit every couple of hours, which is really important. Talking more broadly about impact, I flagged this in a couple of last quarterly reports. We're now starting to see the indicators of the outcomes that we're generating for our school communities. So it's not just measures of how many people are using our technologies and it wouldn't be good if we're blocking kids accessing the appropriate content, but we're now looking through our data points to show that we're actually changing the lives of not only individuals but communities. I'll show you a couple of really important stats. This is, by the way, an analysis of 1.2 million students in the U.S. What this chart is showing is that in these intervals between launch and 6 months and 12 months after a school launches custodial. So U.S. school districts who start communicating to their parents, hey, you can now control your kids' school devices after school, and you can put custodial in your kids' personal mobiles. To be clear, we're only -- we're typically getting around 20% of these parents signing up to this product. Notwithstanding what it sounds like, in fact, it's pretty high take-up, but notwithstanding that, there's a modest portion of the community taking up these products. The reductions in toxicity, principally around bullying incidents in these schools is astonishing. Within 6 months of launch of these programs across 1.2 million kids, there is a halving of the incidence of terrace, extremist content and bullying. I mean think about that, just the launch of this product, even though a modest group of parents are taking it up, we're getting a halving of toxicity in these communities. This is the thing that's really opening up the eyes of school district leaders superintendents as to the power of the Qoria ecosystem approach. It's not just blocking content, it's engaging with kids, engaging with the teachers and admin of school and the parent community, and we're now seeing material changes in behavior inside these communities. This is becoming now the way we're talking about our products. We're not just flogging risk management, we're selling outcomes. And everyone is talking a lot about outcomes today, particularly around the use of AI tools, and we can now demonstrate a clear link between the products that we sell and well-being outcomes. But it gets even better. This is something that Crispin has been pushing for a long time is looking for evidence on the take-up of schools of our products, what's that doing in 2 dimensions. One is, are they becoming stickier? Are they liking? Are they getting value out of our products and staying with us longer, and that is a clear trend. I think you're seeing that in all our net revenue retention figures and our churn figures, which are industry-leading. But this is the other dimension, which is what are the behavioral implications of schools that are committing to our ecosystem. And what you see here is a clear correlation between the number of courier products that a school has signed up to and the amount of toxicity in that school community. So you can see it goes from 16 out of 0.16 toxic incidents for every 1,000 students per month -- sorry, per week more than drops by nearly 2/3 if you've got 5 courier products. So think about that as a powerful message that we can now sell to communities or talk to school communities. If you're engaging in our ecosystem, the more you engage in our ecosystem, the more benefits your community will see in terms of better behavior, better academic outcomes, better attendance, just better mental health outcomes. That's what we're now seeing through this platform approach. We've been talking about this for many, many years. And I think all of us in our hearts have known that a more engaged community will deliver more better outcomes for kids. And now I'm really glad to see that across 1.2 million kids, we're seeing very clear and dramatic evidence of that. So all of us in this company and all investors behind our company should be really proud of the difference that we're making. And if you want to know why I'm so confident about the sustainable advantage of our business, it's because us and only us can actually do this in our industry. But of course, it's not only about this kind of broad macro stats, and I don't want to get too my in this presentation, but it is ultimately about individual situations of children that are at risk of serious harm. And this is one example of the examples that we receive daily of our technology leading to direct interventions, which are saving kids' lives. Kids have a tomorrow because of the things that we all do. And this is one customer who's communicated to our team that they are, as they say, her bucket is continuously filled by the products that we offer. That is the reason why we do what we do, and I can't be more proud of the team. So there's a lot of things that we do for sustainable advantage. And obviously, I spoke about a few, this ecosystem approach. We layer content, professional services across our technology. We have a data analytics platform that means that we're more deeply being integrated in the decision-making of these school communities. There's a heap of things that we do to make sure that we have a sustainable business model, and we are penetrating deeply inside the school. I touch on a few things that we did last -- in the last year, so in 2025. There was a lot of work, in particular around content and in particular, around the use of AI technology. The video you see here at the top, this screen grab is from our AI content-based AI capability. We can filter real-time now what kids see in their browser. You see here them seeing it, but we actually can do it before the kids even see it. We can hide or blue inappropriate videos, in appropriate images. And recently, and it looks like it's been, I think, our most successful launch ever, real-time analysis of everything inside a page, even those hidden keywords inside pages, we see the lot which helps us protect kids from inappropriate content, but mainly the value of that technology is stopping kids using VPNs and proxy services using websites as ability to bypass the expensive filtering technology that schools use. So that's deeply embedded in our filtering platform, and that puts us bounds ahead of our industry. On the bottom of this slide, you see the new interface that's now starting to pop up across all of our platforms. And here, what you're seeing is the monitoring product, which is now you're starting to see signs of the deeper integration between our filtering and monitoring technology. So it's all starting to come together. On the right-hand side, what you see there is a commitment that we make that I still don't think any of our competitors are doing, which is leveling up our community to make to not only use our tools but how to use our tools in these situations that really matter oftentimes where kids' lives are at stake and making sure that those choices that they're making are appropriate, are ethical and legal given the jurisdiction that they're in. In custodial, look, these are just 4 areas of work. The custodial product has come on leaps and bounds in the last couple of years, so much so that the churn stats in that business in the mid-20% is clearly industry-leading. Churn in the consumer control space is typically in the order of 50%. That's part because parents start using printer controls when kids are 13, 14, which is too late. Our business model through schools helps to address that problem. And then custodial's outstanding product Barcelona, they're focused on making sure it's a feature-rich product, and you have a beautiful experience in your journey of opening up those features to deal with your life challenges. I can talk forever about custodial, but the innovation in that product is enormous. And this year, Victoria, I can say, this year, there's going to be a lot of work around the kids experience to make sure the kids are part of their journey as well. And on the right-hand side, just to highlight that I'm asked often where are you at with the unification of all the different technologies that we brought into the Qoria business over the years. And it's coming together pace. What you see here is, I can't tell you the name of it. It's the Qoria unified platform. It is rolling out in the U.K. currently. It's going to be start being used in Anga this half in the U.K. And by the end of the year, we're expecting all customers to have access to this product, and then rolling out to the U.S. beyond. So it is the unified interface on top of the unified cloud application and unified data sets that have been plumbed over the last couple of years. It's very, very exciting, and it offers the opportunity to create huge value, particularly in the U.K., because they will have access to all of our products. It offers us a much simpler code base to manage, and therefore, this ability -- 2 opportunities from that. One is the ability to be more agile. We can deliver more features more quickly. And two, there is an efficiency dividend that will clearly come to our business as we simplify our tech stack and stop the duplication. All right. The other objective of this business, obviously, profitable growth. We see an enormous opportunity to grow in a space that's almost infinite, the school safety and pure control world is enormous. There is no incumbent. There is -- it's a fractured market, and we see an infinite opportunity for us, but we are seeking to responsibly grow into that market profitably. And so what you see here is a few slides with is kind of how we think about and how we've been organized to accept that challenge. On ARR, I think everybody knows that our ARR has always been the strength of our business. We've always grown last -- in the last half, we've grown north of 25%, with custodial growing 34%. As I said, looking forward to Chris reporting the June half, this is the key selling period for our Northern Hemisphere K-12 business. And you see here in the chart on the bottom left, our weighted pipeline at December is extraordinary, never been so high, and it's, in fact, materially higher now as we approach the key selling period in the U.S. All of our markets are growing extremely well. U.S. is obviously our biggest market now growing north or nearly 30% in the established market. And I don't see any signs of that being up. Our brand name is building, our feature sets are building. The channels that we work with are getting more excited. So again, Crispin Swan is on the call, people would like to ask more questions about that. The top line growth is very strong, and we're guiding the market to continually 20% or better. Our unit economics has also been a key focus for our business. Our average revenue per license is consistently getting bigger, and that's despite a falling U.S. dollar against the Australian dollar, we're still climbing on an ARR per student. So our net dollar retention is improving. And our gross margins at 92% is extraordinary. And so our data and hosting costs, the hardware we deliver our services, the app store fees that we manage are all accommodated within 10 points of our revenue, which is extraordinary. And the chart on the left shows that it's not just one product. We're getting better and better at selling other products. And we talk about this often. Our Trojan horse in school districts is the CTO is that IT persona with a compliance obligation. I think we're very clearly starting to own that relationship, particularly in the U.S. And that's a relationship that's very dear to us, and we've worked very hard to build that relationship. But then we're leveraging that into instructional learning, into safeguarding, into data analytics, and ultimately into the executive in schools. And you're seeing that represented in the increase in contributions from these different products that are in our portfolio. And again, I can't be more proud of the team there in Barcelona. We gave them very strict parameters to operate in within the last few years as they kind of build out their feature set, and our business became profitable, which it now is. And so now we're unlocking a little bit of marketing dollars for them, and they're turning it into -- honestly, turning rivers of gold. Most importantly, as you see in this line here about mono payback, they're investing more. We've given them extra I think it's $4 million of marketing budget this year. And importantly, every dollar of cost of acquisition is being covered by the average order value. So it's almost a cash-free growth engine. It does affect our EBITDA with the way the accounting works. So we can't just give them cash. But it's not burning cash. It is, in fact, cash flow breakeven growth in a business that's already profitable. And the net ARR is growing significantly. If you look at the chart on the bottom left. The ARR is growing materially above trends. You can see the top chart on the left. The CAC payback period is an instance at month 0 and net subscriber growth, which has been relatively flat. That business has been growing in many parts through pricing optimization. Now it's a combination of pricing optimization and share subscriber growth. I should note, I think analysts will be interested to know this, we are going through a price optimization process right now, showing good signs. So I'm expecting growth in this half through contribution from both price optimization and subscriber growth as well. So again, really excited about that theme in [indiscernible]. Cost management. As we highlight there, we're growing at north of 25% revenue and ARR, and yet our fixed costs over the last couple of years are growing about 4%, and inflation across the place where we operate is in the order of 3% to 4%. So I think that's a pretty good story. And that's resulted in now 4 halves of EBITDA, and that's consistently growing. So I'll let Ben talk more about the financials in a moment. So while I've got you, obviously, the big topic for us is our agreed merger with Aura, which we announced in January. It's very exciting. I'll talk about the transaction in a moment, but just again to position for those people aren't clear, Aura is a consumer security player with a deep interest and some real innovation in family safety, with the Qoria for families offering. Obviously, Qoria is all about family safety and school and student safety. And the combination of these businesses creates a really onceinalifetime opportunity for people in our business, for investors. And I think it creates the business that the world needs. It's that place. It's that household name that the world needs to protect adults, protect families and protect schools. Our mission is to empower communities with lifetime digital protection for everything that matters most. Everyone is precious. And the opportunity for our businesses and our investors is enormous. And I'll kind of touch on these things again because it's worth highlighting. Aura, it gives them a deeper access into the family with the custodial product set and a deeper access into a really important community where you can leverage the trusted relationships of parents with schools to offer not only safety, but hopefully offer security offerings, and let's face it, the distinction between security and safety with the rampant development of AI technology is disappearing. The challenge that we're all facing is AI threats that come in all shapes and sizes. And so Aura brings together these opportunities and creates significant opportunities. And for Qoria, it's the access to the AI capability of Aura, which is a huge advantage for us. I'll talk more about that in the coming announcements. It gives us access to higher revenue streams through our relationships that we built through schools and into the home, and importantly, gives us a much -- opportunities for much greater lifetime value where if you think about the custodial business, it has what's called an age issue. When a kid becomes 16 or 17, our product becomes less relevant. But with the Aura product set, we have products that are relevant from the time you become an adult to the time you end up in an aged care home. That is an extraordinary opportunity for our investors that we get to leverage. And actually, we have scaled, growing, profitable, cash flow generating. We have huge distribution networks. We are in global markets. We can take our products and leverage existing channels and existing markets. There's a lot of very exciting low-hanging fruit and broader strategic opportunities. And then kind of going back to the original part of this presentation, there was an impact opportunity here. There is this opportunity to be that world's brand name that the world needs to have that person on your side, as we're all facing these immense challenges from the dynamics of AI and the rapidly changing world that we're living in. It creates this opportunity to have that partner for a whole life protection for you. And also for me, it gives me much more of an opportunity to have a seat at the table as these big decisions being made around policy and technology that has been thrust upon the communities. That's the background. Now in terms of the transaction, this is essentially the same slide that we released in January. The transaction is on track. It's all expected to complete sometime in the middle of June, where AXQ will be listed on the ASX, and Qoria shareholders will become shareholders in AXQ. Just to reiterate a few things. Aura will be acquiring 100% of the Qoria shares. It's subject to shareholder approval at a scheme meeting expected in June. It's subject to no material adverse change, and that's an incredibly high bar, a 15% reduction in annualized revenue between now and completion. That's very, very unlikely. -- regulatory and court approvals, which are functory and receipt of the placement from the Aura holders, which we've mentioned in here, binding commitments have been received for that $75 million at the equivalent of $0.72 for Qoria shares. The exchange ratio is 35% for -- so the ultimate result of this transaction is that Qoria shareholders will own about 35% pre-money and just under 34% of the combined group post the placement. As I said, the placement is committed. It's around about $109 million at that $0.72. It values the combined business at about $3 billion. That's based on a view of the valuation of a company that's in the order of $500 million, $350 million at the time of the merger, we expect $340 million to $350 million, growing north of 20% profitable cash-generating. That's where that price was negotiated. And then just to be clear again, the equity placement pricing is fixed in the securities pricing agreements. There is no mechanism for repricing. There is a reimbursement fee in the event that the deal falls over because of failure of either party. But as I said, I don't think either party -- both parties are very confident in this deal going through. And I think it's also worth highlighting that the Aura holders are committed to this deal. A big chunk of the Aura holders will be, in fact, escrowed through the passing of the financial -- first half financial report, which will be sometime in '27. So there's clear commitment from the Aura holders into this merged vehicle. That's a brief summary. Let me hand over to Ben and [indiscernible]. Ben Jenkins: Thanks, Tim. I won't spend too much time going through these slides, so we can jump into questions. But I guess the key highlight is the growth in revenue at 25%. So the lift in ARR delivering statutory revenue, notwithstanding a little bit of FX headwinds in the later period of the year, and we remain on track to our guidance around revenue growth. Free cash flow growth was also pleasing, up 50% or 51% year-on-year, and continues to be positive. As Tim mentioned earlier, the pipeline is strong, which we'll be able to talk to more at the end of March quarter, and that will, I guess, line of sight to investors through 30 June and will then give you line of sight into the next period of the year, which will be incredibly strong. So a lot of these numbers have been out in the market with the quarterly reporting. So, important to call out those things. EBITDA positive 8% [indiscernible] previously. I think that will probably continue in the next couple of months on a consistent currency basis, we're very comfortable with where our guidance is. I think, Tim, we can jump into questions in the interest of time. Unknown Analyst: A couple of questions, if you good nuggets to dive into. The first one on that comment around price optimization. Can you just maybe talk through the blended average price rise across your products in your key markets and mainly in the B2B side, the B2B side? Timothy Levy: Chris, do you want to talk through that? Crispin Swan: Yes, you should assume it will be around 5% typically through each renewal that we have on an annualized basis, where we're typically looking to exceed CPI. We do look at the products and the innovation that have been introduced over that time, and potentially may go a bit higher, a bit lower, but you can assume an average around that 5%. Unknown Analyst: And then commentary around the cost reduction there of $4 million. I guess the question here is that we obviously came out the other day with a huge cost reduction related to AI and AI optimization of its people costs. Does the $4 million relate to the acquisition? Or is this in the core business? Timothy Levy: Look, we're chipping away where we can to reduce costs. There a big chunk of that is in engineering where we're not replacing the churn, which always happens, unfortunately, in businesses like ours. Yes, I'd say 2/3 of that cost is through efficiencies that we're finding in the engineering part of the organization. Yes, we've got a really important -- I think investors need to understand it's an incredibly important and complex integration exercise that's happening right now. It has to be delivered because there's so much value that can come from that, not only bottom-line efficiencies and cost outs and so on. But it's order of magnitude, more value will come from the additional -- of the ability to sell more products, particularly in the U.K. and to provide better experiences to customers and more features more quickly. Really important time. So those sorts of order of magnitude engineering savings that WiseTech are running, I think they're in our future. But for this year, we've got to hit this unification work. It's really, really important. Unknown Analyst: And then around -- we're in the key U.K. selling period now this quarter. In the past, you've always talked about, I think you call it, whatever the words you use. Just talk us through the pipeline there. Are you comfortable with that business where it is today? And I know the integration is fully done, and you may miss the sales period, but just maybe talk through how that pipeline is maturing in this quarter because the pipeline was quite strong. Crispin Swan: Yes, I'll take that. So pipeline year-year basis is up sort of 15%, 20%. The U.K. actually is 116% of target year-to-date -- and yes, we're seeing a real positive trend towards the blended monitor and filtering proposition in the U.K. I think just a general positivity in the market overall. So even whilst the team wait with bated breath for, as Tim was saying, the Qoria Connect proposition, which essentially brings what dominates in the U.S. market into the U.K. with the first tranche of that release literally happening in the next sort of couple of months, everything in the U.K. is extremely promising, really exciting, actually, whereas in the last couple of years, we had challenges and with growth there for reasons we don't need to get into, we've come through that now. So yes, I'm really, really optimistic on the U.K. Unknown Analyst: And just one more. Just to go back to that price optimization. In the past, you always talked about 20-plus percent growth. Was that on volume -- is price additive to your growth rate? Or is it embedded inside 20%? Ben Jenkins: Yes. Look, we -- a better way to answer that question is we think there's upside in the 20%. So we've got a lot of levers to pull from additional products to price increases to new logos. So it's just one of the streams of work for us. Unknown Analyst: And for shareholders buying today, whatever share price it is today, $0.0-odd, they're really buying Aura. There's little information today around the Aura business. Maybe you can provide -- is there anything you can provide to provide shareholders of Qoria around the financial performance of Aura? And we've had strong growth in the past, around 35% in that business. Can you just talk through your understanding of that growth trajectory into calendar year '26? Timothy Levy: Yes. Well, so let me firstly say that Aura is being IPO-ed, but they're going through that compliance process, and a prospectus will be coming out sometime in April. So ASIC doesn't like asset requires to be quite careful in the promotion of Aura until the fulsome disclosures are available to the market. But what I can say is we came into this merger incredibly excited about not only the product set, but the growth profile of the business and the opportunities that will come to the businesses by bringing them together. That's self-evident in the reason for bringing these businesses together. So where we can, we're hoping to provide some more insights to educate the market prior to prospectus coming out. But once that prospectus comes out, the questions you're answering, I'm sure we'll have very, very confident positive responses. Crispin Swan: There's a question in the Q&A that you touched on when you were talking about the deal, but as just sort of reiterate. So Aura is owned by Warburg Pincus and Accel. What lockup is expected on existing Aura shareholders after the ASX listing? Timothy Levy: Yes. So we've asked the main 2 investors, which is Hari Ravichandran and WndrCo, which together own about 40% of Aura. We've asked them to have a voluntary escrow, so they'll be escrowed through to essentially the end of February next year. And that doesn't mean that they have an intention to sell in Mark. Please be clear on that. Both Sujay from WndrCo and Hari are absolutely in love with this business. They're committed to it. And so all the representations from all of those holders is they're in for the long haul. They're really passionate about building something that is world changing, and that's really the pedigree and history of these people. If you spend some time googling the people that are behind the individuals that are behind this investment, they are about making life-changing, world-changing investments. So we're really excited about that, and that's been backed up by the voluntary escrow and they've also -- those other investors also making commitments to what we describe as orderly sale provisions. So a commitment to take any intentions to sell shares to the Board for review. So we believe they're truly very committed. Unknown Analyst: So I just wanted to follow up on some of the timing around the sort of IPO and what disclosure can come out when. So are we -- are you saying now that we're not going to get any detailed information until April? Is that the next date? Or how should we think about -- can some of like any information come out before then? Or what's your plan on -- what does the time line look like over the coming months? Timothy Levy: Yes. Look, we're hoping -- we're working with the lawyers and effectively ASIC at the moment to work out the extent of the disclosure that we can provide in the lead up to the prospectus. We're kind of been scheduling to do something in March to bring people along for that journey with not only financial information, but product demos and so on, the publicly available sort of information, which I'm hopeful that we'll be able to disclose. So still aiming for that sort of time frame, love to run some events. And then as soon as that prospectus comes out, we'll be doing a significant company and giving an opportunity for the broader investment community to really get under the hood, both financially go-to-market and product and meet the team. And then I'm also hoping to work with people such as yourself and other groups to kind of hone in on specific areas of interest, and there might be particular channels or use of AI or security threats or whatever. So that we're planning a whole series of events in the lead up to the shareholder vote in June. Unknown Analyst: Can I ask one question on AI and in relation to Aura's solution set? They're using AI, you can see internally for their own efficiencies. But how are they set up for, I guess, preventing AI style attacks on cyber phishing or whatever else may come through? Have they got specific tools that they've already worked on? Are they -- is it a competitive advantage for them? Can you talk through how they are positioning to protect people in the new world? Timothy Levy: Yes. Look, I think this is one of the main reasons why we're keen on this merger. So thank you, and I didn't set this question up. So thanks a lot for the question. The anomaly detection platform that they've built looks for these, looks for strange things that's going on. And there might be something strange in your bank account or strange in your credit file. or strange activity on your child is undertaking at 2 a.m. in the morning. It allows an analysis of what's unusual based on an individual and a collective level. And that's powerful. And I am of the view that, that's beyond all of our competition. And it's something I'm really excited about bringing to the K-12 world, which doesn't really exist in the K-12 world. But beyond that, the thing that's really powerful about the way of thinking of Aura I think driven by Hari, he's a genius is this idea of, well, let's find an gentic response to those risks that have been identified. So don't just scour your experience in your digital life to look for these issues or risks, let's deal with them on your behalf. And it might be removing your data through data brokers or contacting your bank and getting your transaction removed from your bank or an entry removed from your credit file. It's an agentic response to the risks that are becoming apparent in our digital lives. That's really clever. And I think they're years ahead of anybody else in the world. And that was, in my view, that's my main driver as to why I want to bring these businesses together. Unknown Analyst: And how does that filter into their pitch and marketing and sort of their partners? Like is it -- like is that a big component? Or can you talk to anything that can prove that, that's actually resonating? Timothy Levy: Well, yes, I mean, look at their website. Look, it's all over their website. It's all across all of their marketing materials. In fact, they talk about their speed of the ability to identify risks, which is -- I forgot the stat, but please look at their website, but they actually quote specific stats about their performance in detecting threats beyond their competitors. So yes, that's core. It's core to the point. Ben Jenkins: We have a question in the Q&A on the capitalized development cost, how much development spend is capitalized versus expensed? And what would free cash flow look like if you treated some development as recurring maintenance? It's about 45% of our engineering spend that gets capitalized, but it all was included in free cash flow. So it doesn't matter if we change that mix. So free cash flow includes the capitalized salaries as well. So there's no impact there. I think there's no more hands raised. There is one other question in the Q&A, Tim, for you. Have you spoken to Qoria's largest shareholders on whether they intend to vote in favor of the deal? Timothy Levy: Yes. Look, we're engaged with all of our largest holders. They're all indicating positivity, let's say, to the deal, and we're hoping in the lead up to the vote that we can get clearer and more public indications of their support. But at this stage, it's all -- I feel very confident and I feel, in fact, really, really grateful for our top 3 or 4 institutional investors for the support they've given to this deal and what we're trying to achieve as a business. So yes, I'm feeling today really comfortable. Ben Jenkins: That's all the questions, Tim. So if you want to wrap up. Timothy Levy: Yes. Great. Look, thanks, everybody, for attending, for your interest for backing this story. As you see in this presentation, we're really set up. We've moved now from a start-up cash burning business into a business that's profitable cash generating, growing well. We really understand our markets. We're performing better, I think, than all of our competitors in these markets, never been set up for more success. And we're about to join forces with an innovator, a leader in the digital safety, digital security space. It's really exciting time. So looking forward to speaking to investors in March when we get to -- sorry, in April, we deliver the March quarter. And obviously, all eyes are going to be on Crispin and his big pipeline into that June quarter. So looking forward to seeing you there. Ben Jenkins: Thanks, everyone.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Arcutis Biotherapeutics, Inc. Fourth Quarter Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to Brian Schoelkopf, Head of Investor Relations. Please go ahead. Brian Schoelkopf: Thank you, Michelle. Good afternoon, everyone, and thank you for joining us today to review our fourth quarter and full year 2025 financial results and business update. Slides for today's call are available on the Investors section of the Arcutis' website. Joining me on the call today are Frank Watanabe, President and CEO of Arcutis; Todd Edwards, Chief Commercial Officer; Patrick Burnett, Chief Medical Officer; and Latha Vairavan, Chief Financial Officer. I'd like to remind everyone that we will be making forward-looking statements during this call. These statements are subject to certain risks and uncertainties, and our actual results may differ. We encourage you to review all of the company's filings with the Securities and Exchange Commission, including descriptions of our business and risk factors. With that, let me hand it over to Frank to begin today's call. Todd Watanabe: Thanks, Brian, and thanks, everyone, for joining us today. I want to start out today's call by reviewing some key highlights and achievements from 2025, a year that was characterized by tremendous growth and progress for Arcutis as we pursue our mission of serving individuals living with chronic inflammatory skin conditions. We'll then transition to Todd for a commercial update and then Patrick for an R&D update and Latha for a review of our financial results. So in 2025, we made significant strides to solidify Arcutis' position as one of the industry's foremost leaders in delivering meaningful innovation in medical dermatology. Throughout the year, we saw robust net product sales revenue growth, steady prescription growth and a strong market share growth across all of our approved indications and formulations of ZORYVE, or topical roflumilast. We are incredibly humbled by the increasing number of healthcare practitioners and patients who are placing their trust in ZORYVE as an innovative, safe and effective treatment option for chronic inflammatory skin conditions, an important and welcome alternative to topical steroids. In 2025, we saw explosive revenue growth for ZORYVE, strengthening its position as the #1 branded nonsteroidal topical treatment across all of our approved indications, psoriasis, seborrheic dermatitis and atopic dermatitis. There hasn't previously been a drug for chronic inflammatory conditions with a profile or the reach of ZORYVE, an advanced topical -- targeted topical that can be used safely and effectively for any duration, anywhere in the body, across multiple indications and age groups. This unique profile of ZORYVE -- and at a moment in time when there's increasing calls by both providers and patients for innovative safe alternatives to topical steroids, has really fueled ZORYVE's robust commercial growth and success. So in 2025, net product revenues grew to $372 million, representing a 123% year-on-year increase versus 2024. This revenue growth was driven by year-on-year doubling in total prescription volume and has been further -- and has further cemented our leadership position in the branded nonsteroidal topical segment, where we now hold roughly 45% and a growing share of prescription volume across our approved indications. ZORYVE's commercial growth in 2025 was bolstered by FDA approvals of ZORYVE foam 0.3% for patients with psoriasis of the scalp and body, 12 years of age and older as well as the approval of ZORYVE cream 0.05% for the treatment of atopic dermatitis in children ages, 2 to 5 years of age. These approvals, which mark our fifth and sixth ZORYVE approvals, respectively, demonstrate our commitment to ensuring that we can bring the benefits of ZORYVE to as broad a group of patients with psoriasis, seb derm and AD as possible. The approval of ZORYVE foam's expanded indication offered an important new option for individuals who struggle with psoriasis of the scalp and other sensitive areas. These patients now have a formulation that can be used anywhere in their body, affording them a new level of convenience to manage their chronic skin condition. And we're particularly proud of the approval of ZORYVE cream 0.05% in young children with AD, given the frequent early onset of this disease and the meaningful number of patients in this age group. For far too long, there has been a significant unmet need, and we are proud now to be in a position to address it with ZORYVE. In 2025, we also submitted a supplemental NDA for ZORYVE cream 0.3% for psoriasis in children ages 2 to 5 with a target action date of June 29 of this year. And if approved, this will mark another critical step in serving the unmet needs of this pediatric demographic and their parents and caregivers. On the clinical development front, in 2025, we completed enrollment in the Phase II INTEGUMENT-INFANT trial, evaluating ZORYVE cream 0.05% in infants ages 3 to 24 months with atopic dermatitis. And earlier this month, we were delighted to report positive top line results from that study, which Patrick will review later on the call. And we're now preparing to submit this data to the FDA for a further label expansion. This is another important milestone as we work diligently to ensure that we can serve this youngest and most vulnerable population who have nearly no FDA-approved treatment options. In 2025, we also initiated Phase II proof-of-concept studies with ZORYVE foam 0.3% in vitiligo and hidradenitis suppurativa, or HS, marking an important step as we explore potential new indications that would enable us to expand the benefits of ZORYVE to additional individuals in need of effective treatment options and further maximize the pipeline in a molecule opportunity that ZORYVE represents. Finally, last year, we submitted an IND application for ARQ-234, our novel biologic with best-in-class potential to address a large unmet need in atopic dermatitis as we look to expand our pipeline and extend our mission to deliver meaningful innovation to patients with chronic inflammatory skin conditions. In short, we have had a tremendous year of progress, and we are confident that these accomplishments have set the stage for a successful 2026 and well beyond. None of this, of course, would be possible without the incredible talent, hard work and persistence of the Arcutis team. So I'd like to take a moment to acknowledge and thank each and every one of our team members for their deep and continued dedication to our company's mission and above all, to the patients that we serve. Moving to Slide 6. To frame the rest of today's discussion, I'd like to recap the 3-pillar corporate strategy that we introduced a few months ago to describe how we will sustain both near- and long-term growth for Arcutis. We have already made progress across all 3 of these pillars. On the growth front, I just mentioned the compelling data from the INTEGUMENT-INFANT trial and our plans to pursue a label expansion based on that data. And as you'll hear more from Todd in just a minute, we've recently announced an expansion of our dermatology specialty sales force to drive further ZORYVE growth as well as our decision to take over promotion of ZORYVE to primary care physicians and pediatricians. In terms of the expand pillar, as Patrick will expound on shortly, we continue to progress our Phase II POCs in HS and vitiligo and look forward to sharing data from these trials later this year or early next, and we are evaluating additional POC studies for other diseases. Finally, we look forward to enrolling the first patients in the Phase I study of ARQ-234 shortly and eventually sharing data from that study with the investment community. These concrete steps in realizing our strategy are evidence of our dedicated and disciplined strategic approach to ensuring Arcutis is well positioned for both the near- and long-term success. Before turning the call over to Todd and Latha to review our fourth quarter results in more detail, I want to give an update on some key points about the revenue guidance that we gave during our Investor Day in November of last year. First, we are raising our 2026 full year net product revenue guidance range from originally the $455 million to $470 million to now $480 million to $495 million to reflect both the strong momentum for ZORYVE as demonstrated by our fourth quarter results and also the investments that we continue to make in the franchise that the team will detail further today. We will evaluate our revenue guidance throughout the year and may update that when appropriate. Second, not only did we achieve positive cash flow in Q4 as promised, but we are reaffirming that we will maintain positive cash flow on a quarterly basis throughout 2026 even as we continue to increase our investment in ZORYVE's growth in our pipeline. And with that, I'll hand the call over to Todd for a Q4 commercial update. L. Edwards: Thank you, Frank, and good afternoon, everyone. Turning to Slide 8. As Frank noted, the strong momentum of ZORYVE's growth continued in the final quarter of 2025, where we generated sustained revenue growth driven by the increased adoption of ZORYVE across our approved indications. In the fourth quarter, net product revenues were $127.5 million. This reflects 84% year-over-year growth and 29% sequential growth from the third quarter of 2025. This sequential revenue growth was primarily fueled by sustained increases in prescription volume of 19%. This reflects the increasing confidence clinicians and patients have in ZORYVE as a trusted treatment across a broad spectrum of inflammatory diseases. And while still in the early days of launch, we are encouraged by the initial uptake of ZORYVE cream 0.05%, the treatment of atopic dermatitis in children aged 2 to 5 years old following the approval in the fourth quarter of 2025. There was also a very small contribution from a channel inventory build during the period, accounting for approximately 2%, or $2.5 million of revenue in the fourth quarter, which we anticipate will unwind in Q1. We also saw stronger-than-anticipated price improvement in the fourth quarter, driven by a continued reduction of co-pay card utilization as more patients met their deductibles and out-of-pocket maximums, contributing to the remainder of our quarter-over-quarter growth. Our gross to net remains stable in the 50s, and we anticipate it will remain in the same range in 2026. Unlike some of our competitors in the branded topical space, we did not see any gross to net erosion last year, and we do not anticipate any significant gross to net erosion as we progress through 2026. We do anticipate a typical reduction in net product revenues in the first quarter of 2026 as compared to the fourth quarter of 2025. The sequential decrease in sales will primarily be driven by typical seasonality resulting from patient deductible resets leading to higher co-pay usage. This will lead to an increase in our gross to net rate to the high 50s in the first quarter, which will then gradually improve throughout the year and end with the lowest gross to net in the fourth quarter as we experienced in 2025. Additionally, we did see demand across a couple of weeks in January, was impacted by winter storm burn, as expected from a storm of this magnitude. These factors in aggregate will lead to a more pronounced step down in quarter-on-quarter total product revenue Q4 versus Q1 than we experienced in 2025 when we saw increased quarter-on-quarter demand driven by our launch in AD that offset the typical seasonal headwinds. This is only a Q1 dynamic. As you heard from Frank earlier, our conviction in ZORYVE's continued growth and momentum in 2026 is strong and increasing, giving us the confidence to raise our guidance range at this early point in the year. As you can see from Slide 9, weekly prescriptions on a rolling 4-week average were approximately 22,000 scripts, another record high for the ZORYVE franchise. Over the next year, we anticipate robust and sustained demand from the primary driver of ZORYVE's revenue expansion. The factor that will contribute to the sustained volume growth in 2026 is the recent market access improvements that we have made with multiple national PBMs and health plans. On the commercial side, several plans improved ZORYVE's access by expanding coverage and improving utilization management criteria to a single step to a topical steroid. Furthermore, we were successful in obtaining coverage with several Medicare Part D plans effective January 1, with roughly 1/3 of all Medicare Part D recipients now having access to ZORYVE to their insurance plan. This makes ZORYVE the only branded nonsteroidal topical included on these Medicare formularies and helps us open the door to access for patients served by Medicare. This has been a key objective for Arcutis from day 1, and these formulary wins are clear validation of our differentiated pricing and access strategy. Because Medicare formularies favor generic therapeutics such as topical corticosteroids, ZORYVE has been assigned to the non-preferred drug tier, which is associated with higher co-pays or co-insurance costs and preferred tier drugs. While we're delighted to expand access to ZORYVE because of this achievement, we anticipate that the impact of demand may be tempered due to ZORYVE's non-preferred position. Turning to Slide 10. Our sustained momentum in Q4 and throughout 2025 highlights ZORYVE's exceptional utility. The growing confidence in our brand among both clinicians and patients and the broader shift in the treatment of inflammatory skin diseases away from topical corticosteroids. The 3 charts on this slide demonstrate important factors shaping the treatment paradigm for inflammatory skin diseases. The chart on the left illustrates that the branded nonsteroidal topical segment continues to grow meaningfully, gaining share from topical corticosteroids where usage remains flat or declining. Within the branded nonsteroidal category, ZORYVE is driving the majority of that growth. The pie chart in the center highlights the share shift driven by faster growth in advanced targeted topicals versus topical steroids. As a result, branded nonsteroidal topicals now account for 7% of total topical prescriptions against a sizable 2025 base of 24 million prescriptions. This represents meaningful progress. As volume continues to shift from topical corticosteroids to branded nonsteroidal topicals, growth should accelerate. Each 1 point share shift from topical corticosteroids translates to approximately 15% volume growth for the branded nonsteroidal topical segment. And finally, the chart on the right-hand side of the slide makes clear that ZORYVE is positioned to overwhelmingly benefit from this trend of topical corticosteroid displacement as we hold a strong and expanding share of branded nonsteroidal volume at 45%. At our Investor Day last October, we shared our peak sales guidance and reaffirmed our conviction that ZORYVE could become a multibillion-dollar brand. This confidence is rooted in the ongoing shift of a meaningful portion of the topical steroid market toward advanced targeted topical therapies like ZORYVE. For every 1 point of share we capture in the corticosteroid-dominated topical market, we estimate approximately $150 million in incremental revenue. Evidence that this shift is underway is strong and growing as we enter 2026. Demand from both providers and patients for safer nonsteroidal options to manage chronic inflammatory skin diseases continues to build. At the major dermatology conferences held in the first quarter of this year, a consistent theme from the podium was the need to move beyond topical steroids and adopt advanced targeted topicals. We remain well positioned to provide a safe and effective alternative for those seeking one. Now moving to Slide 11. I'd like to spend some time providing further detail on our recently announced dermatology sales force expansion and the benefits we anticipate gaining from it. In January, we announced that we would expand our dermatology sales force by approximately 20% to roughly 160 sales personnel. The primary intent of this expansion is to increase our call frequency with mid-decile prescribers without impacting or diluting the level of engagement we have with our most productive top decile dermatology clinicians. Said another way, the intent of the investment is to optimize the frequency of our sales force touch points in dermatology as we already have sufficient breadth of coverage in this provider setting. To further illustrate our strategy, with this expansion, we have detailed prescribing behaviors across different provider categories. High-decile prescribers are relatively few in number, but as you can see, have the highest volume of potential ZORYVE patients. And it is important to note that we evaluate activity based on total topical prescription writing, including topical corticosteroids, not ZORYVE writing or nonsteroidal topical writing. These healthcare providers have an outsized impact on prescriptions, they write a year, and have been our primary focus to date. With our sales force expansion in mid-2024 on approval in atopic dermatitis, we had already optimized our coverage of these highest value clinicians, briefly engaging them on the potential benefits ZORYVE can offer their patients. The mid-decile prescriber group is more numerous and frequently see patients in ZORYVE's target indications, albeit not the same very high volume as the high-decile group. To date, we have also been engaging at least these clinicians, but to focus our efforts on the highest potential prescribers, the frequency of the sales team's interaction within them has been lower than optimal and less than high prescribers. With the expansion of our sales force, we will be able to increase our call frequency among mid-decile prescribers to an optimal level, driving increased awareness and adoption of ZORYVE within this group. And to round out the picture, there's a final category of low-decile prescribers who far more -- who are far more numerous than the other groups based on their low prescription writing, are lower priority for our sales efforts. We are already in the process of hiring these additional reps to strengthen our sales force and are enthusiastic about the level of talent we are bringing to the team and the impact they will have once in the field. We anticipate beginning to see the impact of this investment in the second half of the year and expect it to be accretive in the first year as the team ramps up. Turning to Slide 12. Expanding Arcutis' commercial presence into primary care physician and pediatricians is a key component of our growth pillar. As announced in January, we have begun building a targeted sales force focused exclusively on these clinicians. In earlier stages of ZORYVE's commercialization, while executing our new product launches and building our operational leverage, the partnership model provided an effective approach to this segment of the market that reduced our financial exposure. We now have the opportunity to combine what we have learned through the initial partnership with our core commercial capabilities to create a targeted accretive opportunity that can scale with time as we further expand our operating leverage. Importantly, this initial deployment is focused not on whether to pursue the opportunity, but on how best to execute it. We are taking a disciplined stepwise approach, starting with a limited pilot to refine our go-to-market strategy. Then we'll scale thoughtfully while maintaining a highly targeted focus on the highest value PCPs and pediatricians. The initial sales team that we are putting in place for this will be compromised with approximately 30 sales reps and supporting personnel. This effort is distinct from and additive to our dermatology sales force expansion, which remains exclusively focused on driving growth within dermatology practices. As we expand in primary care and pediatrics, we do so with 4 distinct competitive advantages that position us to execute effectively and drive meaningful impact. First, a highly targeted approach focused on high-volume early adopter PCPs and pediatricians, positioning this investment to be accretive from the outset. Second, proven reimbursement support capabilities, including our patient access infrastructure to help ensure written prescriptions translate into reimbursed prescriptions. And third, the ability to leverage the core commercial model that has driven our success in dermatology. And fourth, strong dermatologist advocacy, which provides important specialist validation for PCPs and pediatricians. ZORYVE's differentiated profile as a safe, nonsteroid topical suitable for use anywhere on the body and for any duration offers primary care clinicians a level of confidence not typically associated with topical steroids. As the shift away from topical steroids expands beyond dermatology, we are well positioned to benefit. While we began with a focused pilot with early adopters, we believe ZORYVE's profile has the potential to resonate broadly over time across both primary care and pediatricians. I am now on Slide 13. Yesterday, we are excited to announce that Max Homa has joined our Free to Be Me awareness campaign, sharing his experience in managing seborrheic dermatitis with ZORYVE foam. Max joins Tori Spelling, who, along with her daughter, Stella, have shared their experience with atopic dermatitis and seborrheic dermatitis and advocating for individuals with inflammatory skin diseases to initiate conversations with their healthcare providers about ZORYVE, a safe, effective long-term treatment for these chronic diseases. The range of impact that Tori and Stella have had in driving awareness around treatment options for atopic dermatitis and seb derm have been wide and impactful with coverage in over 60 traditional news outlets and thousands of broadcast and radio TV airings to achieve close to 5 billion media impressions and social media reaching millions on Instagram and TikTok. We look forward to Max further contributing to these efforts. And based on the media and social media coverage in the last 24 hours, it's off to a great start, with over 25 original articles achieving over 400 million impressions. And with that, I'll turn it over to Patrick. Patrick Burnett: Thank you, Todd. I'm now on Slide 15. Ensuring that we can deliver ZORYVE to as broad a number of individuals with psoriasis, seborrheic dermatitis and atopic dermatitis as possible, thereby benefiting from the unique profile of this drug, remains a top priority for us. Our ongoing efforts to support young children with plaque psoriasis and infants suffering from atopic dermatitis are central to this goal. I'd like to start off today by highlighting the positive top line results from the INTEGUMENT-INFANT Phase II trial of ZORYVE cream 0.05% in infants aged 3 to less than 24 months with mild to moderate atopic dermatitis, which we announced earlier this month. 58% of participants achieved a 75% improvement in Eczema Area and Severity Index, also known as an EASI-75, with ZORYVE cream 0.05% at week 4. And notably, 1/3 of patients reached EASI-75 already after only 2 weeks of treatment, demonstrating a very rapid and robust result and one that has already garnered highly positive feedback from clinicians. Turning to safety. We saw no treatment-emergent serious adverse events and only 1 patient discontinuing the study due to an adverse event, reinforcing the consistency of the safety and tolerability profile of ZORYVE cream 0.05% already seen in the 4-week pivotal INTEGUMENT-PED clinical trial in children ages 2 to 5 years. Finally, and still on Slide 15, we have photographs of a 10-month-old Latino child from the study who achieved an EASI-75 at week 4. We can see clearly he has significant atopic dermatitis at baseline on the arms and the legs as well as a facial involvement, which is really characteristic of infants with atopic dermatitis. As a practicing dermatologist, seeing this type of rapid and meaningful clearance in patients at this young age who have historically been difficult to treat given very limited available therapeutic options is really encouraging. Of note, enrollment in the trial for this age range was very brisk and exceeded typical enrollment patterns and our expectations, confirming that there is significant interest in nonsteroidal treatment options for these most vulnerable patients. These results of the INTEGUMENT-INFANT trial are extremely promising as infant atopic dermatitis patients urgently need innovative alternatives to topical steroids, with vanishing few FDA-approved treatment options for this segment. And unlike other inflammatory skin conditions, atopic dermatitis often presents at an early age. Nearly 10 million children in the U.S. are impacted by atopic dermatitis with roughly 60% developing symptoms in their first year of life. And within just the study age range here, infants 3 to 24 months old, there are nearly 1 million prescription topically treated patients in need of better therapeutic options. AD presents unique challenges in these younger age groups, not only because the skin is more sensitive, but also because the condition often covers a greater percentage of their total body surface area compared to adolescents and adults. This raises the risk of greater systemic absorption. Therefore, parents of these young infants are particularly sensitive to potential negative side effects of topical steroids. These concerns range from the impact of chronic steroid use on the child's growth and bone development to more immediate concerns like application to the child's face where contact with the eyes and mouth can be difficult to control. Given the size of the patient population and the acute need for safe and tolerable therapeutic interventions, we've been methodically pursuing label expansion for ZORYVE to younger ages of children with atopic dermatitis. Notable about the INTEGUMENT-INFANT data is that we're moving closer to having a marketed product that can be used to treat individuals with chronic inflammatory skin conditions, like atopic dermatitis, across the lifetime continuum from infant to adult. This means that there will be a nonsteroidal treatment option that spares patients from the youngest stage onwards from exposure to steroids while effectively treating their skin conditions. Moving on to Slide 16. We're already engaging pediatricians on our currently approved indication for 2- to 5-year-old atopic dermatitis patients and the INTEGUMENT-INFANT data, combined with our pending PDUFA date for 2- to 5-year-olds in psoriasis, if approved, all support further outreach to pediatricians by our internal sales force. With the treatment alternative to steroids that is now demonstrated to be safe and effective, once approved for infants and as pediatricians gain familiarity with prescribing ZORYVE to, for example, a 12-month-old infant with atopic dermatitis, they'll be more likely and more inclined to then prescribe it for an older child or an adolescent as well. As Todd noted, we've been encouraged by our initial launch of ZORYVE cream 0.05% for the treatment of children ages 2 to 5 years old with atopic dermatitis, a population of about 1.8 million patients. We're excited to continue our introduction of this important new therapeutic option to clinicians and most importantly, to pediatric patients and their caregivers. We plan to report the full results of the INTEGUMENT-INFANT trial at a future medical conference. And based on these data, we plan to submit an sNDA for ZORYVE cream 0.05% in infants in the second quarter of this year. In addition to atopic dermatitis, we're also pursuing a label expansion to treat pediatric plaque psoriasis patients. While this patient population is smaller than that of pediatric AD patients, there's still an acute need for better therapeutic interventions that we are working to address. In quarter 3 of last year, we announced that we submitted a supplemental NDA for ZORYVE cream 0.3% to expand its indication to the treatment of plaque psoriasis in ages 2 to 5. We've been assigned a PDUFA date of June 29 and look forward to the FDA's decision. If approved, ZORYVE cream would be the first and only topical PDE4 inhibitor indicated for plaque psoriasis in children as young as 2, offering patients and caregivers an important alternative to topical steroids and vitamin D analogs. As we potentially gain label expansions for these younger patient populations across atopic dermatitis and plaque psoriasis, having an internal sales force dedicated to primary care and importantly, pediatric clinicians will be of great value in our efforts to educate healthcare providers on ZORYVE as an alternative therapeutic option to topical corticosteroids. Beyond our clinical development efforts to make ZORYVE available to more pediatric patients, we also continue to evaluate incremental data generation opportunities to further bolster our currently approved indications. At our Investor Day, we highlighted a case report that demonstrated the effectiveness of ZORYVE in treating nail psoriasis. This is a good example of where incremental data generation could further strengthen our current indications, and we look forward to providing further updates throughout the year. Turning to Slide 17. Pursuing a new patient populations that may benefit from ZORYVE has been a principal focus for our clinical development strategy from the outset. This is evidenced by the 5 approvals we've secured since our initial plaque psoriasis approval in 2022. These have expanded our indications to include seborrheic dermatitis and atopic dermatitis and lowered the approved ages for psoriasis and AD patients. We have good reason to believe that there are additional skin diseases that may respond to, and more patients who may benefit from ZORYVE, represented by the expand pillar of our strategy that Frank highlighted at the outset of today's call. This belief is supported by our understanding of ZORYVE's broadly applicable anti-inflammatory and antipruritic properties as well as its potential impact on protecting melanocytes and by the direct and ongoing feedback we've received from healthcare providers in the field on their real-world ZORYVE experiences. To that end, we continue to make progress with our Phase II proof-of-concept studies with ZORYVE foam 0.3% in vitiligo and hidradenitis suppurativa, or HS, with subjects continuing to enroll. Vitiligo and HS both represent chronic inflammatory skin conditions with significant unmet patient needs. These are just 2 examples of multiple indications in which ZORYVE has demonstrated encouraging early evidence as promising treatment. Based on that evidence, we initiated the ongoing proof-of-concept studies in vitiligo and HS. We continue to evaluate additional diseases where ZORYVE might be a good therapeutic option. And as we decide to initiate additional POC studies, we will inform the investment community of those developments. We anticipate reporting a decision whether to advance vitiligo, including the Phase II proof-of-concept data, in the fourth quarter of 2026 and an advancement decision in HS, including the HS Phase II data in the first quarter of 2027. On Slide 18, as a reminder, there are 3 cases that typify the sort of case reports and case series that we receive and that are informing our ZORYVE expansion efforts. The 2 patients on the left are both children with recalcitrant facial vitiligo. The girl on the upper left has previously failed multiple topical therapies, including both topical steroids and topical JAK inhibitors, and you can see meaningful repigmentation after only 7 months of ZORYVE treatment. The boy on the lower left also previously failed topical steroid treatment and shows good response after only 5 months of ZORYVE treatment. On the right-hand side of the slide, you see a 31-year-old woman with Hurley Stage 1 HS who exhibited complete clearance of her HS, including pain and itch, in only 4 weeks of treatment with ZORYVE, in conjunction with 2 non-inflammatory medications. In the lower right, you also see details from 2 other mild HS patients who had similarly impressive results following ZORYVE treatment. It's clear to see what's driving the enthusiasm that we are hearing from clinicians who are independently exploring these novel applications of ZORYVE. Now on Slide 19. As I've touched upon today and as represented on the slide, we're looking forward to multiple near-term clinical catalysts in the coming year. Importantly, among these clinical activities is the advancement of ARQ-234, our novel biologic targeting CD200R with best-in-class potential to address a large unmet need in atopic dermatitis and potentially additional inflammatory skin diseases. With excitement around other emerging AD mechanisms, such as OX40, recently coming under more scrutiny, we look forward to moving ARQ-234 into the clinic to validate what has the potential to be a meaningful therapeutic advancement for AD patients with more severe disease. This program has come to our third pillar, build, encompassing our efforts to expand our clinical pipeline beyond ZORYVE. We expect to begin dosing patients in the Phase I trial for ARQ-234 very soon. And with that, I'll turn it over -- turn the call over to Latha for the financial update. Latha Vairavan: Thank you, Patrick. I'm now on Slide 21, showing financial results both year-over-year and quarter-over-quarter for the fourth quarter. We generated net product revenues in the fourth quarter of $127.5 million, which is up 84% from the fourth quarter of 2024 and 29% from the third quarter of 2025. We generated $2 million of other revenue in the fourth quarter from a Huadong milestone payment. Cost of sales in the fourth quarter were $11.7 million compared to $6.9 million in the fourth quarter of 2024, primarily driven by increased ZORYVE sales volume. For the fourth quarter, our R&D expenses were $20.5 million, which is a $6 million increase from $14.5 million in the fourth quarter of 2024, when a clinical trial credit of $3.3 million lowered our R&D expenses for that period. Looking ahead to 2026, we expect an increase in our R&D expenses as we continue to advance ZORYVE life cycle management clinical development activities and initiate the Phase I trial of ARQ-234. SG&A expenses were $79 million for the fourth quarter of 2025 versus $57.6 million in the same period last year, a 37% increase attributable to investments in our continued commercialization efforts for ZORYVE. In 2026, we expect to see an increase in SG&A expense as we continue to make incremental investments in ZORYVE commercialization efforts, including the expansion of our dermatology sales force and the initial build of our internal primary care and pediatric sales team as detailed by Todd earlier. Net income for the quarter was $17.4 million compared to a net loss of $10.8 million for the same period last year and net income of $7.4 million for the third quarter of 2025. While we continue to expect positive cash flow on a quarterly basis throughout 2026, we may fluctuate between an operating income and operating loss position quarter-to-quarter driven by noncash expenses such as stock compensation and milestone payments. As anticipated and reported in our Q3 financial update, the continued momentum of ZORYVE net sales growth, combined with our expense discipline, allowed us cash flow positive position in the fourth quarter of 2025, which was earlier than expected and an important milestone and achievement for our company. Our cash and marketable securities balance as of December 31, 2025, was $221.3 million, with a positive cash flow from operations of $26.2 million for the period. We have total debt of $108 million and have the option to withdraw another $100 million in whole or in part at our discretion through the middle of 2026, providing us with operational flexibility. The success of the ZORYVE franchise and the economies of scale we are generating will permit us to invest in the business for sustained growth over the years ahead. Now turning to our full year 2025 results. I'm on Slide 22. For the full year 2025, net product revenues were $372.1 million, an increase of 123%, or $205.5 million versus 2024. This meaningful year-over-year increase in product revenues was primarily driven by increasing demand across the ZORYVE products. Other revenue in 2025 was $4 million compared to $30 million in 2024, when we received a $25 million upfront payment in connection with the Sato Japan license agreement. Cost of sales for 2025 were $36.7 million compared to $19.1 million the prior year, driven by increased ZORYVE unit volume. R&D expenses remained consistent year-over-year with $77.1 million expense in 2025, compared to $76.4 million in 2024, as increased development costs for roflumilast in pediatric atopic dermatitis were largely offset by a decrease in preclinical development costs. SG&A costs increased 20% in 2025 to $274.6 million. This year-over-year increase was primarily driven by our continued and increasing investments in sales and marketing activities related to our commercialization efforts for ZORYVE. Our net loss in 2025 was $16.1 million compared to $140 million net loss in 2024. This reduction in our net loss of $123.9 million was driven by an increase in net product sales that substantially outpaced the increase in our expense base. While expenses continue to grow due to strategic ROI positive and accretive investments, the considerably faster growth of our top line revenue is an indicator of the growing operating leverage we expect to benefit from going forward as ZORYVE continues its growth trajectory. Now moving to Slide 23. As we touched upon earlier, across this business, we have multiple near-term value-driving catalysts. Adding to Patrick's summary of expected clinical and regulatory developments, we anticipate continued commercial progress in 2026. This year, we anticipate full year net product sales to be in the range of $480 million to $495 million. This represents an increase of $25 million on the top and bottom end of our guidance range announced as part of our Investor Day in October of last year. Our confidence in increasing our sales guidance for the year is informed both by the sustained momentum in our ZORYVE business as demonstrated in the Q4 results discussed today as well as the investments we are making in the franchise, such as the dermatology sales force expansion Todd reviewed earlier. I will note that the effect of this particular investment will take some time to materialize and will be evident in the back half of the year, but will likely have no meaningful impact in quarters 1 and 2. We are confident that we will be able to fund the investments we've described today to grow, build and expand our business with the capital produced from our core ZORYVE business while maintaining positive cash flow. We will continue to be protective of shareholder capital and attentive to managing our capital allocation to ensure that this dynamic plays out. We are fortunate to have a portfolio of high ROI investment opportunities paired with a cash flow generating franchise like ZORYVE. I will now hand the call back to Frank for some closing remarks. Todd Watanabe: Okay. Thanks, Latha, and thanks to all of you for joining us today. Based on our expansive progress and achievements in 2025 and our multiple anticipated value-driving catalysts across the business in 2026, we are more energized than ever about the future of ZORYVE, of our company overall, our ability to grow shareholder value and most importantly, of our ability to amplify the impact we can have on individuals impacted by chronic inflammatory skin diseases. We look forward to providing you with more updates throughout the year, and we thank you for your continued interest in the unfolding Arcutis story. And with that, we'll open things up to Q&A. Operator: [Operator Instructions] And the first question will come from Seamus Fernandez with Guggenheim. Seamus Fernandez: Congrats on the great results. Frank, I really wanted to just kind of tackle the update that we got from one of the potential competitors in the market. I think Incyte was commenting on some challenges or need to lower OPZELURA pricing in order to improve access. It sounds like access isn't really a problem for ZORYVE. So just wanted to get your thoughts and commentary around the dynamics that are occurring in the market today within both the AD marketplace, but also your broader efforts to continue to take share against topical steroids. Todd Watanabe: Seamus, thanks. Great question again. Not a surprise after this morning. It's a little funny to be talking in different parts of the hotel. I think maybe for a different perspective, I'll ask Todd to comment on that since you heard my answer earlier today. L. Edwards: Yes, I'm happy to answer that. Seamus, thank you for the question. So first, we do not anticipate any material erosion of our gross to net resulting from actions to increase our access in 2026. As previously mentioned, we were able to achieve significant improved access in 2025. If you look at our commercial access, more than 80% of patients insured by commercial insurance have access to ZORYVE, and it's high-quality access, meaning that it's a single-step edit through a steroid. As mentioned earlier, too, we have exceptional Medicaid access, with more than half of the patient population in Medicaid having access to ZORYVE with a single-step edit or less. And then just announced, was our Medicare Part D wins, effective January 1. And so we've had optimal access, and we don't anticipate having to give any additional rebates in 2026 that would adversely impact our gross to net to be able to maintain that. And then I just want to also remind that our pricing strategy has been designed to facilitate this kind of reimbursement that allows for meaningful patient access. Our strategic pricing has made a difference, and now we can see that within access across both commercial insurance and government insurance. Todd Watanabe: Yes. So maybe I'll just chime in and take a little bit of a victory lap here. As I mentioned earlier, I think when we launched, there were a lot of investors who were questioning our access strategy and why we were taking such a different approach than other players in the branded topical space. And I would make a strong case that the last 3 years has proven out the wisdom of the strategy that we adopted. As Todd has just summarized, we've really achieved outstanding access across commercial Medicare and Medicaid now. And that's come with a very reasonable and stable gross to net, in the 50s, and we expect it to remain there. And so I think, really, the marketplace has proven that we took the right strategy from the outset, and it's paying off not only for our investors, but also for patients. Seamus Fernandez: Great. And if I could just ask one quick follow-up question. It's actually more related to some of the decisions and -- federal court decisions around rebate dynamics and also some labor law dynamics that are calling into question, I think, some rebate structure. But we've also heard that it's going to be really challenging to kind of change the dynamics of the current marketplace as it relates to the presence that the GPOs have. So as you guys look at some of the dynamics in the marketplace, do you see potential positive changes from an access perspective emerging from some of these recent updates and changes? Todd Watanabe: Yes. So Seamus, that's also a really interesting question. I think that there's a lot of discussion going on right now in Washington about our current reimbursement environment. We saw in the budget bill that was passed last month, I think the first steps in some meaningful reforms to the current payer system, but those were pretty limited steps. There continues to be a lot of discussion in Congress as well as in the administration about changes to the PBM environment -- or to the reimbursement environment, excuse me, more broadly. And I think it's really too early to say what Washington is going to do on that front. We remain confident that regardless of how the situation evolves, Arcutis is well positioned to continue to both make ZORYVE widely available to patients and to be able to generate a reasonable return for our investors. But I, for one, think it's much too early to say how this is all going to shake out in terms of a meaningful reform to the insurance system in the U.S. Operator: And our next question is going to come from Tyler Van Buren with TD Cowen. Unknown Analyst: This is [ Ekeno O'Connor ] on for Tyler. Congrats guys on the quarter. We noticed that in your presentation, you guys didn't break out sales for each one of the SKUs. I wonder if you can comment on that and any growth trends that you expect for the different SKUs going into 2026? Todd Watanabe: Yes, sure. Todd, do you want to take that one? L. Edwards: Yes, I will. Yes, we had -- as mentioned before, we had growth across the portfolio and had meaningful growth within each of the SKUs. If you look at the growth across those SKUs, we see an increased demand more so with the ZORYVE foam, given that we have the 2 indications, seborrheic dermatitis, but also the scalp and body psoriasis, but nonetheless, very positive growth across the products. And we do anticipate to continue to have growth across the portfolio as we enter into 2026 and throughout 2026. Across these products, they're all highly differentiated, relative to the vehicle itself, but also relative to the patient being that you can -- it's once a day dosing, you can put it anywhere for any duration on the body and is exceptional relative to long-term disease control with these inflammatory skin conditions. So we look forward to continued growth across the portfolio as we continue to roll through 2026. Todd Watanabe: Yes. I might just add, I do think for investors, looking at the Rx split data since we have different SKUs is a pretty accurate depiction of the split, right? The gross to nets are effectively the same across the SKUs. There's a little bit of a lag when we first launch a product like 0.05%, but that very quickly catches up to the other SKUs. So you can look at the SKU split and get a pretty good sense of what's happening. The one exception is the foam where we have 2 different indications. And frankly, we don't even have enough data at this point to tease out what's seb derm versus what scalp psoriasis. I think as time goes on, we might get a better sense of an estimate of that, and we'll share that with the investment community. But we're never going to have complete transparency since it is the same SKU. Latha Vairavan: [ Ekeno ], I'll just add that we have the breakout of net sales in our reported financial statements, and we're happy to send you those details, but the net sales are broken out by SKU, as Frank just said, in the financial statements, and you can look at those. Operator: And the next question is going to come from Judah Frommer with MS. Judah Frommer: Congrats on the progress. Just curious to get a little more color on the confidence to raise the full year guide. Obviously, a strong Q4, but heading into what sounds like a seasonality affected Q1. So maybe if you could just break out between formulary access, confidence in the additions to the sales force and anything else that underscored changes to the inputs in your model? Todd Watanabe: Yes. So Todd, not to wear out my welcome, but I think I'll probably turn that one over to you, too. L. Edwards: Yes, yes. So we -- I want to kind of frame this. One, we -- first is the exceptional momentum that we have in Q4. That to be coupled with the investment that we're making in the franchise, one, the dermatology field sales force expansion, which we will see that impact in the second half of the year. In addition to that, the investment in primary care pediatricians and the launch into that space, once again, have an impact in the second half of the year. But in reference to formulary access, as mentioned, we continue to have exceptional formulary access. We didn't -- the previous year, we will carry that forward into 2026 as we go forward. So in reference to the Q1 dynamic, I mean, this is typical seasonality that you see with any pharmaceutical product to include nonsteroidal branded topicals. As mentioned, it's partly because of the deductible reset that happens at the beginning of the year. And also patients are changing insurance plans effective the first of the year, which results into higher increased co-pay usage and therefore, higher gross to net rate within the first quarter, which, we mentioned, will be in the high 50s. But from the first quarter, that gross to net rate will continue to trend down, as we saw in 2025, to the lowest rate in Q4. We raised the guidance. We're very confident in our performance. It's going to happen in 2026, and we expect to have sequential quarter-over-quarter growth as we roll through out of Q1 to Q4 aligned with the restated guidance, once again, taking note that the investments in the dermatology expansion and PCP expansion will have an impact in the second half of the year. Operator: And the next question is going to come from Uy Ear with Mizuho. Uy Ear: Congrats on the good quarter. Maybe a couple of questions, if I may. First question is, I think in the fourth quarter, you indicated that quarter-over-quarter growth was 29% and about 19% of that came from Rx and 2% contributed to inventory. So that sort of implies that about 8% came from price. Just wondering how -- do you expect this sort of benefit to continue through the year and particularly next -- in the fourth quarter of next year as well? That's the first question. And the second question is, you indicated that you have about 1/3 of Part D. Maybe just help us understand what is it -- like, why you're able to get this 1/3 and when would you be able to get the remaining? And what was it about this particular 1/3 that made -- that facilitate, I guess, access? Todd Watanabe: Todd? L. Edwards: Yes, no problem. Yes. Relative to the fourth quarter dynamics, you are accurate relative to the 29% with 19% of that being attributed to volume, the 2%, which was the -- an inventory build that we had, once again, 2%, or $2.5 million that we expect to unwind in Q1. And then the other was the price upside, which was a result of patients moving quicker through their deductibles, which lowered our co-pay card expenses. We will see the seasonality in Q1 that we mentioned. But then also, as mentioned, the gross to net will continue to improve through the quarters through Q4 as patients start to achieve their out-of-pocket maximum, which reduces our co-pay card expenditures and that typically starts at the highest in Q1 and then levels down quarter-by-quarter to a lower expense to us, which lowers our gross to net in Q4. Relative to the Medicare Part D and the 1/3, how and why were we able to achieve this? It's 2 reasons. One is our strategic pricing. We price ZORYVE so that we could have access across both government and commercial payers and PBMs. And the other is that ZORYVE is highly differentiated. One is the portfolio that we have, which no other branded topical company can offer, a portfolio of products across the disease indications that we can. Other is the significant volume uptake that we've had within our commercial business, is duly noted by the Part D plans, realizing that there's a demand from Medicare Part D beneficiaries to have access to this type of product, which has resulted in us picking up that 1/3 of the Part Ds. Relative to the remainder of Medicare Part D, we will continue to work with the remaining plans and PBMs, but don't anticipate picking that up until likely the first part of 2027, but work diligently to try to pull that forward if possible. Todd Watanabe: I do think it's worth dwelling on just how big a deal this is to gain Medicare access, Part D access, right? It's very rare for patients to be able to get branded products on the Part D formularies. And I think Todd mentioned in the call, we're the only branded topical on formulary. These are your grandmothers, your mothers. These are people who deserve access to medical innovation as much as anyone else, if not more so. And we're really proud of our success so far in gaining Medicare coverage and are looking forward to getting the remaining Part D formularies on board. I would also just remind investors that Part D, unlike Medicaid, looks a little bit more like commercial markets where there's multiple commercial plans managing the Part D plans. And so you have to gain formulary access to each individual Part D provider, which is why it's lumpy the way commercial coverage is. Operator: And the next question is going to come from Andrew Tsai with Jefferies. Unknown Analyst: Brian on here for Andrew. Just on HS and vitiligo, can you just remind us on the primary endpoints for both of those as well as the outcomes that you'd like to see to take them both to Phase III? Todd Watanabe: Sure. Patrick, do you want to take that one? Patrick Burnett: Yes. I think what we're looking to focus on as we move into the fourth quarter for vitiligo, for a decision and presenting those data, and then the first quarter for HS is to really be able to get an understanding of what does this kind of the kinetic response of patients look like, because I think here, timing of the response is really important in both of these diseases. They've been challenging with regard to how long it's taken for patients to get to a response that is meaningful to them. So we're really going to be focused on that. And then as well, for us, it's -- it will be important for us to understand kind of what is that fraction of the patients that are being treated, given that these are open-label studies, who are showing a meaningful clinical improvement over that time point, so that we would be able to kind of make an educated guess as to what the expectation for a pivotal trial would look like as we revert then to kind of the characteristic endpoints that you would expect for a pivotal in vitiligo and HS. But I think that the profile that we've seen of excellent tolerability once-a-day treatment and rapid response, which is kind of characterized our efficacy patterns -- and safety patterns across all 3 indications, is what we'd be hoping to replicate here. Operator: And the next question will come from Serge Belanger with Needham. Serge Belanger: Congrats on a strong end to 2025. First question regarding the pediatric opportunity. I think you've been on the market now with a 0.05% cream product for nearly 4 months. So can you provide more color on the level of awareness and the willingness to prescribe the product in this market segment? And then secondly, you now have an expanding sales force on 2 fronts and a growing cash balance with positive cash flows. So does that change your appetite to add a commercial asset to the bag of the sales force? Todd Watanabe: Maybe I'll take the first one -- or second question, and then I'll turn the first question over to Todd to give him a little bit of a break. I would say that a commercial stage asset is probably not our highest priority right now. And I think the major reason for that is just the wealth of new opportunities that we have around ZORYVE, right? We've had 6 approvals in the last roughly 3 years. We expect at least one more approval this year, possibly 2, depending on the speed with which the FDA reviews the 3 to 24 months. But we still have a lot of work to do to optimize ZORYVE promotion. And what I don't want to do is put products in the bag that end up distracting us from what is the highest margin commercial opportunity we have, which is driving ZORYVE growth. So I think really, that's probably not a very high priority for us. Where I think the real opportunity for us to create shareholder value is, quite frankly, is in more development stage assets, especially probably mid-stage development. Patrick and his team and Bethany and her team, I think, have demonstrated that they are an exceptionally strong development organization. And we have, what, 6 FDA approvals under our belt, 4 Health Canada approvals under our belt. For a small company, that's a pretty amazing track record, all of them on time, no CRLs. And so taking a strong asset and putting it in our development team's hands, I think, is the best opportunity for us to create value beyond continuing to drive the growth of ZORYVE and continuing to advance ARQ-234. And then, Todd, do you want to just comment on what we're seeing on the pediatrics? L. Edwards: Yes. Relative to the 0.05% atopic dermatitis for 2 to 5 years old, there is a strong willingness to prescribe this product, and we're seeing robust uptake of the product since the launch. This is a great product relative to that patient population. offering, once again, once a day, a very soothing, moisturizing vehicle. It's highly effective. That can be put anywhere on the body for any duration. This is a product that drives long-term disease control and is a great option for replacing steroids. Caregivers and pediatricians and dermatologists prefer not to use steroids in this patient population at this age. And that's where ZORYVE offers a significant value proposition, both to the caregiver patient and to the provider. So we're very encouraged with the uptake and continue to get very positive feedback, not only from providers but from patients. Operator: And the next question is going to come from Rich Law with GS. Jin Law: Congrats on the progress. A couple of questions here. How much of that new 2026 guidance factors in the potential sales improvement in that primary care and pediatric setting now that you're moving those efforts in-house and then -- and you're also kicking off these pilot programs? So I mean, just based on that minimal contribution from Kowa, I think that's why you guys terminated that contract. Is there an opportunity for 2026 sales to go even higher just based on what you guided if you're able to make improvement in that PCP and pediatrics segment? Todd Watanabe: I think it's probably a little early to speculate on the magnitude of the primary care contribution. That's something that we'll continue to guide. As Todd mentioned in this call, we're taking a very methodical and stepwise approach to primary care. We're going to start with a very small team focused on the highest value customers so that we can really fine-tune our go-to-market strategy and figure out what's the right way to access this very large but very diffused opportunity in primary care and pediatrics, and then we'll scale that as we figure that out. So the rate that we scale that and also the rate that it starts to inflect the top line, I think, is probably premature for us to speculate on. Jin Law: Okay. Got it. And then just a follow-up on the Medicare patients. What's the OOP expense for these patients as that non-preferred branded category? L. Edwards: Yes, I can go ahead and get that one, Frank. So you're talking relative to the out-of-pocket expense for the Medicare beneficiaries, what's the maximum limit on the cap? If that's the question, it would be in 2026, the cap is now $2,100. So a patient needs to pay the co-pay or coinsurance that's aligned with the product up to the maximum out-of-pocket expense at $2,100, and then the products are covered thereafter by the Part D plan. Todd Watanabe: Yes. I would just add to Todd's point, just a reminder, that $2,100 is total out-of-pocket for all drugs, right? So for an elderly patient who's maybe on multiple medications, their total out-of-pocket expense for the year is capped at $2,100. And patients can also opt in for smoothing, which means that they pay -- their maximum out-of-pocket in any month is 1/12 of $2,100. So it's very manageable. For ZORYVE prescription, it really depends on the patient's plan, what the actual dollar amount is going to be. It varies depending on both the insurance company, but also on what plan the patient has bought. Operator: And the next question is going to come from Douglas Tsao with H.C. Wainwright. Douglas Tsao: Frank, maybe just a follow-up on the Kowa and the primary care opportunity. I guess, obviously, as you put it, it's a very large opportunity as well as diverse. Was it simply a function that you didn't think that they were taking the right approach and that you sort of saw a different way forward? Or was it just simply just capturing all the economics for yourself? Todd Watanabe: I wouldn't say it was either. When we signed this deal with Kowa, I guess it's been about 1.5 years ago, we weren't in a financial position where we could build our own primary care team. We're in a very different place today. And Kowa is a perfectly fine company. But when something really matters to you, it's often best to do it yourself, right? So given that we're in the financial position to do this ourselves, we felt that the best way to maximize shareholder returns was for us to drive primary care and pediatric promotion ourselves. I will say, as you pointed out, we do keep all the economics on that, but there are some expenses associated with it, too. But we feel very confident that we're going to be able to do this in a way that will be accretive very quickly to our shareholders. Douglas Tsao: And Frank, if I can, as a follow-up, I mean, is it also just given the momentum that you've seen with ZORYVE that it just bolsters your confidence that this is sort of dual role from the company? Todd Watanabe: Yes, absolutely. And I think I would add to that, that some of the early experience with Kowa added to our conviction around this. There's a very high level of excitement, I would say, in primary care and pediatrics around ZORYVE for doctors who they had called on. They started running speaker programs at the end of 2025. And for those of you who haven't been in the business, speaker programs are very difficult to run these days. The response, the attendance of those programs, frankly, astounded us and I think really speaks to the very high level of interest in the primary care and pediatric communities. And I think that's only going to build as we continue to expand our pediatric indications to 2 to 5 in psoriasis and eventually 3 to 24 months in atopic dermatitis as well. So that added to our conviction that this is a real opportunity. The other thing I think that's really important is, to remind everyone, we talked about this on the investor call that there's something like 300,000 primary care providers in the United States, right? That's a colossal number for any company, but certainly for a smaller company like us. But -- and we talked about this in the investor call, about 5% of those providers are writing about 1/3 of all topical scripts. So there's actually a very, very high-value concentrated pocket of primary care and pediatricians. And really, where we're going to focus our efforts is on that very concentrated high productivity segment of the market. We may pick up some volume in the other portions of the market, too, but we're not looking to build a massive primary care sales force that's calling on tens of thousands or hundreds of thousands of primary care providers. That just doesn't make sense for us. So we're really going to focus on the tip of the spear where there are very, very high-volume primary care doctors for topical therapies. Operator: I am showing no further questions in the queue at this time. I will now turn the call back over to Frank for closing remarks. Todd Watanabe: Okay. Well, I will keep it short. As always, thank you for the great questions. Thank you for making the time to call in and listen to our discussion today, and we look forward to talking to you all in another 90 days to update you on the first quarter. Thanks a lot. Bye-bye. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good day. Thank you for standing by, and welcome to the Ethos Technologies, Inc. Fourth Quarter 2025 Earnings 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 today, Aaron Turner, Head of Investor Relations. Please go ahead. Aaron Turner: Good afternoon, and welcome, everyone, to Ethos Technologies fourth quarter of fiscal year 2025 earnings call. We will be discussing the results announced in our press release issued after the market closed today. With me today are Ethos CEO, Peter Colis; and our CFO, Chris Capozzi. Today's call is being webcast and will also be available for replay on our Investor Relations website at investors.ethos.com. A slide presentation accompanies this call and can be viewed in the Events section of our Investor Relations website. During this call, we will make forward-looking statements within the meaning of the federal securities laws, including statements regarding our financial outlook for the first quarter and full fiscal year 2026, our expectations regarding financial and business trends, impacts from go-to-market initiatives, growth strategy and business aspirations and product initiatives, including future product releases and additional carrier partnerships and the expected benefits of such initiatives. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends. These forward-looking statements are subject to a number of risks and other factors. For a discussion of these risks and other factors, please see the information under Forward-Looking Statements in our financial results press release issued today and our presentation materials as well as the more detailed discussion in our SEC filings available on our Investor Relations website and on the SEC website at www.sec.gov. Although we believe that the expectations reflected in the forward-looking statements are reasonable, our actual results may differ materially. All forward-looking statements made during this call are based on information available to us as of today, and we do not assume any obligation to update these statements as a result of new information or future events, except as required by law. In addition to the U.S. GAAP financials, we will discuss certain non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. A reconciliation to the most directly comparable U.S. GAAP measures is available in the presentation that accompanies this call, which can be found on our Investor Relations website. Now let me turn the call over to Peter. Peter Colis: Good afternoon, everyone, and welcome to our fourth quarter 2025 earnings call. At Ethos, we are on a mission to protect families by democratizing access to life insurance and empowering agents at scale. And I'm pleased to share that in Q4, we continued our strong execution. We delivered $110.1 million in revenue in Q4, representing a 65% year-over-year revenue growth, and achieved adjusted EBITDA of $26 million and an adjusted EBITDA margin of 23%. We activated over 54,000 new policies this quarter, bringing us to over 500,000 policies activated through Q4. We also ended the year with over 15,000 agents selling on our platform in 2025. For the full year 2025, we generated revenue of $388 million, representing growth of 52%. This marks our third consecutive year with growth over 50%. We also generated a Rule of 40 score of 75, demonstrating our ability to balance growth and profitability. For those of you joining us for the first time and as a refresher for others, I'd like to share an overview of how Ethos is transforming the buying, selling and underwriting process of life insurance. Our goal at Ethos is to become the largest issuer of life insurance in the world. We built a vertically integrated platform that owns the full consumer journey, from marketing and application through underwriting, policy issuance, policy administration and long-term servicing. That control lets us deliver a level of speed, accessibility and approval rates that don't exist in the legacy life insurance industry. Our automated data-driven underwriting engine processes hundreds of thousands of data points per application, leveraging pharmaceutical records, medical claims billing data and more. The engine then applies over 1 million rules of logic and over 800 adaptive questions to make accurate risk-adjusted pricing decisions in real time. Our 95% instant decisioning rate would be tremendously difficult to achieve without our proprietary engine and logic IP developed over the previous 6 years. Surrounding the engine is the industry's only natively built 100% digital and modern vertically integrated technology platform. Ethos draws tremendous strength and competitive moat from our application engine, underwriting engine, admin system, payments and commissions infrastructure, agent operating system, unified data infrastructure and AI and ML layers. To achieve our 98% gross margin, we have leveraged those AI and machine learning layers on top of our data infrastructure to deliver lead level revenue predictions, better agent quality, more accurate policy recommendations and automated fraud management that traditional carriers simply cannot replicate. Our moat is structural. Every application engine, underwriting decision, issued policy, retention event and claim feeds back into our system. More data improves risk selection and better risk selection strengthens carrier performance. Stronger carrier performance expands take rates, capacity and product breadth. Simply put, our platform gets better as it gets bigger. Our advantage is a cutting-edge technology platform and years of structured underwriting data, real-time feedback loops and deeply integrated carrier relationships trained on our unified system. A significant portion of our team are engineers and data scientists. That shows up in the model. Revenue scales without proportional headcount growth, automation expands margins and underwriting accuracy improves with data density. Our 3-sided technology platform serves consumers, agents and carriers alike. For consumers, Ethos transforms what can be an 8-week purchase process into as little as 10 minutes online. We've removed the friction, no invasive medical exams, no long waits, no endless coordination between multiple parties, just a seamless tech-driven experience. For agents, we transform their workflow, allowing them to sell policies instantly and accelerate their working capital cycle. Our agent operating system transforms how agents sell life insurance and how agencies operate. By digitizing the sale, Ethos allows agents to focus on what they do best, building relationships and growing their business. Agents can control the application or send clients a link to self-serve. Agents use Ethos to market to their consumers, nurture their pipeline, sell instantly, track incentives and rewards, automate payments and automate agency operations. In the absence of the Ethos Agent OS, agents are stuck using multiple unintuitive legacy platforms. For carriers, we deliver scaled incremental growth on modern technology, and we prioritize their underwriting profitability above our own. That is why these relationships are deep, long term and expanding. For many of our carriers, Ethos is their single largest source of new life premiums. We are proud of the 6 carriers we work with today. We've intentionally focused our carrier network, which allows Ethos to form stronger relationships with each carrier. For Ethos, this translates into better pricing, prioritization on the carrier's IT road map and faster product development. Historically, we've introduced 3 to 4 new products a year. And in Q4, we brought 2 new products to market with 2 new carriers. Our accumulation indexed universal life product with North American Sammons targets consumers who are looking for protection as well as investment features in their life insurance products. We also launched a supplementary health product with Aflac that allows us to provide additional coverage like cancer insurance. We believe these products open up new revenue streams and expand our addressable market, strengthening the ecosystem that fuels our growth. Looking ahead, we see 3 durable growth vectors. First, growing our ecosystem by bringing more consumers into our direct channel and recruiting more agents to the platform; second, enhancing our platform by making agents more productive and increasing our share of their sales; and third, expanding our product portfolio to broaden our addressable market. Ethos is a business that gets better as it gets bigger. All 3 constituents on our platform benefit from our scale and extensible nature, delivering great network effects. Every new client improves our risk models, client and agent experience and marketing machine learning models efficiency. Better risk models improve pricing and unit economics for our clients, our carrier partners and Ethos. More scale and underwriting experience allow us to grow our product portfolio and carrier panel, delivering more value to clients and agents. A broader product portfolio both enables us to capture more of an agent sales and recruit different types of agencies. Our unified end-to-end platform captures and analyzes granular data across both the consumer and agent journeys. While the legacy industry is hindered by on-prem technology and manual processes, our end-to-end digital platform fuels a virtuous data cycle that is spinning faster and faster. As an example, in 2023, it typically took around 3 weeks to reach statistically significant results in our product development and marketing experiments. As of January 2026, it takes us as few as 3 days. This dramatically increases our testing velocity, allowing us to run more experiments in parallel, iterate faster and bring successful innovations to market with greater speed and confidence. This quarter's results prove that our 3-sided technology platform has strong product market fit with consumers, agents and carriers alike. With that, I will pass it to Chris for a review of our fourth quarter 2025 financial results. Christopher Capozzi: Thanks, Peter, and good afternoon, everyone. To begin, I'll review the highlights of our fourth quarter results. Then I'll outline our expectations for the first quarter and the full year 2026 before opening up to your questions. We concluded the fourth quarter with consistent execution across several key strategic priorities. Our financial results demonstrate both strong top line momentum across our direct-to-consumer and third-party channels and the earnings power of our platform. Before reviewing the details of our results, I'd like to remind everyone that some of the financial measures and metrics that I'll discuss today are presented on a non-GAAP basis, which we believe provides additional insight into our performance. With that in mind, let me walk you through the details behind our results. In the fourth quarter, we delivered $110.1 million in revenue, representing a 65% increase from the same period last year. In our direct channel, fourth quarter revenue increased to $74.2 million, representing 93% year-over-year growth. This performance was fueled by optimized advertising spend and innovation up and down our vertical stack. By refining everything from the initial user experience to our core underwriting algorithms, we've driven meaningful compounding improvements in our conversion rates. In our third-party channel, fourth quarter revenue was $35.9 million, representing a 27% increase over the same quarter last year. This growth was driven by an increase in both active agents and revenue per agent. Moving to our nonfinancial metrics. We activated 54,714 policies in the fourth quarter, representing 42% year-over-year growth. The average revenue per policy was $2,012. The fourth quarter was also strong from an efficiency perspective. We recorded a contribution profit of $47.2 million, representing a 43% contribution margin. As a reminder, we define contribution profit as gross profit less sales and marketing expenses. This includes agent payments and underwriting costs for nonactivated policies but excludes noncash stock-based compensation and allocated overhead. We continue to maintain a 2-month payback on variable costs while prioritizing growth of contribution profit dollars. By diversifying our product portfolio to reach historically underserved segments, we're maximizing the yield on every dollar of marketing spend and leveraging the fixed investments in our technology stack. Fourth quarter adjusted EBITDA was $25.8 million, representing a margin of 23%. This quarter's performance reflects our commitment to balancing growth and operational efficiency. We remain focused on disciplined spending and strategic investments in both of our go-to-market channels. As of December 31, 2025, our cash, cash equivalents and investments totaled $157.4 million, and we ended the year with a commission receivable balance of $290 million, which we expect will convert to cash over the coming years. Now I'll walk you through our expectations for the first quarter and full fiscal year 2026. For the first quarter of 2026, we expect total revenue in the range of $144 million to $146 million. At the midpoint, this represents 53% year-over-year growth. We also expect adjusted EBITDA in the range of $30 million to $32 million. For the full year 2026, we expect total revenue in the range of $510 million to $514 million. At the midpoint, this represents 32% year-over-year growth. We also expect adjusted EBITDA in the range of $99 million to $103 million. In 2026, we're focused on driving sustainable growth by further diversifying our revenue sources, specifically through the continued ramp of our new product lines and the strategic expansion of our third-party and direct-to-consumer channels. By deepening our brand recognition and leveraging the inherent efficiencies of the Ethos platform, we are well positioned to capture significant market opportunity while meeting our profitability targets. And with that, I'll turn the call over to the operator to begin the Q&A session. Operator? Operator: [Operator Instructions] Our first question comes from the line of Eric Sheridan of Goldman Sachs. Eric Sheridan: Maybe 2, if I can. First, Peter, what do you see as the biggest strategic priorities for the company when you think about the way you've laid out the potential for revenue growth in 2026 that you're most focused on executing against to deliver against that top line performance? And then maybe a second question would be, as you continue to scale the platform, what is the landscape like in terms of deploying marketing dollars and earning a stable to rising return on marketing dollars as a growth stimulant for the business? Peter Colis: Thanks for the question, Eric. We're glad to be here. We're excited to be on this first earnings call with you all. First, let's talk about our priorities for 2026. I'll talk about our kind of business-as-usual priorities and then AI as well. Business-as-usual priorities. We have 3 very durable vectors for growth. The first is recruit more clients to the platform and recruit more agents to the platform. The second is make agents more productive through optimizations to the agent operating system. And then the third is to broaden our product portfolio and enhance the value that we are delivering on a per product basis. And so when you look at our results over the past year and when we think about the guidance that we've provided going forward, all 3 of those vectors are really firing with full cylinders. So we're excited to just continue executing and doing a great job across all of those. The second is really taking advantage and implementing AI across every vector of the company, whether it's -- and which we have been doing for the past year, whether it's accelerating engineering, analytics, marketing, client service, agent service, fraud management models, agent quality, automating operations, internal tooling and more. This has really been a key driver behind our 98% gross margins and our client satisfaction ratings, if you look at our NPS of over 70 for the past year. So we think there's a lot more opportunity to continue harnessing the power of AI and improve. Second, as far as the landscape of efficient marketing dollar spend, if you look at this past year and if you look at our results in Q4, I really think it's an illustration where we were able to grow our direct business in Q4 at really an eye-popping rate with consistent year-over-year direct-to-consumer unit economics. And that's really the virtuous data cycle spinning at full speed, where we are a business that gets better as we get bigger, our machine learning models that power our marketing become more intelligent. We're able to run more user experience optimization tests that improve the conversion rates and efficiency. We are able to approve more people at better prices as we get better at risk management with underwriting. We're able to negotiate better take rates or better client pricing. We're able to become more efficient at administrating clients and post purchase. So really, the machine is getting more intelligent and more efficient as it gets bigger. The second component of that is really we have a diverse panel of marketing channels where we're not overly reliant on any one given channel. The majority of our spend is in upper funnel channels where the user is not looking for life insurance like television, social media, radio, et cetera. And that's great because those channels are really scalable at the right unit economics for us. Operator: And our next question comes from the line of Ross Sandler of Barclays. Ross Sandler: Great. Peter, I was just curious, so the market seems very jittery around the AI topic, not as it relates to how you guys might be using it internally, but more how consumers use agentic AI for research or prospecting in the process of buying various types of insurance, including life insurance. So I was just curious like how are you guys thinking about the opportunity as it relates to partnering or integrating with third-party agentic AI services? Or how you see this playing out as it relates to the purchase funnel for buying life insurance in general? Peter Colis: Yes. Thanks, Ross. It's a great question. So AI is a huge opportunity for us to further accelerate both our growth and our profitability as a company. We have been and will continue to be, I think, uniquely positioned to harness the advancing powers of AI really across all the dimensions of the business that I spoke to earlier, while doing so, operating in a highly regulated industry. If you just take a step back before we talk to the specifics of consumer behavior and online shopping, carriers rely on really -- the incumbent carrier set really relies on a disjointed mix of on-premise and vendor-managed systems built on top of a fragmented data infrastructure, which is oftentimes filled with low quality and conflicting data. Conversely, because we have a native end-to-end technology platform with a cutting-edge data infrastructure, it's really enabled us to embed AI and ML across the entire business. And so I think there's a lot more opportunity to continue harnessing the power of AI to improve. If you think about sales and marketing specifically, which consists for us of advertising spend and agent commissions, it's our largest expense. And so if AI reduces the cost of distribution or changes the medium in which life insurance is bought, as the leading D2C provider in the category, these shifts in consumer behavior should uniquely be an accelerant to our growth and our margin expansion. And I would say that our advantage isn't really just access to AI tools, which are widely available. It's really a native platform, years of structured underwriting data, real-time feedback loops and deeply integrated carrier relationships that are trained into a unified system. Our moat is structural, I would say. Every application engine, underwriting engine, issued policy, retention event and claim feeds back into our system, and it makes our AI and ML models more intelligent and more efficient. Like simply put, our machine gets better as it gets bigger. We have specific initiatives related to GEO, where we are maximizing that opportunity as a source of user acquisition and further building our brand as consumers use LLMs for research. And we have -- we are actively focused on integrating with these LLMs in the manner that you described, where I think we are most uniquely and best able to do that given our incredible native technology platform. Operator: And our next question comes from the line of Colin Sebastian of Baird. Colin Sebastian: I guess I'm curious, as you move into some of the more adjacent products, what you launched in Q4 as well as what's in the pipeline. Curious how much is embedded in the outlook from those new products, maybe how quickly they're ramping? And then the additional investment necessary to -- from both the perspective of customer acquisition as well as back-end data, the data platform and integrations there, how much is required incrementally as you sort of roll out those additional products? That would be helpful. Peter Colis: That's a great question, Colin. Thanks for it. I'll first talk about our guidance, then I'll talk about the specific products. So just important to understand our guidance philosophy, we ascribe very little revenue in our forecasting to newer or less proven products. We really take a wait-and-see approach. It's early days for both of the products that we launched in Q4. As a reminder, we launched a new accumulation indexed universal life insurance product, and we launched a cancer insurance product. We are seeing healthy agent adoption of our accumulation IUL product. That is a permanent life insurance product with a compelling investment feature performance and the same incredible Ethos 10-minute purchase process. So we're encouraged. It's early days, but we're excited for it to continue growing and compounding. Our cancer insurance product, it's really early innings of testing and iteration. So I think it's too early to make a judgment call on its potential. While cancer insurance is not typically sold outside the workplace in the U.S., we think it's a compelling value proposition given the rate of cancer diagnosis. If you look at our track record historically, we tend to launch around 3 to 4 new products per year. Our teams are actively working on new products with more in the pipeline. As far as the incremental investment needed when we launch a new product, launching a new product can take anywhere from 4 months to up to a year for the more complicated ones. And it's really a company-wide effort across not only building that new product but integrating it with our distribution systems with all of our analytics and our infrastructure. So there is incremental cost to launch each new product. It's not massive. It's more the time and effort to do it right and set up these deep integrations and build the relationships with our carrier partners. Operator: Our next question comes from the line of Ron Josey of Citi. Ronald Josey: Peter, I wanted to better understand the 93% growth in D2C revenue from this past quarter. And I know we talked about sales and marketing and advertising and the ability to really target. But specifically, I would love your thoughts on just what changes were made to the product or the application path that drove that and any insights on conversion rates because of these changes. So question number one is on the 93% growth in D2C and product changes that might be driving greater conversion rates. And then I think the second durable vector you mentioned, make agents more productive, optimized through the Agent OS. We now have 15,000 agents on the platform. I think that's a notable step-up from the last disclosure. So just talk to us about the drivers that's attracting more agents to the platform here. Peter Colis: It's a great question. Thank you so much, Ron. So on the first topic, it really wasn't any one change to the platform that drove that exceptional direct growth. It was really the vertically integrated up and down the cycle seeing gains. So we saw gains in efficiency of our marketing models. As they've gotten larger, they've gotten more intelligent. We saw a number of user experiment improvements, which are leading to more people buying life insurance. We saw gains in underwriting being able to approve more people at better prices. So it's really up and down the vertically integrated stack. I think when you think about our direct business in comparison to a lot of other direct businesses, we benefit from having a very deep stack of real estate on which to optimize. And there's -- and so we've been able to really consistently improve our unit economics, and we expect to be able to going forward, which allows us to then go and increase our marketing spend across a myriad of channels. And if you look at year-over-year, we've increased marketing spend really across the portfolio of marketing channels, both our upper funnel channels where people are not looking for life insurance as well as bottom-of-funnel channels where people are looking for life insurance. And within our category, we're really winning in both of those parts of the advertising market. Drivers of agent growth to the platform, it's really a combination of adding new agencies and growth of our more tenured agency partners. And if you think about our agency business, it's a highly reoccurring model where we benefit not only from the new agencies, but the more tenured partners on the platform, right? When we add a new partner, they roll Ethos out to their existing agents. And then those agents repeatedly sell policies and that agency is constantly recruiting more new agents onto the platform at no incremental cost to us. And then Ethos can make those agents more productive through enhancements to our operating system. And then ultimately, we attempt to grow our share of that agency sales by broadening and enhancing our product portfolio. And so if you look at this past year's results, we saw excellent growth both in the more tenured cohort of agencies as well as productive new agencies who are joining the platform. Operator: Our next question comes from the line of Lee Horowitz of Deutsche Bank. Lee Horowitz: So you mentioned sort of impressive unit economic stability in the quarter despite the really fast growth in the D2C business. I guess can you expand upon that and how you're looking at perhaps unit economics on a go-forward basis? Why is this maybe not the right time to lean into growth given sort of the competitive landscape that you're playing against as the only scaled digital player left in the market? And then secondly, there's certainly some opportunities to expand the monetization of the platform over the longer term into perhaps some more traditional recurring revenue streams. I guess how are you thinking about that opportunity set and where that may sit in sort of your list of many priorities as you grow your business? Peter Colis: That's a great question, Lee. Thanks for asking it. So I'll start on how we think about the right balance between growth and profitability in our direct business. If you take a step back, really the standard that we hold ourselves to is whether or not we're selling through our direct business or our third-party business and whether or not we're selling a term or a whole life or an indexed universal life product, we really attempt to be cash profitable by month 2 of the policy's life cycle, right? And so we have a very efficient working capital cycle, and we build up a contribution margin over that life of the policy. And so we take that in -- we think about that as a constraint to the growth model. In all direct businesses, unit economics are the governor. And so we're looking at how efficiently can we grow at the standard of unit economics that we want to achieve. So that's how I would think about just generally the rate at which we grow our advertising spend. And remember, we're constantly improving our platform, improving unit economics, which then allows us to increase advertising spend or bench higher unit economic gains. As far as our revenue model, we don't have any near-term plans to change it. We're really focused on becoming the largest issuer of life insurance. And it's an incredibly important market where we have a unique opportunity and advantage by virtue of having built this modern digital machine that is vertically integrated that is a 3-sided platform, delivering incredible value proposition to clients, agents and carriers. And so we're accumulating great momentum and advantage in this market, and that's really our focus going forward at this point. Operator: And our next question comes from the line of Michael McGovern of Bank of America. Michael McGovern: I have 2. First, could you speak to your carrier relationship dynamics underpinning guidance for the full year of 2026? Like for example, do you have any multiyear contracts that might be coming up and there's any assumptions around the negotiations or anything on that front? And then secondly, could you speak to kind of the relative strength in your revenue growth guidance in Q1 relative to the full year? Are there any assumptions throughout the second half of the year that changed relative to Q1? Peter Colis: Mike, thank you for the question. Our carrier partner contracts are typically evergreen. I wouldn't think about any material upcoming negotiations that are influential in our guidance. If you think about our existing panel of carrier partners, there's much more demand and capacity for Ethos premiums than there is supply of Ethos premiums today. Now we don't want a panel of 30 off-the-shelf carrier products. We've intentionally built a focused panel of carriers where we really work to co-develop custom proprietary products with deep technical and operational integrations from the carriers into our unified platform. Importantly, scale with our partners provides Ethos the necessary position in negotiating the economics we have today. And that scale in the relationship puts our priorities at the front of the carriers' IT and operational road maps, where we often have to dislodge some other important work on their road map related to maintaining a legacy system or some other initiative they have. Now when the 10-K flips in the near future, you'll see our carrier concentration disclosure decline by around 10 percentage points within our existing 6 partners, and we've built a considerable amount of redundancy into our business among our 10 products in the portfolio, given that we have multiple products in multiple categories. It's also important to remember that in our contracts, we typically have an extended notice of cancellation period that lasts well beyond the time that's required for us to build a new product with a new carrier. So we expect to continue building more products with more partners in the future, and we're very happy with our existing panel of carriers. Christopher Capozzi: And Mike, in terms of the revenue guidance, the Q1 guidance reflects very strong operational momentum that we've carried into 2026. The new policy activations in January were strong. February is pacing ahead of internal targets. So I think when we look beyond Q1, we continue to be very encouraged by the momentum of growth in the direct channel, and as Peter noted, the contributions that we're starting to see from new agencies that we brought on to the platform in 2026 that are fueling revenue growth -- I'm sorry, we brought on the platform in 2025 that are helping fuel revenue growth here in 2026. And I think you're seeing some of that confidence flow through these gains in the full year revenue guidance that we shared with you. Other things to think about just as you model revenue throughout the year, as we've noted in the past, our business does exhibit seasonality, with Q1 and Q4 being our strongest quarters from a seasonal perspective and then 2Q and 3Q seeing much less seasonal effects. In terms of revenue mix, you'll tend to see the direct business index up here in the first quarter. You kind of think of it as like a 75-25 split. And then for the year, it probably takes on a profile along the lines of a 2/3, 1/3 mix, again, weighted towards direct. But very consistent, I think what you've seen in terms of our historic performance, it really is what informs our 2026 guidance. Operator: [Operator Instructions] Our next question comes from the line of Pablo Singzon of JPMorgan. Pablo Singzon: So first question, DTC sales have historically been a minor portion of overall industry sales in life insurance. So the question is, what is your long-term view of the opportunity here and are there differences of note between the customers you cater to in DTC versus the customers that legacy DTC providers have historically served? So that's question one. And then question 2 is about your agency strategy, right? So can you just talk about your strategy for adding agency partners? On the carrier side, it sounds like your approach is to target category leaders for specific verticals, which makes sense if you think about the growth impact you want to deliver. But on the agency side, I'd be interested to hear about your thought process for selecting which agencies to partner with. Peter Colis: Pablo, thanks for the great questions. On the first question about generally what is our long-term view for direct. I think that before Ethos, direct was very difficult to do. And our innovations really up and down the entire stack by building a completely native technology platform, by innovating and being able to accelerate underwriting, by bringing elite level tech execution and go-to-market execution really has made it possible. And Ethos is really the first demonstration of scaled, profitable unit economics in this category. And I think that if you fast forward the future, this market could take a similar dynamic to where the auto market -- the auto insurance market went through over the last couple of decades, where you had a purely agent-dominated high transactional friction-heavy process. And a company like GEICO or Progressive was able to make it simple and easy and online. And over time, direct went from an insignificant part of the market to roughly half or a bit more than half of the market. I really think that Ethos has the potential to deliver the same kind of transformation of the life insurance market. And I think part of it -- a large part of it is also going to be incremental to the existing market today. So one of the things we love about the life insurance business is it's highly reoccurring in that every year, around 10 million Americans are going to buy life insurance whether or not Ethos exists, right? And they're pushed into that purchase journey by virtue of having new children, getting married, taking on a mortgage or debt, having health scares, watching their parents age. And Ethos is really the most efficient way for those families to get protected and we're also the most efficient way for agents to sell. And so we're excited to continue capturing both that large reoccurring demand. And then we're also excited to protect families that wouldn't otherwise have gotten protected that year that because we make it so simple and easy and efficient, they're able to take a step that they otherwise wouldn't have taken through a more traditional high-friction experience. As far as how we go about bringing agencies onto a platform, we try to be really thoughtful about which ones are going to be successful and appreciate our incredible value proposition for agents, which is a very fast transactional velocity, right? The ability to sell a policy in 10 minutes instead of taking weeks to sell a policy, that frees up so much time and space for them to go prospect for clients and convince them to buy instead of case managing people through a bureaucratic process. And then we are paying agents very quickly as well, which allows them to reinvest those commissions into prospecting and lead buying to go find more clients. So we look for agents that really have a match with our transactional velocity, that have a match for the products that we have in our portfolio. And the agent onboarding process, it's a fairly organic process, I would say, where it's typically an agency to agency or agent to agent referral where someone says, "Hey, I've had a great experience with Ethos. I launched them in the past year, and they now account for x percent of my sales." And the agents really love it. So we're excited for that organic agency onboarding process to continue evolving. The other thing I would say is that if you look at the latest indexed universal life product that we launched with a carrier partner, it's a first unique distribution model for Ethos where it's a combined effort between the carrier's distribution team and Ethos' distribution team of bringing it to market. And so how we'll benefit from that is it will accelerate agents coming into the platform that, that carrier might have relationships with that we previously have not served. And so those agents are going to come into the agent platform, and we're going to do a great job serving them into that new accumulation indexed universal life product. Operator: I'm showing no further questions at this time. I'll now turn it back to Aaron Turner for closing remarks. Aaron Turner: Great. Thank you all for joining us today on our first call as a public company, and we'll speak with you all again next quarter. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Sam Wells: Good morning, everyone, and thanks for joining today's first half FY '26 results call for Cettire. My name is Sam Wells from NWR, and I'm pleased to have with me from the company today Cettire's Founder and Chief Executive Officer, Dean Mintz; as well as Chief Financial Officer, Tim Hume. Both Dean and Tim will spend some time reviewing the ASX results released this morning, including some notable financial and operational highlights. [Operator Instructions] We'll aim to have this call wrapped up within 30 minutes, including Q&A. And thank you, and over to you, Dean. Dean Mintz: Thanks, Sam. Good morning, everyone, and thank you for joining Cettire's interim results briefing for the 2026 financial year. Before we begin, I'd like to remind you of the disclaimer statement in our results presentation. That disclaimer also applies to this investor call. I'm joined today by our CFO, Tim Hume, and together, will take you through the company's results for the 6-month period ending 31 December 2025. Today's results are the outcome of our relentless focus on profitable growth with a clear bias towards profit in what remains a tough luxury market. Gross revenue was $505.7 million and sales revenue was $382.8 million, both were broadly stable year-on-year. Importantly, excluding the U.S., sales revenue grew 13% year-on-year to $225 million, which is a testament to our ability to grow our market share in newer markets. We had 613,000 active customers during the period, reflecting a deliberate reduction in paid marketing, combined with softer U.S. demand. Repeat customers continue to represent a growing share of gross revenues now at 69%. Our bias towards profitability saw adjusted EBITDA of $8.7 million and a half-on-half improvement of $20.5 million. This result clearly demonstrates the benefit of our agile and flexible business model. Our AOV increased 17% year-on-year to $961, reflecting the continued loyalty of our customers and the pass-through of our higher U.S. duties in our pricing. We closed the period with $61.4 million in cash and 0 financial debt. Against the backdrop of significant headwinds, our team executed exceptionally well. Our steadfast strategy to prioritize profitability, maintain cash and strengthen customer loyalty continued into H1 FY '26. This was executed in an environment where demand for luxury goods remains soft. The global personal luxury goods market declined approximately 2% in calendar year 2025, as a result of falling consumer demand globally, ongoing macroeconomic uncertainty and significant changes in U.S. trade policies. In the U.S. specifically, the elimination of the de minimis duty exemption from late August '25 resulted in price increases that further impacted U.S. demand. To address these challenges, we focused on growing market share outside of the U.S. This resulted in sales revenue ex U.S. growing by 13%. We also deliberately reduced paid marketing investment and turned our efforts towards enhancing engagement with our existing customers. This drove further growth in gross sales from repeat customers. On the supply side, engagement with brands and inventory holders has never been stronger. We exited H1 FY '26 with record available inventory levels, further strengthening our customer value proposition and minimizing supplier concentration. Localization remains a core strategic priority. Our efforts in the half delivered an uplift in sales from emerging markets representing 45% of gross revenue, up from 37% the same time last year. And from a balance sheet perspective, our capital-light model continued to deliver resilience with closing cash at $61.4 million and no financial debt. Turning to Slide 6. We finished the 6-month period with 613,000 active customers. New customer adds slowed, reflecting softer demand and a decision to lower marketing spend. We prioritize our investment towards quality engagement and conversion of the volume. Our average order value increased to $961 with repeat customers spending $1,050 per order on average compared to $811 for new customers. This increase largely reflects the incorporation of higher duties in our pricing. Repeat customers now account for 69% of gross revenues, up from 67%. This trend of increasing loyalty reflects the ongoing attractiveness of our business model to consumers. This loyalty is a key enabler as it helps sustain the business through cycles and underpins the long-term profitable growth. This chart once again reflects the benefits of having a strong cohort of loyal customers and our ability to increase our share of wallet over the long term. Our unit economics over the period strengthened with both customer -- with both customer acquisition costs and delivered margin improving compared to the preceding 6 months. Customer acquisition costs declined to $83, reflecting a reduction in paid marketing investment. While this comes at a cost to new customer adds, we believe it is prudent to manage marketing spend in line with achieving a reasonable return on investment. Delivered margin per active customer was $179, delivering a sequential improvement versus H2 FY '25 at $148. This reflects our deliberate reduction in promotional activity to prioritize profit. Our localization strategy continued to diversify our revenue base during the period with emerging markets, gross revenue increased by 21% year-on-year. These strategic markets now represent around 45% of Cettire's gross revenue. Established markets, including the U.S., U.K. and Australia contracted 13%, primarily driven by the challenges impacting the U.S. The U.S. now represents approximately 41% of gross revenues, the Australia at 6%, and U.K at 8%. We continue to focus on increasing market share in existing and new markets by focusing on enhancing our capabilities and driving localized initiatives. During the period, we launched our Arabic language capability to capitalize on the momentum we are seeing in the Middle East. We have also successfully launched Cettire's flagship store on the JD platform in China, and we'll continue to explore additional routes to market in that region. Our supply chain with hundreds of suppliers continued to grow strongly over the past 6 months. Engagement levels remain very high as inventory holders and luxury brands seek new routes to market in the challenging demand environment. Pleasingly, we exited the half with record levels of inventory and grew our published stock products by 60% year-on-year. To support our strategy, we continue to invest in our commercial team to support our increased levels of pipeline opportunities that includes luxury brands and third-party inventory holders. I'll now hand over to Tim. Timothy Hume: Thanks, Dean, and good morning, everybody. Sales revenue was $382.8 million, down 3% on the prior year. This reflects the impact of U.S. tariff changes and softer demand in the region. Excluding the U.S., sales revenue grew by 13% to $225 million. Gross revenue was $505.7 million, while refund rates remained relatively stable. Delivered margin at 14% of sales was impacted by higher U.S. duties costs being absorbed into our fulfillment cost base. This was partially offset by a decrease in overall promotional activity. The duties impact was more fulsome in the second quarter due to the end of the de minimis exemption in the U.S. from September onwards. Importantly, however, delivered margin percent improved compared with the second half of fiscal year '25. Paid acquisition expenses were 4.2% of sales revenue and brand investment was modest at $1.9 million. This reflected our deliberate strategy to prioritize profitability. Adjusted EBITDA was $8.7 million, delivering an EBITDA margin of 2.3%. Pleasingly, our focus on driving profit delivered a half-on-half adjusted EBITDA turnaround of $20.5 million. Moving on to the balance sheet. Closing cash was $61 million, and we continue to have 0 financial debt. The increase in cash since June was supported by operating profits combined with favorable working capital dynamics. The year-on-year increase in contract liabilities is reflective of lengthier delivery times that we saw in the period leading up to the end balance date. This has resulted in a deferral of revenue recognition until the subsequent period. We continue to invest in our technology platform to develop capability and reinforce our competitive advantage. This resulted in capitalized investments as a proportion of sales revenue being 2.2%. The other key call out relates to the receivables. As a reminder, we have receivables relating to credits for VAT paid on purchases in Europe. To be more specific, these are statutory receivables that are due and payable. They could be paid at any time. However, we're subject to the time line of the government to pay out these amounts. The government has been slow to pay and out of caution, we have conservatively re-classed an additional portion of this receivable to noncurrent. Short-term challenges in luxury are expected to persist, albeit there are some signs of improvement. Importantly, the long-term fundamentals of the sector remain robust. The most recent study on luxury by Bain-Altagamma estimates the personal luxury goods market for the '25 calendar year declined by 2%. They cited macroeconomic headwinds, trade disruption, shifting customer preferences and a deteriorating value proposition as the reasons for the slowdown. On the positive side, the research is forecasting 3% to 5% growth in the 2026 calendar year. Moving now to the outlook. In the short term, there continues to be uncertainty within the global luxury personal goods market with performance varying significantly across geographies. In the current quarter, Cettire is cycling a period of aggressive promotional activity and some pull forward of U.S. demand that occurred ahead of the Liberation Day tariffs being implemented in early April 2025. Promotional activity peaked in March 2025, whereas in the current year, Cettire has meaningfully reduced its level and frequency of promotion. In light of the above, the Q3 comparator from last year has made the current quarter a lot more challenging from a growth perspective. And as against this backdrop, that our quarter-to-date gross revenues have decreased by 13% versus the prior corresponding period. The U.S. policy and macroeconomic environment remain dynamic and will continue to influence our sales activity in that market. However, the company expects to achieve a significantly improved growth profile in the fourth quarter of fiscal year '26. I'll now hand you back to Dean to conclude. Dean Mintz: Thanks, Tim. In closing, the fundamentals of our business have not changed. We have a large and loyal customer base that has multiple growth pathways. We continue to grow our supply base, creating 1 of the world's largest online inventories of luxury goods. We have a capital-light, self-funded model built for profitable growth and have flexibility to adapt to changing market conditions quickly. And we have a fit-for-purpose strong balance sheet, leading proprietary tech stack and a first-class team with exceptional capabilities. With these foundations, Cettire is well positioned to navigate near-term challenges and deliver long-term profitable growth. On that note, I'll now hand back to Sam. Sam Wells: [Operator Instructions] The first question is on delivered margin. Can you talk to how delivered margin progressed through the half? And how much of this is structural versus cyclical changes? And sort of further looking from a medium- and longer-term perspective, how do you think about delivered margin... Timothy Hume: Thanks, Sam. Just in terms of the Q1 versus Q2 profile, first quarter, we were -- delivered margin 15%. Second quarter, we came in below that. I think, the key influence there on the Q1 versus Q2 is the impact of the de minimis changes in the U.S. was felt from September onwards. So we've seen a large step up in our fulfillment costs since that point. We now have a duties attachment rate in the U.S. of 100%. So every order into the U.S. attracts duty. Prior to the changes in the de minimis, the duties attachment rate in that market was a fraction of what it is today. And so if you think about the duties essentially as a pass-through, you might maintain the same amount of dollar delivered margin on an order, but that's off a higher revenue base. And so your percentage margin comes down. Now I think you had the second part of your question, Sam, was around structural versus cyclical. I think if you compare our margin today with a couple of years ago, the bulk of the decline that we have seen is cyclical in nature. The luxury market has been through a number of challenges in the last couple of years that have been well documented. And the market remains very competitive. So the bulk of the change that we've seen is cyclical. But more recently, the increased duties attachment rates in the U.S.A., which I referred to is dilutive to margin. Now looking forward, we certainly think there's room to grow that delivered margin over the medium term. So there's no reason why we can't get back to 20% plus over the medium term. I mean currently, the market remains promotional. The other thing we've seen in the recent period is that there has been some consolidation in online luxury. And other things equal, that should provide a more constructive backdrop looking forward. Sam Wells: And just in terms of the turnaround in EBITDA half-on-half, what are the main levers that have enabled that from negative $12 million approximately last half to positive $9 million... Timothy Hume: Look, Sam, obviously, it's been a challenging environment when you take into account a slowdown in the luxury market and the elimination of the de minimis in the U.S., which is our biggest market. Despite this, we've been able to hold revenue and improve EBITDA, as we said, by $20 million in just 2 quarters. I think in terms of how we are able to do this, from a tariff perspective, we increased -- we've increased our pricing to absorb the additional duties. And we've also moderated our promotional activity to really focus on improved revenue quality. Also drove a lot of efficiencies on the fulfillment side. And we continue to invest in marketing in a strategic and conservative way. There's still a lot more to be done, and we're targeting to have further improvements in the coming half. Sam Wells: And next question, your biggest market, the U.S. has had its challenges of late, many of which you've talked to in the presentation, what's driving the growth ex the U.S.A.? And can you specifically touch on margin expansion in regions like Middle East and China, and comment that on the time it takes for these markets to switch... Dean Mintz: I think in a lot of these markets, we're still relatively early. And they're very large luxury markets. We've put a lot of effort into our localization initiatives, which we spoke about previously. In the Middle East, we released localized language, Arabic language. And that's been very, very helpful. And at the same time in China, we're continuing our efforts there. And we launched our flagship store on the JD platform, which took a considerable amount of work from both sides, both JD and us. Sam Wells: And just a follow-up on the expansion strategy more broadly. How do you balance increasing sales and engagement in existing markets and with existing customers rather than expanding into new locations like you mentioned? Dean Mintz: Do you want to take that one, Tim? Timothy Hume: I think we're -- look, I mean, of course, we want both. There's no question. I think in the recent period we've been putting a little bit more weight on engagement with our existing customer base. And that's simply because the returns on marketing investment have been more challenging. And so we have had -- we've taken a very conservative approach to our marketing spend. You see that on our numbers in this half. You see that in effectively our net adds. And -- but the level of engagement that we have with our existing base continues to be very strong. And the customers that we do have are extremely attractive, right? You see that in the repeat customer AOV. And you see that in the repeat customer spend. So the returns on -- unsurprisingly, the returns on engagement are on existing customers, I should say, are very, very attractive in current market. The other thing that's interesting at the moment, which if you just kind of peel back the next layer of our -- the customer profile. We've seen in the last several months now a stabilization in our retention rates, which is very encouraging, notwithstanding some of the external pressures that we touched on through the course of the call. So that retention rate is very much stabilized and goes to the strength and engagement of the existing customer base. And -- but we have less gross adds coming into the funnel at the moment as a consequence of our more conservative investment profile. It won't always be like this. As the return profile improves, then we'll -- there will be an opportunity for us to be more outward facing in terms of that marketing investment. And you can expect that, that will be -- a good portion of that investment will be allocated to the markets where we're newer. And so -- but those markets at the moment are growing really encouragingly even at current investment levels. So that's certainly something to keep an eye on. Sam Wells: Great. Next question, your auditor has highlighted a material uncertainty in relation to going concern. Why is this? And do you expect any change in supply chain relationships or terms as a result of this? Timothy Hume: Well, I mean, let's -- I think, first of all, let's just be very clear that we have an unqualified set of accounts out today. And that's very clear from the report from the auditor. So I think that's very important for people to understand. I think, from my perspective, there's not really anything new here. If you look back at our accounts in June, there was a current asset shortfall in June and also a note in our annual report around going concern. Now I mentioned earlier on the call that we've taken a more conservative view around the timing of our -- of when our tax receivables will convert to cash naturally, and as a consequence of taking that more conservative view, we have re-classed some of the receivable from current assets to noncurrent assets. So naturally, this will impact the current asset balance, and that's why the auditor has commented in the way that they have. I think -- this is -- there's an element here of this being a technical accounting point. The auditor has flagged that the business has a current asset shortfall and accordingly directed readers to read the relevant note in the accounts. So I don't think there's too much more to say on that. With regards to supply chain, I think -- if I can refer back to our comments earlier in the presentation, the level of engagement that we have with the supply chain at the moment, both in terms of directly with brands as well as with third-party suppliers is the strongest it's ever been. Our supply chain has continued to grow very strongly over the last 6 months. And we're a very important partner to all of our suppliers, and it's business as usual on that front. Sam Wells: Great. And just maybe a follow-up there. Can you please explain why these Italian VAT receivables are still growing and getting larger and whether or not they can be collected? Timothy Hume: Sure. So the simple mechanics work that we make purchases in various markets around Europe. We pay VAT on those purchases. This is purchase of goods and services. We pay VAT. And in payment of that VAT, we generate an input VAT credit, no different to a business operating in Australia that pays GST, generates an input GST credit, same thing conceptually. The process of getting a refund though, is not necessarily the same. And so -- and we have a net receivable position in those markets because our purchases exceed our sales in the market. Why does it take so long? Well, look, certain governments in Europe are notorious for being slow around managing their own payables, if you will. And can be particularly slow for foreign companies. And so I think this is a very frustrating situation, but it's a major priority for us to convert it to cash. And we're working on broader improvements to our supply chain, which we expect to be implemented during this half, which should considerably improve our cash flow profile around European input VAT going forward. Sam Wells: And you might have just touched on that with your final comments to the answer, Tim, but can you just -- sorry, you flagged a few options to mitigate your current asset efficiency. Can you elaborate on these and whether or not they could possibly impact the business? Timothy Hume: Look, I think the initiatives that we have in place are very straightforward. We need to continue executing in the market and driving sales. And there remains considerable scope for us to improve the efficiency of our cost structure, both as it pertains to variable costs as well as fixed costs. And so we are -- commercially, our objective is to run with the leanest possible cost structure and ultimately translate that into profitability. I refer back to Dean's comments, we have had a $20 million-plus turnaround in profitability in the last 2 quarters. And we're very focused on continuing to drive improvements in profitability going forward. I think the business has faced some very significant disruptions in its major markets over the last couple of years. In the last 12 months, in particular, we think about some of the news flow out of the United States, which is our largest market. And we've absorbed those challenges. We've held revenue. And against that backdrop, not only if we held revenue, but we've significantly improved profitability. And I think that's a testament to the flexibility that our business model has. And that sets us up well to drive improvements in profit going forward. Sam Wells: Great. How should we think about marketing spend going into H2? Will spend be aggressively cut again in light of the Q3 '26 trading update that you provided and the ongoing volatility there? Timothy Hume: I don't think you should -- investors should expect any meaningful change in terms of current run rates. So we're investing at the moment at a level which is still achieving a good balance between generating a return on investment and overall growth. I think there are some funny comps that we're working through in this quarter from a growth perspective. But we're also -- if you look back at the fourth quarter of last year, where anyone who was operating cross-border of the -- against the backdrop of the changes in U.S. trade policy had a very difficult operating environment. We had a very challenging fourth quarter in fiscal year '25. And I think at this stage, our best current view is that the business will -- from a growth perspective, even if this is a challenging quarter that it will rebound strongly in the fourth quarter of this fiscal year. And you've -- we've indicated that in our trading update today where we're anticipating that revenues are going to be not too far off where they were last year. Sam Wells: Great. Do you have a rough sense of what gross profit dollar growth decline has been in the quarter to date? And what is the offset on delivered margin with lower promotional intensity? Timothy Hume: Sorry, I think the question is what is profit in the third quarter? Is that the question? Sam Wells: So do you have a rough sense of what gross profit dollar -- sorry, gross profit dollar growth or decline has been in the quarter? Timothy Hume: I don't think we're -- we've made any comment today about current quarter profitability in our trading update. And I don't think that it's appropriate to provide that on this call. Sam Wells: Okay. Next question, any prospects you might get a tax cash refund at some point given the NPAT losses over the last calendar year? Timothy Hume: Cash tax refund, is that the question? No, generally, the bulk of our business is resident in Australia for tax purpose. And so we tend not to get income tax refunds in Australia as a company, but you do have losses that you can offset in the future. So I think that's a consideration in the Australian market. But I don't think we can expect income tax refunds. But naturally, we work in -- we're operating in many markets around the world at this point. And whilst there are certain markets in Europe, which may not be as speedy at paying their -- their payables as we are, there are plenty of other markets around the world where we do have import tax credits, which are paid on a timely basis. Sam Wells: Great. And just another one, sticking with the financial statements. Why did you pay $5 million of cash taxes when you made a pretax loss last year? Timothy Hume: So the tax payment that we made would have been in relation to our tax position for the prior year, where we were profitable. Sam Wells: Okay. Are you able to break down the Q3 '26 sales performance by region, U.S.A. versus ex U.S.A.? Interested to understand if ex U.S.A sales growth is holding up in Q3. Timothy Hume: Yes. We haven't disclosed the numbers in terms of the Q3 to date regional splits. But the dynamic that we've described broadly around the company that we have, we have a 2-speed company this year, okay? We have the U.S., where we are cycling not only the -- if you think about this quarter last year, and tariffs were not something that people were talking about. And so we have 2 layers of this tariff issue in the U.S. One is the general discussion around which country has to pay what based on where something is made. And then there's a separate threat to that discussion around does the de minimis exemption apply or not. So both of those changes in the U.S. have been individually and collectively meaningful for us as has the corresponding uncertainty that, that's created for the consumer in the U.S. These are dynamics which have unquestionably had an impact on our business in recent quarters, and we are still cycling a world where that was not on the table. That's going to continue to present itself in year-on-year growth rates in coming quarters. If you think about it, the de minimis change was implemented at the end of August. So we're going to be seeing some strange things in the U.S. comps really until the December quarter in this calendar year. So that will continue to play out. The rest of the business, excluding the U.S., continues to grow very strongly. We talked on the call about the global luxury market down 2% year-on-year in calendar year '25, and our business has grown in the teens percent in the second half of the year. And that is again, in the context of much lower promotional activity from our business. So that's a very encouraging sign for us. We're continuing to take share. Our localization strategy is doing as it was intended to do. And I think we can expect this dynamic to play out for the foreseeable future. Sam Wells: Great. Thank you. That's all the time we have for questions today. If there are any unanswered still, please feel free to send them through or if there's any additional follow-ups, and we'll endeavor to get back to you. And that concludes the Q&A session and brings us to the end of today's first half earnings call for Cettire. Thank you all for joining, and have a...
Andrew Livingston: Good morning, everyone, and welcome to Howden's 2025 Results Presentation. So I'll begin by introducing our performance for the year. Jackie Callaway, our CFO, will then review our financial results for the period. And then I'll share my perspectives on our 2025 performance and our plans for this year and then we'll take your questions. The business advanced on all fronts in as we anticipated a challenging U.K. marketplace. The results were at the top end of our expectations and we've made an encouraging start to 2026. Group sales were up 4% year-on-year, with the business continuing to perform well in the final two periods of the year. In the U.K., we gained kitchen market share, which helped us mitigate a small single-digit decline in the overall market size. Our kitchen volumes rose which helped us consolidate the significant market share gains that we've made over the past 5 years or so with our longest established depots making a substantial contribution to the share gains that we've made over this period. We delivered an industry-leading gross margin with gross profit up on last year, and we balanced recovery of cost rises with our commitment to providing competitive pricing for our customers. Reported profit was 5% ahead of last year, increasing at a higher rate than sales. We progressed our strategic initiatives for the U.K. and total sales of our international operations increased significantly. At the year-end, we had a total of 970 depots trading, including 891 in the U.K. The business delivered strong operating cash flow, and we maintained a robust balance sheet. This gives us flexibility to continue to invest in our growth plans for the business and provide shareholders with an increased total dividend for the year. For 2026, we've also announced today a new GBP 100 million share buyback program. Our full year results demonstrate the strength of our local trade-only, in-stock model, a strong product lineup, high stock availability, industry-leading service levels and a very engaged team have all contributed to our performance which benefits from the ongoing investments in our strategic initiatives. In the U.K., the number of customer accounts as at the year-end and the number of accounts trading during the year were similar to last year's record levels with customers and average spending more. So far this year, our performance has been in line with our expectations. And whilst it's early in the year, we are on track to meet current market expectations for 2026, what remains a competitive marketplace. For 2026, our planning assumptions that the overall size of the kitchen market will be about level year-on-year following several years of decline. We are well prepared for the challenges and opportunities ahead with our customers who are typically self-employed. People are highly adept at winning business in all market conditions. And delivered by our highly entrepreneurial and well-incentivized depot teams, I believe, are service-orientated, trade-only, in-stock local model is the right one to deliver sustainable market share gains. Our model is hard to replicate, difficult to compete with, and we have initiatives in place to make it even more so. In 2025, we believe the value of our principal U.K. markets totaled some GBP 11 billion. versus our U.K. sales of GBP 2.3 billion, which also includes the contribution from our fitted bedroom initiative, bedrooms being a significant market in its own right. Our markets remain relatively unconsolidated and there are significant long-term opportunities for us. We will invest in the business on this basis. So I'm going to update you on our strategic initiatives, which are key to our longer-term development of the business after Jackie takes you through our financial results for the year. So Jackie, thank you. Jacqueline Callaway: Thanks, Andrew, and good morning, everyone. I'm pleased to present Howden's financial results for 2025, and I'll begin by summarizing the key highlights. The business performed well against all financial metrics in a challenging marketplace. In the second half, we continued the positive trading momentum achieved in the first half and following our last trading update, the business continued to perform well in the final two periods of the year. Group sales increased by 4.1% to GBP 2.4 billion. Gross margin was 110 basis points ahead of last year. We benefited from the price increase implemented at the start of the year and from effectively managing price and volume as we continue to take market share. We maintained our focus on productivity and delivered further sourcing and manufacturing efficiencies in the year. Operating expenses were tightly controlled, and we delivered an EBIT margin of 14.7% with profit growth ahead of sales while continuing to invest in our strategic initiatives. Profit before tax is up 5.1% to GBP 345 million. The effective tax rate was 22.4%, down from 24% in 2024 as we refined the patent box claim. And finally, we delivered an EPS growth of 8%, and this reflected the profit growth achieved in the year, a lower tax rate and the lower share count as a result of the share buyback program. Now let's look at sales growth in a bit more detail. In challenging market conditions, we maintained a disciplined approach to pricing and volume through delivery of a differentiated business model by a highly entrepreneurial depot teams, we also gained share in a market we estimate fell by around 3%. Overall, U.K. revenue increased by 3.8% to GBP 2.3 billion, was up 2.6% on a same depot basis. The price increase implemented at the start of the year had an impact of around 2%. And our international depots, revenue was EUR 99 million, 12% ahead of 2024 and 9% higher on a same depot basis. In France, the new senior leadership team focused on strengthening depot capabilities. Our Irish depots have traded well since we entered the market 3 years ago, and we expect to expand the footprint further this year. Andrew will talk through these initiatives in more detail shortly. Now turning to profit before tax. Starting from profit before tax of GBP 328 million in 2024. Gross profit was GBP 84 million higher. The price increase delivered a GBP 41 million benefit with volumes and mix contributing GBP 29 million and sourcing and manufacturing benefits a further GBP 14 million. Kitchen volumes increased, and we grew our share of sales in each of the three price bands we follow as we continue to invest in new kitchens and associated kitchen products. We believe there are significant longer-term growth opportunities across all three price bands. Our in-house manufacturing and strategic sourcing capabilities remain a key competitive advantage for us. We are progressing plans to develop the Runcorn site, which will increase capacity there by around 1 million rigid cabinets, supporting our longer-term ambition for the business while preserving the low-cost manufacturing advantage. Total operating cost increases were held to GBP 68 million, balancing tight cost control with investment in our strategic initiatives. This disciplined approach supported an increase in EBIT margin and a profit before tax of GBP 345 million for the year. Now let's look at operating costs in a bit more detail. Ongoing investment in our strategic initiatives was GBP 28 million in the year. This included the incremental costs of the new U.K. depots, which totaled GBP 12 million and included the cost of the 52 depots opened this year and in the prior year. We invested a further GBP 13 million in other strategic initiatives, predominantly digital. We invested in our international businesses, for example, by expanding our presence in the Republic of Ireland. And our existing U.K. depots, additional costs of GBP 11 million related predominantly to volume increases, we also incurred GBP 11 million of additional labor costs arising from the government's changes to the employees, national insurance and the minimum wage, which came into effect last April. And other costs, this mainly related to variable pay and incentives, which were higher this year given the strong trading performance and the actions we are taking to optimize the depot network in France. I would also highlight that we offset around GBP 27 million of inflationary cost increases with productivity and efficiency actions taken in the year. In 2026, we expect continuing inflationary headwinds of around GBP 30 million in the total cost base, in areas such as commodities, labor and additional property costs. And as in previous years, we will offset these where practicable with further productivity and efficiency savings. We will also continue to invest in our strategic initiatives to fund future growth, and Andrew will take you through our plans for 2026, shortly. Next, our cash flow. Cash generation was strong, and we ended the year with GBP 345 million of cash. In total, we invested around GBP 26 million in working capital in the year to support our growth. Capital expenditure for the year totaled GBP 125 million as planned before the GBP 31 million for the purchase of the Runcorn site. Our normalized CapEx spend will continue to be around GBP 125 million a year and aside from maintenance CapEx, which is around GBP 30 million a year, within this total, there are three major investment categories that we are prioritizing to support our growth. First, manufacturing. We continue to make investments in our U.K. manufacturing base to enhance productivity and increase capacity and broaden our capabilities. Second, depot reformats and openings. Our updated format provides the best environment to do business with our trade customers, and we continue to see attractive investment returns when we convert a depot. And finally, digital, we will continue to support our trade customers for upgrades to our digital capabilities to make them more productive and to raise brand awareness. We are also using technology to support new services and ways to trade while delivering productivity benefits to the depots. Moving on to cash tax. We benefited from the prior year tax credit arising from our patent box claim. And looking forward into 2026, we expect cash tax to be around GBP 60 million, with an effective tax rate of around 23% to 24%. And finally, you can see that in the year, we returned over GBP 216 million to shareholders through ordinary dividends and share buybacks, and we'd expect to have a similar approach in 2026. Moving on to the pension scheme. Over the last 9 months, we have worked with the trustees to review the strategy of the defined pension scheme. The scheme is well funded with a surplus on an ongoing funding basis, meaning that, no contributions are currently payable by the company. The current funding arrangement is in place to the end of May 2027, while we undertake the next triannual valuation, which is due at the 31st of March this year. We are now actively engaging with the trustee to manage and reduce pension risk over time through a collaborative joint working party framework. This will look to reduce and manage pension risk proactively in areas such as investment strategy, data and benefits and scheme funding. Howdens is a strongly cash-generative business, and we have a robust balance sheet, which gives us the opportunity to invest in future growth as well as rewarding shareholders with attractive cash returns over a long period of time. In total, we have generated GBP 3.8 billion in operating cash flows in the last 10 years. We've invested over GBP 900 million in the business. This high returning capital investment has been across both strategic organic growth initiatives and bolt-on opportunities like the investment in the solid work surfaces business 3 years ago, alongside our maintenance CapEx programs. Howdens remains disciplined in the returns we achieved from our capital allocation and investment. This discipline is unchanged over many years and has driven our overall return on capital employed which in 2025 is a healthy 25% -- sorry, 23%, well ahead of our cost of capital. Over the same time frame, we've returned over GBP 1.5 billion to shareholders in dividends and buybacks. In 2025, we grew earnings per share by 8% as a result of our earnings growth, a lower tax rate and the buyback we completed in the year. Now moving on to capital allocation. Our capital allocation policy is unchanged with the principles set out on the slide. We continue to operate within our clear capital allocation framework. And for several years, we have operated with a policy where year-end surplus cash defined as amounts in excess of GBP 250 million is returned to shareholders. This is unchanged and appropriate for Howdens despite the significant growth in the business over time. This still provides sufficient headroom to accommodate our seasonal working capital requirements, support CapEx into organic growth and ongoing investment into our strategic initiatives and opportunities whilst maintaining our strong balance sheet. We also recognize the importance of the dividend and dividend growth to shareholders. The Board is recommending a final dividend for 2025 of 16.9p an increase of 3.7% and resulting in a total dividend of 21.9p per ordinary share. And the final dividend will be paid on the 22nd of May 2026. Taking all of this into consideration and reflecting the group's continued strong financial position, the Board is also announcing today a new GBP 100 million share buyback program for 2026. So to summarize, we have performed well this year in a challenging marketplace. Our trade model is different -- differentiated, and our strategy is well defined, and we are executing well. For 2026, our planning assumption is that the overall size of the U.K. kitchen market will be level year-on-year after several years of decline. We continue to be proactive in delivering productivity and efficiency savings to deliver profit growth and offset inflationary headwinds. Our robust balance sheet and cash generation support our continued investment in the business. And we remain confident of delivering growth ahead of our markets while generating strong cash flow and attractive returns for shareholders. While it's early in the new financial year, we're on track to meet current market expectations for 2026 and what remains a competitive market. Thank you, and I'll now hand back to Andrew. Andrew Livingston: Thank you, Jackie. As I mentioned earlier, we believe that our markets give us significant long-term growth opportunities. Our strategic initiatives are key to capitalizing on these. And I'm going to use those as a framework to review our 2025 performance and our plans for this year. They are based around our key -- the key features of our business model, such as industry-leading levels of service and convenience, trade value, product leadership, but they're all delivered by highly entrepreneurial teams who, in turn, build long-term relationships with local tradespeople. So our initiatives are to evolve our depot network, to improve our range in supply management, to develop our digital capabilities and services and to expand our international operations. So first, depot evolution. And high service levels, including local proximity and immediate availability are very important to our customers. And we continue to see profitable opportunities to open up depots. Overall, we have a line of sight to around 1,000 depots in the U.K. In 2025, we opened up 23 U.K. depots, including 18 in the two final periods with a total of 891 trading at the year-end. This year, we expect to open around 25 more depots, and we continue to take a highly disciplined approach to the location of our depots. Our updated format enables us to provide the best working environment for our depot teams and to make productivity and space utilization gains in a cost-effective way. We will now show you a short video that takes you around our Stockport depot, which we opened last year, and whose layout is very typical of the latest situations of our formats. The kitchen displays show most of our kitchen families, including paint-to-order options and solid surface. Our trade counter stocks many of our everyday products and provides a chance for a chat and a brew. Our open plan business area makes it easy for our trade customers to easily access advice from our teams. We have space for our designers to plan kitchens for trade customers and a full wall of our kitchen collection known in our depots as the Wall of Fame. And we have a new selection area for customers to view our kitchen door and work top combinations, including our solid surface proposition. And our presentation rooms are private and have high-definition screens to bring to life customers' kitchen choices in 3D. Our sales conversions here are extremely high. Our restructured warehousing and racking is a vital Howdens USP and enables us to serve the trade with stock reliably and often instantly. The updated format has strengthened our competitive proposition and our program to convert older depots to this format is well advanced. Last year, we completed a further 60 revamps, including nine relocations, taking the total so completed to 410. These principally comprise conversions of our larger and longest established depos. Now this year, including relocations, we plan to convert another 45 depots. And by the end of this year, we'll have revamped around 68% of all depots, which opened in the old format, and we'll have around 77% of all U.K. depots trading in the updated one. As I mentioned earlier, the latest iteration of the format has a separate area for customers to view kitchens, doors and worktop combinations. And over the next 2 years or so, we will also be making the minor layered modifications necessary to include this area in the depots that were prior to the 2025 refits. Next, range and supply management. Investment in service, product and availability helps us develop long-term customer relationships and build competitive advantage. Sales of new products are a significant contributor to our performance. Sales of product introduced in 2025 and the prior 2 calendar years represent around 29% of U.K. product sales, with product launch in 2023 being the largest contributor. Value for money is a constant feature of our purchaser's buying decisions, and we are committed to providing our customers with market-leading, easy-to-fit and fairly priced product. And given pressures on high sale budgets, price featured predominantly in 2025, and we expected to do so again this year. With an emphasis on value for money and choice at all price points, our offering is well positioned to take advantage of this. Our kitchen NPI for 2026 makes more colors, styles and finishes available to more budgets, including at entry and mid-level price points. We are innovating in other long-established product categories and adding more colors and styles to our fitted bedroom offering launched 2 years ago. As we continue to invest in product innovation to capitalize on the significant growth opportunities we have, efficient management of our kitchen range is crucial to balancing customer choice and availability with our profitability. Our rigid kitchen platform is shared across all our families, which helps us introduce new kitchen options at more price points cost effectively. And our stock management and replenishment enhancements, including our XDC network, enabled us to provide best availability on a broader offering at a lower cost. More efficient new product testing enables us to bring more proven new styles to market more quickly. Our increased presence in the premium end market, which is where range innovations are usually made is also forming -- informing and accelerating our ranging decisions at other price points. Excluding paint-to-order, we have 24 new kitchens confirmed for 2026 as compared to 23 last year and 11 in the prior year. We will enter the second half with our entire offering of such kitchens organized into 11 families with a similar total count to last year. In 2025, sales of our entry-level and mid-level kitchen families represented, respectively, the highest number of kitchens we sold and the most kitchen sales by value. Last year, we brought to market 13 new kitchens for our established entry and mid-level families and launched Frome in four colors, a new family whose styling updated that of our long-standing Chelford family. This year, we have 15 new kitchens for these families. For our entry-level families are Heartland -- our traditional Heartland, we have five new kitchens in colors, which are popular elsewhere in our offering, including Greenwich, and Witney in porcelain and Allendale, shown there in Reed Green. At mid-level, we have discontinued Chelford, and we will add six colors to our most modern and shaker range Frome, including Mist and Pebble. Elsewhere, we've introduced some more emerging colors and finishes to our best-performing mid-level families, including Clerkenwell in Super Matt Mist and Halesworth in Ash Green. We've upscaled our higher-priced kitchen portfolios in recent years, utilizing Howden's scale, supply and manufacturing capabilities to offer the bespoke look most associated with high street independents at competitive pricing. Our offering now comprises four families including three shaker-style Timber families, which are closely marketed as Classic Timber Kitchens. In 2025, our Classic Timber Kitchen families performed particularly well with the paint-to-order options growing in popularity. The number of our Chilcomb and Elmbridge kitchen sold and paint-to-order colors, which are priced at the premium to stocked colors increased significantly in 2025. This year, we are refreshing our paint-to-order pallet with four new colors with two of the leading paint colors becoming Chilcomb and Elmbridge stocked colors. Last year, we extended the reach of our timber offering with the launch of a new family called Ilfracombe, an in-framed timber kitchen of classic design. Precision above Chilcomb and Elmbridge families, Ilfracombe is exclusively available in 24 paint-to-order colors. Solid surface worktops, which are often but not exclusively associated with the sale of higher-priced kitchens continue to represent significant opportunities for the group. In recent years, we have increased the number of decors we offer in this service. And for this year, we've introduced clearer and simpler ranging and more delineated pricing to demonstrate the value we offer at all price points. Ahead of peak trading later this year, our total offering will comprise a similar number of options to last year with increased space available to display worktops in more of our depots. We continue to upgrade our offering in other categories, including our own category, specifically own label brands, which complement the third-party branding product we sell. So our Lamona branding is one of the leading integrated appliance brands in the U.K. And for this year, we have a major refresh of our brands offering. We've modified the design, lowered the prices of a suite of high-volume products without compromising these products functionality. Elsewhere, we've updated the design and specification of a number of high-priced products, including washing machines, fridge, freezers and cookers. Launched in 2023, our own label flooring brand, Oake & Gray now represents a substantial portion of the category sales, having introduced water-resistant laminates last year. New product for this year includes sustainably sourced engineered wood flooring with market-leading standing water resistance. In Ironmongery, we launched our own label called Fuller & Forge. Fuller & Forge product has landed well and has significantly improved this offering in our category. For this year, we have new finishes and new designs, and we'll be adding new subcategories. As well as being substantial businesses, Doors and Joinery remain a key footfall building product for us in our depots. Last year, we launched our more colors and bolder styles at all price points to our door lineup. A new product this year includes a new premium range of Howden branded solid engineered doors. In Joinery, we will continue to develop the subcategory extensions into wall paneling, stair parts and lost spaces that we initiated in 2025. Fitted bedrooms were well ahead of the previous year. Bedrooms represent a growing source of incremental sales and profit and help us foster customer relationships. Installing fitted bedroom suits the skills of our customers who fit kitchens. And last year, a substantial portion of our total bedroom sales represented purchases either by new customers or by customers who bought from us relatively infrequently. We developed our bedroom ranges in house, utilizing our existing design and supply infrastructure, and they have a high cabinetry content, which, of course, matches our manufacturing capabilities. In 2025 -- our 2025 offering comprised bedrooms in five leading family designs drawn from our kitchen portfolio, including new family Clerkenwell launched during the year. This year, we will continue to target entry and mid price points with five new bedrooms, including new colors for Bridgemere and Halesworth. Our product offering is underpinned by our dedicated sourcing operations, which manufacture or source the right product in complex categories and distribute it efficiently across our depot network. Howdens is an in-stock business and the trade tell us that high levels of stock availability is one of the key reasons that they buy from us. The investment in our XDC network, which enables us to offer next day delivery service and other recent initiatives, including Daily Traders facilitate exceptional levels of service to our depots. In 2025, deliveries totaled some 73 million pieces, and our service level from primary to our depots was at 99.98%. Now that is a world-class performance by any standard. Our in-house manufacturing capability has a source of competitive advantage for us. And we always keep under review what we believe is best to make or buy by balancing cost and overall supply chain availability, resilience and flexibility. Recent investments in manufacturing have strengthened our competitive position by increasing our manufacturing capacity and by adding broader and new capabilities. So our Runcorn factory with its high volume, low-cost making capability has always been an integral part of our manufacturing and logistics strategy. With planning permissions in place, our development program for Runcorn site is now underway. And at the end of last year, we also acquired the freehold of this site. We expect the works will take about 3 years to complete in line with our long-term ambitions for the business. And the program will give us at Runcorn more capacity, more flexibility and broader capabilities to deliver lower cost of goods sold than might otherwise have been the case. Now turning to our digital platform, and we use digital to reinforce our model of strong local relationships between our depots and their customers. And we do this by raising brand awareness to support the business model with new services and ways to trade with us and to deliver productivity benefits and more leads into our depots and into our depot teams. Usage of our online account facilities, which provide efficient -- which provide efficiencies and benefits for our customers and depots alike has continued to increase. New registrations have totaled some 59,000, around 61% of our customers had an online account at the year-end. Total users viewing our trade platform has increased by 45%, with around 80% of users regularly looking at their individual and confidential pricing. Customers with online accounts have on average continue to trade more frequently and spend more than non-users. We generated high levels of engagement with our web platform and grew our social media presence, which also stimulates interest in viewing our products and services online. Total visits totaled some -- site visits totaled some 24 million in the year. Amongst kitchen specialist, we continue to have the highest number of fitted kitchen site visits in the U.K. The time spent viewing pages and the number of sessions were consistently at high levels. Across the leading social media channels, our follower base at around 720,000 was up 18%, and with around 6.8 million engagements in a month. Usage of our upgraded Click & Collect service for everyday products increased and the new depot account management tool introduced last year is helping depots manage their customer relationships more efficiently and more productively. We have also recently introduced a new depot pricing and margin tool, which we call PAM, and its now operational in all our U.K. depots. We designed this in-house and PAM makes depot price management easier and more effective. It provides comprehensive data for depots to make more informed pricing decisions with a higher degree of confidence and enables depots to access quickly and see the impact that it has on their margin. Depot feedback has been very positive, and we are seeing both more bespoke local pricing and improvements in depot margins on products, which we incorporate in the system. And finally, international. In 2025, year-on-year sales of our international operations based in France increased at a higher rate than in the previous 2 years. In tough market conditions, the business responded positively to the measures taken to improve existing depot sales performance. We now have in place a highly experienced leadership team adept at depot management and have invested in enhancing offerings of footfall promoting products alongside a number of other initiatives. In 2026, we will continue to build out our depot teams capabilities, particularly account management, and actively manage our depot estate, including by closures and relocations where necessary as we look to build on the progress that we've made there. We are also trialing a more compact version of our format initially at a test depot in Reims in France, to the west of Paris. At around 500 square meters, this version is under half the average size of a current U.K. depot has a lower rental cost and the layout incorporates all the latest U.K. format innovations that you saw in the video earlier. We expect to maintain the aggregate number of depots trading at around the current number as we actively manage our depot estate to optimize its performance. Sales in the Republic of Ireland, we're well ahead of last year, and we will be opening more depots there in 2026. The Irish market suits our differentiated model and one which sets us apart from the competition there. We opened for business in the Republic of Ireland in 2022, and we used a similar depot location strategy to that in France with the local team supported by our U.K. infrastructure and also our digital platform. By the end of 2025, we had 16 depots trading, including nine clustered around Dublin, with three serving Cork. This year, we expect to open around five more depots, which would increase the number trading to 21 by the year-end. So for 2026, we are well planned, including on our strategic initiatives. These are aimed at increasing our market share profitably as day-to-day, we deliver value to customers across all price points and product categories. We have 24 new kitchens in stock well ahead of peak autumn trading plus a very competitively priced paint-to-order kitchen offering. And overall, our lineup in all product categories is the best that we've had in my time at Howdens. We have a program of Rooster promotions in place to keep Howdens at the front of the trades minds together with other price initiatives. We will continue to improve service and availability and increase the range of services and functionality we offer online to the benefit of our depot teams, customers and end users alike. During 2026, we plan to open around 25 depots in the U.K. and refurbish around another 45 existing depots to the updated format. In total, we expect to end the year with around 85 depots trading in the Republic of Ireland, France and Belgium together. So lastly, before we take questions, outlook. So far this year, our performance has been in line with our expectations. And whilst it's early in our financial year, we are on track to meet current market expectations for 2026 in what remains a competitive marketplace. We are planning for the size of the kitchen mark to be level year-on-year following several years of decline, and we are well prepared for challenges and opportunities ahead. We aim to retain a profitable balance between price and volume as we continue to maintain competitive pricing whilst aligning operating costs and working with suppliers to keep product and input costs controlled. We are confident that our business model is the right one to address the opportunities of our markets. And in summary, we're well placed to outperform our competitors again in 2026 as we both continue to invest in our strategic initiatives and return GBP 100 million to shareholders through the new buyback program that we've announced today. So thank you very much for listening to me and to Jackie, and we will now both take your questions. Allison Sun: Allison Sun, from Bank of America. Congratulations. It's very good results. Two questions from my side. So first is what makes you confident that 2026 overall kitchen market will be flattish instead of another decline? And second is, can you give us a bit more color in terms of the sales rate for P12, P13 last year and year-to-date? Andrew Livingston: Yes. We do a really incredible job in our business of listening to our depot managers and we highly value our day-to-day trading and the rhythm that we feel out of that comes a lot from our meeting with depot managers. And I go to -- we have 70 regional boards where we have about 90 managers coming to meetings, that happen 70 times a year. I get to 92% of those meetings this year with Austin, who sat with us today. So you feel it. You can see the numbers online. You can feel the rhythm of the business. Last Tuesday, Austin, and I had some of our top managers to dinner in London. They come from different parts of the U.K. and Austin, I wanted to talk about a number of issues in front. All of them are feeling pretty good about the market. They say it's tough. They say it's competitive. There's no doubt, we're out fighting. And the retailers who go out with their false sales in my mind of establishing prices in December and giving you a half-price dishwasher and interest-free and all that nonsense. That's what we're fighting against at the minute, but we are making good progress against it all. And I would say our feeling and our knowledge of the market would lead us to believe that we've got a decent year from a market perspective in us. Things like interest rates moving down and we would, of course, help. Do we feel that on a day-to-day basis? I don't know. But I think a combination of our initiatives, the product that we're landing this year and I have not chosen to show you all the product we've got coming this year because I just feel it's too sensitive now to be sharing in this forum to the market. So what James McKenzie has done and brought to this business is brilliant. We've got so much product coming through in the second half of this year, and it will -- I think it's sensational what's happening. So I think it's a combination of the market is going to be a bit better. We are so well placed to take more of it. Look, the back end of the year was good. There were different days of trading. We tend to trade pretty well towards the back end of the year, because we were the only guys in time with stock on the ground. And if somebody wants to get a job done pre-Christmas, they come to us. And so we have a sort of rhythm in our business where we closed out our accounts. We've done Trade Fest, which was a great success for a new sort of branded proposition of our peak trading, honoring the trades and supporting the trades, great Trade Fest, delivered it all out, closed out the year, get the price increase prepared for, bedded in, in January and then come out fighting in January. And all of that, we would say it's gone very well to plan. So not really going to comment on individual figures. We used to give out periods one and two at these events. And actually, if you look at it, it doesn't give you any indication as to whether the year is going to be good or bad, but we're just saying we're comfortable right now. Aynsley Lammin: Aynsley Lammin from Investec. Just two for me, please. Maybe just elaborating on the kind of early trade in terms of timing and scale of price rises you expect this year? And within the 2.6% same depot sales last year, how much of that was price? And then secondly, I guess just coming back again a bit more on the market share. You've obviously outperformed the market for, I think you said the market was down 3% last year, do you expect to continue to grow market share as much as you have been over the last couple of years in '26? Andrew Livingston: Yes. Look, we've probably become more and more sophisticated in our price increases as we've put them in and mentioned the PAM tool, which is mostly outside of kitchens where the depot managers will be flexing more prices as they go through the year, you'll see us do more dynamic prices as more and more customers go online, see their confidential pricing. But we want them to see pricing that our managers are completely comfortable with on a local level, and we've been making progress on that side. On kitchens, we typically go out with the sort of 4%. We hope to retain about 2% of it type of thing, but it's too early to say that we've done that at this point in the year, given the depots are out fighting in the market. So -- but we're pleased with how that's all sort of laying out in terms of the like-for-like for last year. I think you can read a sensible mix between half price, half volume. I think that's what we are pleased about what happened last year. I would continue to say that the market this year will be competitive, there's no doubt. We love the scrap. And our customers are so well placed because they're running their own businesses. And when the market is tough, our customers go out and win the business, there's more at stake for them. And the depots that really perform like the depot managers, that Austin and I had in the room on Tuesday night, they're incredibly close relationships with their customers. It's like here, it is like -- and people say they know their customers in the business. We know our customers and our business. And when I say we know them, they really are very close to their customer base. And one of the depots had 1,600 customers there. One had 800 customers there. The depot with 800 customers happens to be our highest-performing depot in the whole estate. And they don't change and they come back and they're regular and they just spend more and more with them. So I would say the proposition is well placed with what we've got from a sort of a product point of view. We believe interest rates, I think, I say that, I'm not leaning on that as a thing for this year, but this is self-help, and it's the model really working incredibly well with the initiatives and our very strong day-to-day trading. The thing I would add to it also for last year, people and our teams, I think they feel well. Morale in the business is high. And people have had a good taste of making money. And we don't turn up for the dental plan in this business. We turn up to grow profitable volume and I'm excited to see our depots earning well with the opportunity to earn even more in the coming years. They're a formidable bunch. Christen Hjorth: Christen Hjorth from Deutsche Bank. Two for me. First one, just for Jackie. So your first full year will be in 2026. Just an idea of the sort of areas that you'll be looking to focus on, is relatively new to the business. And the second one, just for Andrew. You point there's a lot more to go for in terms of strategic growth. I mean, how should we think about that? Is that sort of leveraging the investment that you've done to date in XDC and range, et cetera? Or are there more new areas to invest in to drive growth? That's the two. Andrew Livingston: Do you want me to start? Jacqueline Callaway: Yes, let me make a start. So look, it's been -- it's 9 months here at Howden's. It's been an absolutely fantastic first 9 months. It's an amazing business. And you don't really know till you get in. Having got in, it's well invested, very well invested. We've invested through what has been a difficult cycle, I think, in the industry. We're well set up for growth going forward. And we've got highly motivation teams to support us. So from a -- is there things that I think I need to come in and massively fix, I think the answer to that is no. Because the business is well placed. There's a few areas that I am focusing on. I think pensions would be a good example of one that we talked about. I think there's some good opportunities around our pension scheme and how we might derisk it. So that would be an area. And I think it's around just within finance is just driving the finance team to be a good business partners to the business and to support what we're doing strategically. Those would probably be my two key areas. Andrew Livingston: And in answer to your second question, I think one of the things that we've got really right here is actually our strategic plan, which we call raised ambition internally is well understood right up and down the organization. And we tie together our business design with trusted trade relationships right at the center, and we constantly think about product innovation at value and making sure it's really convenient for customers to buy. But then, of course, we're always developing new things. You'll see in our depot format, we're moving on the iterations. I'll never let this get as bad as it was when I sort of turned up. The depots were retired, and I don't think they did represent the right environment for us to do business with our customers. And I remember my first presentation, Geoff Lowery gave me a knock and said, sort of, isn't it about time? And that has been a very, very successful program. We continue to do that and take lessons into France and just think about sizing as well to make them more profitable quickly. From a ranging point of view, there is always more you can do, and we are very keen to stay on the front foot of a high proportion of innovation brought in as a big portion. So we measure it. We're incentivized on it, and the teams are incentivized it from bonus and LTIP point of view. So we do it because it's the right thing. It drives interest for customers. It drives margin accretion. It helps us deal with old stock. So we are obsessive. We spend an extraordinary amount of time on ranging. We're very good at testing it. And I say these things because we're a kitchen and a joinery business. And we think in our heads about joinery driving footfall, joinery being the place where customers start working, they do flooring, they do doors, they do skirting, they do wall paneling and then they start creeping into doing kitchens. And we've got to keep on getting people into doing these trades. And there is a bit of a thing here about AI is going to change jobs and markets and so on. AI is not yet fitting kitchens in my mind. So we are keen on doing a lot of great work about how you build your business. We've got to build a business builder program on in Howdens at the minute where we want to encourage people to go and start their own businesses in this trade space, and you can make a fantastic living out of the fit and out of the product on margin. We feel we're comfortable with the categories. And each one of those categories, we feel we can grow in. So we're only 24% of the kitchen market by value. 75% of the market that we're not having right now, we've got a significant opportunity. And I think we're upsetting our competitors as we progress forward with that. And out there, you've got a number of competitors who are either clearing what they're doing and they're lashing out on price or they're trying to make it work and you've got some people under new ownership. And just chasing down a price rate is not the way to win in this market. I'm also excited about what we're doing digitally and in preparation for the future, and people will think about how they design and plan and do thing -- different things on kitchens in the future. And then I suppose the final part of it is the international piece of the business, and we are making progress in France, and I'm excited about the work that we've been doing on the estate there. And we've got two divisions that are flying. We had 1/3 of the depots that performed incredibly well there last year. Fortunately, we've got a 1/3 that need work. So we adjusted some of them and we're going through manager-by-manager and under SEB's leadership, we will get to a good place. And Ireland, we've gone in. We don't offer trade credit accounts in Ireland interestingly. We just have gone in and done cash. It's not held us back in any way because the proposition is so fresh to the market and where it gets right. So I was explaining to the teams I've been down to Wexford to see the opening of our Wexford depot, right, the most beautiful plum site right in the middle of Wexford, and we will dominate the market. The depot only just opened. It had 150 accounts already opened. It opened three when I was stood there. The manager and the team were exceptional. So we're really making a difference and understanding more and more how this model lands well because we're able to give new depot managers to our business tools and kits that help them run the business a bit more that we may not have been able to do before. So they get daily traders and they get a better stock management system, and they can do livestock. They're supported with online activity. They've got PAM now. They're well supported from an availability point of view. And I think we've become better and better at doing that. And I think overall in the business, we've become strong at sort of pairing up, used to feel like a sort of supply and a trade division that feels very much like one business where we think right up and down. And even in France, Seb sits on the exec, he's part of the team. He -- we've even done a thing where we're twinning depots in France with U.K. depots and the way you sort of towns are twin. We're doing that. So U.K. manager, will work with a French manager plus an interpreter and build a relationship together. So a bit of a long answer, apologies. Benjamin Pfannes-Varrow: Ben Varrow from RBC. I'll do two as well, please. First one on the market share, in the U.K. Could you provide some more detail on how that's developing at the different price points? And the second question is building on the France topic. What do you need to see there to start accelerating the depot rollout again? Andrew Livingston: Yes. I think one of the things on the market share and you're right on price points because sometimes you think of families as you go up and down the architecture and what is brilliant about our offering is it all sits on a common carcass platform. So it's a bit like the chassis of a car business, and you can move your way up and down. And if you want to hit your price point by putting a lower-priced door standard carcass and then invest in the solid surface work surface. That might be what you want to do. We've seen growth at all price points. We've seen growth at opening price points all the way through difficult times because we're sort of untouchable down at that bottom end. Many of our kitchens will not even make it into customers' homes, because you'll find them in universities and council houses and whether it's genuine churn. And we brought some innovation at opening price. Mid-price, we've grown. It's been tougher because everybody is at that mid-price thing and some people throw on credit, consumer credit and that type of thing. But we have stayed ahead by innovating and being faster than others to market and bringing things like metallics in into some ranges that might be sort of needing that kind of innovation. And the best end of the market for us has been a combination of just beautifully styled product that I think is better quality than the independents. You'd expect me to have a Howden's kitchen, but it's what I've put in my house, the paint-to-order offering is just beautiful. And with a solid surface, good lighting, walk to any one of the independents around where I live in London, and I'm thinking it ain't as good as what I've put in my home. And I think more and more people are discovering that do I go to an independent and I spend GBP 60,000, GBP 80,000 or do I go to Howden's, I've got a really strong relationship with my builder, and I'm doing it for considerably less. And I think you'll just see us continue to grow in that space of the market, and you'll see us doing work like this that just makes people reassess the brand and people sniff at value. So we've done well at all price points. And we think we wouldn't particularly pull out one over another. We're just pleased with how we're doing. What do we want to see in France? I want to see more consistent delivery across all of the regions and we're very clear with that. More depots in profit. And we've got and had to put some fixed cost in France that will only be covered when the depots gets to -- the depot estate gets to a certain level of turnover. But we're pleased with how it's progressing. And we've made some choices about depots that perhaps we opened too quickly post-COVID, when we were growing very, very fast. And we got all our eyes with attention on this new smaller format that we're doing there. But I'm very pleased with the team and the level of energy in that business is fantastic. Jackie and I went over to do their year-end celebration, and it was electric. Yes. Shane Carberry: Shane Carberry from Goodbody. Just two for me. Firstly, you've mentioned a couple of times the competitive markets. Could you just expand on that a little bit more? Is it the pricing point that you made earlier? Or is there some kind of shift in industry dynamics we should be aware of? And then second, just kind of a longer-term one. When I think about this business in kind of 5 years' time and I think about the mix of products obviously doing a lot more in the bedrooms, doors, other joinery components. How big a portion of the pie could that be going forward? Andrew Livingston: Yes. I think when we say competitive market, we think about -- I suppose we think about price and we think about availability of product and we think about product innovation. And if I split it down like that and I think about product innovation, nobody is anywhere near us from a product point of view. And I think 8 years ago, when I turned up in the business, I think people were ahead of us. And what we've done with innovation and find the gap and testing products and bringing more products to market, we're leading. We're not following at all. And with that and with our availability, the combination of those two, it's very, very tough combination to fight against. But of course, if you've got people trying to get any kind of volume to put over their fixed costs, they're going to come out fighting on. January is the time. It's a very, very difficult period for a retailer. They don't have a bit of success in January. It's a long, long journey up until the summer for them. So I say competitive in that context. But when we think of our depot managers, Austin's language is no kitchen left behind. And we're very, very clear about that. I think if you think forward to this business, we're pretty good at sticking to our knitting. And we're pretty good at realizing the customer first and in our case, trade customer, trade customer all the way. And the stronger you are with your trade relationships, the stronger the business will become. They do well, we do well, and we appreciate entrepreneurialism deeply. We appreciate it in the depots, and we appreciate it amongst our supply base as well, those who come first to market. We -- James has got a suppliers conference in about a month, and that will be a big topic for all of us to talk about. So I think the business will always be kitchen-centric, kitchen dominant. And I think you'll see innovation and new ways of shopping online and AI and scanning the room with your phone to help develop plans. But we see these as opportunities to help our design consultants or help customers get an image of where they want to go to, but we think it's important that we keep going with our business model. Charlie Campbell: Charlie Campbell at Stifel. I've got sort of two. The first one was on the efficiency gains. So sort of GBP 41 million in the year, GBP 14 million of that is from suppliers. Just does that not get harder and harder as the more to get out of that bucket? The GBP 27 million from kind of manufacturing efficiency, does that get more difficult as you're moving towards the new Runcorn? And then the other question, just want to detail really, there's a GBP 6 million sort of exceptional around France, is that the end of that? Or does that kind of run on for a bit more as you further kind of arrange the branches? Jacqueline Callaway: So let me take the -- both of those. The efficiency gains, we've had a good result last year, to say GBP 14 million and cost of goods sold and GBP 27 million in OpEX. I think as we go into the budget, we see that there were inflationary headwinds coming again this year. We've guided that at around GBP 30 million, and it's across a number of areas, a little bit of timber inflation, a little bit of -- we see people inflation and also some property inflation, particularly around London rents. We will always look to offset inflation with efficiency projects. And I think one of the things that positive with Howden's has got a very strong muscle in this space. And it's one that we already have a track on the costs, and we already have all the projects that -- a lot of the projects identified. So I feel confident that we can make a good dent in the inflationary amount again this year. And it's across multiple projects. I look to Julian here. So across manufacturing, it will be things like waste reduction, more efficient use of labor, good examples across logistics, it could be thinking about how we can optimize deliveries out to depots. It's another area that's a big project for this year. So I think we've got good confidence that we'll certainly dent a lot of that inflationary pressure this year. And then on the cost for the French depots that we were looking to close over the next 2 years. It's a GBP 6 million charge in OpEx, and we don't see any further any further amount coming through at this point. Ami Galla: Ami Galla from Citi. A couple of questions from me. The first one was just understanding the bundles that typically a customer takes in. Can you talk about some of the attachment rates of flooring currently? And is this scope to penetrate that further? The second question was on the pricing model that you are talking about today. What sort of information do you think does the depot manager now have it handy, which you previously did not have? I mean, just understanding more in detail as to what is different today with the model that we have in place? And the last question was just on the maturity of the existing network in the U.K. Often, you've talked about the potential of the younger branches to kind of come up to the mature level. Can you give us the range as we sit here today of what the mature U.K. depot looks like? And where is the opportunity as we think over the next couple of years? Andrew Livingston: Yes. I'm sort of rethinking what maturity is for our business. Because when I wrapped up here, people said, they all mature in 7 years, then we thought of all these initiatives that we've brought into the business, like solid work servicing better kitchens, you grow your account base, we've been more efficient in the warehouse. I was telling Matthew Ingle about our best depot there last year and where it had got to, and he nearly fell off his chair because it was about twice the level that he's seen before. And he offered the manager, if he hits his number here of GBP 10 million this year, he's offering a case of champagne, which he is very thoughtful about. So I think we've just got such a long way to go even at our first depot hitting a big milestone like that. And so I don't know where the top end of maturity is. We've got a lot of work. If you think of the range between sort of GBP 10 million down to a depot at GBP 1 million, you've got a wide range there. And a lot of it's down to the capabilities of the manager and making sure the manager is empowered to develop the local relationships. Of course, there's area and all the rest, but one of our depots we talk a bit about in Great Yarmouth is a very big job in our peak trading period. It's his sort of thing that he does each year. Half of his catchment in the sea, but he's the biggest depot. So I would say we've just got really significant opportunity. And even when this business runs out of space and depots and we hit the 1,000, we will still grow and the like-for-like will still grow because we see so many opportunities in that. Your question about the pricing model is a good one, because our range count has grown, given XDC -- and we put in XDC to make sure that product is available, and we've become very clear with Richie's leadership from supply chain about what's right to hold in stock in a depot and what's right not to hold in stock in a depot, because it might have high value, it might create a long discontinued problem later on. So we've -- our shape of our stock in our depot is brilliant. And we gave the depots tools to develop that, and we call the system TED. Those of you who have been around some of our visits and depots, we often demonstrate it. And then through meetings that I've taken with some of our managers, some of the managers then said, well, can we not use the same sort of thinking where we can look by SKU, balance it out and bring the same thinking into pricing, and we went back and built PAM. And what it gives our depot managers is understanding of where their price volume mix per SKU, per range, sort it all out and they can see where they're at versus their region. And then we feed in local pricing data. And it gives them real confidence that they're not only too cheap on some stuff or they're not too expensive on some stuff. When we've got promotions going in that we do from a group from a sort of Rooster point of view, they can press a button and accept them. They're going to override them and not do it. All of this is to empower our depot managers not take power away from them because it's our managers operating locally. But it's using tech to make sure they're better enabled to make the right pricing decisions for customers and confidence levels go up with it as well. Hopefully, that explains that. You did ask about flooring and attachment rates. We've got loads of room. We're only fourth in the U.K. on flooring. We're #1 in kitchens. We're #1 in doors. We've done some great work on own brand and own ranges. It's a priority for Austin to sell more flooring this year. Our attachment rate is not bad with kitchens, but there's lots more to do. Geoff Lowery: Geoff Lowery, Rothschild & Co Redburn. A question really around your supply business. If you had to rank what it really does for you across those buckets of product exclusivity, flexibility, resilience, sheer cost advantage, what would that ranking really look like? And I guess the second question is you've obviously invested considerable amounts in that back-end infrastructure and transformed this in a wonderfully positive way. But we haven't really seen it at this scale, at this efficiency in an upmarket. So in a theoretical scenario where your volumes were plus 20%, say, would we see a meaningful leverage of a fixed cost component there? Different issue what you did with it, but the maths of that, would it be a kicker on your margin? Andrew Livingston: Yes. I think when I was looking at from Howdens from the outside, and I was running Screwfix at the time I was going around all the U.K. depots, I remember in the conversation with the guy that I taken over running Screwfix from and he said, businesses often have strengths. And it's clear to me that Howden's strength is in its manufacturing capability because you've got some incredible front-end implementation in the depots. But the strength -- I think the big strength of this model is our vertical integration, our supply, our exclusivity, the cost advantage it gives us, our nimbleness around us, our ability to keep raw materials untouched and then flex in. We do things that I have never seen other businesses be able to do because of our agility. And that's at scale on big product, but also when we go and do a testing, a small testing thing, we've got -- James has got in his capabilities, a small batch production unit. And the amount of work that batch production unit does for us around building out extra doors, flexing up and flexing down, making small batches that we can go and test in markets. It gives us an agility of [ Azara. ] And I think there is -- it gives us fundamental lower cost base where we can take higher margins in the market. If -- I think we probably demonstrated our strength when we came out of COVID and we were able to flex up so quickly, and we hardly missed a beat. I mean, our service levels weren't at 99.98%, but they weren't very far off even though volumes dramatically lifted. And you saw the business started making 20% on sales. So it's a cash machine when you push volume through it. I mean, there isn't anybody who could manufacture this level of volume for us and need another 1 million cabinets, hence, the investment in Runcorn. But I suppose we think about panel manufacturing where we're making -- we're moving beyond raw materials, but we're leaving stuff as work in progress. And then we build those items up to deliver to customers through our peak trading period. But I think it's absolutely fundamental and it's incredibly hard to replicate what we've done. And I just sort of add just a wee bit of color to it. We -- I went to our Runcorn Christmas party and took my wife, which was an eye-opener for -- I can tell you. She -- but the feeling of our 1,000 manufacturing personnel at Runcorn at that party because we had purchased the site, made very clear what our plans were that this is a big future, and I stood up in front of them and said, you do a fantastic job for us. You make 3 million cabinets. The trouble is, I need another 1 million. And I think they are -- it's very common to meet people in our Runcorn site that have got 20, 30, 40 years' experience working for us. You don't -- you can't just -- one of our suppliers, Egger -- Michael Egger, Senior, who makes most of our chipboard for us. He said to me, Andrew, you can buy the assets, but you can't buy the people. And I think it's that sort of combination of that is very powerful for a business. I don't know if I've answered you well enough, Geoff, but it's fundamental to us. Zaim Beekawa: Zaim Beekawa, from JPMorgan. The first is on the new product sales. I think you said 29% in recent years, but quite excited about what's to come. So is that a number that you feel will pick up in the coming years? And then secondly, obviously, very strong on the gross profit margin in '25? Can I think about the moving parts into '26, please? Andrew Livingston: Yes. I sort of feel comfortable that 2025, it will move up and down depending on what we do. I feel comfortable with where we're at. When you bring new range into a business, you've got to make sure people understand it. The depot teams understand it. We do have a big exercise in James' team. We build an expo. Some of you have been up to the expo at the factory, and we've got an expert Runcorn, and we're opening up our first expert, Watford next month worth going and having a look at. And we use these spaces to show off our product offering, and you've got to train it into the team. So there's only so much a business can consume. You don't want to throw too much range in and not land well. And I think our cadence of about 2024 feels pretty good on the kitchens where the majority of the profitability is. You will see us do more on own labels. You'll see us do more innovation on outside kitchen areas. Kitchen is a fashion business. We've got to stay up on the front foot on it. Colors change, styles change very rapidly. I think we were pleased with the margins, but margins, we've got to leave enough room for the managers to flex it. We did well last year. I think Austin incentivized the teams incredibly well last year to deliver margin and volume. We all understand the rules on it, but if the kitchen comes out and it's cheaper, we will always take it, and we will develop the margins on the other side. But we're comfortable with our industry-leading margins. We don't chase the percent. We chase cash. We like cash. And I would say probably more of the same this year would be my guess, yes. Jacqueline Callaway: So we've got time for one more. Christian, do we? Priyal Mulji: It's Priyal Woolf here from Jefferies. I've just got two questions on the International division. I appreciate you said that in the U.K., you're rethinking what maturity even means. But can you give us any sense of what maturity time line looks like in France, just in the context that, obviously, you're slowing down on the depot openings, focusing more on getting to profitability there. And then the second one is just a quick one. Obviously, you're expanding in Ireland, you will be again at some point in France, is finding the correct sort of sites, any sort of obstacle yet at this point in time? Andrew Livingston: I think the quick answer on the second is no. We're always looking at -- we've been able to find the right sort of price location mix and very similar type of setup on trading estates in Ireland. And when we go into these secondary towns, we're getting good value, and we're getting prominent locations. So -- we've said around about 40. I don't know, it might be more, but a business of 40 in Southern Ireland would feel pretty good to us, and we'll be about halfway there by the back of this year, lots of growth to put on it. In France, yes, we were very clear. We're putting the foot in the ball. We're going to get the operations absolutely where they want to be. This year is an important year for the French team. And next year, the one after will be the same, but we want to see that business getting to breakeven in a sensible time frame. And we understand that happens when you push more depots on top to cover the fixed cost, but we want every depot in profitability in France in the near term. There's one question that we have to take because you've tried about 15 times now. Charlie Campbell: My arm is so tired from going up and down. I've got loads, but I'll keep it to two. Wren has bought Moores, it takes them into the trade bar, the kitchen market. Do you think that changes the way about how they attempt to broaden their addressable market in the U.K. at all? That was the first one. The second one was on the small branch depot formats you're going to start opening in France. Should we be looking to see those pop up in the U.K. anytime soon? Andrew Livingston: Yes. Yes, I don't -- it's interesting. The Wren business have tried several times to open up a trade business to be like us. Often, they've opened up a specific site, and we get wind of it and we release margin criteria to our depot managers and extinguish any potential flame coming out. On the contracts piece, we like routine, repetitive, repeating sort of maintenance type of businesses that we would sort of consider contract. The housebuilding stuff, we're happy to leave that to somebody else. I don't want large, long production runs that disturb high-margin supply to trade customers. And I think it could distract us. We're very happy to take local, smaller regional house builders if the margin is right for us. But I'm not looking to chase after big house builders. Symphony Group is better at doing that than us, they're better set up to do that than us. And the market is big. I don't know what their plans are, but I don't think it's going to change anything in the near future. Small depots in the U.K., I think we just -- it's more important for us to be in the catchment than not be in the catchment. So sometimes we go in and we will take a site that's a bit bigger or a bit smaller. You'd certainly see us doing a wee bit being a bit -- wee bit more curious in London. And of course, we've got the capabilities to do it. We've become much better at how we merchandise depots, built all that skill, and we're amazing at how we fulfill and supply depots, and we know what to put in the depots. It's the right type of product. So you can cope on smaller spaces. We're just about to open up in the arches at Waterloo, and that would be worth popping down having a wee look there. Limited parking, we think it's going to be a flyer. I think we'll call it quits there, if that's okay. So thanks very much for your time.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Preliminary Full Year 2025 Results Conference Call. I am Jota, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Rafael Pérez, CFO. Please go ahead. Rafael Perez: Good morning, and welcome to the Preliminary Full Year 2025 Results Conference Call of Befesa. I am Rafael Pérez, CFO of Befesa. And this morning I'm joined by our Group CEO, Asier Zarraonandia. Asier will start with an executive summary of the period. Then we will cover the business highlights for the steel dust as well as aluminum salt slag recycling businesses. I will then review the preliminary full-year financials by business, and we'll cover the evolution of commodity prices, our hedging program, and finally, cash flow, net debt, and leverage and capital allocation. Asier will close this presentation, providing an update on the outlook for 2026 and an update on our growth plan. Finally, we will open the lines for the Q&A session. As always, this conference call is being webcasted live, and you can find the link in our website. Now let me turn this call over to our CEO, Asier, please. Asier Zarraonandia Ayo: Thank you, Rafael. Good morning all. Moving to Page 5 of the business highlights. We have delivered strong full results -- year results, continuing the solid trends seen in the first 9 months of the year. Our performance demonstrates once again the resilience of our business model and the benefits of our diversified operations. Adjusted EBITDA for the full year of 2025 reached $243 million, up 14% year-on-year. The EBITDA margin improved significantly to 21% in the full year '25 compared with 17% in '24, reflecting a strong operational efficiency and disciplined cost management. Financial leverage was further reduced to 2.27 in December 2025 compared to 2.19 a year ago, well below the 2.5 target, marking the seventh consecutive quarter of deleveraging. Net income and earnings per share also increased sharply. EPS rose 58% year-on-year to 2.01, reflecting a strong profitability and improved financial performance. In our steel dust business, we achieved resilient EAF dust volume across all markets despite adverse market conditions. Performance was further supported by lower zinc treatment charges and favorable zinc prices. Our salt slag operation delivered solid performance, while secondary aluminum has been impacted by persistent challenging environment, driven mainly by the weak automotive market in Europe, as well as the usual summer period maintenance activities in the auto industry. The Palmerton expansion project was completed as expected, with the second kiln successfully commissioned in July '25. We expect '23 to be another year of earnings growth, primarily driven by higher EAF steel dust volumes in the U.S. as well as some recovery in secondary aluminum. Our financial leverage is expected to remain at around 2x by year-end 2026, supported by solid cash generation and disciplined capital allocation. Growth CapEx will continue to focus on the Bernburg project. I will comment on the outlook in more detail later. Moving on to Page 6, business highlights for the steel dust business. In Europe, steel production in the full year of 2025 has remained depressed, down 3% year-on-year, mainly due to weak manufacturing activity and higher imports from China. Despite this, our steel dust deliveries from electric arc furnace steel customers continued in line with the 2024 average at very solid levels, demonstrating the resilience of the business model. Operationally, the European plants performed strongly, achieving a 94% load factor in the fourth quarter, showing a strong performance and no maintenance stoppages. In the U.S., steel production increases by 3.1% year-on-year, driven by overall economic growth. Our U.S. plants operated at a 71% load factor in Q4, continuing a gradual improvement year-on-year. The 2 new kilns in Palmerton have been fully operational since July 2025, and new electric arc furnace steel supply contracts are ramping up progressively through the Q4, following some initial start-up delays. At the same time, cost reduction measures in the U.S. Zinc refining plant continued to deliver the expected improvements in asset profitability. In Asia, volumes in Turkey increased by 11% year-on-year, recovering strongly after a weak second quarter affected by maintenance shutdowns. In Korea, the load factor reached 76% in 2025, up 6% year-on-year, driven by higher domestic deliveries and strong operational execution. In China, operation continued at low utilization level with earnings around breakeven, reflecting ongoing market weakness. Moving on to the Page 7, business highlights for the aluminum salt slag recycling business. In our aluminum business, performance has remained mixed in 2025. Starting with the salt slag recycling business, operations have continued to perform strongly, running in line with previous quarters. Utilization levels remained above 90% in 2025, demonstrating the robustness and efficiency of our assets. In our secondary Aluminium segment, the market environment continues to be very challenging. As we have been commenting during the year, the European secondary aluminum industry remains under pressure with tight metal margins and limited production activity, largely as a consequence of the ongoing weakness in the automotive sector. However, the performance in the fourth quarter of 2025 reinforces the view that the Q3 was the lowest point of the cycle and that the recovery should be underway. Despite these headwinds, we continue to focus on operational discipline, cost efficiency, and customer diversification to preserve profitability and position the business for recovery once market conditions improve. Now Rafael will explain the financials in more detail. Rafael Perez: Thank you, Asier. Moving on to Page 9, the financial results for the Steel dust segment. Steel dust delivered EUR 212 million of adjusted EBITDA in 2025, which represents a 25% year-on-year improvement. EBITDA margin improved from 21% to 27% in the period, mainly driven by better pricing environment on treatment charges and zinc hedging. The EUR 42 million EBITDA improvement has been driven by the following factors. The year-on-year impact from volume has practically no impact, with similar plant utilization at group level around 70%, similar to last year. As explained by Asier, we have been able to run our European assets at a high utilization despite a very challenging market environment. On price, strong positive EBITDA year-on-year impact of around EUR 35 million. With the 2 main price components being higher zinc hedging price, 3% higher year-on-year, and lower zinc treatment charges, which was set at $80 per ton for the full year 2025 versus $165 per ton in 2024. On cost and other, the net positive EUR 6 million impact is largely driven by the lower operating cost in the zinc smelter in the U.S., as well as lower average coke price. These 2 positive effects have been partially offset by higher inflation costs in the recycling business as well as unfavorable FX. Moving on to Page 10, financial results for our Aluminum segment. Aluminum salt slag delivered EUR 32 million of EBITDA in 2025, which represents a 27% year-on-year decrease compared to the EUR 43 million in the same period of last year. The year-on-year EUR 11 million negative EBITDA development was mainly due to the lower aluminum metal margin, as well as slightly higher operating costs and energy prices. On volumes, overall marginally negative EBITDA year-on-year, with a decrease of EUR 3 million. Our recycling volumes of salt slag remained pretty much in line with the previous year. With these volumes, we operated our plants at a strong capacity utilization rates of about 89% in salt slag and 75% in secondary aluminum. With regards to prices, negative EBITDA year-on-year impact of around EUR 5 million, mainly driven by the pressure aluminum metal margin versus the previous year. As commented by Asier, our view is that the industry has bottomed out already in Q3 last year, and we expect positive development from now on. This was partially offset by higher aluminum F&B price with an increase of 3%, averaging EUR 2,369 per tonne. On cost and other increased pressure from higher operating and energy-related expenses. Moving on to Page 11, zinc price and treatment charges. Regarding zinc LME prices during 2025, heat zinc has traded in the range of $2,521 to $3,351 per tonne, showing a particular positive trend in the last months of 2025. The average of zinc LME price in 2025 have been $2,867 per ton, which is 3% above the last year average. However, unfavorable evolution of the foreign exchange of the euro-dollar has resulted in a slightly lower zinc price in euros, down 1% at EUR 2,542. On the right-hand side of the slide on treatment charges, in 2025, treatment charges for zinc were set in April at $80 per tonne for the full year 2025, compared to the $165 of the previous year, marking an all-time low record level. Turning to Page 12 on hedging. We have taken the opportunity of the recent rally of the zinc price to be very active on our hedging program. Our hedging book has been extended to the first half of 2028 at all-time high levels of $3,100 per ton. For 2027, the hedge is set at $3,000 per ton. This provides stability and visibility over the coming quarters and years. Average hedge prices amounted to $2,923 in 2025 and $2,990 per 2026. Turning to Page 13, Befesa energy prices. The page shows the evolution of the 3 energy sources that we have in Befesa: coke, natural gas, and electricity. With regards to coke price, which today represents around 60% of the total energy bill, the normalization that started in the second quarter of 2023 continues throughout 2025. Average coke price in Q4 was around EUR 152 per ton, consolidated its downward trend compared to the previous quarters. Regarding electricity, which today accounts for 30% of the total energy expense, price are at similar levels than in Q3 2025 after significant correction in the second quarter of last year. Finally, gas prices continue its normalization throughout 2025 with a slight increase to EUR 45 per megawatt hour in the fourth quarter of last year. Turning to Page 14, the cash flow results. Operating cash flow in 2025 has reached a record of EUR 212 million, which represents an increase of 10% compared to the same period of last year, despite higher taxes, with EUR 21 million paid taxes in 2025 versus a positive tax impact in 2024. On the EBITDA to cash flow walk, starting with EUR 243 million adjusted EBITDA and to the left, working capital consumption amounted to EUR 10 million in 2025 with a strong end of the year recovery from previous level in the first quarter, reflecting the intra-year seasonality that we explained already in the first quarter. Taxes paid in 2025 came in at EUR 21 million as a result of the final tax assessment of the previous year, in comparison with a positive tax impact in 2024, resulting in an operating cash flow of EUR 212 million in the year, making a record in the history of Befesa. On CapEx, in 2025, we have invested EUR 50 million in regular maintenance CapEx across the company, EUR 26 million in growth CapEx related to the refurbishment of the Palmerton plant in Pennsylvania, which is now completed as well as the part of the Bernburg expansion project in Germany. In summary, total CapEx of EUR 76 million in the year, which is lower than the range of EUR 80 million to EUR 90 million that we initially provided, reflecting a strong discipline on capital allocation. Total interest paid amounted to EUR 34 million, and total bank borrowings amounted to EUR 34 million in the full year. For 2025, the EGM approved in June to pay a dividend of EUR 26 million in July, equivalent to EUR 0.63 per share or 50% of the net income. In summary, final cash flow amounted to EUR 40 million in 2025. Cash on hand stood at EUR 143 million, which together with our EUR 100 million undrawn revolving credit line, provides Befesa with more than EUR 240 million of liquidity. Gross debt at the end of December stood at EUR 695 million. Net debt was greatly reduced by 11% to EUR 552 million compared to EUR 619 million in the same period of last year, resulting in a net leverage of 2.27 at closing of December '25, a strong improvement compared to the 2.9 at December 2024 and well below our initial target of 2.5. Turning to Page 15, debt structure and leverage. Following the refinancing back in July 2024 and the repricing in March last year, 2025, Befesa today has a long-term capital structure with optimized financial cost. Net leverage improved significantly, as explained earlier, to 2.27 at the end of last year. This marks the seventh consecutive quarter of leverage reduction, as well as well below our company target. For 2026, net leverage is targeted around 2x and below 2x onwards, reflecting Befesa's continued commitment to disciplined capital management. We will prioritize the growth CapEx on those projects that will deliver immediate cash flow upon completion, like the approved project of Bembur and other market opportunities that may appear. Also, we will keep the annual regular maintenance CapEx around EUR 40 million to EUR 45 million over the coming years. On dividend, we are committed to maintain our dividend policy to pay between 40% to 50% of the net income to shareholders. For 2026, the Board will propose to the EGM to pay a dividend of EUR 40 million, equivalent to EUR 1 per share or 50% of the net income. This dividend is 37% higher than the dividend paid last year in 2025. Moving on to Page 16. Befesa is entering a new cycle of low CapEx and high earnings, resulting in a strong free cash flow generation and shareholder value creation. During the last years, we have gone through a high CapEx cycle, which has allowed us to expand our operations globally into the U.S. and China. Now that this cycle is completed, we enter a new cycle of limited total CapEx below 80% over the coming years, along with high earnings, resulting in a strong free cash flow. Total cash flow after 3 years of negative cash flow, 2025 has been marked at an inflection point, delivering strong final cash flow. Total cash flow is expected to follow a positive trajectory, reflecting the company's improving a stronger underlying cash generation profile. Finally, as we have already commented, leverage is expected to be kept below 2x for the coming years, allowing greater optionality in future capital allocation decisions. Now back to Asier on outlook and growth. Asier Zarraonandia Ayo: Thank you, Rafael. Moving on to Page 18, 2025 guidance. Befesa closed 2025 with solid delivery within the guidance provided, achieving $243 million in EBITDA and strong operating cash flows of $212 million and maintaining a strict CapEx discipline, spending $76 million. The company continued to deleverage, reducing net leverage to 2.27, supported by improved EBITDA and consistent cash generation. Earnings per share rose to $2.01, reflecting a strong underlying performance and enhanced financial efficiency. Overall, the result demonstrates disciplined execution and continuous focus on long-term value creation forareholders. Moving to Page 19 on '26 outlook. Looking ahead to '26, as in the past, we will provide guidance in the first quarter once the 2026 treatment charge has been announced. However, I can provide some comments about the year. We expect 2026 to be another year of earnings growth, strong cash flow generation, and continued deleverage. Steel volumes are expected to remain solid and stable in Europe, while the U.S. anticipates higher volumes driven by new contracts with the steelmakers. In China and the rest of Asia, stability is also expected to prevail. Salt slags operations are projected to maintain stable volumes compared with 2025, supported by higher collection fees. The metal margin for second aluminum is also expected to improve gradually through the year, particularly after having bottomed out in the third quarter of 2025. The smelter has benefited from a strong fixed cost reduction achieved in 2025, and further efficiencies are expected to be realized through 2026. On the other hand, energy costs are expected to evolve more moderately. The group anticipates a slightly lower to stable overall coke prices, while European natural gas and electricity prices are projected to rise in 2026. General inflation continues to impact maintenance, ancillary materials, and personnel costs across all regions, creating a negative pressure point in the cost structure. In the treatment charge environment, the benchmark TC settled at $80 in 2025, its lowest level in 15 years. Although the concentrate market remains tight, characterized by low spot treatment charges, TCs are expected to rise in '26 toward a range of $100 to $130. Hedging activity foreseen remains stable with the average '26 hedge price set at approximately EUR 2,990 per metric ton, consistent with 2025 levels, suggesting a neutral hedging position. Total CapEx for the year will be below EUR 70 million, with around EUR 45 million for regular maintenance and the remaining for growth in expansion of Bernburg. Net leverage will be around 2x by the end of the year. Moving on to Page 20 on Palmerton. In the United States, our Palmerton plant has been successfully refurbished, marking a key milestone in our strategic growth road map. Both kilns are now fully operational, positioning Befesa to capture the significant growth expected in the U.S. electric furnace steel dust market over the coming years. U.S. electrical furnace steel capacity is projected to increase by more than 20% by 2028, equivalent to around 18 million tons of new steelmaking capacity. This expansion translates into over 300,000 tons of additional steel dust, creating a substantial opportunity for Befesa's recycling operations. With a total installed capacity of 650,000 tons across our U.S. plants, we are now well-positioned to leverage this growth. Our goal is to progressively ramp up utilization from below 70% today to around 90% by 2028 as new electric arc furnace capacity comes online. The combination of our modernized departmental facility, long-term customer relationships, and strategic geographic footprint near key steel producers ensures that Befesa is ready to capture this next phase of growth in the U.S. market. Moving on to Page 21, our expansion project in Bernburg, Germany. This is another important milestone in Befesa's growth journey as we continue to strengthen our aluminum business and expand our recycling capacity in Europe. From a timing perspective, our permits have now been obtained, and our construction officially started in August '25. We expect a 12-month construction period followed by a 6-month ramp-up phase in the second half of '26. On the commercial side, we have already secured strong customer support. Overall, the Bernburg expansion is progressing fully in line with plan. Moving on to Page 22 about the European steel industry. Europe is accelerating its transition toward electric arc furnace steelmaking, largely driven by decarbonization targets and supportive policy frameworks. Between '26 and 2030, 12 new electric arc furnace projects have been announced to come online. This represents more than approximately 20 million tons of new EAF capacity, which means 23% increase compared to the 60 million, 90 million of electrical arc furnace capacity in Europe. As a result, EAF penetration is expected to rise from the current 45% over the next 5 to 10 years, supported both by this new project and the progressive replacement of blast furnaces. Given our strong market position, established customer relationships, and ongoing business development efforts, Befesa is strategically well positioned to capture the significant volume growth expected from this strong. We are already engaged in advanced negotiations with key customers to support this expansion phase in the coming years. Thank you very much. Rafael Perez: Thank you, Asier. We will now open the lines for your questions. Operator: [Operator Instructions] The first question comes from the line of Shashi Sekhar with Citi. Shashi Shekhar: So I have a couple of questions. So my first question is on capital allocation. I just wanted to understand what's the priority here? Is it deleveraging, dividend payment, or further expansion into European steel dust business, given improved outlook for European steel segment? My second question is on China. I believe one of the plants is still burning cash. So I just wanted to understand at what point you will consider either closing it or moving it to some other province? Rafael Perez: Thank you, Sashi. On capital allocation, I think we have tried to explain many times. We want to deliver a combination of keeping the leverage below 2x. I think this year, we have made -- last year, 2025, we made great progress in our deleveraging efforts, achieving a target which is below what we initially envisaged at 227. We are targeting around 2x for this year, 2026. And beyond 2026, we expect to keep the leverage below 2x, okay? Secondly, on dividend, yes, we want to keep the promise that we made at the IPO to pay 40% to 50% of the net income as a dividend to shareholders. And then on growth, obviously, as we have explained, we are coming from a high CapEx period where we have invested heavily in China and in the U.S., and that has enabled us to expand our operations. I think the focus at the moment is for this year in Bernburg, as Asier has explained. And then we also see a clear opportunity to deploy capital in Europe, as Asier explained at the end of his speech, to capture the growth of the EAF steel market in Europe, okay? We envisage to do that through a brownfield. We will provide all the relevant details about the project at the right time. But it's a combination of capturing the growth opportunities that we see in our main market, Europe, while keeping the leverage below 2x and keeping the commitment to pay dividend. Asier Zarraonandia Ayo: Yes. Sashi, and regarding the second question about China, well, yes, we have one plant running probably levels in 50%, 60% and the other one is just 10%, 20% depending on the availability. But it's not burning cash because basically, what we have is that plant stopped under control, and even when we run in periods where we have stopped the plant, moving the people to run the business. And basically, the cash is -- we are not negative cash in general in China for the whole business. So we are doing EBITDA positive and converting into cash positive for the year. So we have some confidence to be in that way until the market comes back. Possibilities for the future, well, you talk about. I mean, we are open to see if we can move in another province. And in that case, we consider even to transfer or translate the assets. We will see. The whole thing now is that China is in a situation that we don't see the need to invest in that so far more and wait for the recovery and as well because we are not, again, making cash negative, we have time to do that. Operator: The next question comes from the line of Adahna Ekoku with Morgan Stanley. Adahna Ekoku: I also have 2. So first of all, just on secondary aluminum, there was quite a strong margin improvement quarter-over-quarter, given the market backdrop. Is this a level we should expect to persist throughout 2026? Or were there any kind of specific positive effects in Q4 here? And second, just on the Q1 outlook, could you run through the kind of key moving parts to consider here, like volumes and margins? And are there any maintenance activities we should be aware of? Rafael Perez: Adahna, thank you for the question. Well, secondary aluminum, I think that -- well, yes, I think as I reference the last quarter margins, and probably we will see this, and we are starting to see this level in the first part of the year. But still, it's a little bit early to say this is going to be there, perhaps the level even is increasing, we will see. I mean it's a good reference because we see that the last part of the part has gone. In terms of the outlook and maintenance, I think that the reference could be the last year situation for maintenance stoppages, and probably the dust and the activity volumes are going to be in line with 2025, but we think that we can improve the figures. But in terms of activity, it could be a good reference, the first quarter of 2025. Operator: The next question comes from the line of Fabian Piasta with Jefferies. Fabian Piasta: I have 3 and one follow-up. So could you give us an indication what the EBITDA contribution from your U.S. smelting business is? Are we breakeven already this year? And what are you expecting for 2026? The second one is on the treatment charge outlook. Do you think that this is more driven by capacities or the recently increasing LME zinc price, basically making smelter compete for the zinc? And the third question would be you were referring to demand from data center verticals. Is there an end market split that you can share? How do you see that? What do you expect this growth to influence volumes in the U.S. And the last one was on maintenance. Did you say that the phasing is going to be similar like last year, so more maintenance shutdowns in the first half? Or did I get that right? Asier Zarraonandia Ayo: Thank you, Fabian. So many good questions. Well, regarding the U.S., refinery is where the plan is where we thought to be and is closing to the breakeven point, and the costs are under control. Now the operation depends on the volumes as well of material we can treat there, and it's basically a control of the cost already done. Even you can gain a little bit more efficiency cost for next year. Regarding the treatment charge, it's a good question about what is affecting the most is capacity demand of about concentrates market, and it's a little bit strange. But obviously, it's affected by the rest of the factors, which affects to the zinc price. Normally, the period is still in favor of the miners. The question is where it's going to be spot TC that is not -- has not to be a real election, but it's a little bit down again. So well, all the music sounds that it's going to be another year of favor of minus. The level could be in the range as we see more than $100 now, but it has to be confirmed, basically those days with a meeting for the International Zinc Association in U.S. those days. We will see. In terms of the steel demand and so on, I think that everywhere is an expectation about the general evolution looks positive because we can see the steel share prices of everyone. I think that the expectation is that a recovery, and because the tax and custom action they are taking for -- in Europe or U.S. could have an effect in the production. If this happens, we see positive outlook for the steel in general. And regarding the last point, as I said before, yes, when we -- maintenance stoppage is sometimes not easy to move from 6 months or a longer period because yearly basis is when we do the maintenance. So more or less, what we see now for '26 is the same level than '25 with the Q1 and Q2 and then Q3 and Q4 having more volumes. This is a little bit the view that we have now, no major changes. We try to move and to do longer periods before the maintenance, but no big changes are going to come in the short term. So again, the '25 maintenance stoppage reference is a good point of your expectations. Operator: The next question is from Olivier Calvet with UBS. Olivier Calvet: I have 3. Firstly, on volumes in the U.S., what's your expectation for additional volumes in 2026, and that if you could give us a sense of the range you're thinking about, depending on when your clients' volumes come through? The second question would be on the CapEx level. So I fully understand the message on sort of below EUR 80 million CapEx going forward. But I noticed slightly higher maintenance CapEx in '25 than I think you had indicated. So are you expecting a similar level of maintenance CapEx in '26? And just the growth CapEx part related to Berenberg, I had in mind the EUR 10 million to EUR 15 million. Is that fair? And the third one, just on the zinc hedges. So great to see you've been active on hedging. So what you've added in '27 and '28 is in USD, right? In '26, I think you had hedged in euros, right? And just if you could remind us what level of exchange rate you hedge '26? Asier Zarraonandia Ayo: Thank you, Olivier. I can get the first question about the U.S. volume, which is what we do expect, is partly the same that we were expecting in '25 with the new contract. So -- and then depending on the evolution of the steel production in general for the rest of the customer, but we see more or less in the range of 60,000 to 70,000 tonnes of more volume in U.S., more or less is a good reference for you to have. Rafael Perez: Regarding CapEx, Olivier, I think we have said very clear, obviously, it's not a fixed number, but maintenance CapEx will stay between EUR 45 million to EUR 50 million over the coming years. And then growth will be based on -- in this year, for 2026, on Bernburg. We are envisaging a maximum CapEx for this year of EUR 70 million. And for the coming years, we don't see any year of CapEx higher than EUR 80 million. So what I tried to explain is that we are entering into a new cycle of limited capital, limited CapEx, and high earnings resulting in strong free cash flow. And regarding the hedging, yes, we -- for 2026, we are hedged in euros for our European volumes, in dollars for our American volumes. And for '27 and '28, the hedging at the moment in U.S. dollars. Olivier Calvet: And just on the CapEx, so the growth part of the guidance for '26 is basically only Bernburg, or is it -- is there some headroom to do-- Rafael Perez: Yes. Operator: The next question is from the line of Jaime Grivanomayes with Banco Santander. Jaime Escribano: A couple of questions from my side. The first one on salt slag. So the EBITDA in '24 was close to EUR 32 million, around EUR 29.5 million in '25. What could we expect in 2026? Also, if you can comment on the margin of Salted slags in Q4, which was a little bit low at 21%, more or less. What could we expect? If you can give us some color on the dynamics in salt slags, basically? And second question on secondary aluminum would be very much of a similar question. So EUR 2 million in 2025, which seems to be a trough. What should we expect for 2026, a number that you feel comfortable? And maybe a final question on the guidance 2026, which I know you don't provide, but if we look to the consensus at EUR 260 million EBITDA, EUR 260 million EBITDA more or less, how comfortable you feel with this number? And building on this, if the treatment charge ends up being around 100 million, 110 million, and zinc price averages above 3,000. How do you see this 260, do you see upside risk, or you're still comfortable with this number? Asier Zarraonandia Ayo: Thank you, Jaime. Starting for the salt question, yes, we have -- I think it's a business which the current normal capacity of the secondary aluminium production in general in Europe is quite stable. We do hope this reference of EUR 32 million that we have in '25 could be a reference even to increase something in '26, because we have increased fees for aluminum producers. So we see that it is a good reference, even slightly higher. The '25 number has been affected by basically the volume that you have seen that is not better, and some more weight of the cost of production because you are not increasing or compensating with the volumes. But the dynamics of the business is clear. It's very similar to the steel dust. The volumes is the key because we have the plant almost full capacity. But the current aluminum producing -- secondary aluminum producing situation is putting some stress to the plant, and we are not so efficient like in the past because the full production is the best situation to absorb the cost. We see the '26, as I say, a stable business, but probably a little bit higher, 10% or something like that could be a good reference. With regards to secondary aluminum, what we can wait or we can expect for '26. Well, the 2 million of the Q4 is a good reference. I mean, just repeating the 2 million in every quarter, we will talk about $8 million or something like that. So well, it's not coming back to the years that we have even EUR 20 million in this business, but well, [ Sala's ] reference of EUR 8 billion to EUR 10 billion is something that will be very strange for us, right? We will see if it's going to be even better because we see very difficult to be back on the worst period like it was the Q3. So yes, the Q4 could be a good reference, perhaps conservative, but repeating this, as I say, could be a reference. And with regards with the guidance, I know you guys that you like the numbers and basically one number and an average in the range, whatever, EUR 260 million, something that is the current consensus. Well, we are comfortable with this figure, but we need a little bit more time to see the evolution of TC and put our estimations. But I think that is, in any case, will be in the range, this amount, and we are not -- we are comfortable, yes, really. Operator: The next question is from Bertran Palazuelo with DLTV. Beltran Palazuelo Barroso: Congratulations all of you and the team for the strong results. I have 2 questions. First of all, regarding capital allocation, I know you answered, but I will ask again. Clearly, seeing the dynamics you're seeing and you're stating and clearly also stating the visibility you start having with the zinc prices due to the hedges, and seeing that the spot price is higher than your hedges? Well, it looks like in the future, well, your balance sheet should get stronger and stronger. So my question is, apart from paying the dividend, what is making you not start buying a little bit of shares to show the market all your, let's say, improvements. We -- from us, we would like to see the share count decrease. In 2021, you increased it at a good price. Now we want to see it decrease because the balance sheet, it looks like it gets stronger and stronger. And then my second question is apart from the -- what growth opportunities now apart from the state do you see medium to long term to allocate capital accretively. Rafael Perez: Thank you, Beltran. I think we have discussed many times. I think, obviously, share buybacks is something that we have looked in the past, but the financial profile of the company was not adequate. It is true that we expect to generate a very healthy cash flow going forward. We want to keep the leverage slightly below 2x. And yes, if we don't see any growth opportunity, we will definitely consider share buybacks, considering also the share price and the valuation of the company. So always any time that we see that the valuation of the company or the share price doesn't reflect really the -- what we believe should be the fair value of the company, we will analyze share buybacks. I don't think that's something that you can expect this year. We have another project in the pipeline, which is going to explain to you, which is in Europe, as you know very well. So it's about balancing everything. But yes, I think share buybacks are something that we are looking at, not in the short term, but more in the midterm. Asier Zarraonandia Ayo: Yes, indeed, I think Beltran is a good question. And I think that we are starting to enter in a cycle that we are going to generate strong cash, and the massive growth opportunities that we have in the past are not coming so high. So probably those considerations are on the table, and we have to see what is better is to keep growing with the projects as you are asking, or yes, to some program of say buybacks or whatever, what is better for the shareholders at the end of the day. In this regard, the project that we have in the pipeline for the next years clearly is to finish the Berburg plan as we are indicating basically in '26, and the next one could be -- or it could be -- the question is when, but probably starting '27 is a good reference and to run in '29 is the European second kiln in our French plant going on hand-to-hand with the projects of the steelmakers. We have in the pipeline as well the slab plant in the East Europe. If and following the developing of the decarbonization and the evolution of the automotive sector that nowadays, I think that is not the time to do because everything is delayed and has to be confirmed. Out of those 2 projects, we have, of course, the idea to medium term for new geographies like India, or let's say, 4, 5 years, China is back at the end of the day to see opportunities, small M&As or whatever. But it's true that this is the reason, as Rafael said, that we have to evaluate the new projects against new ways of contribution to the sales holders clearly. But anyway, we are really interesting because I think there is a very good opportunity for the Befesa evolution on the growth of the European market, and then we will see what is going on with the rest of the geographies. Beltran Palazuelo Barroso: Okay. But also, as I said in the past, and I said it now publicly, I think you have demonstrated to the market that you're extremely good, let's say, operators. Now what you have to demonstrate to the market is that you are extremely well capital allocators. I think you demonstrated in 2021. Now you have to demonstrate it going forward because if you start a share buyback of EUR 10 million or EUR 20 million in the future when the stock is at EUR 60 million, that would make no sense. So I -- you don't have to make a big thing, but I think the balance sheet is getting stronger and the stock market is not reflecting it, and all the support. Rafael Perez: Fully agree, Beltran, you so much for your comments. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Mr. Perez for any closing remarks. Rafael Perez: Thank you all for your questions. Please don't hesitate to contact the Investor Relations team of Befesa for any further clarification. We will now conclude the conference call. Thank you for joining, and have a good day. Bye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call.
Marissa Wong: Good afternoon. Welcome to CLP's 2025 Annual Results Briefing. My name is Marissa, Director of Investor Relations. And with me today is Chief Executive Officer, Mr. T.K. Chiang; and Chief Financial Officer, Mr. Alex Keisser. We lodged our 2025 annual results with the Exchange today. That announcement as well as this presentation is now available on the CLP IR website. This recording is also being recorded, and you can access that a little bit later on this evening. Before we begin, please read the disclaimer on Slide 2. And this year, we've got 2 languages available; one, English and one, Putonghua for you to choose from. And for today's briefing, we'll start with T.K providing the overview, followed by Alex with the financial results, and then T.K will return with the strategic outlook. We will then conclude on with a Q&A session, and we encourage your participation and your questions. So with that, I will now hand over to T.K to begin the briefing. Thanks, T.K. Tung Keung Chiang: Yes. Thank you, Marissa. So good afternoon, everyone. Thanks for joining us. In 2025, our core Hong Kong business performed strongly, providing stability that offset market headwinds on the Chinese Mainland and also Australia and kept our overall results resilient. The fundamentals of our business remain strong. Our operational excellence continues to drive value across the group, advancing critical projects that secure energy reliability and our transition to 0 carbon. In Hong Kong, we completed our smart meter rollout and maintained world-class supply reliability despite facing a record Black Rainstorms and 14 typhoons. On the Chinese Mainland, we brought our largest wind farm to date into commercial operation, launched our first independent battery energy storage system and commissioned our second centralized control center in Shandong. In India, Apraava Energy achieved full commissioning of its 251 megawatts Sidhpur wind farm, its biggest wind project to date. And in Australia, we completed outage programs at Yallourn and Mount Piper enhancing its flexibility and reliability. Our growth momentum is aligned with energy transition opportunities in our region. With a disciplined, value-driven approach, we are advancing a pipeline of low-carbon projects that will secure future earnings. At the same time, we have taken steps to drive cost efficiency and strengthen our foundations. We completed Phase 1 of our ERP rollout in Hong Kong, advanced and enterprise-wide transformation at EnergyAustralia and optimized head office operations. We closed 2025 with healthy cash flow and a strong balance sheet. This financial resilience, combined with our growth momentum, gave the Board the confidence to increase the dividend, continuing our track record of delivering shareholders' returns. Turning to the highlights. Financially, the group's operating earnings before fair value movements were down marginally by 2% to over HKD 10.6 billion. Total earnings were lower by 11% to HKD 11.5 billion, driven by coal plant-related items affecting comparability. So Alex will provide details shortly. The Board has recommended a final dividend, bringing total dividends for 2025 to HKD 3.20 per share, an increase of 1.6% from 2024. Operationally, we achieved strong performance in safety and reliability with a lower injury rates and reduced unplanned customer minute loss in Hong Kong. On the customer front, we added more accounts in Hong Kong, while competitive dynamics in Australia led to a decline in numbers. In terms of generation, electricity sendouts declined by 3% reflecting lower coal output. At the same time, non-carbon capacity rose by 3%, driven by renewables and battery investments across the group. I'll now hand over to Alex for the financial results. Alexandre Jean Keisser: Thank you, T.K, and good afternoon. A summary of the key metrics. Earnings before interest, taxes, depreciation, amortization and fair value movement or EBITDAF was stable year-on-year at HKD 25.7 billion. Operating earnings before fair value movements decreased slightly by 2% to nearly HKD 10.7 billion. Adjusted for the fair value movements and items affecting comparability, total earnings was close to HKD 10.5 billion, a decrease of 11%. Capital investment declined 13% to HKD 16.4 billion, with higher growth CapEx offset by the absence of the headquarters acquisition booked in 2024. Total dividends for financial year 2025 was HKD 3.20 per share, representing an increase of 1.6%. Let's go now into the details. The group's performance was anchored by a strong Hong Kong business performance. Elsewhere, earnings were impacted by market pressures, transformation costs and one-off items. Fair value movements on Energy Australia's forward energy contracts were less favorable compared to a year ago. Several nonrecurring items also affected comparability in '25. A HKD 680 million impairment on 2 minority-owned coal plants on the Chinese Mainland was taken due to lower demand and rising competition from renewables. A HKD 345 million redundancy for Yallourn plant closure was also provisioned. While a positive contribution of HKD 390 million was booked from EnergyAustralia's Wooreen battery following the formation of our 50% joint venture with Banpu. I'll now take you through the detailed performance and outlook for each business unit. All balances will exclude foreign exchange to reflect underlying performance of the business. Let's begin with Hong Kong. It was another solid year. Core earnings rose 7% to just over HKD 9.5 billion, driven by continued capital investment and high operational reliability. We also proactively refinanced debt in a favorable interest rate environment to lower interest costs. Capital expenditure was HKD 10.6 billion, focused on growth and decarbonization, supporting the northern metropolis development, data center expansion, grid upgrades and completing the smart meter rollout. Electricity sales dipped slightly, reflecting milder weather and a high base into '24. However, demand from data centers continue to grow, reinforcing their role as a key structural growth driver. We continue leading Hong Kong's low carbon transition, investing and partnering across sectors from transport and shipping to building. Looking ahead, our focus remains on 3 priorities: First, continue delivering safe, reliable electricity at a reasonable tariff. Second, delivered a HKD 52.9 billion development plan expanding infrastructure in growth areas and strengthening grid resilience to support Hong Kong's future. And third, support Hong Kong's 0 carbon goal by completing the clean energy transmission system and working closely with government to increase 0 carbon imports. Now turning to Chinese Mainland. It was a challenging year shaped by transitional supply demand imbalances, softer demand and resource variability. Earnings declined 12% to HKD 1.6 billion, mainly from Yangjiang Nuclear and renewables. Yangjiang's contribution fell due to a higher share of output sold at market tariffs where prices were lower. Renewables were impacted by historically low wind resources and higher curtailment of approximately 9% across the portfolio, particularly in Jilin and Gansu. Conditions improved as the year progress in key provinces like Shandong and Jiangsu with easing tariff pressure. Our minority coal portfolio saw reduced dispatch from lower demand. Nevertheless, operational performance continues to be strong. Energy sold increased across the portfolio with Daya Bay Nuclear delivering another standout year. We also commissioned 1 new win and 3 new solar projects adding to earnings, and we received a record amount of renewable energy subsidies, boosting our cash flow. While our annual contracting GEC and PPA volume with corporate customers increase, supporting short-term earnings visibility despite a softer pricing environment. And finally, on the development side, our pipeline remains healthy at over 1 gigawatt. Looking ahead, Daya Bay will remain a stable contributor, while Yangjiang will face increasing market tariff pressure. For our minority coal assets, earnings should remain stable. Higher capacity charges under Policy 114 are expected to offset the removal of the floor price. The outlook for renewables is sound. Market fundamentals are stabilizing and tariff pressure looks manageable. Importantly, we had success under Document 136. We secured full eligible mechanism tariff volume for 4 projects, locking in attractive rates for the next 10 to 12 years, providing solid long-term revenue visibility. Our capital strategy remains disciplined, and we're exploring efficient funding options, including onshore Panda Bond and strategic capital partnerships. Two, EnergyAustralia. Overall performance was impacted by tough retail conditions and a combined HKD 300 million impact from the one-off tax expenses and upfront transformation costs. In generation, the fleet performed well. Mount Piper run reliably and our fleet operated flexibly to capture optimal pricing outcomes in a period of less volatility, effectively offsetting the Yallourn's lower output and Mount Piper's higher coal cost. Retail remained challenging. Intense competition and cost of living pressures led to margin compression, loss of customer accounts and higher bad and doubtful debts. That said, we saw improvement in the second half with early benefits from cost initiatives and recontracting activities starting to materialize. We booked upfront cost under the enterprise segment, tied to the multiyear transformation program launched in 2025. This strategic investment includes our partnership with Tata to streamline IT operation and corporate functions. Separately, we are evaluating billing and [ CRM ] platforms to simplify and digitize the business. Earnings were also impacted by the one-off tax expense arising from changing law tax that limits the deductibility of interest expenses on shareholder loan. On the positive side, finance costs declined driven by lower average debt levels and reduced interest rates. We also settled the maturing shareholder loan and put in place a smaller, more flexible perpetual note, an equity classified instrument with no fixed repayment obligation to strengthen EA balance sheet. The net result was operating earnings to HKD 85 million, reflecting the combined weight of retail performance, transformation investment and the tax one-off. Looking ahead, EnergyAustralia is focused on 4 key actions: first, optimizing our generation portfolio, leveraging our flexible fleet to respond to demand and capture value in evolving NIM with high volatility. Second, building on second half momentum in retail to improve margins through targeted customer strategies, ongoing cost out and platform transformation. Third, executing our enterprise-wide transformation to deliver a leaner, more efficient operating model by 2028. And lastly, delivering new flexible capacity. We're advancing over a gigawatt of new batteries and pump hydro projects, with Wooreen on track for 2027, laying the foundation for stability and earnings growth. Moving to India. Our joint venture platform, Apraava Energy delivered solid underlying performance. However, reported earnings were impacted by one-offs. Headline results were down 29%, primarily new to HKD 82 million one-off impairment on KMTL transmission. This compares to 2024 results that including one-off gains totaling HKD 55 million. Excluding these one-offs, our underlying operating earnings improved. Renewables delivered higher output, thanks to higher wind generation and the full commissioning of the 251 megawatts Sidhpur wind farm. Solar remained stable, and we saw additional interest income from delayed payment. Transmission had solid availability and earnings from our 2 operating lines. Our smart meters portfolio is scaling up with more than 2.5 million meters installed and growing contributions as rollout accelerate with another 7.2 million meters to be installed. Jhajjar thermal output was lower. But the plan maintained high operational efficiency and reliability. We continue to drive an ambitious growth pipeline. 18 Projects won within 3 years across a diversified portfolio for an equivalent of close to 2 gigawatt capacity. Looking ahead, we remain focused on portfolio decarbonization and sustainable growth. A key milestone will be the sale of our Jhajjar coal plant, which is on track to complete in the first quarter. The sale will unlock capital for reinvestment and is expected to generate gain. With a clear path to decarbonize and a robust pipeline, Apraava is well positioned to capture India's significant energy transition opportunities and continue to deliver value to shareholders. Finally, to Taiwan region and Southeast Asia, earnings declined to HKD 179 million. Ho-Ping's contribution in Taiwan was lower due to lower recovery of coal cost while Lopburi solar in Taiwan remained stable. We also incurred higher development and corporate expenses as we explore new opportunities in the region. Looking ahead, Ho-Ping will focus on managing fuel cost. More broadly, we are assessing opportunities with long-term contracts across Taiwan region and Southeast Asia as part of our growth strategy. These targets benefit from strong economic growth, supportive policy settings and utility scale projects offer attractive potential. We are currently evaluating opportunities, including renewable energy projects in Taiwan and cross-border development linking Laos and Vietnam and we'll proceed with the right partners and funding structures in place. Turning to cash flow. Free cash flow generation was strong, up HKD 1.6 billion to HKD 22.6 billion driven by solid EBITDAF and fuel cost recovery from declining fuel prices from our Hong Kong SoC business, alongside receipt of renewable subsidies from the Mainland. With our new headquarter completed in 2024, overall capital spend came down. Total cash outflow was HKD 22.6 billion made up of HKD 14.6 billion of capital investment and HKD 8 billion of dividend payments. Of the HKD 14.6 billion of capital investment, HKD 11.2 billion was invested in our Hong Kong SoC business and HKD 3.4 billion was spent on renewables projects on the Chinese Mainland and Wooreen battery in Australia. Cash payment for dividends was higher as a result of the higher final dividends for financial year 2024. Finally, our financial structure remains strong with a slight increase in net debt. Our liquidity remains sound with around HKD 29 billion in available facilities to meet business needs and contingency. The team has successfully raised over HKD 17 billion debt for the Hong Kong SoC business in addition to the refinancing of the USD 500 million perpetual capital securities, all with competitive credit spread. Our prudent financial management continues to be recognized by rating agency, S&P and Moody's reaffirm our strong investment-grade ratings for CLP Holdings, CLP Power and CAPCO, all with stable outlooks. And finally, Moody's is upgrading EnergyAustralia outlook to positive on its investment-grade BAA2 rating. I'll pass it now over to TK for the strategy update. Tung Keung Chiang: Thanks, Alex. Energy security and decarbonization are the critical forces shaping our industry's future and CLP is committed to leading this transition. Our strategic priorities are clear and centered on balanced growth, decarbonization and financial discipline. Hong Kong remains our cornerstone. It's stable, regulated framework provides predictable returns and dependable earnings that are fundamental to our strength. We are executing the HKD 52.9 billion 5-year development plan to deliver safe, reliable and affordable power while supporting government's economic and infrastructure agenda and accelerating the city's energy transition. Our major focus is modernizing and expanding our power system to meet future demand from the northern metropolis, a 300 square kilometer development that will house 2.5 million people to the rising needs of data centers and electrified transport. This disciplined investment delivers for Hong Kong and builds a solid platform for sustainable growth. Now building on that foundation, we are targeting growth in fast-growing energy transition markets in our region and doing it with discipline. Our strategy is firmly value over volume. Each investment must meet our minimum return requirements. The goal is to build durable recurring earnings while ensuring diversification. China led global renewable energy in 2025, adding nearly 450 gigawatts of solar and wind and now reinforced by the government's landmark pledge to reduce emissions by 7% to 10% from peak levels. We are participating in that growth but selectively. In 2025, we added 0.5 gigawatt of renewable, which is modest compared with the national scale. Reflecting our calibration to ongoing market reforms, we have adjusted our development targets from 6 to 5 gigawatts of renewable energy by 2030. We are prioritizing quality opportunities with long-term earnings visibilities. This means focusing on high-demand regions with strong resources and great access, expanding at existing sites where we already have scale, and securing long-term green power contracts or GECs with corporate customers. Encouragingly, we've had success post Document 136 implementation with 4 projects across Hebei, Yunnan and Shandong, each securing full eligible mechanism tariff volumes totaling around 1 gigawatt at attractive prices and long tenors supporting long-term revenue stability. Importantly, our growth in China is being structured to be self-funded. From 2026, we plan to tap into onshore financing, like tender bonds and bringing strategic partners through a clean energy fund. It's a model we have already proven in Apraava, and we are applying that same capital discipline here. India's commitment to clean energy is clear, targeting 500 gigawatts of non-carbon capacity by 2030, alongside massive grid modernization, for greater efficiency. This creates a powerful backdrop for Apraava's growth. As our self-funding joint venture, Apraava is scaling up across a low carbon value chain, wind, solar, transmission and smart meters. In the last 3 years, Apraava secured 18 projects across a diversified portfolio, all backed by long-term contracts that lock in stable, attractive returns. Today, it has around 2 gigawatts of low-carbon projects underway, targeting 9 gigawatts by 2030. As part of a diversified portfolio, the business will begin to explore opportunities across commercial and industrial customers and battery storage. Apraava Energy is a capital-efficient growth platform, enhancing both our earnings and long-term growth profile to Australia. In 2025, solar and wind hit new milestones, supplying over 50% of the national electricity markets in quarter 4. This is a clear sign of where the market is heading. Our focus is on firming this increasingly renewable heavy grid. We are investing in flexible capacity that supports reliability and capture value as volatility grows through Australia's decarbonization. EnergyAustralia has over 1 gigawatt of new dispatchable and firming capacity slated to come online in the next 3 years. We have made strong progress on multiple fronts. Over the last 2 years, we have secured government support for 3 key battery projects; Wooreen, Hallett and Mount Piper under the federal government's capacity investment scheme. These projects benefit not just from policy tailwinds, but also from existing lands, grid connections, skilled local workforces and EnergyAustralia's growing development capability. Our partnership model is delivering results. We launched 2 major collaborations in 2025, the 351 megawatts Wooreen battery with Banpu, now under construction; and the 335-megawatt Lake Lyell pumped hydro projects with EDF in development. EnergyAustralia will remain self-funded using partnerships and project financing for large projects, EA's balance sheet for smaller ones and long-term contracts for projects outside our asset footprint. With a clear plan to reduce costs, a more flexible fleet and a strong pipeline of new capacity, EnergyAustralia is well positioned to deliver reliability, resilience and value in Australia's evolving energy markets. Let me touch on our capital allocation approach. It can be summarized as invest for growth, but within our means while protecting financial strength and delivering shareholder returns. Our foundation is solid, a strong cash generation profile and solid investment-grade credit rating give us the flexibility to fund both operations and growth. Hong Kong's sustained asset growth underpins stable and predictable cash flow, supporting our consistent dividend. Beyond Hong Kong, we apply a disciplined lens to every investment. We prioritize capital for projects that are strategically aligned and meet our return thresholds. We also run our established businesses with the objective of financial independence, maintaining stand-alone credit profiles and tapping diverse funding sources. We will leverage capital recycling and business model options, including partnerships, such as the clean energy funds on the Chinese Mainland for efficient use of capital. By adhering to these principles of discipline and diversification, we will drive steady long-term earnings growth. Now finally, our core capabilities are what enable everything I've described. For CLP, it starts with operational excellence. That means consistently delivering strong performance across the energy value chain through efficient operations, reliable networks and great customer experience. We've strengthened grid resilience, modernize our infrastructure and leverage technology to improve efficiency, all of which underpin our reliability, cost discipline and safety performance. Two critical enablers support our strategy, our people and our digital transformation. We are investing in our teams, reskilling and upskilling our workforce and fostering a culture that embraces change. At the same time, we are embedding digital solutions across the business, a key milestone was deploying our ERP system in Hong Kong alongside a digital literacy program that has reached thousands of employees, helping to improve efficiency and decision-making. These capabilities are interconnected and reinforcing. Together, they give us the competitive edge to meet the demands of a rapidly evolving energy sector. We faced the opportunities of energy security and decarbonization with discipline and purpose and with a clear focus on delivering sustainable long-term value for our shareholders. I'll now hand over to Marissa to facilitate our Q&A session. Marissa Wong: Thank you, T.K, and thank you, Alex. We will now begin the Q&A session. [Operator Instructions] Pierre Lau from Citi. Pierre Lau: Can you hear me? Marissa Wong: Yes, we can hear you well. Pierre Lau: I have 2 questions. The first one is for Alex. If you look at Page 12, regarding EnergyAustralia, I think 2025 EnergyAustralia earning below expectation. And I can see that the sharp increase in the enterprise or the corporate expenses and also increase in depreciation and amortization expense. I want to note that these 2 number, I mean, minus HKD 177 million and also minus HKD 190 million, how much of them are on a recurring basis? And how much of them on one off basis? And also, what will be the outlook for 2026? And the second question is on Page 15. Regarding your cash flow. So this is the question for T.K. So I can see that 2025, your CapEx -- for growth CapEx, mainly in Australia and China, still up year-on-year. But obviously, 2025 earnings from both Australia and China were not so good. So are we going to increase the CapEx further for these 2 countries in 2026. And also, we mentioned that we target something like double-digit IR for China and high single-digit for Australia. Are we too optimistic in terms of our return forecast? Tung Keung Chiang: Maybe Alex can answer. Alexandre Jean Keisser: Yes, I can start with the first one regarding EnergyAustralia. So -- and I will add one point, if you allow me. So if we look at the breakdown of the 3 points that you have raised, so the D&A increase depreciation and amortization is a recurrent up to [ HKD 228 million ]. That was linked to the increased CapEx that we did, mainly in Yallourn in order to increase its reliability and able to hedge more of its energy. The one which is linked to enterprise EBITDAF, this is more one-off linked to 2 activities. The first activity is the outsourcing of our IT and corporate services to Tata. So this has been done in order to prepare future reduction in our operating costs. It's an OpEx which is done in order to improve our operation. And the second type of expense that we had is for the contracting for a new platform for our customers that has been not yet set, but for which we already had some expense. The third element that I want to raise, which we have not raised is regarding taxation. This is also a reduction in our earnings linked to a one-off as we took the decision not to deduct from the taxes, the interest payment between EA and CLP for the shoulder loan that was in place. Marissa Wong: And Alex, just touching on the outlook on EA. Alexandre Jean Keisser: The outlook, I don't provide any outlook for that. So sorry for that. Tung Keung Chiang: Okay. Now regarding question 2, the CapEx for growth, as you can see on Slide 15, it's mainly for the Chinese RE projects and EnergyAustralia's Wooreen battery. Now for EnergyAustralia, Wooreen battery will only be commissioned next year. So the benefit actually will be coming. So there is always a kind of a time difference between CapEx and asset commissioning to bring in the benefits. Now regarding the -- but maybe one data point is that you -- last year, we have 4 projects commissioned in Chinese Mainland. Total is about 400 megawatts but right now, we have 5 projects under construction. The total capacity is about 900 megawatts. So we will see more asset coming online this year. Now regarding the expected return, that's our hurdle rate, and we have been very disciplined in ensuring that the investment that we're making can satisfy the hurdle rate. As I also mentioned previously, in Chinese Mainland, we have had 4 projects with total capacity of about 1 gigawatt that have been successful in the mechanism tariff bidding process last year. For those mechanism tariffs, the tariff level actually are quite attractive, and all of those projects after taking into account the future projections of the market tariff, we are quite confident that the IRR actually is higher than our hurdle rates. So we will now continue to focus on winning these kind of mechanism tariff in our markets because having the mechanism tariff with protection on the tariffs for tenure ranging between 10 to 12 years will give us profit stability. Marissa Wong: And maybe just touching on the fact that the target has reduced a little bit from... Tung Keung Chiang: Yes, because of the fact that we want to be more selective in the Chinese Mainland market. So we have adjusted down the target from 6 gigawatts to 5 gigawatts by 2030. And we want to be more selective in picking projects in markets or in regions that have relatively higher tariffs, greater demand lower risk of grid curtailment and also funding projects that are like extension projects that we have already had our existing asset, then we can leverage on the existing infrastructure to reduce the cost of those additional investments. Marissa Wong: And maybe Alex touching on the funding? Alexandre Jean Keisser: Yes, I'd like to provide 2 more information. The first one is regarding China, we financed our project with a 70% to 80% project finance, while when we do our evaluation on the return on equity, we don't assume full recontracting of this project finance, and we assume an average of 50% debt over the lifetime of the asset, so taking a conservative approach. Second information that I want to provide is when we look at our minimum return, we don't take into account potential gain on sell down in the future. So for example, when we took the Wooreen investment, we didn't take into account the gain that we did following this on the sale to Banpu, which was of HKD 390 million for the full 100% of equity. Marissa Wong: Thank you. Alex. Thanks, Pierre, for your question. Next on line is Yonghua -- Yonghua Park from HSBC. Yonghua Park: Can you hear me? Marissa Wong: Yes. Yonghua Park: Well I have about 3 questions. So in terms of long-term planning, India will add 9 gigawatt of non-carbon energy. So this seems to increase from last year's 8 gigawatt coal. Will you increase plan capital allocation from HKD 6 billion per annum to which number? And what's the reason behind this upgrade? Have you seen any improvement in terms of project return in India? Secondarily, in Mainland China, renewable target is [indiscernible] to 5 gigawatts. So can we assume capital allocation could be also trim from 4 billion per annum last year number? And lastly, Yallourn coal-fired plant will be shut down at a point or any other point after that? I saw some news previously indicated that EA will invest AUD 5 billion for their structuring. Can you just clarify? Tung Keung Chiang: Maybe I try to answer the first question. Second question on CapEx, maybe I'll ask Alex to supplement. Now for the first question about the long-term planning in India, actually, I think this 9 gigawatt target is consistent with our long-term planning since last year. Actually, our target is to have about 1 gigawatt a year, so if you look at our existing asset and those assets under construction, so by 2030, adding 1 gigawatt a year of commitment then we can achieve this 9 gigawatt of non-carbon projects. And the capital allocation basically is based on this 1 gigawatt per year to deduce this HKD 6 billion per annum. Marissa Wong: Just on the point that Yonghua, I think you were looking at the 8 gigawatt, it was a 2028 target. So now we've added 2030 an extra year, which is now 9 gigawatts. Tung Keung Chiang: Yes. So it's consistent, yes. Yes. And then on Yallourn, basically, we are maintaining this -- retiring Yallourn by middle of 2028. That's our current plan and actually the agreement with the government. Regarding the CapEx investment, I think it's longer term, after Yallourn closure. Marissa Wong: I think Yonghua, that's -- you're referring to the Yallourn precinct investment? I assume that he is, yes. Alexandre Jean Keisser: I can try to cover here. Tung Keung Chiang: Maybe you cover the CapEx. Alexandre Jean Keisser: Yes. So first of all, on China, yes, of course, the HKD 4 billion per year will be slightly reduced by a bit more than -- by a bit less than 20% in light of the reduction of the target. One incremental information that I want to provide on this, we have taken the decision that by end of 2026, renewable activity of BU China will be self-funded with the raise of up to HKD 3 billion of Panda Bond and also the creation of a clean energy fund, we will have some partners to that. So that's regarding China. Regarding Australia, maybe that was the question is we have a target to have by 2030, up to 3 gigawatt of flexible capacity or contracted or developed, and we are not looking at developing any renewable projects, and we also plan to do this on the balance sheet of EA with similar structure for the large project that what we have done for Wooreen, which is project finance and also we're seeking the right partners in order to reduce the funding needs and increase our return on these projects. Marissa Wong: Thank you, Alex. Next question from JPMorgan, Stephen Tsui. T. Tsui: [indiscernible] The first is, can you please give some guidance on the CapEx outlook this year in terms of growth CapEx, maintenance CapEx and SoC? And about the dividend [indiscernible] because you've raised dividend by more than [indiscernible] this year despite [indiscernible] decline in operating earnings. So how about dividend growth this year given the headwind Mainland China and the Australia [indiscernible]. Marissa Wong: CapEx. Tung Keung Chiang: So 2 questions. Yes, maybe I'll ask Alex to shed some lights on the CapEx. Now regarding the dividend outlook. So basically, our dividend policy is to target to maintain a steady and growing dividend supported by sustained growth in our business. So we'll -- based on the longer-term assessment on our sustainability of our business and then decide the appropriate dividend level. So we will not give any outlook for the moment and all the dividend will be approved by the board by year-end. And maybe Alex can touch on the CapEx? Alexandre Jean Keisser: Yes. On the CapEx, so regarding the SoC CapEx, so we have a total of HKD 10 billion to HKD 11 billion per year that will be spent. Regarding growth CapEx, the growth that we had in India has slowed down slightly this year versus 2023, 2024. It's not being consolidated in any case, and it's being self-funded. The growth in terms of CapEx in China will be linked to the project that we will be able to close and the growth of CapEx related to Australia will be depending when we'll be able to start our project of Mount Piper BESS and when we'll be able to close our partnership on this. Marissa Wong: Thank you, Alex. On the line is Cissy Guan from Bank of America. Cissy Guan: I have a few questions, all regarding to the future capital strategy. First of all, you mentioned the clean energy fund in China, when do [indiscernible] on this? And what kind of partners are we looking for? Are there going to be insurance money or any specific type of investor do you think that may be interested in collaboration with us in renewable energy in China? And also secondly, India, we saw that Apraava has sold the Jhajjar power plant. So will there be any special dividend be upstreamed to CLP? And thirdly, for EnergyAustralia, first of all, are we still looking for disposal of stakes? And also can you provide an outlook as regard to the wholesale power tariff in Australia going forward? And also how will the next [ CMO ] and video reset going to be? And how will the retail competition landscape going forward? Tung Keung Chiang: Okay. Maybe for the CF strategy, Alex can help address it. maybe also including the -- what happened after the Jhajjar sale. Now regarding the EA, the Australian market. Now we do see continued intense competition in the retail sector. So this will continue. So in order to address this, so we have taken steps to improve the business performance. First is to optimize our cost of operation. Secondly is that we are looking at upgrading and replacing our customer platform. We are in quite an advanced stage, and we hope that we can confirm the technology and start execution this year. So with a new platform, we target to further improve the efficiency as well as enhancing the customer experience so as to improve our competitiveness in Australia. Regarding the power price, I think in short term, if you look at the forward price curves, it softened slightly. So we will see, this will continue in the short term. But I think maybe starting from 2028, we do see the potential of forward price increase later because of some of the changes in supply situation. Now in Australia, because of the -- actually, the whole energy transition and decarbonization for CLP Group, the capital requirement is very significant. So we want to be focusing on our core markets, in particular, Hong Kong and China. So for EnergyAustralia, firstly, it will be self-funded. Secondly, that we want to have different kinds of partnership in order to have more efficient use of our capital. So one example is the partnership in the Wooreen battery, where we have sold 50% to Banpu. This is a good example that on one hand, we can have a more efficient use of capital and secondly, that actually, the overall return of the project can be enhanced. And we are open-minded about different forms of partnership, be it at project level or enterprise level. But more importantly, I think in the short term, we want to make sure that the business, actually, the performance is -- can be further improved, both in terms of the efficiency as well as how do we manage all the risks in the market. Maybe I ask Alex to address the first 2 questions. Alexandre Jean Keisser: Yes. So I'll start with India. So the plan is when the transaction will be closed to have Apraava Energy doing it full distribution of the proceeds to [indiscernible] and CLP 50-50% over the year 2026 and 2027. CLP, however, doesn't plan to have an extraordinary dividend distribution being done following this distribution. Regarding China, we have to recognize that the CLP brand is very well recognized. The first was when we had our RMB 3 billion bond being approved by the regulators, we started to do a road show with our underwriter, and we plan to have this first RMB 1 billion being drawn upon in H1, which have been quite well received. Regarding the clean energy fund, let me first explain you what the business model. The business model that we have is looking for the partners, bringing our full expertise in terms of development, in terms of operation, in terms of market sales, in terms of project finance and keeping our brand attached to this clean energy fund, meaning that we want to sell the project once they are being built. But we want also to stay into the fund being an LP with 50% in order to have aligned interest because this is not a one-off. This is a long-term strategy that we want to do, not only for Chinese Mainland, but also for other countries. Regarding who are the different investors. We are looking for a potential insurance company to be an anchor investor. And pending that, we will look for a few others, but a limited number for a fund, which will be around HKD 4 billion fund size with a total CapEx of HKD 20 million. Marissa Wong: Thanks, Alex. I'll just note one more point on EA retail. Yes, it has been challenging conditions. But if you look at first half versus second half retail results, second half was a turnaround, and that was based on the work around customer acquisition, recontracting and the cost-out initiatives. Okay. We've got a question from Huatai, Weijia Wang. Weijia Wang: [indiscernible] The first is on market to specific [indiscernible] energy. We have all anticipated nuclear products. [indiscernible] share and also onshore [indiscernible] the next CapEx on [indiscernible]. Marissa Wong: Okay. Weijia, you were cutting in and out there. So I'm just going to assume your question. Number one is on nuclear investments. And then the second one, how that might impact CapEx in Hong Kong? Tung Keung Chiang: Yes. Okay. Now I assume that you are talking about our so-called nuclear imports in the medium term because in -- for the Hong Kong market, the government has set a decarbonization targets. And by 2035, we have to have 60% to 70% of our generation mix being known or being 0 carbon energy. So in order to fulfill that target, the plan actually is to import 0 carbon energy, mainly nuclear from the region to Hong Kong by 2025. Now for that plan, we are now still in a very early stage because importing nuclear from, say, Guangdong to Hong Kong, we need to have central government supports. And actually, right now, the Hong Kong government is discussing with the central government on identifying the right location for the nuclear power station and then how the power can be delivered to Hong Kong. Now despite the fact that this is still in the early stage, if you look at the existing Daya Bay arrangement, actually, this is -- this could be a president arrangement in which CLP invests in the Daya Bay. Right now, the arrangement is we invest in 25%, and then we import 80% of the power from Daya Bay to Hong Kong through a dedicated transmission line, which can ensure that we are clear about the source of the power as well as ensuring reliability. So this is a good reference for the future import arrangement. But as I said, I think right now, it's still very early stage. Once the -- it's more kind of -- it's clearer about where the power will be coming. Then we will enter into more detailed discussion with the relevant stakeholders in the Chinese Mainland, about the design of the network, how to bring the power in and also the commercial arrangement of the investment. But again, another reference point is that for Daya Bay, the investment in the -- the equity investment in Daya Bay is not part of the SoC CapEx. Actually, it's invest at the CLP Holdings level. And through a PPA from Daya Bay to Hong Kong. So for the Hong Kong SoC, all this will be treated as OpEx and then the return on the investment in Daya Bay is based on an ROE approach. So again, this is a reference model. And whether this will be applied, it depends on the future discussion with the relevant stakeholders. Marissa Wong: Thank you, T.K. We are heading towards time. So I'll take this as a last question from Rob Koh, Morgan Stanley. Thanks, Rob for joining us at the late hour in Australia. Go ahead with your question. Robert Koh: My first question is in relation to the customer platform upgrade in Australia. Other companies down here when they do that, they obviously do that very carefully. They take 2 to 4 years. Is that comparable time frame for EnergyAustralia? And then the second question is on the performance of the wholesale Energy segment. which saw some lower prices, but I guess the volatility capture offset that. Just want to make sure that's the right way to think about the generation performance? Tung Keung Chiang: Yes okay. Thank you, Bob -- I think Rob, sorry. Yes. Now for the customer platform, our current plan is to take about 2 years or slightly more than 2 years. So by before end of 2028 would be our current targets. Now -- but we are still working on the detailed planning right now. And as I mentioned, we are in a very advanced stage of selecting the appropriate technology. So we are working very closely with the future potential vendor on this detailed plan. So there will be more details later in the year. But our current thinking is that we will complete this before end of 2028. Now for the wholesale market, as we mentioned, in the forward price, you can see lower price level. But actually, if you look at the intraday volatility, over the past few years, this volatility actually is increasing. So that's why for EnergyAustralia, we have been focusing on investing in storage -- energy storage projects so that we can capture the benefits of this volatility in the Australian market. Marissa Wong: Thank you, T.K. Thank you all for your very good questions. And thank you, T.K and Alex for the briefing and answering the questions. Before we wrap up, I just wanted to announce the winners of our closest estimates competition. There are 2 this year. The first goes to Qi Kang from Huatai Securities, again, for the closest operating earnings. And the second for the closest annual dividend goes to Evan Li from HSBC. So congratulations to you both. My team will reach out to you about your prizes. That brings today's briefing to a close. My team and I will be available for any follow-ups. And thank you all for joining us today. Take care and goodbye. Tung Keung Chiang: Thank you. Alexandre Jean Keisser: Thank you.